-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, jSABXokkJ1UOUm/GcApxtzc6dHASRjXwHwjtF4FGjfMwUq9Ca19qwZ/S09asSCZS vTK0KrJgu+DIsuxG6X7zeg== 0000853183-95-000019.txt : 19950609 0000853183-95-000019.hdr.sgml : 19950609 ACCESSION NUMBER: 0000853183-95-000019 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19950303 EFFECTIVENESS DATE: 19950303 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEMPLETON REAL ESTATE SECURITIES FUND CENTRAL INDEX KEY: 0000853183 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-30018 FILM NUMBER: 95518200 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-05844 FILM NUMBER: 95518201 BUSINESS ADDRESS: STREET 1: BROWARD FINANCIAL CENTRE STREET 2: 500 EAST BROWARD BLVD CITY: FORT LAUDERDALE STATE: FL ZIP: 33394-3091 BUSINESS PHONE: 3055277500 MAIL ADDRESS: STREET 2: 500 EAST BROWARD BLVD STE 2100 CITY: FORT LAUDERDALE STATE: FL ZIP: 33394-3091 FORMER COMPANY: FORMER CONFORMED NAME: TEMPLETON REAL ESTATE TRUST DATE OF NAME CHANGE: 19900313 485BPOS 1 Registration No. 33-30018 As filed with the Securities and Exchange Commission on March 3, 1995 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / x / Pre-Effective Amendment No. / / Post-Effective Amendment No. 9 / x / REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / x / ACT OF 1940 Amendment No. 10 / x / (Check appropriate box or boxes) TEMPLETON REAL ESTATE SECURITIES FUND (Exact Name of Registrant as Specified in Charter) 700 Central Avenue, P.O. Box 33030, St. Petersburg, Florida 33733-8030 (Address of Principal Executive Offices) Registrant's Telephone Number: (813) 823-8712 Jeffrey L. Steele, Esq. Thomas M. Mistele, Esq. Dechert Price & Rhoads Templeton Global Investors, Inc. 1500 K Street, N.W. 500 East Broward Blvd. Washington, D.C. 20005 Fort Lauderdale, FL 33394 (Name and Address of Agent for Service) It is proposed that this filing will become effective (check appropriate box) immediately upon filing pursuant to paragraph (b) X on April 1, 1995 pursuant to paragraph (b) 60 days after filing pursuant to paragraph (a) on (date) pursuant to paragraph (a) of Rule 485 CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933 Registrant has elected to register an indefinite number of Shares of beneficial interest, $0.01 par value per Share, pursuant to Rule 24f-2 under the Investment Company Act of 1940. A Rule 24f-2 Notice for the Registrant's fiscal year ended August 31, 1994 was filed with the Commission on October 28, 1994. TEMPLETON REAL ESTATE SECURITIES FUND CROSS-REFERENCE SHEET REQUIRED BY RULE 495 UNDER THE SECURITIES ACT OF 1933 Part A Item No. Caption 1 Cover Page 2 Expense Table 3 Selected Financial Information 4 General Description; Investment Techniques 5 Management of the Fund 5A See Annual Report to Shareholders 6 Description of Shares 7 How to Buy Shares of the Fund; Net Asset Value 8 How to Sell Shares of the Fund 9 Not Applicable Part B 10 Cover Page 11 Table of Contents 12 General Information and History 13 Investment Objectives and Policies 14 Management of the Fund 15 Principal Shareholders 16 Investment Management and Other Services 17 Brokerage Allocation 18 Description of Shares, Part A Item No. Caption 19 Purchase, Redemption, and Pricing of Shares 20 Tax Status 21 Principal Underwriter 22 Performance Information 23 Financial Statements TEMPLETON REAL ESTATE SECURITIES FUND PROSPECTUS -- JANUARY 1, 1995 AS SUPPLEMENTED APRIL 1, 1995 - ------------------------------------------------------------------------------- INVESTMENT Templeton Real Estate Securities Fund (the "Fund") seeks long- OBJECTIVES term capital growth by investing primarily in securities of AND POLICIES domestic and foreign companies which are principally engaged in or related to the real estate industry or which own significant real estate assets. Current income is a secondary objective. - ------------------------------------------------------------------------------- PURCHASE OF Please complete and return the Shareholder Application. If you SHARES need assistance in completing this form, please call our Account Services Department. The Fund offers two classes of Shares to its investors. This structure allows investors to consider, among other features, the impact of sales charges and distribution fees ("Rule 12b-1 fees") on their investments in the Fund. Shareholders should take the differences between the two classes into account when determining which class of Shares best meets their investment objective. The minimum initial investment is $100 ($25 minimum for subsequent investments). - ------------------------------------------------------------------------------- PROSPECTUS This Prospectus sets forth concisely information about the INFORMATION Fund that a prospective investor ought to know before investing. Investors are advised to read and retain this Prospectus for future reference. A Statement of Additional Information ("SAI") dated January 1, 1995, as supplemented April 1, 1995, has been filed with the Securities and Exchange Commission and is incorporated in its entirety by reference in and made a part of this Prospectus. This SAI is available without charge upon request to Franklin Templeton Distributors, Inc., 700 Central Avenue, St. Petersburg, Florida 33701-3628 or by calling the Fund Information Department. - ------------------------------------------------------------------------------- FUND INFORMATION DEPARTMENT -- 1-800-292-9293 - ------------------------------------------------------------------------------- TEMPLETON "STAR" SERVICE (24 hours, seven days a week access to current prices, shareholder account balances/values, last transaction and duplicate account statements) -- 1-800-654-0123 - ------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- EXPENSE TABLE......... 2 FINANCIAL HIGHLIGHTS.. 3 GENERAL DESCRIPTION... 3 Investment Objectives and Policies......... 4 INVESTMENT TECHNIQUES. 5 Repurchase Agreements. 5 Borrowing............. 5 Loans of Portfolio Securities........... 5 Options on Securities and Stock Indices.... 5 Forward Foreign Currency Contracts... 5 Futures Contracts..... 6 Depositary Receipts... 6 RISK FACTORS.......... 7 HOW TO BUY SHARES OF THE FUND............. 8 Alternative Purchase Arrangements......... 8 Deciding Which Class to Purchase.......... 9 Offering Price........ 9 Class I............... 10 Cumulative Quantity Discount............. 11 Letter of Intent...... 11 Group Purchases....... 11 Net Asset Value Purchases (Both Classes)............. 12
Page ---- Additional Dealer Compensation (Both Classes)............. 13 Purchasing Class I and Class II Shares...... 14 Automatic Investment Plan................. 14 Institutional Accounts............. 14 Account Statements.... 14 Templeton STAR Service.............. 14 Retirement Plans...... 15 Net Asset Value....... 15 EXCHANGE PRIVILEGE.... 15 Exchanges of Class II Shares............... 16 Transfers............. 16 Conversion Rights..... 16 Exchanges by Timing Accounts............. 17 HOW TO SELL SHARES OF THE FUND............. 17 Contingent Deferred Sales Charge......... 17 Reinstatement Privilege............ 20 Systematic Withdrawal Plan................. 20 Redemptions by Telephone............ 20 TELEPHONE TRANSACTIONS......... 21 Verification Procedures........... 21 Restricted Accounts... 21 General............... 21
Page ---- MANAGEMENT OF THE FUND................. 22 Investment Manager.... 22 Business Manager...... 22 Transfer Agent........ 23 Custodian............. 23 Plan of Distribution.. 23 Expenses.............. 23 Brokerage Commissions. 23 GENERAL INFORMATION... 24 Description of Shares/Share Certificates......... 24 Meetings of Shareholders......... 24 Dividends and Distributions........ 24 Federal Tax Information.......... 24 Inquiries............. 25 Performance Information.......... 25 Statements and Reports.............. 25 WITHHOLDING INFORMATION.......... 26 CORPORATE RESOLUTION.. 27 AUTHORIZATION AGREEMENT............ 28 THE FRANKLIN TEMPLETON GROUP................ 29
- ------------------------------------------------------------------------------- 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. 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. EXPENSE TABLE
CLASS I CLASS II ------- -------- SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of Offering Price)....................................... 5.75% 1.00%/1/ Maximum Sales Charge Imposed on Reinvested Dividends...... None None Deferred Sales Charge..................................... None/2/ 1.00%/3/ Redemption Fees........................................... None None ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS) Management Fees........................................... 0.75% 0.75% 12b-1 Fees................................................ 0.25% 1.00% Other Expenses (audit, legal, business management, transfer agent and custodian)............................ 0.58% 0.58% Total Fund Operating Expenses............................. 1.58% 2.33%
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period: Class I: $73 $105 $139 $235 Class II: $43 $ 82 $133 $274
- ------- /1/ Although Class II has a lower initial sales charge than Class I, over time the higher 12b-1 fee for Class II may cause Shareholders to pay more for Class II Shares than for Class I Shares. Given the Fund's maximum initial sales charge and the rate of the Fund's Rule 12b-1 fee, however, it is estimated that this would take a substantial number of years. /2/ A contingent deferred sales charge of 1% may be imposed, however, on certain redemptions of Class I Shares initially purchased without a sales charge as described in the Prospectus under "How to Sell Shares of the Fund." /3/ Class II Shares redeemed within 18 months of purchase are subject to a 1% contingent deferred sales charge. After the 18-month period, however, the Shares may be redeemed free of the charge. /4/ Annual Rule 12b-1 fees may not exceed 0.25% of the Fund's average net assets attributable to Class I Shares and 1.00% of the Fund's average net assets attributable to Class II Shares. (See "Management of the Fund -- Plans of Distribution.") Consistent with the 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. /5/ As noted in the table above, Class II Shares are generally subject to a contingent deferred sales charge for a period of 18 months. The information in the table above is an estimate based on the Fund's expenses as of the end of the most recent fiscal year and has been restated to reflect current fees. The table is provided for purposes of assisting current and prospective Shareholders in understanding the various costs and expenses that an investor in the Fund will bear, directly or indirectly. The information in the table does not reflect the charge of up to $15 per transaction if a Shareholder requests that redemption proceeds be sent by express mail or wired to a commercial bank account or an administrative service fee of $5.00 per exchange for market timing or allocation service accounts. THE 5% ANNUAL RETURN AND ANNUAL EXPENSES SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL OR EXPECTED FUND PERFORMANCE OR EXPENSES, BOTH OF WHICH MAY VARY. For a more detailed discussion of the Fund's fees and expenses, see "Management of the Fund." 2 FINANCIAL HIGHLIGHTS The following table of selected financial information has been audited by McGladrey & Pullen, LLP, independent certified public accountants, whose report thereon, which is incorporated by reference, appears in the Fund's 1994 Annual Report to Shareholders. This statement should be read in conjunction with the other financial statements and notes thereto included in the Fund's 1994 Annual Report to Shareholders, which contains further information about the Fund's performance, and which is available to shareholders upon request and without charge.
YEAR ENDED AUGUST 31, PER SHARE OPERATING PERFORMANCE -------------------------------------------- (For a share outstanding throughout the period) 1994 1993 1992 1991 1990++ - ------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.66 $ 10.40 $ 10.08 $ 8.88 $ 10.00 - ------------------------------------------------------------------------------- Income from investment operations Net investment income 0.22 0.25 0.37 0.53 0.29 Net realized and unrealized gain (loss) 1.00 2.36 0.43 1.13 (1.33) -------- ------- ------- ------- ------- Total from investment opera- tions 1.22 2.61 0.80 1.66 (1.04) -------- ------- ------- ------- ------- Less distributions Dividends from net investment income (0.22) (0.35) (0.48) (0.37) (0.08) Distributions from net realized gains (0.00) (0.00) (0.00) (0.09) (0.00) -------- ------- ------- ------- ------- Total distributions (0.22) (0.35) (0.48) (0.46) (0.08) -------- ------- ------- ------- ------- Change in net asset value for the period 1.00 2.26 0.32 1.20 (1.12) - ------------------------------------------------------------------------------- Net asset value, end of period $ 13.66 $ 12.66 $ 10.40 $ 10.08 $ 8.88 - ------------------------------------------------------------------------------- TOTAL RETURN+ 9.69% 25.94% 8.29% 20.06% (10.48)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000) $131,544 $61,820 $36,955 $32,830 $10,065 Ratio to average net assets of: Expenses 1.58% 1.68% 1.69% 1.98% 2.77%* Expenses, net of reimbursement 1.58% 1.68% 1.69% 1.25% 1.25%* Net investment income 1.97% 2.60% 3.64% 5.48% 3.59%* Portfolio turnover rate 32.34% 19.74% 32.35% 25.24% 9.54% - -------------------------------------------------------------------------------
++Period from September 12, 1989 (commencement of operations) to August 31, 1990. + Not annualized in periods of less than one year. Does not reflect sales charges. * Annualized. During the fiscal year ended August 31, 1991, Templeton Funds Management, Inc., the Fund's previous business manager, voluntarily limited the total expenses (excluding interest, taxes, brokerage commissions and extraordinary expenses) of the Fund to an annual rate of 1.25% of the Fund's average net assets. Effective September 1, 1991, this expense limitation was terminated. GENERAL DESCRIPTION Templeton Real Estate Securities Fund (the "Fund") was organized as a Massachusetts business trust on July 17, 1989, and is registered under the Investment Company Act of 1940 (the "1940 Act") as an open-end diversified management investment company. 3 Shares of the Fund may be purchased (minimum investment of $100 initially and $25 thereafter) at the current public offering price which is equal to the Fund's net asset value (see "How to Buy Shares of the Fund -- Net Asset Value") plus a sales charge based upon a variable percentage (ranging from 5.75% to less than 1.00% of the offering price) depending on factors such as the class of Shares purchased and the amount invested. (See "How to Buy Shares of the Fund.") INVESTMENT OBJECTIVES AND POLICIES. The Fund's principal investment objective is long-term capital growth, with current income as a secondary objective, which it seeks to achieve by investing primarily in securities of issuers throughout the world which are principally engaged in or related to the real estate industry or which own significant real estate assets. The Fund will not invest directly in real estate. Under normal conditions, the Fund will invest not less than 65% of its total assets in securities of issuers listed on United States or foreign securities exchanges or NASDAQ which are principally engaged in or related to the real estate industry. A company is "principally engaged in or related to the real estate industry" if at least 50% of its assets (marked-to-market), gross income or net profits are attributable to ownership, construction, management or sale of residential, commercial or industrial real estate, or to products or services that are related to the real estate industry. Real estate industry companies are defined as: equity real estate investment trusts, which pool investors' funds for investment primarily in commercial real estate properties; mortgage real estate investment trusts, which invest pooled funds principally in real estate-related loans; brokers or real estate developers; and issuers with substantial real estate holdings. Issuers whose products and services are related to the real estate industry are defined as manufacturers and distributors of building supplies and financial institutions which issue or service mortgages. Although the Fund generally invests in common stocks, it may also invest in preferred stocks and, consistent with its secondary objective of current income, in debt securities of issuers in the real estate industry. In addition to these securities, the Fund may invest up to 35% of its total assets in equity and debt securities of companies outside the real estate industry. Debt securities purchased by the Fund will be rated no lower than A by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") or if not so rated, believed by Templeton, Galbraith & Hansberger Ltd. (the "Investment Manager") to be of comparable quality, and may have an average weighted maturity of up to 30 years. Whenever, in the judgment of the Investment Manager, market or economic conditions warrant, the Fund may, for temporary defensive purposes, invest without limit in money market securities, denominated in dollars or in the currency of any foreign country, issued by entities organized in the U.S. or any foreign country, such as: short-term (less than 12 months to maturity) and medium-term (not greater than five years to maturity) obligations issued or guaranteed by the U.S. Government or the government of a foreign country, their agencies or instrumentalities; finance company and corporate commercial paper and other short-term corporate obligations, in each case rated Prime-1 by Moody's or A or better by S&P or, if unrated, of comparable quality as determined by the Investment Manager; and repurchase agreements with banks and broker-dealers with respect to such securities. In addition, for temporary defensive purposes, the Fund may invest up to 25% of its total assets in obligations (including certificates of deposit, time deposits and bankers' acceptances) of banks; provided that the Fund will limit its investment in time deposits for which there is a penalty for early withdrawal to 10% of its total assets. The Fund may invest no more than 5% of its total assets in securities issued by any one company or government exclusive of U.S. Government securities. The Fund may not invest more than 5% of its total assets in warrants (exclusive of warrants acquired in units or attached to securities) nor more than 10% of its total assets in securities with a limited trading market. The investment objectives and policies described above, as well as the investment restrictions described in the SAI, cannot be changed without Shareholder approval. The Fund may also lend its portfolio securities and borrow money for investment purposes ( i.e., "leverage" its portfolio). In addition, the Fund may enter into transactions in options on securities and securities indices, forward foreign currency contracts, and futures contracts and related options. These investment techniques are described below and under the heading "Investment Objectives and Policies" in the SAI. 4 The Fund does not intend to emphasize short-term trading profits and usually expects to have a portfolio turnover rate not exceeding 100%. INVESTMENT TECHNIQUES REPURCHASE AGREEMENTS. Consistent with its secondary objective of current income, when the Fund acquires a security from a bank or a registered broker- dealer, it may simultaneously enter into a repurchase agreement, wherein the seller agrees to repurchase the security at a specified time and price. The repurchase price is in excess of the purchase price by an amount which reflects an agreed-upon rate of return, which is not tied to the coupon rate on the underlying security. Under the 1940 Act, repurchase agreements are considered to be loans collateralized by the underlying security and therefore will be fully collateralized. However, if the seller should default on its obligation to repurchase the underlying security, the Fund may experience delay or difficulty in exercising its rights to realize upon the security and may incur a loss if the value of the security should decline, as well as disposition costs in liquidating the security. BORROWING. The Fund may borrow up to 30% of the value of its assets to increase its holdings of portfolio securities. Under the 1940 Act, the Fund is required to maintain continuous asset coverage of 300% with respect to such borrowings and to sell (within three days) sufficient portfolio holdings to restore such coverage if it should decline to less than 300% due to market fluctuations or otherwise, even if such liquidations of the Fund's portfolio are disadvantageous from an investment standpoint. Leveraging by means of borrowing may exaggerate the effect of any increase or decrease in the value of portfolio securities on the Fund's net asset value, and money borrowed will be subject to interest and other costs (which may include commitment fees and/or the cost of maintaining minimum average balances) which may or may not exceed the income received from the securities purchased with borrowed funds. LOANS OF PORTFOLIO SECURITIES. Consistent with its secondary objective of current income, the Fund may lend to broker-dealers portfolio securities with an aggregate market value of up to one-third of its total assets. Such loans must be secured by collateral (consisting of any combination of cash, U.S. Government securities or irrevocable letters of credit) in an amount at least equal (on a daily marked-to-market basis) to the current market value of the securities loaned. The Fund may terminate the loans at any time and obtain the return of the securities loaned within five business days. The Fund will continue to receive any interest or dividends paid on the loaned securities and will continue to have voting rights with respect to the securities. OPTIONS ON SECURITIES AND STOCK INDICES. In order to increase its return or to hedge all or a portion of its portfolio investments, the Fund may write (i.e., sell) covered put and call options and purchase put and call options on securities or stock indices that are traded on United States and foreign exchanges or in the over-the-counter markets. An option on a security is a contract that gives the purchaser the option, in return for the premium paid, the right to buy a specified security (in the case of a call option) or to sell a specified security (in the case of a put option) from or to the writer of the option at a designated price during the term of the option. An option on a stock index gives the purchaser of the option, in return for the premium paid, the right to receive from the seller cash equal to the difference between the closing price of the index and the exercise price of the option. The Fund may write a call or put option only if the option is "covered." This means that so long as the Fund is obligated as the writer of a call option, it will own the underlying securities subject to the call, or hold a call at the same or lower exercise price, for the same exercise period, and on the same securities as the written call. A put is covered if the Fund maintains liquid assets with a value equal to the exercise price in a segregated account, or holds a put on the same underlying security at an equal or greater exercise price. The value of the underlying securities on which options may be written at any one time will not exceed 15% of the total assets of the Fund. The Fund will not purchase put or call options if the aggregate premium paid for such options would exceed 5% of its total assets at the time of purchase. FORWARD FOREIGN CURRENCY CONTRACTS. The Fund may enter into forward foreign currency exchange contracts ("forward contracts") to attempt to minimize the risk to the Fund from adverse changes in the relationship between the U.S. dollar and foreign currencies. A forward contract is an obligation to purchase or sell a specific currency for an agreed price at a future date which is 5 individually negotiated and privately traded by currency traders and their customers. The Fund will enter into forward contracts only under two circumstances. First, when the Fund enters into a contract for the purchase or sale of a security denominated in a foreign currency, it may desire to "lock in" the U.S. dollar price of the security in relation to another currency by entering into a forward contract to buy the amount of foreign currency needed to settle the transaction. Second, when the Investment Manager believes that the currency of a particular foreign country may suffer or enjoy a substantial movement against another currency, it may enter into a forward contract to sell or buy the amount of the former foreign currency (or another currency which acts as a proxy for that currency) approximating the value of some or all of the Fund's portfolio securities denominated in such foreign currency. The second investment practice is generally referred to as "cross-hedging." The Fund's forward transactions may call for the delivery of one foreign currency in exchange for another foreign currency and may at times not involve currencies in which its portfolio securities are denominated. The Fund will not enter into forward foreign currency contracts if, as a result, the Fund will have more than 20% of the value of its total assets committed to the consummation of such contracts. FUTURES CONTRACTS. For hedging purposes only, the Fund may buy and sell financial futures contracts, stock and bond index futures contracts, foreign currency futures contracts and options on any of the foregoing. A financial futures contract is an agreement between two parties to buy or sell a specified debt security at a set price on a future date. An index futures contract is an agreement to take or make delivery of an amount of cash based on the difference between the value of the index at the beginning and at the end of the contract period. A futures contract on a foreign currency is an agreement to buy or sell a specified amount of a currency for a set price on a future date. When the Fund enters into a futures contract, it must make an initial deposit, known as "initial margin," as a partial guarantee of its performance under the contract. As the value of the security, index or currency fluctuates, either party to the contract is required to make additional margin payments, known as "variation margin," to cover any additional obligation it may have under the contract. In addition, when the Fund enters into a futures contract, it will segregate assets or "cover" its position in accordance with the 1940 Act. See "Investment Objectives and Policies -- Futures Contracts" in the SAI. The Fund may not commit more than 5% of its total assets to initial margin deposits on futures contracts. The value of the underlying securities on which futures will be written at any one time will not exceed 25% of the total assets of the Fund. DEPOSITARY RECEIPTS. The Fund may purchase sponsored or unsponsored American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs") (collectively, "Depositary Receipts"). ADRs are Depositary Receipts typically used by a U.S. bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. EDRs and GDRs are typically issued by foreign banks or trust companies, although they also may be issued by U.S. banks or trust companies, and evidence ownership of underlying securities issued by either a foreign or a United States corporation. Generally, Depositary Receipts in registered form are designed for use in the U.S. securities market and Depositary Receipts in bearer form are designed for use in securities markets outside the United States. Depositary Receipts may not necessarily be denominated in the same currency as the underlying securities into which they may be converted. Depositary Receipts may be issued pursuant to sponsored or unsponsored programs. In sponsored programs, an issuer has made arrangements to have its securities traded in the form of Depositary Receipts. In unsponsored programs, the issuer may not be directly involved in the creation of the program. Although regulatory requirements with respect to sponsored and unsponsored programs are generally similar, in some cases it may be easier to obtain financial information from an issuer that has participated in the creation of a sponsored program. Accordingly, there may be less information available regarding issuers of securities underlying unsponsored programs and there may not be a correlation between such information and the market value of the Depositary Receipts. Depositary Receipts also involve the risks of other investments in foreign securities, as discussed below. For purposes of the Fund's investment policies, the Fund's investments in Depositary Receipts will be deemed to be investments in the underlying securities. 6 RISK FACTORS Shareholders should understand that all investments involve risk and there can be no guarantee against loss resulting from an investment in the Fund, nor can there be any assurance that the Fund's investment objectives will be attained. As with any investment in securities, the value of, and income from, an investment in the Fund can decrease as well as increase depending on a variety of factors which may affect the values and income generated by the Fund's portfolio securities, including general economic conditions and market factors. In addition to the factors which affect the value of individual securities, a Shareholder may anticipate that the value of the Shares of the Fund will fluctuate with movements in the broader equity and bond markets, as well. A decline in the stock market of any country in which the Fund is invested may also be reflected in declines in the price of Shares of the Fund. Changes in currency valuations will also affect the price of Shares of the Fund. History reflects both decreases and increases in worldwide stock markets and currency valuations, and these may reoccur unpredictably in the future. Additionally, investment decisions made by the Investment Manager will not always be profitable or prove to have been correct. The Fund is intended as an investment vehicle for those investors seeking long term capital growth and is not intended as a complete investment program. Because the Fund invests primarily in the real estate industry, it could conceivably own real estate directly as a result of a default on debt securities it owns. The Fund, therefore, may be subject to certain risks associated with the direct ownership of real estate, including declines in the value of real estate, risks related to general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, changes in zoning laws, casualty or condemnation losses, variations in rental income, changes in neighborhood values, the appeal of properties to tenants and increases in interest rates. If the Fund has rental income or income from the disposition of real property, the receipt of such income may adversely affect its ability to retain its tax status as a regulated investment company. See "Tax Status" in the SAI. In addition, equity real estate investment trusts may be affected by changes in the value of the underlying property owned by the trusts, while mortgage real estate investment trusts may be affected by the quality of credit extended. Equity and mortgage real estate investment trusts are dependent upon management skill, may not be diversified and are subject to the risks of financing projects. Such trusts are also subject to heavy cash flow dependency, defaults by borrowers, self-liquidation and the possibility of failing to qualify for tax-free pass-through of income under the Internal Revenue Code and to maintain exemption from the 1940 Act. Changes in interest rates may also affect the value of the debt securities in the Fund's portfolio. By investing in real estate investment trusts indirectly through the Fund, a Shareholder will bear not only his proportionate share of the expenses of the Fund, but also, indirectly, similar expenses of the real estate investment trusts. The Fund may borrow to the extent permitted above. Borrowing may exaggerate the effect on the Fund's net asset value of any increase or decrease in the value of the Fund's portfolio securities. Money borrowed will be subject to interest and other costs (which may include commitment fees and/or the cost of maintaining minimum average balances) which may or may not exceed the income received from the securities purchased with borrowed funds. The Fund has an unlimited right to purchase securities in any developed foreign country, and may invest up to 10% of its total assets in securities in underdeveloped countries. Investors should consider carefully the substantial risks involved in investing in securities issued by companies and governments of foreign nations, which are in addition to the usual risks inherent in domestic investments. There is the possibility of expropriation, nationalization or confiscatory taxation, taxation of income earned in foreign nations or other taxes imposed with respect to investments in foreign nations, foreign exchange controls (which may include suspension of the ability to transfer currency from a given country), default in foreign government securities, political or social instability or diplomatic developments which could affect investments in securities of issuers in foreign nations. Some countries may withhold portions of interest and dividends at the source. In addition, in many countries there is less publicly available information about issuers than is available in reports about companies in the United States. Foreign companies are not generally subject to uniform accounting and auditing and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. 7 Further, the Fund may encounter difficulties or be unable to pursue legal remedies and obtain judgments in foreign courts. Commission rates in foreign countries, which are sometimes fixed rather than subject to negotiation as in the United States, are likely to be higher. Foreign securities 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. Delays in settlement could result in temporary periods when assets of the Fund are uninvested and no return is earned thereon. The inability of the Fund to make intended security purchases due to settlement problems could cause the Fund to miss attractive investment opportunities. Inability to dispose of portfolio securities due to settlement problems could result either in losses to the Fund due to subsequent declines in value of the portfolio security or, if the Fund has entered into a contract to sell the security, could result in possible liability to the purchaser. In many foreign countries, there is less government supervision and regulation of business and industry practices, stock exchanges, brokers and listed companies than in the United States. The foreign securities markets of many of the countries in which the Fund may invest may also be smaller, less liquid, and subject to greater price volatility than those in the United States. The Fund may invest in Eastern European countries, which involves special risks that are described under "Risk Factors" in the SAI. The Fund usually effects currency exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing in the foreign exchange market. However, some price spread on currency exchange (to cover service charges) will be incurred when the Fund converts assets from one currency to another. Successful use of futures contracts and related options is subject to special risk considerations. A liquid secondary market for any futures or options contract may not be available when a futures position is sought to be closed. In addition, there may be an imperfect correlation between movements in the securities or foreign currency on which the futures or options contract is based and movements in the securities or currency in the Fund's portfolio. As there is currently no index of real estate industry securities, the Fund's use of stock index futures may involve a greater correlation risk than does use of such futures by funds whose portfolios more closely match the composition of stock indices. Successful use of futures or options contracts is further dependent on the Investment Manager's ability to correctly predict movements in the securities or foreign currency markets and no assurance can be given that its judgment will be correct. Successful use of options on securities or stock indices is subject to similar risk considerations. There are further risk considerations, including possible losses through the holding of securities in domestic and foreign custodian banks and depositories, described in the SAI. HOW TO BUY SHARES OF THE FUND Shares of the Fund may be purchased at the Offering Price through any broker which has a dealer agreement with Franklin Templeton Distributors, Inc. ("FTD"), the Principal Underwriter of the Shares of the Fund, or directly from FTD upon receipt by FTD of a completed Shareholder Application and check. The minimum initial purchase order is $100 (other than in monthly investment plans, such as sponsored payroll deduction, automatic investment, split- funding or comparable plans, which require a minimum of $25), with subsequent investments of $25 or more. ALTERNATIVE PURCHASE ARRANGEMENTS. The Fund offers two different classes of Shares, each of which has its own initial, contingent, and Rule 12b-1 sales charge structures. All Fund Shares outstanding before the implementation of the multiclass structure have been designated as Class I Shares and continue to possess their previous rights and privileges, except for legally required modifications to Shareholder voting requirements. Shareholders may not convert Shares of one class into Shares of the other at this time. Class I. Class I Shares have higher initial sales charges than Class II Shares and they have lower yearly asset-based Rule 12b-1 fees. Class I Shares may be purchased at reduced initial sales charges, or without any initial sales charge at all if certain conditions are 8 met. In most circumstances, contingent deferred sales charges will not be assessed against redemptions of Class I Shares. See "Management of the Fund" and "How to Sell Shares of the Fund" for more information. Class II. By contrast, Class II Shares have lower initial sales charges than Class I Shares and higher yearly Rule 12b-1 fees. Also, although there are certain exceptions, Class II Shares redeemed within 18 months of purchase will generally be assessed a contingent deferred sales charge of 1% on the lesser of the then-current net asset value or the original purchase price of such Shares. See "Contingent Deferred Sales Charge--Class II Shares" under "How to Sell Shares of the Fund" for a complete description of the contingent deferred sales charge. Purchases of Class II Shares are limited to amounts below $1 million. Any purchases of $1 million or more will automatically be invested in Class I Shares, since the Shareholder may purchase the Class I Shares at net asset value and take advantage of the lower annual fees associated with Class I Shares. Shareholders who intend to make large investments in the Fund should consider purchasing Class I Shares through a Letter of Intent instead of purchasing Class II Shares. With the exception of certain employee benefit plans described below, however, a Shareholder may maintain an account balance of an unlimited dollar amount in Class II Shares. DECIDING WHICH CLASS TO PURCHASE. Each investor's individual objectives must be carefully evaluated before determining which class of Shares will be more beneficial to that investor. Generally speaking, an investor who expects to invest less than $100,000 in the Franklin Group of Funds (R) and Templeton Family of Funds (collectively, the "Franklin Templeton Group") and who expects to make substantial redemptions within six years of investment should consider Class II Shares. This is because it is more economical for a Shareholder to invest, for example, $50,000 for two years in Class II Shares than in Class I Shares. Over time, however, the higher annual Rule 12b-1 charges on the Class II Shares will accumulate to outweigh the difference in initial sales charges. For this reason, Class I Shares may be more attractive to long-term investors even if no sales charge reductions are available to them. Investors who qualify to purchase Class I Shares at reduced sales charges or at net asset value should consider purchasing Class I Shares, especially if they intend to hold their Shares for long periods of time. Similarly, investors who intend to make large investments in the Fund should consider purchasing Class I Shares through a Letter of Intent or under Cumulative Quantity Discount rather than purchasing Class II Shares. Investors investing over $1 million (in a single payment or through a Letter of Intent or Cumulative Quantity Discount) will be prohibited from purchasing Class II Shares because Class I Shares would always be more beneficial to such investors. In determining which Shares are more appropriate for a Shareholder's investment objectives and income needs, a Shareholder should also consider that the higher Rule 12b-1 fees for Class II will generally result in lower dividends and consequently lower yields for Class II Shares as compared to Class I Shares. Each class also has a separate schedule for awarding compensation to securities dealers for selling Fund Shares. A Shareholder should take all of the circumstances surrounding each investment into account before deciding which class of shares to purchase. IMPORTANT NOTICE! THE APPLICATION FORM ATTACHED TO THIS PROSPECTUS MUST BE USED FOR ALL FUTURE PURCHASES. OLD APPLICATION FORMS SHOULD BE DISCARDED. OFFERING PRICE. Shares of the Fund are offered at the public Offering Price, which is the net asset value per share plus a sales charge, next computed (i) after the Shareholder's securities dealer receives the order which is promptly transmitted to the Fund or (ii) after receipt of an order by mail from the Shareholder directly in proper form (which generally means a completed Shareholder Application accompanied by a negotiable check). 9 CLASS I. The sales charge for Class I Shares is a variable percentage of the Offering Price depending upon the amount of the sale. A description of the method of calculating net asset value per share is included under the caption "Net Asset Value." Set forth below is a table of total sales charges or underwriting commissions and dealer concessions for all Class I Shares of the Fund, including all designated Retirement Plans. The price to the public on purchases of Class I Shares made by a single purchaser, by an individual, his or her spouse and their children under the age of 21, or by a single trust or fiduciary account other than an employee benefit plan holding Shares of the Fund on or before February 1, 1995, is the net asset value per Share plus a sales charge not exceeding 5.75% of the Offering Price (equivalent to 6.10% of the net asset value), which is reduced on larger sales as shown below.
CLASS I SHARES -- TOTAL SALES CHARGE -------------------------------------------- AS A PERCENTAGE OF AS A PERCENTAGE OF PORTION OF TOTAL AMOUNT OF SALE OFFERING PRICE OF THE NET ASSET VALUE OF THE OFFERING PRICE AT OFFERING PRICE SHARES PURCHASED SHARES PURCHASED RETAINED BY DEALERS* - ----------------- --------------------- ---------------------- -------------------- Less than $50,000....... 5.75% 6.10% 5.00% $50,000 but less than $100,000............... 4.50% 4.71% 3.75% $100,000 but less than $250,000............... 3.50% 3.63% 2.80% $250,000 but less than $500,000............... 2.50% 2.56% 2.00% $500,000 but less than $1,000,000............. 2.00% 2.04% 1.60% $1,000,000 or more...... none none (see below)**
- ------- * Financial institutions or their affiliated brokers may receive an agency transaction fee in the percentages set forth above. ** The following commissions will be paid by FTD, from 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. Dealer concession breakpoints are reset every 12 months for purposes of additional purchases. FTD, or one of its affiliates, may make payments, from its own resources, of up to 1% of the amount purchased, to securities dealers who initiate and are responsible for purchases made at net asset value by certain designated retirement plans (as defined below) (excluding IRA and IRA rollovers), certain non-designated plans (as defined below), certain trust companies and trust departments of banks and certain retirement plans of organizations with collective retirement plan assets of $10 million or more. Please refer to the SAI for further information. No initial sales charge applies on investments of $1 million or more, but a contingent deferred sales charge of 1% is imposed on certain redemptions of investments of $1 million or more within 12 months of the calendar month following such investments ("contingency period"). See "How to Sell Shares of the Fund -- Contingent Deferred Sales Charge." A sales charge of 4% of the Offering Price (4.17% of the net asset value) is applicable to all purchases of Shares made for any qualified or non-qualified employee benefit plan which is a Shareholder in the Fund on or before February 1, 1995. Of the 4% sales charge applicable to such purchases, 3.20% of the Offering Price will be retained by dealers. At the discretion of FTD, the entire sales commission may at times be reallowed to dealers. During periods when 90% or more of the sales commission is reallowed, such dealers may be deemed to be underwriters as that term is defined in the Securities Act of 1933. 10 CUMULATIVE QUANTITY DISCOUNT. The schedule of reduced sales charges also may be applied to qualifying sales of Class I Shares on a cumulative basis. For this purpose, the dollar amount of the sale is added to the higher of (1) the value (calculated at the applicable Offering Price) or (2) the purchase price, of the following: (a) Class I Shares of the Fund; (b) Class I shares of other funds in the Franklin Templeton Group (except Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, Templeton Variable Products Series Fund, Franklin Valuemark Funds and Franklin Government Securities Trust); and (c) other investment products underwritten by FTD or its affiliates (although certain investments may not have the same schedule of sales charges and/or may not be subject to reduction in sales charges). Clauses (a), (b) and (c) above are collectively referred to as "Franklin Templeton Investments." The cumulative quantity discount applies to Franklin Templeton Investments owned at the time of purchase by the purchaser, his or her spouse, and their children under age 21. In addition, the aggregate investments of a trustee or other fiduciary account (for an account under exclusive investment authority) may be considered in determining whether a reduced sales charge is available, even though there may be a number of beneficiaries of the account. For example, if the investor held Class I Shares valued at $40,000 (or, if valued at less than $40,000, had been purchased for $40,000) and purchased an additional $20,000 of the Fund's Class I Shares, the sales charge for the $20,000 purchase would be at the rate of 4.50%. It is FTD's policy to give investors the best sales charge rate possible; however, there can be no assurance that an investor will receive the appropriate discount unless, at the time of placing the purchase order, the investor or the dealer makes a request for the discount and gives FTD sufficient information to determine whether the purchase will qualify for the discount. On telephone orders from dealers for the purchase of Class I Shares to be registered in "street name," FTD will accept the dealer's instructions with respect to the applicable sales charge rate to be applied. The cumulative quantity discount may be amended or terminated at any time. LETTER OF INTENT. Investors may also reduce sales charges on all investments in Class I Shares by means of a Letter of Intent ("LOI") which expresses the investor's intention to invest a certain amount within a 13-month period in Class I Shares of the Fund or any other fund in the Franklin Templeton Group (except Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, Templeton Variable Products Series Fund, Franklin Valuemark Funds and Franklin Government Securities Trust). See the Shareholder Application. Except for certain employee benefit plans, the minimum initial investment under an LOI is 5% of the total LOI amount. Except for Shares purchased by certain employee benefit plans, shares purchased with the first 5% of such amount will be held in escrow to secure payment of the higher sales charge applicable to the Shares actually purchased if the full amount indicated is not purchased, and such escrowed Shares will be involuntarily redeemed to pay the additional sales charge, if necessary. A purchase not originally made pursuant to an LOI may be included under a subsequent LOI executed within 90 days of the purchase. Any redemptions made by Shareholders, other than by certain employee benefit plans, during the 13-month period will be subtracted from the amount of the purchases for purposes of determining whether the terms of the LOI have been completed. For a further description of the LOI, see "Purchase, Redemption and Pricing of Shares -- Letter of Intent" in the SAI. GROUP PURCHASES. An individual who is a member of a qualified group may also purchase Class I Shares of the Fund at the reduced sales charge applicable to the group as a whole. The sales charge is based upon the aggregate dollar value of Class I Shares previously purchased and still owned by the group, plus the amount of the current purchase. For example, if members of the group had previously invested and still held $80,000 of Class I Shares and now were investing $25,000, the sales charge would be 3.50%. Information concerning the current sales charge applicable to a group may be obtained by contacting FTD. A "qualified group" is one which (i) has been in existence for more than six months, (ii) has a purpose other than acquiring Fund Shares at a discount, and (iii) satisfies uniform criteria which enable FTD to realize economies of scale in its costs of distributing Shares. A qualified group must have more than 10 members, must be available to arrange for group meetings between representatives of the Fund or FTD and the members, must agree to include sales and other materials related to the Fund in its publications and mailings to members at reduced or no cost to FTD, and must seek to arrange for payroll deduction or other bulk transmission of investments to the Fund. If an investor selects a payroll deduction plan, subsequent investments will be automatic and will continue until such time as the investor notifies the Fund and the investor's employer to discontinue further investments. Due to the varying procedures to prepare, 11 process and forward the payroll deduction information to the Fund, there may be a delay between the time of the payroll deduction and the time the money reaches the Fund. The investment in the Fund will be made at the Offering Price per Share determined on the day that both the check and payroll deduction data are received in required form by the Fund. CLASS II. Unlike Class I Shares, the sales charges and dealer concessions for Class II Shares do not vary depending on the amount of sale. The total sales charges or underwriting commissions and dealer concessions for Class II Shares are set forth below.
CLASS II SHARES -- TOTAL SALES CHARGE -------------------------------------------- AS A PERCENTAGE OF AS A PERCENTAGE OF PORTION OF TOTAL AMOUNT OF SALE OFFERING PRICE OF THE NET ASSET VALUE OF THE OFFERING PRICE AT OFFERING PRICE SHARES PURCHASED SHARES PURCHASED RETAINED BY DEALERS* - ----------------- --------------------- ---------------------- -------------------- any amount.............. 1.00% 1.01% 1.00%
- ------- * FTD may pay the dealer, from its own resources, a commission of 1% of the amount invested. FTD may retain a portion of the Rule 12b-1 fees assessed on Class II Shares to partially recoup commissions FTD pays to a securities dealer during the first year. NET ASSET VALUE PURCHASES (BOTH CLASSES). Shares of the Fund may be purchased without the imposition of either an initial sales charge ("net asset value") or a contingent deferred sales charge by (i) officers, trustees, directors, and full-time employees of the Fund, of the Investment Manager or its affiliates, or of any fund in the Franklin Templeton Group, and their spouses and family members; (ii) companies exchanging Shares with or selling assets pursuant to a merger acquisition or exchange offer; (iii) insurance company separate accounts for pension plan contracts; (iv) accounts managed by the Investment Manager or its affiliates; (v) Shareholders of Templeton Institutional Funds, Inc. reinvesting redemption proceeds from that fund under an employee benefit plan qualified under Section 401 of the Internal Revenue Code of 1986, as amended (the "Code"), in Shares of the Fund; (vi) certain unit investment trusts and unit holders of such trusts reinvesting their distributions from the trusts in the Fund; (vii) registered securities dealers and their affiliates, for their investment account only; and (viii) registered personnel and employees of securities dealers, and their spouses and family members, in accordance with the internal policies and procedures of the employing securities dealer. Shares of the Fund may be purchased at net asset value and without the imposition of a contingent deferred sales charge by registered investment advisers and/or their affiliated broker-dealers, who have entered into a supplemental agreement with FTD, on behalf of their clients who are participating in a comprehensive fee program (also known as a wrap fee program). Shares of the Fund may be purchased at net asset value and without the imposition of a contingent deferred sales charge by certain designated retirement plans, including profit sharing, pension, 401(k) and simplified employee pension plans ("designated plans"), subject to minimum requirements with respect to number of employees or amount of purchase, which may be established by FTD. Currently, those criteria require that the employer establishing the plan have 200 or more employees or that the amount invested or to be invested during the subsequent 13-month period in the Fund or in any of the Franklin Templeton Investments totals at least $1 million. Employee benefit plans not designated above or qualified under Section 401 of the Code ("non-designated plans") may be afforded the same privilege if they meet the above requirements as well as the uniform criteria for qualified groups previously described under "Group Purchases," which enable FTD to realize economies of scale in its sales efforts and sales-related expenses. Shares of the Fund may be purchased at net asset value and without the imposition of a contingent deferred sales charge by anyone who has taken a distribution from an existing retirement plan already invested in any other fund(s) in the Franklin Templeton Group (including former participants of the Franklin Templeton Profit Sharing 401(k) plan). In order to exercise this privilege, a written order for the purchase of Shares of the Fund must be received by Franklin Templeton Trust Company, the Fund, or Franklin Templeton Investor Services, Inc. (the "Transfer Agent") within 120 days after the plan distribution. To obtain a free Prospectus for any fund in the Franklin Templeton Group, please call toll free at 1-800-DIAL BEN (1-800-342-5236). 12 Shares of the Fund may be purchased at net asset value and without the imposition of a contingent deferred sales charge by trust companies and bank trust departments for funds over which they exercise exclusive discretionary investment authority and which are held in a fiduciary, agency, advisory, custodial or similar capacity. Such purchases are subject to minimum requirements with respect to amount of purchase, which may be established by FTD. Currently, those criteria require that the amount invested or to be invested during the subsequent 13-month period in the Fund or any of the Franklin Templeton Investments must total at least $1 million. Orders for such accounts will be accepted by mail accompanied by a check or by telephone or other means of electronic data transfer directly from the bank or trust company, with payment by federal funds received by the close of business on the next business day following such order. Shares of the Fund may be purchased at net asset value and without the imposition of a contingent deferred sales charge by an investor who has, within the past 60 days, redeemed an investment in an unaffiliated mutual fund which charged the investor a contingent deferred sales charge upon redemption, and which has investment objectives similar to those of the Fund. Shares of the Fund may also be purchased at net asset value and without the imposition of a contingent deferred sales charge by any state, county or city, or any instrumentality, department, authority or agency thereof which has determined that the Fund is a legally permissible investment and which is prohibited by applicable investment laws from paying a sales charge or commission in connection with the purchase of shares of any registered management investment company (an "eligible governmental authority"). SUCH INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISERS TO DETERMINE WHETHER AND TO WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM. Municipal investors considering investment of proceeds of bond offerings into the Fund should consult with expert counsel to determine the effect, if any, of various payments made by the Fund or its investment manager on arbitrage rebate calculations. If an investment by an eligible governmental authority at net asset value is made through a securities dealer who has executed a dealer agreement with FTD, FTD or one of its affiliates may make a payment, out of its own resources, to such securities dealer in an amount not to exceed 0.25% of the amount invested. Contact Franklin Templeton Institutional Services for additional information. Shares of the Fund may be purchased at net asset value and without the imposition of a contingent deferred sales charge by trustees or other fiduciaries purchasing securities for certain retirement plans of organizations with collective retirement plan assets of $10 million or more, without regard to where such assets are currently invested. ADDITIONAL DEALER COMPENSATION (BOTH CLASSES). FTD or its affiliates, at their expense, may also provide additional compensation to dealers in connection with sales of Shares of the Fund and other funds in the Franklin Group of Funds (R) and the Templeton Family of Funds (collectively, the "Franklin Templeton Group"). Compensation may include financial assistance to dealers in connection with conferences, sales or training programs for their employees, seminars for the public, advertising, sales campaigns and/or shareholder services and programs regarding one or more funds in the Franklin Templeton Group and other dealer-sponsored programs or events. In some instances, this compensation may be made available only to certain dealers whose representatives have sold or are expected to sell significant amounts of such Shares. Compensation may include payment for travel expenses, including lodging, incurred in connection with trips taken by invited registered representatives and members of their families to locations within or outside of the U.S. for meetings or seminars of a business nature. Dealers may not use sales of the Fund's Shares to qualify for this compensation to the extent such may be prohibited by the laws of any state or any self-regulatory agency, such as the National Association of Securities Dealers, Inc. In addition, FTD or its affiliates may make ongoing payments to brokerage firms, financial institutions (including banks) and others to facilitate the administration and servicing of shareholder accounts. None of the aforementioned additional compensation is paid for by the Fund or its Shareholders. Ongoing payments will be made to qualifying dealers at the annual rate of 0.25% of the average daily net asset value of Class I Shares, and 1.00% of the average daily net asset value of Class II Shares, registered in the name of that broker-dealer as nominee or held in a Shareholder account that designates that broker-dealer as dealer of record. These payments are made in order to promote selling efforts and to compensate dealers for providing certain services, including processing purchase and redemption transactions, 13 establishing Shareholder accounts and providing certain information and assistance with respect to the Fund. For purchases on or after February 1, 1995 of Class I Shares that are subject to a contingent deferred sales charge, the dealer will receive ongoing payments beginning in the thirteenth month after the date of purchase. For all purchases of Class II Shares that are subject to a contingent deferred sales charge, the dealer will receive payments representing a service fee (0.25% of average daily net asset value of the Shares) beginning in the first month after the date of the purchase, and will receive payments representing compensation for distribution (0.75% of average daily net asset value of the Shares) beginning in the thirteenth month after the date of the purchase. PURCHASING CLASS I AND CLASS II SHARES. When placing purchase orders for Class I and Class II Shares of the Fund, investors should clearly state whether Class I or Class II Shares are intended to be purchased. All Share purchase orders that fail to specify a class will automatically be invested in Class I Shares. Initial purchases of more than $1 million must be for Class I Shares. At the present time, there are no conversion features attached to either class of Shares. Shareholders who qualify to invest in Class I Shares at net asset value are prohibited from purchasing Class II Shares. See "Net Asset Value Purchases." As to telephone orders placed with FTD by dealers, the dealer must receive the investor's order before the close of the New York Stock Exchange and transmit it to FTD by 5:00 p.m., New York time, for the investor to receive that day's Offering Price. Payment for such orders must be by check in U.S. currency and must be promptly submitted to FTD. Orders mailed to FTD by dealers or individual investors are effected at the net asset value of the Fund's Shares next computed after the purchase order accompanied by payment has been received by FTD. Such payment must be by check in U.S. currency drawn on a commercial bank in the U.S. and, if over $100,000, may not be deemed to have been received until the proceeds have been collected unless the check is certified or issued by such bank. Any subscription may be rejected by FTD or by the Fund. The Fund may impose a $10 charge against a Shareholder account in the event that a check or draft submitted for the purchase of Fund Shares is returned unpaid to the Fund. Investors should promptly check the confirmation advice that is mailed after each purchase (or redemption) order to insure that it has been accurately recorded in the investor's account. AUTOMATIC INVESTMENT PLAN. Investors may accumulate Fund Shares regularly each month by means of automatic debits to their checking accounts ($25 minimum). Forms for this purpose are in the Shareholder Application in this Prospectus. Such a plan is voluntary and may be discontinued by written notice to FTD, which must be received at least 10 days prior to the collection date, or by FTD upon written notice to the investor at least 30 days prior to the collection date. INSTITUTIONAL ACCOUNTS. Institutional investors will likely be required to complete an institutional account application. There may also be additional methods of opening accounts, purchasing, redeeming or exchanging shares of the Fund available for institutional accounts. To obtain an institutional account application or additional information regarding institutional accounts, contact Franklin Templeton Institutional Services at 1-800-321-8563. ACCOUNT STATEMENTS. Shareholder accounts are opened in accordance with the Shareholder's registration instructions. Transactions in the account, such as additional investments and dividend reinvestments, will be reflected on regular confirmation statements from the Transfer Agent. TEMPLETON STAR SERVICE. Shareholders may check the current prices of Shares, account balances/values, a description of the last transaction, and duplicate account statements, 24 hours a day, 365 days a year, with Templeton STAR Service by calling 1-800-654-0123 from a touch-tone telephone. A fund code (the Fund's code is 110) and the Shareholder's account number are necessary for accessing information (other than Share prices) from Templeton STAR Service. 14 RETIREMENT PLANS. Shares of the Fund may be purchased through various retirement plans including the following plans for which Franklin Templeton Trust Company or its affiliate acts as trustee or custodian: IRAs, Simplified Employee Pensions, 403(b) plans, qualified plans for corporations, self- employed individuals and partnerships, and 401(k) plans. For further information about any of the plans, agreements, applications and annual fees, contact Franklin Templeton Distributors, Inc. To determine which retirement plan is appropriate, an investor should contact his or her tax adviser. NET ASSET VALUE. The net asset value of the Shares of the Fund is computed as the close of trading on each day the New York Stock Exchange is open for trading, by dividing the value of the Fund's securities plus any cash and other assets (including accrued interest and dividends receivable) less all liabilities (including accrued expenses) by the number of Shares outstanding, adjusted to the nearest whole cent. A security listed or traded on a recognized stock exchange or NASDAQ is valued at its last sale price. The value of a foreign security is determined in its national currency as of the close of trading on the foreign exchange on which it is traded, or as of the close of trading on the New York Stock Exchange, if that is earlier, and that value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at noon, New York time, on the day the value of the foreign security is determined. If no sale is reported at that time, the mean between the current bid and asked price is used. Occasionally, events which affect the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange, and will therefore not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at fair value as determined by the management and approved in good faith by the Board of Trustees. All other securities for which over-the-counter market quotations are readily available are valued at the mean between the current bid and asked price. Securities for which market quotations are not readily available and other assets are valued at fair value as determined by the management and approved in good faith by the Board of Trustees. EXCHANGE PRIVILEGE A Shareholder may exchange Shares for the same class of shares of other funds in the Franklin Templeton Group (except Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, Templeton Variable Products Series Fund, Franklin Valuemark Funds and Franklin Government Securities Trust). A contingent deferred sales charge will not be imposed on exchanges. If the exchanged Shares were subject to a contingent deferred sales charge in the original fund purchased, and Shares are subsequently redeemed within 12 months (Class I Shares) or 18 months (Class II Shares) of the calendar month of the original purchase date, a contingent deferred sales charge will be imposed. The period will be tolled (or stopped) for the period Class I Shares are exchanged into and held in a Franklin or Templeton money market fund. See also "How to Sell Shares of the Fund -- Contingent Deferred Sales Charge." Exchange purchases are subject to the minimum investment requirements of the fund purchased and no sales charge generally applies. However, exchanges of shares from the Franklin Templeton Money Funds are subject to applicable sales charges on the funds being purchased, unless the Franklin Templeton Money Fund shares were acquired by an exchange from a fund having a sales charge, or by reinvestment of dividends or capital gains distributions. Exchanges of Class I Shares of the Fund which were purchased with a lower sales charge to a fund which has a higher sales charge will be charged the difference, unless the shares were held in the original fund for at least six months prior to executing the exchange. All exchanges are permitted only after at least 15 days have elapsed from the date of the purchase of the Shares to be exchanged. A Shareholder may exchange Shares by writing to the Transfer Agent (see "How to Sell Shares of the Fund"), by contacting his or her investment dealer or-- if the Shareholder Application indicates that the Shareholder has not declined the option--by telephoning 1-800-354-9191. Telephone exchange instructions must be received by FTD by 4:00 p.m., New York time. Telephonic exchanges can involve only Shares in non-certificated form. Shares held in certificate form are not eligible, but may be returned and qualify for these services. All accounts involved in a telephonic exchange must have the same registration and dividend option as the account from 15 which the Shares are being exchanged. The Fund and the Transfer Agent will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. Please refer to "Telephone Transactions--Verification Procedures." Forms for declining the telephone exchange privilege and prospectuses of the other funds in the Franklin Templeton Group may be obtained from FTD. Exchange redemptions and purchases are processed simultaneously at the share prices next determined after the exchange order is received. (See "How to Buy Shares of the Fund--Offering Price.") A gain or loss for tax purposes generally will be realized upon the exchange, depending on the tax basis of the Shares redeemed. This exchange privilege is available only in states where shares of the fund being acquired may legally be sold and may be modified, limited or terminated at any time by the Fund upon sixty (60) days' written notice. A Shareholder who wishes to make an exchange should first obtain and review a current prospectus of the fund into which he or she wishes to exchange. Broker-dealers who process exchange orders on behalf of their customers may charge a fee for their services. Such fee may be avoided by making requests for exchange directly to the Transfer Agent. The equivalent of an exchange involving retirement accounts (including IRAs) between the Templeton Family of Funds and the Franklin Group of Funds (R) requires the completion of additional documentation before it can be effected. Call 1-800-354-9191 for further information and forms. EXCHANGES OF CLASS II SHARES. When an account has some Shares subject to the contingent deferred sales charge, and some that are not, the Shares will be transferred proportionately from each type of Share into the new fund. Shares received from reinvestment of dividends and capital gain distributions are referred to as "free Shares," Shares which were originally subject to a contingent deferred sales charge but to which the contingent deferred sales charge no longer applies are called "matured Shares," and Shares still subject to the contingent deferred sales charge are referred to as "CDSC liable Shares," and each represents a different type of Share for purposes of exchanging into a new fund. CDSC liable Shares held for different periods of time are considered different types of CDSC liable Shares. For instance, if a Shareholder has $1,000 in free Shares, $2,000 in matured Shares, and $3,000 in CDSC liable Shares, and the Shareholder exchanges $3,000 into a new fund, $500 will be exchanged from free Shares, $1,000 from matured Shares, and $1,500 from CDSC liable Shares. Similarly, if CDSC liable Shares have been purchased at different periods, a proportionate amount will be taken from Shares held for each period. If, for example, the Shareholder holds $1,000 in Shares bought three months ago, $1,000 bought six months ago, and $1,000 bought nine months ago, $500 in each of these Shares will be exchanged into the new fund. Class II Shares may be exchanged for shares of Franklin Templeton Money Fund II ("Money Fund II"), a series of the Franklin Templeton Money Fund Trust. No drafts (checks) may be written on Money Fund II accounts, nor may Shareholders purchase shares in Money Fund II directly. Shares continue to age and a contingent deferred sales charge will be assessed if CDSC liable Shares are redeemed. No other money market funds are available for Class II Shareholders for exchange purposes. On the other hand, Class I Shares may be exchanged for shares of any money market funds in the Franklin Group of Funds (R) or the Templeton Family of Funds except Money Fund II. Draft writing privileges and direct purchases are allowed on these money market funds as described in their respective prospectuses. TRANSFERS. Transfers between accounts in the same fund and class are not subject to a contingent deferred sales charge. The transferred Shares will continue to age from the date of original purchase. Like exchanges, Shares will be moved proportionately from each type of Share in the original account. CONVERSION RIGHTS. It is not presently anticipated that Class II Shares will be converted to Class I Shares at this time. A Shareholder may, however, sell Class II Shares and use the proceeds to purchase Class I Shares. In that event, the sales charge for the purchased Class I Shares will be decreased by the value of any initial sales charge and contingent deferred sales charge paid in connection with the purchase and redemption of the Class II Shares. 16 EXCHANGES BY TIMING ACCOUNTS. In the case of market timing or allocation services ("Timing Accounts"), FTD will deduct an administrative service fee of $5.00 per exchange. Timing Accounts generally include accounts administered so as to redeem or purchase Shares based upon certain predetermined market indicators. In accordance with the terms of their respective prospectuses, certain funds in the Franklin Templeton Group do not accept or may place differing limitations than those described below on exchanges by Timing Accounts. The Fund reserves the right to temporarily or permanently terminate the exchange privilege or reject any specific purchase order for any Timing Account or any person whose transactions seem to follow a timing pattern who: (i) 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 so as to redeem or purchase shares based upon certain predetermined market indicators, will be aggregated for purposes of the exchange limits. In addition, the Fund reserves the right to refuse the purchase side of exchange requests by any Timing Account, person, or group if, in the Investment Manager's judgment, the Fund would be unable to invest effectively in accordance with its investment objectives and policies, or would otherwise potentially be adversely affected. A Shareholder's exchanges into the Fund 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 coincides with a "market timing" strategy may be disruptive to the Fund and therefore may be refused. Finally, as indicated above, the Fund and FTD reserve the right to refuse any order for the purchase of Shares. HOW TO SELL SHARES OF THE FUND CONTINGENT DEFERRED SALES CHARGE. Class I. In order to recover commissions paid to securities dealers on qualified investments of $1 million or more, or for purchases made by certain retirement plans of corporations with collective retirement plan assets of $10 million or more, a contingent deferred sales charge of 1% applies to redemptions of those investments within 12 months of the calendar month of their purchase. The charge is 1% of the lesser of the then-current net asset value of the Shares redeemed (exclusive of reinvested dividends and capital gain distributions) or the original purchase price of such Shares, and is retained by FTD. Class II. Class II Shares redeemed within 18 months of their purchase will be assessed a contingent deferred sales charge of 1% on the lesser of the then-current net asset value of the Shares redeemed or the original purchase price of such Shares unless one of the exceptions described below applies. A contingent deferred sales charge will not be assessed on increases in net asset value above the initial purchase price, on Class II Shares held more than 18 months, or on Shares originally derived from reinvestment of dividends or capital gain distributions. For tax purposes, a contingent deferred sales charge is treated as a reduction in redemption proceeds, rather than an adjustment to the cost basis. Class I and Class II. In determining if a charge applies, Shares not subject to a contingent deferred sales charge are deemed to be redeemed first, in the following order: (i) Shares representing amounts attributable to capital appreciation of those Shares held less than the contingency period; (ii) Shares purchased with reinvested dividends and capital gain distributions; and (iii) other Shares held longer than the contingency period, followed by any Shares held less than the contingency period, on a "first in, first out" basis. The contingent deferred sales charge is waived for: exchanges; distributions to participants in Franklin Templeton Trust Company or Templeton Funds Trust Company retirement plan accounts due to death, disability or attainment of age 59 1/2; tax-free returns of excess contributions to employee benefit plans; distributions from employee benefit plans, including those due to plan termination or 17 plan transfer; redemptions through a Systematic Withdrawal Plan established prior to February 1, 1995 and, for Systematic Withdrawal Plans established thereafter, redemptions of up to 1% monthly of an account's net asset value (3% quarterly, 6% semiannually or 12% annually); and redemptions initiated by the Fund due to a Shareholder's account falling below the minimum specified account size. 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. Requests for redemptions for a specified dollar amount will result in additional Shares being redeemed to cover any applicable contingent deferred sales charge while requests for redemption of a specific number of Shares will result in the applicable contingent deferred sales charge being deducted from the total dollar amount redeemed. Shares will be redeemed, without charge, on request of the Shareholder in "Proper Order" to the Transfer Agent. "PROPER ORDER" MEANS THAT THE REQUEST TO REDEEM MUST MEET ALL OF THE FOLLOWING REQUIREMENTS: 1. Except as provided below under "Redemptions by Telephone," it must be in writing, signed by the Shareholder(s) exactly in the manner as the Shares are registered, and must specify either the number of Shares, or the dollar amount of Shares, to be redeemed and sent to Franklin Templeton Investor Services, Inc., P.O. Box 33030, St. Petersburg, Florida 33733-8030; 2. The signature(s) of the redeeming Shareholder(s) must be guaranteed by an "eligible guarantor," including (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 broker-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 medallion program. A notarized signature will not be sufficient for the request to be in Proper Order. If the Shares are registered in more than one name, the signature of each of the redeeming Shareholders must be guaranteed. A signature guarantee is not required for redemptions of $50,000 or less, requested by and payable to all Shareholders of record, to be sent to the address of record for that account. However, the Fund reserves the right to require signature guarantees on all redemptions. A signature guarantee is required in connection with any written request for transfer of Shares. Also, a signature guarantee is required if the Fund or the Transfer Agent 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; 3. Any outstanding certificates must accompany the request together with a stock power signed by the Shareholder(s), with signature(s) guaranteed as described in Item 2 above; 4. Liquidation requests of corporate, partnership, trust and custodianship accounts, and accounts under court jurisdiction, require the following documentation to be in proper form: . Corporation--(i) Signature guaranteed letter of instruction from the authorized officer(s) of the corporation, and (ii) a corporate resolution in a form satisfactory to the Transfer Agent; . Partnership--(i) Signature guaranteed letter of instruction from a general partner and, if necessary, (ii) pertinent pages from the partnership agreement identifying the general partners or other documentation in a form satisfactory to the Transfer Agent; . Trust--(i) Signature guaranteed letter of instruction from the trustee(s), and (ii) a copy of the pertinent pages of the trust document listing the trustee(s) or a certificate of incumbency if the trustee(s) are not listed on the account registration; 18 . 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; and 5. Redemption of Shares held in a retirement plan for which Franklin Templeton Trust Company or its affiliate acts as trustee or custodian must conform to the distribution requirements of the plan and the Fund's redemption requirements above. Distributions from such plans are subject to additional requirements under the Code, and certain documents (available from the Transfer Agent) must be completed before the distribution may be made. For example, distributions from retirement plans are subject to withholding requirements under the Code, and the IRS Form W-4P (available from the Transfer Agent) may be required to be submitted to the Transfer Agent with the distribution request, or the distribution will be delayed. Franklin Templeton Investor Services, Inc. and its affiliates assume no responsibility to determine whether a distribution satisfies the conditions of applicable tax laws and will not be responsible for any penalties assessed. To avoid delay in redemption or transfer, Shareholders having questions about these requirements should contact the Account Services Department by calling 1-800-354-9191 or 813-823-8712. The redemption price will be the net asset value of the Shares next computed after the redemption request in Proper Order is received by the Transfer Agent. Payment of the redemption price will be made by check (or by wire at the sole discretion of the Transfer Agent if wire transfer is requested, including name and address of the bank and the Shareholder's account number to which payment of the redemption proceeds is to be wired) within seven days after receipt of the redemption request in Proper Order. However, if Shares have been purchased by check, the Fund will make redemption proceeds available when a Shareholder's check received for the Shares purchased has been cleared for payment by the Shareholder's bank, which, depending upon the location of the Shareholder's bank, could take up to 15 days or more. The check will be mailed by first-class mail to the Shareholder's registered address (or as otherwise directed). Remittance by wire (to a commercial bank account in the same name(s) as the Shares are registered) or express mail, if requested, are subject to a handling charge of up to $15, which will be deducted from the redemption proceeds. The Fund, through FTD, also repurchases Shares (whether in certificate or book-entry form) through securities dealers. The Fund normally will accept orders to repurchase such Shares by wire or telephone from dealers for their customers at the net asset value next computed after the dealer has received the Shareholder's request for repurchase, if the dealer received such request before closing time of the New York Stock Exchange on that day. Dealers have the responsibility of submitting such repurchase requests by calling not later than 5:00 p.m., New York time, on such day in order to obtain that day's applicable redemption price. Repurchase of Shares is for the convenience of Shareholders and does not involve a charge by the Fund; however, securities dealers may impose a charge on the Shareholder for transmitting the notice of repurchase to the Fund. The Fund reserves the right to reject any order for repurchase, which right of rejection might adversely affect Shareholders seeking redemption through the repurchase procedure. Ordinarily payment will be made to the securities dealer within seven days after receipt of a repurchase order and Share certificate (if any) in "Proper Order" as set forth above. The Fund will also accept, from member firms of the New York Stock Exchange, orders to repurchase Shares for which no certificates have been issued by wire or telephone without a redemption request signed by the Shareholder, provided the member firm indemnifies the Fund and FTD from any liability resulting from the absence of the Shareholder's signature. Forms for such indemnity agreement can be obtained from FTD. The Fund may involuntarily redeem an investor's Shares if the net asset value of such Shares is less than $100, provided that involuntary redemptions will not result from fluctuations in the value of an investor's Shares. In addition, the Fund may involuntarily redeem the Shares of any investor who has failed to provide the Fund with a certified taxpayer identification number or such other tax-related certifications as the Fund may require. A notice of redemption, sent by first-class mail to the investor's address of record, will fix a date not less than 30 days after the mailing date, and Shares will be redeemed at the net asset value at the close of business on that date, unless sufficient additional Shares are purchased to bring the aggregate account value up to $100 or more, or unless a certified 19 taxpayer identification number (or such other information as the Fund has requested) has been provided, as the case may be. A check for the redemption proceeds will be mailed to the investor at the address of record. REINSTATEMENT PRIVILEGE. Shares of the Fund may be purchased at net asset value with the proceeds from (i) a redemption of Shares of any fund in the Franklin Templeton Group (except Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, Templeton Variable Products Series Fund, Franklin Valuemark Funds and Franklin Government Securities Trust) which were purchased with an initial sales charge or assessed a contingent deferred sales charge on redemption, or (ii) a dividend or distribution paid by any fund in the Franklin Templeton Group, within 120 days after the date of the redemption or dividend or distribution. However, if a Shareholder's original investment was in Class I shares of a fund with a lower sales charge, or no sales charge, the Shareholder must pay the difference. While credit will be given for any contingent deferred sales charge paid on the Shares redeemed, a new contingency period will begin. Shares of the Fund redeemed in connection with an exchange into another fund (see "Exchange Privilege") are not considered "redeemed" for this privilege. In order to exercise this privilege, a written order for the purchase of Shares of the Fund must be received by the Fund or the Fund's Transfer Agent within 120 days after the redemption. The 120 days, however, do not begin to run on redemption proceeds placed immediately after redemption in a Franklin Bank Certificate of Deposit ("CD") until the CD (including any rollover) matures. The amount of gain or loss resulting from a redemption may be affected by exercise of the reinstatement privilege if the Shares redeemed were held for 90 days or less, or if a Shareholder reinvests in the same fund within 30 days. Reinvestment will be at the next calculated net asset value after receipt. SYSTEMATIC WITHDRAWAL PLAN. A Shareholder may establish a Systematic Withdrawal Plan ("Plan") and receive periodic payments from the account provided that the net asset value of the Shares held by the Shareholder is at least $5,000. There are no service charges for establishing or maintaining a Plan. The minimum amount which the Shareholder may withdraw is $50 per withdrawal transaction although this is merely the minimum amount allowed under the Plan and should not be mistaken for a recommended amount. The Plan may be established on a monthly, quarterly, semi-annual or annual basis. If the Shareholder establishes a Plan, any capital gain distributions and income dividends paid by the Fund to the Shareholder's account must be reinvested for the Shareholder's account in additional Shares at net asset value. Payments are then made from the liquidation of Shares at net asset value on the day of the liquidation (which is generally on or about the 25th of the month) to meet the specified withdrawals. Payments are generally received three to five days after the date of liquidation. By completing the "Special Payment Instructions for Distributions" section of the Shareholder Application included with this Prospectus, a Shareholder may direct the selected withdrawals to another fund in the Franklin Templeton Group, to another person, or directly to a checking account. Liquidation of Shares may reduce or possibly exhaust the Shares in the Shareholder's account, to the extent withdrawals exceed Shares earned through dividends and distributions, particularly in the event of a market decline. If the withdrawal amount exceeds the total Plan balance the account will be closed and the remaining balance will be sent to the Shareholder. As with other redemptions, a liquidation to make a withdrawal payment is a sale for Federal income tax purposes. Because the amount withdrawn under the Plan may be more than the Shareholder's actual yield or income, part of such a Plan payment may be a return of the Shareholder's investment. Maintaining a Plan concurrently with purchases of additional Shares of the Fund would be disadvantageous because of the sales charge on the additional purchases. The Shareholder should ordinarily not make additional investments of less than $5,000 or three times the annual withdrawals under the Plan during the time such a Plan is in effect. A Plan may be terminated on written notice by the Shareholder or the Fund, and it will terminate automatically if all Shares are liquidated or withdrawn from the account, or upon the Fund's receipt of notification of the death or incapacity of the Shareholder. Shareholders may change the amount (but not below $50) and schedule of withdrawal payments or suspend one such payment by giving written notice to the Transfer Agent at least seven business days prior to the end of the month preceding a scheduled payment. Share certificates may not be issued while a Plan is in effect. REDEMPTIONS BY TELEPHONE. Shareholders who file a Telephone Redemption Authorization Agreement (the "Agreement") (a copy of which is included in this Prospectus) may redeem Shares of the Fund by telephone, subject to the Restricted Account exception 20 noted under "Telephone Transactions--Restricted Accounts." The Fund and the Transfer Agent will employ reasonable procedures to confirm that instructions given by telephone are genuine. Shareholders, however, bear the risk of loss in certain cases as described under "Telephone Transactions--Verification Procedures." For Shareholder accounts with a completed Agreement on file, redemptions of uncertificated Shares or Shares which have previously been deposited with the Fund or the Transfer Agent may be made for up to $50,000 per day per Fund account. Telephone redemption requests received before 4:00 p.m., New York time, on any business day will be processed that same day. The redemption check will be sent within seven days, made payable to all the registered owners on the account, and will be sent only to the address of record. Redemption requests by telephone will not be accepted within 30 days following an address change by telephone. In that case, a Shareholder should follow the other redemption procedures set forth in this Prospectus. Institutional accounts which wish to execute redemptions in excess of $50,000 must complete an Institutional Telephone Privileges Agreement which is available from Franklin Templeton Institutional Services by telephoning 1-800-321-8563. TELEPHONE TRANSACTIONS Shareholders of the Fund and their dealer of record, if any, may be able to execute various transactions by calling the Transfer Agent at 1-800-354-9191. All Shareholders will be able to: (i) effect a change in address, (ii) change a dividend option (see "Restricted Accounts" below), (iii) transfer Fund Shares in one account to another identically registered account in the Fund, and (iv) exchange Fund Shares by telephone as described in this Prospectus. In addition, Shareholders who complete and file an Agreement as described under "How to Sell Shares of the Fund--Redemptions by Telephone" will be able to redeem Shares of the Fund. VERIFICATION PROCEDURES. The Fund and the Transfer Agent 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 the Transfer Agent follow instructions communicated by telephone which were reasonably believed to be genuine at the time of their receipt, neither they nor their affiliates will be liable for any loss to the Shareholder caused by an unauthorized transaction. Shareholders are, of course, under no obligation to apply for or accept telephone transaction privileges. In any instance where the Fund or the Transfer Agent is not reasonably satisfied that instructions received by telephone are genuine, the requested transaction will not be executed, and neither the Fund, the Transfer Agent, nor their affiliates 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 Trust Company ("FTTC") or Templeton Funds Trust Company ("TFTC") retirement accounts. To assure compliance with all applicable regulations, special forms are required for any distribution, redemption, or dividend payment. Although the telephone exchange privilege is extended to these retirement accounts, a Franklin Templeton Transfer Authorization Form must be on file in order to transfer retirement plan assets between the Franklin Group of Funds (R) and the Templeton Family of Funds within the same plan type. Changes to dividend options for these accounts must also be made in writing. To obtain further information regarding distribution or transfer procedures, including any required forms, FTTC retirement account shareholders may call 1- 800-527-2020 (toll free), and TFTC retirement account shareholders may call 1- 800-354-9191 (press "2") (also toll free). GENERAL. During periods of drastic economic or market changes, it is possible that the telephone transaction privileges will be difficult to execute because of heavy telephone volume. In such situations, Shareholders may wish to contact their dealer for assistance, or to send written instructions to the Fund as detailed elsewhere in this Prospectus. 21 Neither the Fund nor the Transfer Agent will be liable for any losses resulting from the inability of a Shareholder to execute a telephone transaction. The telephone transaction privilege may be modified or discontinued by the Fund at any time upon 60 days' written notice to Shareholders. MANAGEMENT OF THE FUND The Fund is managed by its Board of Trustees and all powers are exercised by or under authority of the Board. Information relating to the Trustees and Executive Officers is set forth under the heading "Management of the Fund" in the SAI. The Board has carefully reviewed the multiclass structure to ensure that no material conflict exists between the two classes of Shares. Although the Board does not expect to encounter material conflicts in the future, the Board will continue to monitor the Fund and will take appropriate action to resolve such conflicts if any should later arise. INVESTMENT MANAGER. The Investment Manager of the Fund is Templeton, Galbraith & Hansberger Ltd., Lyford Cay, Nassau, Bahamas. The Investment Manager manages the investment and reinvestment of the Fund's assets. The Investment Manager is an indirect wholly owned subsidiary of Franklin Resources, Inc. ("Franklin"). Through its subsidiaries, Franklin is engaged in various aspects of the financial services industry. The Investment Manager and its affiliates serve as advisers for a wide variety of public investment mutual funds and private clients in many nations. The Templeton organization has been investing globally over the past 52 years and, with its affiliates, provides investment management and advisory services to a worldwide client base, including over 4.3 million mutual fund shareholders, foundations, endowments, employee benefit plans and individuals. The Investment Manager and its affiliates have approximately 4,100 employees in the United States, Australia, Scotland, Germany, Hong Kong, Luxembourg, Bahamas, Singapore, Canada and Russia. The Investment Manager uses a disciplined, long-term approach to value- oriented global and international investing. It has an extensive global network of investment research sources. Securities are selected for the Fund's portfolio on the basis of fundamental company-by-company analysis. Many different selection methods are used for different funds and clients and these methods are changed and improved by the Investment Manager's research on superior selection methods. The Investment Manager does not furnish any other services or facilities for the Fund, although such expenses are paid by some investment advisers of other investment companies. As compensation for its services, the Fund pays the Investment Manager a fee which, during the most recent fiscal year, represented 0.75% of its average daily net assets. Currently, the lead portfolio manager of the Fund is Jeffrey A. Everett. Mr. Everett joined the Templeton organization in 1989, and is Vice President of the Investment Manager. Prior to joining the Templeton organization, Mr. Everett was an investment officer at First Pennsylvania Investment Research, a division of First Pennsylvania Corporation, where he analyzed equity and convertible securities. Mr. Everett was also responsible for coordinating research for Centre Square Investment Group, the pension management subsidiary of First Pennsylvania Corporation. Dorian B. Foyil and Sean Farrington also exercise significant portfolio management responsibilities with respect to the Fund. Mr. Foyil is head of the Investment Manager's research technology group. Prior to joining the Templeton organization, Mr. Foyil was a research analyst for four years with UBS Phillips & Drew in London, England. Mr. Farrington is a member of the Investment Manager's research technology group responsible for the maintenance of the internal research database. Further information concerning the Investment Manager is included under the heading "Investment Management and Other Services" in the SAI. BUSINESS MANAGER. Templeton Global Investors, Inc. provides certain administrative facilities and services for the Fund, including payment of salaries of officers, preparation and maintenance of books and records, preparation of tax reports, preparation of financial 22 reports, monitoring compliance with regulatory requirements and monitoring tax-deferred retirement plans. For its services, the Fund pays the Business Manager a monthly fee equivalent on an annual basis to 0.15% of the 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 $1,200 million. The combined investment management and business management fees paid by the Fund are higher than those paid by most other investment companies. TRANSFER AGENT. Franklin Templeton Investor Services, Inc. serves as transfer agent and dividend disbursing agent for the Fund. CUSTODIAN. The Chase Manhattan Bank, N.A. serves as custodian of the Fund's assets. PLANS OF DISTRIBUTION. Each class of Shares of the Fund has approved and adopted a separate Plan of Distribution ("Class I Plan" and "Class II Plan," respectively, or "Plans") pursuant to Rule 12b-1 under the 1940 Act. The Rule 12b-1 fees charged to each class will be based solely on the distribution and/or servicing fees attributable to that particular class. Any portion of fees remaining from any Plan after distribution to securities dealers up to the maximum amount permitted under each Plan may be used by the class to reimburse FTD for routine ongoing promotion and distribution expenses. 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 FTD's 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, FTD or its affiliates. The maximum amount which the Fund may pay to FTD under the Class I Plan for such distribution expenses is 0.25% per annum of Class I's average daily net assets, payable on a quarterly basis. Under the Class II Plan, the maximum amount which the Fund may pay to FTD for such distribution expenses is 0.75% of Class II's average daily net assets per annum, payable on a quarterly basis. All expenses of distribution and marketing over that amount will be borne by FTD, or others who have incurred them without reimbursement by the Fund. In addition to this amount, under the Class II Plan, the Fund shall pay 0.25% per annum of the Class' average daily net assets as a serv- icing fee. This fee will be used to pay dealers or others for, among other things, assisting in establishing and maintaining customer accounts and records; assisting with purchase and redemption requests; receiving and answering correspondence; monitoring dividend payments from the Fund on behalf of the customers; and similar activities related to furnishing personal services and maintaining Shareholder accounts. Under both Plans, costs and expenses not reimbursed in any one given month (including costs and expenses not reimbursed because they exceed the applicable limit under the Plan) may be reimbursed in subsequent months or years, subject to applicable law. FTD has informed the Fund that the costs and expenses of Class I Shares that may be reimbursable in future months or years were $669 (0.0005% of its net assets) at August 31, 1994. Each Plan also covers any payments to or by the Fund, the Investment Manager, FTD, or other parties on behalf of the Fund, the Investment Manager or FTD, 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 Plans are included in the maximum operating expenses which may be borne by each class of the Fund. For more information, please see the SAI. EXPENSES. For the fiscal year ended August 31, 1994, expenses amounted to 1.58% of the Fund's average daily net assets. BROKERAGE COMMISSIONS. The Fund's brokerage policies are described under the heading "Brokerage Allocation" in the SAI. The Fund's brokerage policies provide that the receipt of research services from a broker and the sale of Shares by a broker are factors which may be taken into account in allocating securities transactions, so long as the prices and execution provided by the broker equal the best available within the scope of the Fund's brokerage policies. 23 GENERAL INFORMATION DESCRIPTION OF SHARES/SHARE CERTIFICATES. The capitalization of the Fund consists of an unlimited number of Shares of beneficial interest, par value $0.01 per Share. The Board of Trustees is authorized, in its discretion, to classify and allocate the unissued Shares of the Fund, each such class to represent a different portfolio of securities. Each Share entitles the holder to one vote. Under Massachusetts law, Shareholders could, under certain circumstances, be held personally liable for the obligations of the Fund. However, the Declaration of Trust disclaims liability of the Shareholders, Trustees and officers of the Fund for acts or obligations of the Fund, which are binding only on the assets and property of the Fund. The Declaration of Trust provides for indemnification out of Fund property for all loss and expense of any Shareholder held personally liable for the obligations of the Fund. The risk of a Shareholder incurring financial loss on account of Shareholder liability is limited to circumstances in which the Fund itself would be unable to meet its obligations and, thus, should be considered remote. The Fund will not ordinarily issue certificates for Shares purchased. Share certificates representing whole (not fractional) Shares are issued only upon the specific request of the Shareholder made in writing to the Transfer Agent. No charge is made for the issuance of one certificate for all or some of the Shares purchased in a single order. MEETINGS OF SHAREHOLDERS. The Fund is not required to hold regular annual meetings of Shareholders and may elect not to do so. The Fund will call a special meeting of Shareholders when requested to do so by the holders of not less than 10% of the outstanding Shares of the Fund. The Fund is required to assist in Shareholder communications in connection with the calling of a Shareholder meeting to consider the removal of a Trustee or Trustees. DIVIDENDS AND DISTRIBUTIONS. Dividends and capital gains distributions (if any) are usually paid in October and (if necessary) in December representing all or substantially all of the Fund's net investment income and any net realized capital gains. Dividends will be calculated and distributed in the same manner for both classes of Shares, and their value will differ only to the extent that they are affected by the distribution plan fees and sales charges. Because ongoing Rule 12b-1 expenses will be lower for Class I than Class II, dividends distributed to Class I Shares will generally be higher than those distributed to Class II Shares. Income dividends and capital gains distributions paid by the Fund on its Shares, other than those Shares whose owners keep them registered in the name of a broker-dealer, are automatically reinvested in whole or fractional Shares at net asset value as of the ex- dividend date, unless a Shareholder makes a written or telephonic request for payments in cash. Dividend and capital gain distributions are eligible for investment in the same class of Shares of the Fund or the same class of another fund in the Franklin Group of Funds(R) or Templeton Family of Funds at net asset value. 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. Income dividends and capital gains distributions will be paid in cash on Shares during the time their owners keep them registered in the name of a broker-dealer, unless the broker-dealer has made arrangements with the Transfer Agent for reinvestment. Prior to purchasing Shares of the Fund, the impact of dividends or capital gains distributions which have been declared but not yet paid should be carefully considered. Any dividend or capital gains distribution paid shortly after a purchase by a Shareholder prior to the record date will have the effect of reducing the per Share net asset value of the Shares by the amount of the dividend or distribution. All or a portion of such dividend or distribution, although in effect a return of capital, generally will be subject to tax. Checks are forwarded by first-class mail to the address of record. The proceeds of any such checks which are not accepted by the addressee and returned to the Fund will be reinvested for the Shareholder's account in whole or fractional Shares at net asset value next computed after the check has been received by the Transfer Agent. Subsequent distributions will be reinvested automatically at net asset value as of the ex-dividend date in additional whole or fractional Shares. FEDERAL TAX INFORMATION. The Fund intends to elect to be treated and to qualify each year as a regulated investment company under Subchapter M of the Code. See the SAI for a summary of the requirements that must be satisfied to so qualify. A regulated 24 investment company generally is not subject to Federal income tax on income and gains distributed in a timely manner to its Shareholders. The Fund intends to distribute substantially all of its net investment income and realized capital gains to Shareholders, which will be taxable income or capital gains in their hands. Distributions declared in October, November or December to Shareholders of record on a date in such month and paid during the following January will be treated as having been received by Shareholders on December 31 in the year such distributions were declared. The Fund will inform Shareholders each year of the amount and nature of such income or gains. A more detailed description of tax consequences to Shareholders is contained in the SAI under the heading "Tax Status." The Fund may be required to withhold Federal income tax at the rate of 31% of all taxable distributions (including redemptions) paid to Shareholders who fail to provide the Fund with their correct taxpayer identification number or to make required certifications or where the Fund or the Shareholder has been notified by the Internal Revenue Service that the Shareholder is subject to backup withholding. Corporate Shareholders and certain other Shareholders specified in the Code are exempt from backup withholding. Backup withholding is not an additional tax. Any amounts withheld may be credited against the Shareholder's Federal income tax liability. INQUIRES. Shareholders' inquiries will be answered promptly. They should be addressed to Franklin Templeton Investor Services, Inc., 700 Central Avenue, P.O. Box 33030, St. Petersburg, Florida 33733-8030 -- telephone 1-800-354-9191 or 813-823-8712. Transcripts of Shareholder accounts less than three years old are provided on request without charge; requests for transcripts going back more than three years from the date the request is received by the Transfer Agent are subject to a fee of up to $15 per account. PERFORMANCE INFORMATION. The Fund may include its total return in advertisements or reports to Shareholders or prospective investors. Quotations of average annual total return will be expressed in terms of the average annual compounded rate of return on a hypothetical investment in the Fund over a period of 1, 5 and 10 years (or if less, up to the life of the Fund), will reflect the deduction of the maximum initial sales charge and deduction of a proportional share of Fund expenses (on an annual basis), and will assume that all dividends and distributions are reinvested when paid. Total return may be expressed in terms of the cumulative value of an investment in the Fund at the end of a defined period of time. For a description of the methods used to determine total return for the Fund, see "Performance Information" in the SAI. STATEMENTS AND REPORTS. The Fund's fiscal year ends on August 31. Annual reports (containing financial statements audited by independent auditors and additional information regarding the Fund's performance) and semi-annual reports (containing unaudited financial statements) are sent to Shareholders each year. Additional copies may be obtained, without charge, upon request to the Account Services Department. The Fund also sends to each Shareholder a confirmation statement after every transaction that affects the Shareholder's account and a year-end historical confirmation statement. 25 INSTRUCTIONS AND IMPORTANT NOTICE SUBSTITUTE W-9 INSTRUCTIONS INFORMATION GENERAL. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the IRS. OBTAINING A NUMBER. If you do not have a Social Security Number/Taxpayer Identification Number, you must obtain Form SS-5 or Form SS-4 from your local Social Security or IRS office and apply for one. If you have checked the "Awaiting TIN" box and signed the certification, withholding will apply to payments relating to your account unless you provide a certified TIN within 60 days. WHAT SSN/TIN TO GIVE. Please refer to the following guidelines:
ACCOUNT TYPE GIVE SSN OF ACCOUNT TYPE GIVE TAXPAYER ID # OF - ----------------------------------------------------------------------------------- . Individual Individual . Trust, Estate, or Trust, Estate, or Pension Plan Trust Pension Plan Trust - ----------------------------------------------------------------------------------- . Joint Actual owner of . Corporation, Corporation, Individual account, or if Partnership, or other Partnership, or other combined funds, the organization organization first-named individual - ----------------------------------------------------------------------------------- . Unif. Minor . Broker nominee Broker nominee Gift/Transfer to Minor - ----------------------------------------------------------------------------------- . Sole Owner of business Proprietor - ----------------------------------------------------------------------------------- . Legal Ward, Minor, or Guardian Incompetent - -----------------------------------------------------------------------------------
EXEMPT RECIPIENTS. Please provide your TIN and check the "Exempt Recipient" box if you are an exempt recipient. Exempt recipients generally include: A corporation A real estate investment trust A financial institution A common trust fund operated by a bank under section 584(a) An organization exempt from tax An entity registered at all times under section 501(a), or an under the Investment Company Act of individual retirement plan 1940 A registered dealer in securities or commodities registered in the U.S. or a U.S. possession IRS PENALTIES. If you do not supply us with your SSN/TIN, you will be subject to an IRS $50 penalty unless your failure is due to reasonable cause and not willful neglect. If you fail to report certain income on your federal income tax return, you will be treated as negligent and subject to an IRS 20% penalty on any underpayment of tax attributable to such negligence, unless there was reasonable cause for the resulting underpayment and you acted in good faith. If you falsify information on this form or make any other false statement resulting in no backup withholding on an account which should be subject to backup withholding, you may be subject to an IRS $500 penalty and certain criminal penalties including fines and imprisonment. SUBSTITUTE W-8 INSTRUCTIONS INFORMATION EXEMPT FOREIGN PERSON. Check the "Exempt Foreign Person" box if you qualify as a non-resident alien or foreign entity that is not subject to certain U.S. information return reporting or to backup withholding rules. Dividends paid to your account may be subject to withholding of up to 30%. Generally, you are an "Exempt Foreign Person" if you are not (1) a citizen or resident of the U.S., or (2) a U.S. corporation, partnership, estate, or trust. In the case of an individual, an "Exempt Foreign Person" is one who has been physically present in the U.S. for less than 31 days during the current calendar year. An individual who is physically present in the U.S. for at least 31 days during the current calendar year will still be treated as an "Exempt Foreign Person," provided that the total number of days physically present in the current calendar year and the two preceding calendar years does not equal or exceed 183 days (counting all of the days in the current calendar year, only one- third of the days in the first preceding calendar year and only one-sixth of the days in the second preceding calendar year). In addition, lawful permanent residents or green card holders may not be treated as "Exempt Foreign Persons." If you are an individual or an entity, you must not now be, or at this time expect to be, engaged in a U.S. trade or business with respect to which any gain derived from transactions effected by the Fund/Payer during the calendar year is effectively connected to the U.S. PERMANENT ADDRESS. The Shareholder Application must contain your permanent address if you are an "Exempt Foreign Person." If you are an individual, provide your permanent address. If you are a partnership or corporation, provide the address of your principal office. If you are an estate or trust, provide the address of your permanent residence or the principal office of any fiduciary. NOTICE OF CHANGE IN STATUS. If you become a U.S. citizen or resident after you have provided certification of your foreign status, or if you cease to be an "Exempt Foreign Person," you must notify the Fund/Payer within 30 days of your change in status. Reporting will then begin on the account(s) listed, and backup withholding may also begin unless you certify to the Fund/Payer that (1) the tax payer identification number you have given is correct, and (2) the Internal Revenue Service has not notified you that you are subject to backup withholding because you failed to report certain interest or dividend income. You may use Form W-9, "Payer's Request for Taxpayer Identification Number and Certification," to make these certifications. If an account is no longer active, you do not have to notify a Fund/Payer or broker of your change in status unless you also have another account with the same Fund/Payer that is still active. If you receive interest from more than one Fund/Payer or have dealings with more than one broker or barter exchange, file a certificate with each. If you have more than one account with the same Fund/Payer, the Fund/Payer may require you to file a separate certificate for each account. WHEN TO FILE. File these certifications with the Fund before a payment is made to you, unless you have already done this in either of the two preceding calendar years. Only certifications that are in proper order will be treated as having been filed with the Fund. HOW OFTEN YOU MUST FILE. This certificate generally remains in effect for three calendar years. A Fund/Payer or broker, however, may require that a new certificate be filed each time a payment is made. On joint accounts for which each joint owner is a foreign person, each must provide a certification of foreign status. 1/94 26 FOR CORPORATE SHAREHOLDERS--FORM OF RESOLUTION It will be necessary for corporate shareholders to provide a certified copy of a resolution or other certificate of authority to authorize the purchase as well as sale (redemption) of shares and withdrawals by checks or drafts. You may use the following form of resolution or you may prefer to use your own. It is understood that the Fund, Franklin Templeton Distributors, Inc., Franklin Templeton Investor Services, Inc., the custodian bank and their affiliates may rely upon these authorizations until revoked or amended by written notice delivered by registered or certified mail to the Fund. CERTIFIED COPY OF RESOLUTION (Corporation or Association) The undersigned hereby certifies and affirms that he/she is the duly elected _______________________________ of ____________________________________ TITLE CORPORATE NAME a _________________________ organized under the laws of the State of __________ TYPE OF ORGANIZATION STATE and that the following is a true and correct copy of a resolution adopted by the Board of Directors at a meeting duly called and held on ____________________ DATE RESOLVED, that the _________________________________________________ of this OFFICERS' TITLES Corporation or Association are authorized to open an account in the name of the Corporation or Association with one or more of the Franklin Group of Funds or Templeton Family of Funds (collectively, the "Funds") and to deposit such funds of this Corporation or Association in this account as they deem necessary or desirable; that the persons authorized below may endorse checks and other instruments for deposit to said account or accounts; and FURTHER RESOLVED, that any of the following __________________ officers are NUMBER authorized to sign any share assignment on behalf of this Corporation or Association and to take any other actions as may be necessary to sell or redeem its shares in the Funds or to sign checks or drafts withdrawing funds from the account; and FURTHER RESOLVED, that this Corporation or Association shall hold harmless, indemnify, and defend the Funds, their custodian bank, Franklin Templeton Distributors, Inc., Franklin Templeton Investor Services, Inc., and their affiliates, from any claim, loss or liability resulting in whole or in part, directly or indirectly, from their reliance from time to time upon any certifications by the secretary or any assistant secretary of this Corporation or Association as to the names of the individuals occupying such offices and their acting in reliance upon these resolutions until actual receipt by them of a certified copy of a resolution of the Board of Directors of the Corporation or Association modifying or revoking any or all such resolutions. The undersigned further certifies that the below named persons, whose signatures appear opposite their names and office titles, are duly elected officers of the Corporation or Association. (Attach additional list if necessary) - -------------------------------------- --------------------------------------- NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE - -------------------------------------- --------------------------------------- NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE - -------------------------------------- --------------------------------------- NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE - -------------------------------------- --------------------------------------- NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE - -------------------------------------- --------------------------------------- NAME OF CORPORATION OR ASSOCIATION DATE Certified from minutes ________________________________________________________ NAME AND TITLE CORPORATE SEAL (if appropriate) 27 THE FRANKLIN TEMPLETON TELEPHONE REDEMPTION AUTHORIZATION AGREEMENT You may use Franklin Templeton's telephone redemption privilege to redeem uncertificated Franklin Templeton Fund shares for up to $50,000 (or your Shareholder account balance, whichever is less) per day, per fund account in accordance with the terms of the Fund's Prospectus. The telephone redemption privilege is available only to Shareholders who specifically request it. If you would like to add this redemption privilege to the other telephone transaction privileges automatically available to Franklin Templeton Fund shareholders, please sign and return this authorization to Franklin Templeton Investor Services, Inc. ("Services"), transfer agent and shareholder servicing agent for the Franklin Templeton Funds. SHAREHOLDER AUTHORIZATION: I/We request the telephone redemption privilege under the terms described below and in the prospectus for each investment company in the Franklin Templeton Group (a "Franklin Templeton Fund" or a "Fund"), now opened or opened at a later date, holding shares registered as follows: - ------------------------------------- --------------------------------------- PRINT NAME(S) AS SHOWN IN YOUR ACCOUNT REGISTRATION ("SHAREHOLDER") - ------------------------------------- --------------------------------------- ACCOUNT NUMBER(S) I/We authorize each Fund and Services to honor and act upon telephone requests given as provided in this agreement to redeem shares from any Shareholder account: - ------------------------------------- --------------------------------------- SIGNATURE(S) AND DATE - ------------------------------------- --------------------------------------- PRINT NAME(S) (AND TITLE/CAPACITY, IF APPLICABLE) VERIFICATION PROCEDURES: I/We understand and agree that: (1) each Fund and Services will employ reasonable procedures to confirm that redemption instructions communicated by telephone are genuine and that if these confirmation procedures are not followed, the Fund or Services may be liable for any losses due to unauthorized or fraudulent telephone instructions; (2) the confirmation procedures will include the recording of telephone calls requesting redemptions, 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 the sending of confirmation statements to the address of record each time a redemption is initiated by telephone; and (3) so long as the Fund and Services follow the confirmation procedures in acting on instructions communicated by telephone which were reasonably believed to be genuine at the time of receipt, neither they, nor their parent or affiliates, will be liable for any loss, damages or expenses caused by an unauthorized or fraudulent redemption request. JOINTLY OWNED/CO-TRUSTEE ACCOUNTS: Each of us signing this agreement as either joint owners or co-trustees authorizes each Fund and Services to honor telephone redemption requests given by ANY ONE of the signers, or our investment representative of record, if any, ACTING ALONE. APPOINTMENT OF ATTORNEY-IN-FACT: In order to issue telephone redemption requests acting alone, each of us individually makes the following appointment: I hereby appoint the other joint owner(s)/co-trustee(s) as my agent(s) (attorney[s]-in-fact) with full power and authority to individually act for me in any lawful way with respect to the issuance of instructions to a Fund or Services in accordance with the telephone redemption privilege we have requested by signing this agreement. This appointment shall not be affected by my subsequent disability or incompetency and shall remain in effect until it is revoked by either written notice from any one of us delivered to a Fund or Services by registered mail, return receipt requested or by a Fund or Services upon receipt of any information that causes a Fund or Services to believe in good faith that there is or that there may be a dispute among any of us with respect to the Franklin Templeton Fund account(s) covered by this agreement. Each of us agrees to notify the Fund or Services immediately upon the death of any of the signers. CORPORATE/PARTNERSHIP/TRUST/RETIREMENT ACCOUNTS: The Shareholder and each of us signing this agreement on behalf of the Shareholder represent and warrant to each Franklin Templeton Fund and Services that the Shareholder has the authority to enter into this agreement and that each of us is duly authorized to execute this agreement on behalf of the Shareholder. The Shareholder agrees that its election of the telephone redemption privilege means that a Fund or Services may honor a telephone redemption request given by ANY officer/partner/member/administrator/or agent of the Shareholder ACTING ALONE. RESTRICTED ACCOUNTS: Telephone redemptions may not be accepted on Franklin Trust Company or Templeton Funds Trust Company retirement accounts. PLEASE RETURN THIS FORM TO: Franklin Templeton Investor Services, Inc., Attn.: Telephone Redemptions Dept., 700 Central Avenue, St. Petersburg, Florida 33701-3628. 28 THE FRANKLIN TEMPLETON GROUP To receive a free brochure and prospectus, which contain more complete information, including charges and expenses on each of the funds listed below, call Franklin Fund Information, toll free, at 1-800-DIAL-BEN (1-800-342-5236) or Templeton Fund Information at 1-800-292-9293. Please read the prospectus carefully before you invest or send money. TEMPLETON FAMILY OF FUNDS Franklin Templeton Japan Fund Templeton American Trust Templeton Americas Government Securities Fund Templeton Developing Markets Trust Templeton Foreign Fund Templeton Global Infrastructure Fund Templeton Global Opportunities Trust Templeton Global Rising Dividends Fund Templeton Growth Fund Templeton Income Fund Templeton Money Fund Templeton Real Estate Securities Fund Templeton Smaller Companies Growth Fund Templeton World Fund FRANKLIN GROUP OF FUNDS (R) FRANKLIN GLOBAL/ INTERNATIONAL FUNDS Franklin Global Health Care Fund Franklin Global Government Income Fund Franklin Global Utilities Fund Franklin International Equity Fund Franklin Pacific Growth Fund FUNDS SEEKING CAPITAL GROWTH Franklin California Growth Fund Franklin DynaTech Fund Franklin Equity Fund Franklin Gold Fund Franklin Growth Fund Franklin Rising Dividends Fund Franklin Small Cap Growth Fund FUNDS SEEKING GROWTH AND INCOME Franklin Balance Sheet Investment Fund Franklin Convertible Securities Fund Franklin Income Fund Franklin Equity Income Fund Franklin Utilities Fund FUNDS SEEKING HIGH CURRENT INCOME Franklin's AGE High Income Fund Franklin Investment Grade Income Fund Franklin Premier Return Fund Franklin U.S. Government Securities Fund FUNDS SEEKING TAX-FREE INCOME Franklin Federal Tax-Free Income Fund Franklin High Yield Tax-Free Income Fund Franklin California High Yield Municipal Fund Franklin Alabama Tax-Free Income Fund Franklin Arizona Tax-Free Income Fund Franklin California Tax-Free Income Fund Franklin Colorado Tax-Free Income Fund Franklin Connecticut Tax-Free Income Fund Franklin Florida Tax-Free Income Fund Franklin Georgia Tax-Free Income Fund Franklin Hawaii Municipal Bond Fund Franklin Indiana Tax-Free Income Fund Franklin Kentucky Tax-Free Income Fund Franklin Louisiana Tax-Free Income Fund Franklin Maryland Tax-Free Income Fund Franklin Missouri Tax-Free Income Fund Franklin New Jersey Tax-Free Income Fund Franklin New York Tax-Free Income Fund Franklin North Carolina Tax-Free Income Fund Franklin Oregon Tax-Free Income Fund Franklin Pennsylvania Tax-Free Income Fund Franklin Puerto Rico Tax-Free Income Fund Franklin Texas Tax-Free Income Fund Franklin Virginia Tax-Free Income Fund Franklin Washington Municipal Bond Fund FUNDS SEEKING TAX-FREE INCOME THROUGH INSURED PORTFOLIOS Franklin Insured Tax-Free Income Fund Franklin Arizona Insured Tax-Free Income Fund Franklin California Insured Tax-Free Income Fund Franklin Florida Insured Tax-Free Income Fund Franklin Massachusetts Insured Tax- Free Income Fund Franklin Michigan Insured Tax-Free Income Fund Franklin Minnesota Insured Tax- Free Income Fund Franklin New York Insured Tax-Free Income Fund Franklin Ohio Insured Tax-Free Income Fund FUNDS SEEKING HIGH CURRENT INCOME AND STABILITY OF PRINCIPAL Franklin Adjustable Rate Securities Fund Franklin Adjustable U.S. Government Securities Fund Franklin Short-Intermediate U.S. Government Securities Fund FUND SEEKING HIGH AFTER-TAX INCOME FOR CORPORATIONS Franklin Corporate Qualified Dividend Fund MONEY MARKET FUNDS SEEKING SAFETY OF PRINCIPAL AND INCOME Franklin Money Fund Franklin Federal Money Fund Franklin Tax-Exempt Money Fund Franklin California Tax-Exempt Money Fund Franklin New York Tax-Exempt Money Fund IFT Franklin U.S. Treasury Money Market Portfolio FUNDS FOR NON-U.S. INVESTORS FRANKLIN PARTNERS FUNDS(R) Franklin Tax-Advantaged High Yield Securities Fund Franklin Tax-Advantaged International Bond Fund Franklin Tax-Advantaged U.S. Government Securities Fund 29 NOTES ----- 30 NOTES ----- 31 NOTES ----- 32 TEMPLETON REAL ESTATE SECURITIES FUND PRINCIPAL UNDERWRITER: Franklin Templeton Distributors, Inc. 700 Central Avenue St. Petersburg, Florida 33701-3628 Account Services 1-800-354-9191 Fund Information 1-800-292-9293 Institutional Services 1-800-321-8563 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 Principal Underwriter. TL10 P 1/95 [LOGO OF RECYCLED PAPER APPEARS HERE] TEMPLETON REAL ESTATE SECURITIES FUND Prospectus January 1, 1995 as supplemented April 1, 1995 [LOGO OF FRANKLIN TEMPLETON APPEARS HERE] TEMPLETON REAL ESTATE SECURITIES FUND THIS STATEMENT OF ADDITIONAL INFORMATION DATED JANUARY 1, 1995, AS SUPPLEMENTED APRIL 1, 1995, IS NOT A PROSPECTUS. IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS OF TEMPLETON REAL ESTATE SECURITIES FUND DATED JANUARY 1, 1995, AS SUPPLEMENTED APRIL 1, 1995, WHICH MAY BE OBTAINED WITHOUT CHARGE UPON REQUEST TO THE PRINCIPAL UNDERWRITER, FRANKLIN TEMPLETON DISTRIBUTORS, INC., 700 CENTRAL AVENUE, P.O. BOX 33030, ST. PETERSBURG, FLORIDA 33733-8030 TOLL FREE TELEPHONE: (800) 237-0738 TABLE OF CONTENTS General Information and History -The Investment Manager Investment Objectives and Policies -Business Manager -Investment Policies -Custodian and Transfer Agent -Repurchase Agreements -Legal Counsel -Futures Contracts -Independent Accountants -Options on Securities and Stock -Reports to Shareholders Indices Brokerage Allocation -Foreign Currency Hedging Purchase, Redemption and Transactions Pricing of Share -Investment Restrictions -Ownership and Authority Disputes -Risk Factors -Tax Deferred Retirement Plans -Trading Policies -Letter of Intent -Personal Securities Transactions -Purchases at Net Asset Value Management of the Fund Tax Status Principal Shareholders Principal Underwriter Investment Management and Other Description of Shares Services Performance Information -Investment Management Agreement Financial Statements -Management Fees GENERAL INFORMATION AND HISTORY Templeton Real Estate Securities Fund (the "Fund"), formerly Templeton Real Estate Trust, was organized as a Massachusetts business trust on July 17, 1989, and is registered under the Investment Company Act of 1940 (the "1940 Act") as an open-end diversified management investment company. INVESTMENT OBJECTIVES AND POLICIES Investment Policies. The investment objectives and policies of the Fund are described in the Fund's Prospectus under the heading "General Description--Investment Objectives and Policies." Repurchase Agreements. Repurchase agreements are contracts under which the buyer of a security simultaneously commits to resell the security to the seller at an agreed-upon price and date. Under a repurchase agreement, the seller is required to maintain the value of the securities subject to the repurchase agreement at not less than their repurchase price. Templeton, Galbraith & Hansberger Ltd. (the "Investment Manager") will monitor the value of such securities daily to determine that the value equals or exceeds the repurchase price. Repurchase agreements may involve risks in the event of default or insolvency of the seller, including possible delays or restrictions upon the Fund's ability to dispose of the underlying securities. The Fund will enter into repurchase agreements only with parties who meet creditworthiness standards approved by the Board of Trustees, i.e., banks or broker-dealers which have been determined by the Investment Manager to present no serious risk of becoming involved in bankruptcy proceedings within the time frame contemplated by the repurchase transaction. Futures Contracts. The Fund may purchase and sell financial futures contracts. Although some financial futures contracts call for making or taking delivery of the underlying securities, in most cases these obligations are closed out before the settlement date. The closing of a contractual obligation is accomplished by purchasing or selling an identical offsetting futures contract. Other financial futures contracts by their terms call for cash settlements. The Fund may also buy and sell index futures contracts with respect to any stock or bond index traded on a recognized stock exchange or board of trade. An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. The stock index futures contract specifies that no delivery of the actual stocks making up the index will take place. Instead, settlement in cash must occur upon the termination of the contract, with the settlement being the difference between the contract price and the actual level of the stock index at the expiration of the contract. At the time the Fund purchases a futures contract, an amount of cash, U.S. Government securities, or other highly liquid debt securities equal to the market value of the futures contract will be deposited in a segregated account with the Fund's Custodian. When writing a futures contract, the Fund will maintain with its Custodian liquid assets that, when added to the amounts deposited with a futures commission merchant or broker as margin, are equal to the market value of the instruments underlying the contract. Alternatively, the Fund may "cover" its position by owning the instruments underlying the contract (or, in the case of an index futures contract, a portfolio with a volatility substantially similar to that of the index on which the futures contract is based), or holding a call option permitting the Fund to purchase the same futures contract at a price no higher than the price of the contract written by the Fund (or at a higher price if the difference is maintained in liquid assets with the Fund's Custodian). Options on Securities and Stock Indices. The Fund may write covered call and put options and purchase call and put options on securities or stock indices that are traded on United States and foreign exchanges and in the over-the-counter markets. An option on a security is a contract that gives the purchaser of the option, in return for the premium paid, the right to buy a specified security (in the case of a call option) or to sell a specified security (in the case of a put option) from or to the writer of the option at a designated price during the term of the option. An option on a securities index gives the purchaser of the option, in return for the premium paid, the right to receive from the seller cash equal to the difference between the closing price of the index and the exercise price of the option. The Fund may write a call or put option only if the option is "covered." A call option on a security written by the Fund is covered if the Fund owns the underlying security covered by the call or has an absolute and immediate right to acquire that security without additional cash consideration (or for additional cash consideration held in a segregated account by its Custodian) upon conversion or exchange of other securities held in its portfolio. A call option on a security is also covered if the Fund holds a call on the same security and in the same principal amount as the call written where the exercise price of the call held (a) is equal to or less than the exercise price of the call written or (b) is greater than the exercise price of the call written if the difference is maintained by the Fund in cash or high grade U.S. Government securities in a segregated account with its Custodian. A put option on a security written by the Fund is "covered" if the Fund maintains cash or fixed income 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 Fund will cover call options on stock indices by owning securities whose price changes, in the opinion of the Investment Manager, are expected to be similar to those of the index, or in such other manner as may be in accordance with the rules of the exchange on which the option is traded and applicable laws and regulations. Nevertheless, where the Fund covers a call option on a stock index through ownership of securities, such securities may not match the composition of the index. In that event, the Fund will not be fully covered and could be subject to risk of loss in the event of adverse changes in the value of the index. The Fund will cover put options on stock indices by segregating assets equal to the option's exercise price, or in such other manner as may be in accordance with the rules of the exchange on which the option is traded and applicable laws and regulations. The Fund will receive a premium from writing a put or call option, which increases the Fund's gross income in the event the option expires unexercised or is closed out at a profit. If the value of a security or an index on which the Fund has written a call option falls or remains the same, the Fund will realize a profit in the form of the premium received (less transaction costs) that could offset all or a portion of any decline in the value of the portfolio securities being hedged. If the value of the underlying security or index rises, however, the Fund will realize a loss in its call option position, which will reduce the benefit of any unrealized appreciation in the Fund's stock investments. By writing a put option, the Fund assumes the risk of a decline in the underlying security or index. To the extent that the price changes of the portfolio securities being hedged correlate with changes in the value of the underlying security or index, writing covered put options on securities or indices will increase the Fund's losses in the event of a market decline, although such losses will be offset in part by the premium received for writing the option. The Fund may also purchase put options to hedge its investments against a decline in value. By purchasing a put option, the Fund will seek to offset a decline in the value of the portfolio securities being hedged through appreciation of the put option. If the value of the Fund's investments does not decline as anticipated, or if the value of the option does not increase, the Fund's loss will be limited to the premium paid for the option plus related transaction costs. The success of this strategy will depend, in part, on the accuracy of the correlation between the changes in value of the underlying security or index and the changes in value of the Fund's security holdings being hedged. The Fund may purchase call options on individual securities to hedge against an increase in the price of securities that the Fund anticipates purchasing in the future. Similarly, the Fund may purchase call options to attempt to reduce the risk of missing a broad market advance, or an advance in an industry or market segment, at a time when the Fund holds uninvested cash or short-term debt securities awaiting investment. When purchasing call options, the Fund will bear the risk of losing all or a portion of the premium paid if the value of the underlying security or index does not rise. There can be no assurance that a liquid market will exist when the Fund seeks to close out an option position. Trading could be interrupted, for example, because of supply and demand imbalances arising from a lack of either buyers or sellers, or the options exchange could suspend trading after the price has risen or fallen more than the maximum specified by the exchange. Although the Fund may be able to offset to some extent any adverse effects of being unable to liquidate an option position, the Fund may experience losses in some cases as a result of such inability. Foreign Currency Hedging Transactions. In order to hedge against foreign currency exchange rate risks, the Fund may enter into forward foreign currency exchange contracts and foreign currency futures contracts, as well as purchase put or call options on foreign currencies, as described below. The Fund may also conduct its foreign currency exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market. The Fund may enter into forward foreign currency exchange contracts ("forward contracts") to attempt to minimize the risk to the Fund from adverse changes in the relationship between the U.S. dollar and foreign currencies. A forward contract is an obligation to purchase or sell a specific currency for an agreed price at a future date which is individually negotiated and privately traded by currency traders and their customers. The Fund may enter into a forward contract, for example, when it enters into a contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of the security. In addition, for example, when the Fund believes that a foreign currency may suffer or enjoy a substantial movement against another currency, it may enter into a forward contract to sell an amount of the former foreign currency approximating the value of some or all of the Fund's portfolio securities denominated in such foreign currency. This second investment practice is generally referred to as "cross- hedging." Because in connection with the Fund's foreign currency forward transactions an amount of the Fund's assets equal to the amount of the purchase will be held aside or segregated to be used to pay for the commitment, the Fund will always have cash, cash equivalents or high quality debt securities available sufficient to cover any commitments under these contracts or to limit any potential risk. The segregated account will be marked- to-market on a daily basis. In addition, the Investment Manager does not intend to enter into such forward contracts if, as a result, the Fund will have more than 20% of the value of its total assets committed to such contracts. While these contracts are not presently regulated by the Commodity Futures Trading Commission ("CFTC"), the CFTC may in the future assert authority to regulate forward contracts. In such event, the Fund's ability to utilize forward contracts in the manner set forth above may be restricted. Forward contracts may limit potential gain from a positive change in the relationship between the U.S. dollar and foreign currencies. Unanticipated changes in currency prices may result in poorer overall performance for the Fund than if it had not engaged in such contracts. The Fund may purchase and write put and call options on foreign currencies for the purpose of protecting against declines in the dollar value of foreign portfolio securities and against increases in the dollar cost of foreign securities to be acquired. As is the case with other kinds of options, however, the writing of an option on foreign currency will constitute only a partial hedge, up to the amount of the premium received, and the Fund could be required to purchase or sell foreign currencies at disadvantageous exchange rates, thereby incurring losses. The purchase of an option on foreign currency may constitute an effective hedge against fluctuation in exchange rates although, in the event of rate movements adverse to the Fund's position, the Fund may forfeit the entire amount of the premium plus related transaction costs. Options on foreign currencies to be written or purchased by the Fund will be traded on U.S. and foreign exchanges or over-the-counter. The Fund may enter into exchange-traded contracts for the purchase or sale for future delivery of foreign currencies ("foreign currency futures"). This investment technique will be used only to hedge against anticipated future changes in exchange rates which otherwise might adversely affect the value of the Fund's portfolio securities or adversely affect the prices of securities that the Fund intends to purchase at a later date. The successful use of currency futures will usually depend on the Investment Manager's ability to forecast currency exchange rate movements correctly. Should exchange rates move in an unexpected manner, the Fund may not achieve the anticipated benefits of foreign currency futures or may realize losses. Investment Restrictions. The Fund has imposed upon itself certain investment restrictions which, together with its investment objectives and policies, are fundamental policies except as otherwise indicated. No changes in the Fund's investment objectives, policies or investment restrictions (except those which are not fundamental policies) can be made without the approval of the Shareholders of the Fund. For this purpose, the provisions of the 1940 Act require the affirmative vote of the lesser of either (1) 67% or more of the Fund's Shares present at a Shareholders' meeting at which more than 50% of the outstanding Shares are present or represented by proxy or (2) more than 50% of the outstanding Shares of the Fund. In accordance with these restrictions, the Fund will not: 1. Invest more than 5% of its total assets in the securities of any one issuer (exclusive of U.S. Government securities). 2. Invest directly in real estate or interests in real estate (although it may purchase securities secured by real estate or interests therein, or issued by companies or investment trusts which invest in real estate or interests therein); invest in other open-end investment companies (except in connection with a merger, consolidation, acquisition or reorganization); invest in interests (other than publicly issued debentures or equity stock interests) in oil, gas or other mineral exploration or development programs; or purchase or sell commodity contracts (except futures contracts as described in the Fund's Prospectus). 3. Purchase or retain securities of any company in which officers of the Fund or of the Investment Manager, individually owning more than 1/2 of 1% of the securities of such company, in the aggregate own more than 5% of the securities of such company. 4. Purchase more than 10% of any class of securities of any one company, including more than 10% of its outstanding voting securities, or invest in any company for the purpose of exercising control or management. 5. Act as an underwriter; issue senior securities; purchase on margin or sell short, except that the Fund may make margin payments in connection with futures contracts. 6. Loan money apart from the purchase of a portion of an issue of publicly distributed bonds, debentures, notes and other evidences of indebtedness, although the Fund may enter into repurchase agreements and lend its portfolio securities. 7. Invest more than 5% of the value of its total assets in securities of issuers which have been in continuous operation less than three years. 8. Invest more than 15% of its total assets in securities of foreign companies that are not listed on a recognized United States or foreign securities exchange, including no more than 10% of its total assets in restricted securities and other securities (including repurchase agreements having more than seven days remaining to maturity and over-the-counter options purchased by the Fund and the assets used as cover for over-the-counter options written by the Fund) which are not restricted but which are not readily marketable (i.e., trading in the security is suspended or, in the case of unlisted securities, market makers do not exist or will not entertain bids or offers). 9. Concentrate its investments in any one industry, except that the Fund may invest 25% or more of its total assets in securities of companies principally engaged in or related to the real estate industry. 10. Borrow money, except that the Fund may borrow money from banks in an amount not exceeding 30% of the value of the Fund's total assets (not including the amount borrowed), or pledge, mortgage or hypothecate its assets for any purpose, except to secure borrowings and then only to an extent not greater than 15% of the Fund's total assets. Arrangements with respect to margin for futures contracts are not deemed to be a pledge of assets. 11. Participate on a joint or a joint and several basis in any trading account in securities. (See "Investment Objectives and Policies--Trading Policies" as to transactions in the same securities for the Fund and other Templeton Funds and clients.) 12. Invest more than 5% of its total assets in warrants whether or not listed on the New York or American Stock Exchanges, and more than 2% of its total assets in warrants that are not listed on those exchanges. Warrants acquired in units or attached to securities are not included in this restriction. The Fund has undertaken with a state securities commission that it will limit investments in illiquid securities to no more than 5% of its total assets. In addition, the Fund has no present intention of investing in collateralized mortgage obligations. Whenever any investment policy or investment restriction states a maximum percentage of the Fund's assets which may be invested in any security or other property, it is intended that such maximum percentage limitation be determined immediately after and as a result of the Fund's acquisition of such security or property. The investment restrictions do not preclude the Fund from purchasing the securities of any issuer pursuant to the exercise of subscription rights distributed to the Fund by the issuer, unless such purchase would result in a violation of restrictions 8 or 9. Risk Factors. The Fund has an unlimited right to purchase securities in any developed foreign country and may invest up to 10% of its assets in underdeveloped countries, if such securities are listed on an exchange, as well as a limited right to purchase such securities if they are unlisted. Investors should consider carefully the substantial risks involved in securities of companies and governments of foreign nations, which are in addition to the usual risks inherent in domestic investments. There may be less publicly available information about foreign companies comparable to the reports and ratings published about companies in the United States. Foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to United States companies. Foreign markets have substantially less volume than the New York Stock Exchange and securities of some foreign companies are less liquid and more volatile than securities of comparable United States companies. Commission rates in foreign countries, which are generally fixed rather than subject to negotiation as in the United States, are likely to be higher. In many foreign countries there is less government supervision and regulation of stock exchanges, brokers and listed companies than in the United States. Investments in companies domiciled in developing countries may be subject to potentially higher risks than investments in developed countries. These risks include (i) less social, political and economic stability; (ii) the small current size of the markets for such securities and the currently low or nonexistent volume of trading, which result in a lack of liquidity and in greater price volatility; (iii) certain national policies which may restrict the Fund's investment opportunities, including restrictions on investment in issuers or industries deemed sensitive to national interests; (iv) foreign taxation; (v) the absence of developed legal structures governing private or foreign investment or allowing for judicial redress for injury to private property; (vi) the absence, until recently in certain Eastern European countries, of a capital market structure or market-oriented economy; and (vii) the possibility that recent favorable economic developments in Eastern Europe may be slowed or reversed by unanticipated political or social events in such countries. Investments in Eastern European countries may involve risks of nationalization, expropriation and confiscatory taxation. The Communist governments of a number of Eastern European countries expropriated large amounts of private property in the past, in many cases without adequate compensation, and there can be no assurance that such expropriation will not occur in the future. In the event of such expropriation, the Fund could lose a substantial portion of any investments it has made in the affected countries. Further, no accounting standards exist in Eastern European countries. Finally, even though certain Eastern European currencies may be convertible into United States dollars, the conversion rates may be artificial to the actual market values and may be adverse to Fund Shareholders. The Fund endeavors to buy and sell foreign currencies on as favorable a basis as practicable. Some price spread on currency exchange (to cover service charges) may be incurred, particularly when the Fund changes investments from one country to another or when proceeds of the sale of Shares in U.S. dollars are used for the purchase of securities in foreign countries. Also, some countries may adopt policies which would prevent the Fund from transferring cash out of the country or withhold portions of interest and dividends at the source. There is the possibility of expropriation, nationalization or confiscatory taxation, withholding and other foreign taxes on income or other amounts, foreign exchange controls (which may include suspension of the ability to transfer currency from a given country), default in foreign government securities, political or social instability or diplomatic developments which could affect investments in securities of issuers in foreign nations. The Fund may be affected either unfavorably or favorably by fluctuations in the relative rates of exchange between the currencies of different nations, by exchange control regulations and by indigenous economic and political developments. Through the Fund's flexible policy, management endeavors to avoid unfavorable consequences and to take advantage of favorable developments in particular nations where from time to time it places the Fund's investments. The exercise of this flexible policy may include decisions to purchase securities with substantial risk characteristics and other decisions such as changing the emphasis on investments from one nation to another and from one type of security to another. Some of these decisions may later prove profitable and others may not. No assurance can be given that profits, if any, will exceed losses. The Trustees consider at least annually the likelihood of the imposition by any foreign government of exchange control restrictions which would affect the liquidity of the Fund's assets maintained with custodians in foreign countries, as well as the degree of risk from political acts of foreign governments to which such assets may be exposed. They also consider the degree of risk involved through the holding of portfolio securities in domestic and foreign securities depositories (see "Investment Management and Other Services--Custodian and Transfer Agent"). However, in the absence of willful misfeasance, bad faith or gross negligence on the part of the Investment Manager, any losses resulting from the holding of the Fund's portfolio securities in foreign countries and/or with securities depositories will be at the risk of the Shareholders. No assurance can be given that the Fund's appraisal of the risks will always be correct or that such exchange control restrictions or political acts of foreign governments might not occur. Additional risks may be involved with the Fund's special investment techniques, including loans of portfolio securities and borrowing for investment purposes. These risks are described under the heading "Investment Techniques" in the Prospectus. Trading Policies. The Investment Manager and its affiliated companies serve as investment adviser to other investment companies and private clients. Accordingly, the respective portfolios of these funds and clients may contain many or some of the same securities. When any two or more of these funds or clients are engaged simultaneously in the purchase or sale of the same security, the transactions are placed for execution in a manner designed to be equitable to each party. The larger size of the transaction may affect the price of the security and/or the quantity which may be bought or sold for each party. If the transaction is large enough, brokerage commissions in certain countries may be negotiated below those otherwise chargeable. Sale or purchase of securities, without payment of brokerage commissions, fees (except customary transfer fees) or other remuneration in connection therewith, may be effected between any of these funds, or between funds and private clients, under procedures adopted pursuant to Rule 17a-7 under the 1940 Act. Personal Securities Transactions. Access persons of the Franklin Templeton Group, as defined in SEC Rule 17(j) under the 1940 Act, who are employees of Franklin Resources, Inc. or their subsidiaries, are permitted to engage in personal securities transactions subject to the following general restrictions and procedures: (1) The trade must receive advance clearance from a Compliance Officer and must be completed within 24 hours after this clearance; (2) Copies of all brokerage confirmations must be sent to the Compliance Officer and within 10 days after the end of each calendar quarter, a report of all securities transactions must be provided to the Compliance Officer; (3) In addition to items (1) and (2), access persons involved in preparing and making investment decisions must file annual reports of their securities holdings each January and also inform the Compliance Officer (or other designated personnel) if they own a security that is being considered for a fund or other client transaction or if they are recommending a security in which they have an ownership interest for purchase or sale by a fund or other client. MANAGEMENT OF THE FUND The name, address, principal occupation during the past five years and other information with respect to each of the Trustees and Principal Executive Officers of the Fund are as follows: Name, Address and Principal Occupation Offices with Fund During Past Five Years JOHN M. TEMPLETON* Chairman of the Board of other Lyford Cay Templeton Funds; president of First Nassau, Bahamas Trust Bank, Ltd., Nassau, Bahamas; Chairman of the Board and previously the chairman of the board and employee of Templeton, Galbraith & Hansberger Ltd. (prior to October 30, 1992). F. BRUCE CLARKE Retired; former credit advisor, 19 Vista View Blvd. National Bank of Canada, Toronto; a Thornhill, Ontario director or trustee of other Trustee Templeton Funds. HASSO-G VON DIERGARDT-NAGLO Farmer; president of Clairhaven R.R. 3 Investments, Ltd. and other private Stouffville, Ontario investment companies; a director or Trustee trustee of other Templeton Funds. BETTY P. KRAHMER A director or trustee of other 2201 Kentmere Parkway Templeton Funds; director or Wilmington, Delaware trustee of various civic Trustee associations; former economic analyst, U.S. Government. JOHN G. BENNETT, JR. A director or trustee of other 3 Radnor Corporate Center Templeton Funds; founder, chairman Suite 150 of the board, and president of the 100 Matsonford Road Foundation for New Era Radnor, Pennsylvania Philanthropy; president and Trustee chairman of the boards of the Evelyn M. Bennett Memorial Foundation and NEP International Trust; chairman of the board and chief executive officer of The Bennett Group International, LTD; chairman of the boards of Human Service Systems, Inc. and Multi- Media Communicators, Inc.; a director or trustee of many national and international organizations, universities, and grant-making foundations serving in various executive board capacities; member of the Public Policy Committee of the Advertising Council. FRED R. MILLSAPS A director or trustee of other 2665 NE 37th Drive Templeton Funds; manager of Fort Lauderdale, Florida personal investments (1978- Trustee present); chairman and chief executive officer of Landmark Banking Corporation (1969-1978); financial vice president of Florida Power and Light (1965-1969); vice president of Federal Reserve Bank of Atlanta (1958-1965); director of various business and nonprofit organizations. ANDREW H. HINES, JR. Consultant, Triangle Consulting 150 2nd Avenue N. Group; chairman of the board and St. Petersburg, Florida chief executive officer of Florida Trustee Progress Corporation (1982-February 1990) and director of various of its subsidiaries; chairman and director of Precise Power Corporation; Executive-in-Residence of Eckerd College (1991-present); director of Checkers Drive-In Restaurants, Inc.; a director or trustee of other Templeton Funds. RUPERT H. JOHNSON, JR.* Executive vice president and 777 Mariners Island Blvd. director of Franklin Resources, San Mateo, California Inc.; president and director, Trustee Franklin Advisers, Inc.; executive vice president and director, Franklin Templeton Distributors, Inc.; director, Franklin Administrative 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 most of the investment companies in the Franklin Templeton Group. HARRIS J. ASHTON Chairman of the board, president Metro Center, 1 Station and chief executive officer of Place General Host Corporation (nursery Stamford, Connecticut and craft centers); director of RBC Trustee Holdings Inc. (a bank holding company) and Bar-S Foods; director or trustee of other Templeton Funds; and director, trustee or managing general partner, as the case may be, for most of the investment companies in the Franklin Group of Funds. S. JOSEPH FORTUNATO Member of the law firm of Pitney, 200 Campus Drive Hardin, Kipp & Szuch; director of Florham Park, New Jersey General Host Corporation; director Trustee or trustee of other Templeton Funds; and director, trustee or managing general partner, as the case may be, for most of the investment companies in the Franklin Group of Funds. GORDON S. MACKLIN Chairman of White River Corporation 8212 Burning Tree Road (information services); director of Bethesda, Maryland Infovest Corporation, Fund America Trustee Enterprise Holdings, Inc., Martin Marietta Corporation, MCI Communications Corporation and Medimmune, Inc.; director or trustee of other Templeton Funds; director, trustee, or managing general partner, as the case may be, of most of the investment companies in the Franklin Group of Funds; formerly: chairman, Hambrecht and Quist Group; director, H&Q Healthcare Investors; and president, National Association of Securities Dealers, Inc. NICHOLAS F. BRADY* A director or trustee of other The Bullitt House Templeton Funds; chairman of 102 East Dover Street Templeton Emerging Markets Easton, Maryland Investment Trust PLC; chairman and Trustee president of Darby Advisors, Inc. (an investment firm) since January, 1993; director of the H. J. Heinz Company, Capital Cities/ABC, Inc. and the Christiana Companies; Secretary of the United States Department of the Treasury from 1988 to January, 1993; Chairman of the Board of Dillon, Read & Co. Inc. (investment banking) prior thereto. MARK G. HOLOWESKO President and director of Lyford Cay Templeton, Galbraith & Hansberger Nassau, Bahamas Ltd.; director of global equity President research for Templeton Worldwide, Inc.; president or vice president of other Templeton Funds; investment administrator with Roy West Trust Corporation (Bahamas) Limited (1984-1985). CHARLES B. JOHNSON President, chief executive officer, 777 Mariners Island Blvd. and director of Franklin Resources, San Mateo, California Inc.; chairman of the board, Vice President Franklin Templeton Distributors, Inc.; chairman of the board and director, Franklin Advisers, Inc.; director, Franklin Administrative Services, Inc. and General Host Corporation; director of Templeton Global Investors, Inc.; and officer and director, trustee or managing general partner, as the case may be, of most other subsidiaries of Franklin Resources, Inc. and of most of the investment companies in the Franklin Templeton Group. MARTIN L. FLANAGAN Senior vice president, treasurer, 777 Mariners Island Blvd. and chief financial officer of San Mateo, California Franklin Resources, Inc.; director Vice President and executive vice president of Templeton Investment Counsel, Inc. and Templeton Global Investors, Inc.; president or vice president of the Templeton Funds; accountant, Arthur Andersen & Company (1982- 1983); member of the International Society of Financial Analysts and the American Institute of Certified Public Accounts. JEFFREY A. EVERETT Vice president, Portfolio Lyford Cay Management/Research, Templeton, Nassau, Bahamas Galbraith & Hansberger Ltd.; Vice President formerly, investment officer, First Pennsylvania Investment Research (until 1989). JOHN R. KAY Vice president of the Templeton 500 East Broward Blvd. Funds; vice president and treasurer Fort Lauderdale, Florida of Templeton Global Investors, Inc. Vice President and Templeton Worldwide, Inc.; assistant vice president of Franklin Templeton Distributors, Inc.; formerly, vice president and controller of the Keystone Group, Inc. THOMAS M. MISTELE Senior vice president of Templeton 700 Central Avenue Global Investors, Inc.; vice St. Petersburg, Florida president of Franklin Templeton Secretary Distributors, Inc.; secretary of the Templeton Funds; attorney, Dechert Price & Rhoads (1985-1988) and Freehill, Hollingdale & Page (1988); judicial clerk, U.S. District Court (Eastern District of Virginia) (1984-1985). JAMES R. BAIO Certified public accountant; 500 East Broward Blvd. treasurer of the Templeton Funds; Fort Lauderdale, Florida senior vice president of Templeton Treasurer Worldwide, Inc., Templeton Global Investors, Inc., and Templeton Funds Trust Company; formerly, senior tax manager of Ernst & Young (certified public accountants) (1977-1989). JACK L. COLLINS Assistant treasurer of the 700 Central Avenue Templeton Funds; assistant vice St. Petersburg, Florida president of Franklin Templeton Assistant Treasurer Investor Services, Inc.; former partner of Grant Thornton, independent public accountants. JEFFREY L. STEELE Partner, Dechert Price & Rhoads. 1500 K Street, N.W. Washington, D.C. Assistant Secretary __________________ * Messrs. Templeton, Johnson and Brady are Trustees who are "interested persons" of the Fund as that term is defined in the 1940 Act. Mr. Brady and Franklin Resources, Inc. are limited partners of Darby Overseas Partners, L.P. ("Darby Overseas"). Mr. Brady established Darby Overseas in February, 1994, and is Chairman and a shareholder of the corporate general partner of Darby Overseas. In addition, Darby Overseas and Templeton, Galbraith & Hansberger, Ltd. are limited partners of Darby Emerging Markets Fund, L.P. Messrs. von Diergardt, Bennett, Millsaps, Hines, Clarke, Ashton, Macklin and Fortunato and Ms. Krahmer are Trustees who are not "interested persons" of the Fund. As indicated above, certain of the Trustees and Officers hold positions with other funds in the Franklin Group of Funds and the Templeton Family of Funds. Each fund in the Templeton Family of Funds pays its independent directors/trustees and Mr. Brady an annual retainer and/or fees for attendance at board and committee meetings, the amount of which is based on the level of assets in the fund. Accordingly, the Fund pays each independent Trustee and Mr. Brady an annual retainer of $100. Trustees are reimbursed for any expenses incurred in attending meetings. During the fiscal year ended August 31, 1994, pursuant to the compensation arrangement then in effect, fees totalling $22,500 were paid by the Fund to Messrs. Ashton ($1,850), Bennett ($2,850), Brady ($1,850), Clarke ($2,850), Fortunato ($1,850), Hines ($2,850), Macklin ($1,850), Millsaps ($2,850), and von Diergardt-Naglo ($1,850) and Mrs. Krahmer ($1,850). For the fiscal year ended August 31, 1994, pursuant to the compensation arrangement then in effect, Messrs. Ashton, Bennett, Brady, Clarke, Fortunato, Hines, Johnson, Macklin, Millsaps, Templeton and von Diergardt-Naglo and Mrs. Krahmer received total fees of $__________, $105,625, $86,125, $95,275, $__________, $106,125, $__________, $__________, $106,125, $__________, $75,275, and $75,275, respectively, from the various Franklin and Templeton funds for which they serve as directors, trustees, or managing general partners. No Officer or Trustee received any other compensation directly from the Fund. PRINCIPAL SHAREHOLDERS As of ________, 1995 there were ________ Shares of the Fund outstanding, of which ______ Shares (_____%) were owned beneficially, directly or indirectly, by all the Trustees and officers of the Fund as a group. As of _______, 1995, to the knowledge of management, no person owned beneficially 5% or more of the outstanding Shares, except Merrill Lynch, Pierce, Fenner & Smith, Inc., owned ______ Shares (____% of the outstanding Shares). INVESTMENT MANAGEMENT AND OTHER SERVICES Investment Management Agreement. The Investment Manager of the Fund is Templeton, Galbraith & Hansberger Ltd., a Bahamian corporation with offices in Nassau, Bahamas. On April 15, 1994, the Investment Manager assumed the investment management duties of Templeton Investment Counsel, Inc., a Florida corporation, with respect to the Fund under the Investment Management Agreement. The Investment Management Agreement dated October 30, 1992 (the "Agreement") was approved by the Shareholders of the Fund on October 30, 1992, was last approved by the Board of Trustees, including a majority of the Trustees who were not parties to the Agreement or interested persons of any such party, at a meeting on December 6, 1994, and will run through December 31, 1995. The Agreement continues from year to year subject to approval annually by the Board of Trustees or by vote of a majority of the outstanding Shares of the Fund (as defined in the 1940 Act) and also, in either event, with the approval of a majority of those Trustees who are not parties to the Agreement or interested persons of any such party in person at a meeting called for the purpose of voting on such approval. The Agreement requires the Investment Manager to manage the investment and reinvestment of the Fund's assets. The Investment Manager is not required to furnish any personnel, overhead items or facilities for the Fund, including daily pricing or trading desk facilities, although such expenses are paid by investment advisers of some other investment companies. The Agreement provides that the Investment Manager will select brokers and dealers for execution of the Fund's portfolio transactions consistent with the Fund's brokerage policies (see "Brokerage Allocation"). Although the services provided by broker-dealers in accordance with the brokerage policies incidentally may help reduce the expenses of or otherwise benefit the Investment Manager and other investment advisory clients of the Investment Manager and of its affiliates, as well as the Fund, the value of such services is indeterminable and the Investment Manager's fee is not reduced by any offset arrangement by reason thereof. When the Investment Manager determines to buy or sell the same security for the Fund that the Investment Manager or one or more of its affiliates has selected for one or more of its other clients or for clients of its affiliates, the orders for all such securities transactions are placed for execution by methods determined by the Investment Manager, with approval by the Board of Trustees, to be impartial and fair, in order to seek good results for all parties (see "Investment Objectives and Policies -- Trading Policies"). Records of securities transactions of persons who know when orders are placed by the Fund are available for inspection at least four times annually by the Compliance Officer of the Fund so that the non-interested Trustees (as defined in the 1940 Act) can be satisfied that the procedures are generally fair and equitable to all parties. The Agreement provides that the Investment Manager shall have no liability to the Fund or any Shareholder of the Fund for any error of judgment, mistake of law, or any loss arising out of any investment or other act or omission in the performance by the Investment Manager of its duties under the Agreement, except liability resulting from willful misfeasance, bad faith or gross negligence on the Investment Manager's part or reckless disregard of its duties under the Agreement. The Agreement will terminate automatically in the event of its assignment, and may be terminated by the Fund at any time without payment of any penalty on 60 days' written notice, with the approval of a majority of the Trustees in office at the time or by vote of a majority of the outstanding voting securities of the Fund (as defined in the 1940 Act). Management Fees. For its services, the Fund pays the Investment Manager a monthly fee equal on an annual basis to 0.75% of its average daily net assets during the year. Each class of Shares pays a portion of the fee, determined by the proportion of the Fund that it represents. During the fiscal years ended August 31, 1994, 1993, and 1992, the Investment Manager (and, prior to October 30, 1992, TGH, the Fund's previous investment manager) received from the Fund under the Agreement and under agreements in effect prior to October 30, 1992 fees of $733,198, $341,213, and $265,021, respectively. The Investment Manager will comply with any applicable state regulations which may require the Investment Manager to make reimbursements to the Fund in the event that the Fund's aggregate operating expenses, including the management fee, but generally excluding interest, taxes, brokerage commissions and extraordinary expenses, are in excess of specific applicable limitations. The strictest rule currently applicable to the Fund is 2.5% of the first $30,000,000 of net assets, 2% of the next $70,000,000 of net assets and 1.5% of the remainder. The Investment Manager. The Investment Manager is an indirect wholly owned subsidiary of Franklin, a publicly traded company whose shares are listed on the New York Stock Exchange. Charles B. Johnson (a vice president of the Fund) and Rupert H. Johnson, Jr. (a Trustee of the Fund) are principal shareholders of Franklin and own, respectively, approximately 20% and 16% of its outstanding shares. Messrs. Charles B. Johnson and Rupert H. Johnson, Jr. are brothers. Business Manager. Templeton Global Investors, Inc. performs certain administrative functions as Business Manager for the Fund, including: o providing office space, telephone, office equipment and supplies for the Fund; o paying compensation of the Fund's officers for services rendered as such; o authorizing expenditures and approving bills for payment on behalf of the Fund; o supervising preparation of annual and semiannual reports to Shareholders, notices of dividends, capital gain distributions and tax credits, and attending to routine correspondence and other communications with individual Shareholders; o daily pricing of the Fund's investment portfolio and preparing and supervising publication of daily quotations of the bid and asked prices of the Fund's Shares, earnings reports and other financial data; o monitoring relationships with organizations serving the Fund, including the custodian and printers; o providing trading desk facilities for the Fund; o supervising compliance by the Fund with recordkeeping requirements under the 1940 Act and the rules and regulations thereunder, with state regulatory requirements, maintaining books and records for the Fund (other than those maintained by the custodian and transfer agent), and preparing and filing tax reports other than the Fund's income tax returns; o monitoring the qualifications of tax deferred retirement plans providing for investment in Shares of the Fund; and o providing executive, clerical and secretarial help needed to carry out these responsibilities. For its services, the Business Manager receives a monthly fee equal on an annual basis to 0.15% of the first $200,000,000 of the Fund's average daily net assets, reduced to 0.135% annually of such net assets in excess of $200,000,000, further reduced to 0.1% annually of such net assets in excess of $700,000,000, and further reduced to 0.075% annually of such net assets in excess of $1,200,000,000. Each class of Shares pays a portion of the fee, determined by the proportion of the Fund that it represents. Since the Business Manager's fee covers services often provided by investment advisers to other funds, the Fund's combined expenses for advisory and administrative services together may be higher than those of some other investment companies. During the fiscal years ended August 31, 1994, 1993, and 1992, the Business Manager (and, prior to April 1, 1993, Templeton Funds Management, Inc., the previous business manager) received business management fees of $146,640, $68,243, and $53,004, respectively. The Business Manager is relieved of liability to the Fund for any act or omission in the course of its performance under the Business Management Agreement, in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its duties and obligations under the Agreement. The Business Management Agreement may be terminated by the Fund at any time on 60 days' written notice without payment of penalty, provided that such termination by the Fund shall be directed or approved by vote of a majority of the Trustees of the Fund in office at the time or by vote of a majority of the outstanding voting securities of the Fund, and shall terminate automatically and immediately in the event of its assignment. Templeton Global Investors, Inc. is an indirect wholly owned subsidiary of Franklin. Custodian and Transfer Agent. The Chase Manhattan Bank, N.A., serves as Custodian of the Fund's assets, which are maintained at the Custodian's principal office, MetroTech Center, Brooklyn, New York 11245, and at the offices of its branches and agencies throughout the world. The Custodian has entered into agreements with foreign sub-custodians approved by the Trustees pursuant to Rule 17f-5 under the 1940 Act. The Custodian, its branches and sub-custodians generally domestically, and frequently abroad, do not actually hold certificates for the securities in their custody, but instead have book records with domestic and foreign securities depositories, which in turn have book records with the transfer agents of the issuers of the securities. Compensation for the services of the Custodian is based on a schedule of charges agreed on from time to time. Franklin Templeton Investor Services, Inc. serves as the Fund's Transfer Agent. Services performed by the Transfer Agent include processing purchase, transfer and redemption orders, making dividend payments, capital gain distributions and reinvestments, and handling routine communications with Shareholders. The Transfer Agent receives from the Fund an annual fee of $13.74 per Shareholder account plus out-of-pocket expenses. This fee is adjusted each year to reflect changes in the Department of Labor Consumer Price Index. Legal Counsel. Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005, is legal counsel for the Fund. Independent Accountants. The firm of McGladrey & Pullen, 555 Fifth Avenue, New York, New York 10017, serves as independent accountants for the Fund. Its audit services comprise examination of the Fund's financial statements and review of the Fund's filings with the Securities and Exchange Commission and the Internal Revenue Service. Reports to Shareholders. The Fund's fiscal year ends on August 31. Shareholders are provided at least semiannually with reports showing the Fund's portfolio and other information, including an annual report with financial statements audited by independent accountants. BROKERAGE ALLOCATION The Investment Management Agreement provides that the Investment Manager is responsible for selecting members of securities exchanges, brokers and dealers (such members, brokers and dealers being hereinafter referred to as "brokers") for the execution of the Fund's portfolio transactions and, when applicable, the negotiation of commissions in connection therewith. All decisions and placements are made in accordance with the following principles: 1. Purchase and sale orders are usually placed with brokers who are selected by the Investment Manager as able to achieve "best execution" of such orders. "Best execution" means prompt and reliable execution at the most favorable securities price, taking into account the other provisions hereinafter set forth. The determination of what may constitute best execution and price in the execution of a securities transaction by a broker involves a number of considerations, including, without limitation, the overall direct net economic result to the Fund (involving both price paid or received and any commissions and other costs paid), the efficiency with which the transaction is effected, the ability to effect the transaction at all where a large block is involved, availability of the broker to stand ready to execute possibly difficult transactions in the future, and the financial strength and stability of the broker. Such considerations are judgmental and are weighed by the Investment Manager in determining the overall reasonableness of brokerage commissions. 2. In selecting brokers for portfolio transactions, the Investment Manager takes into account its past experience as to brokers qualified to achieve "best execution," including brokers who specialize in any foreign securities held by the Fund. 3. The Investment Manager is authorized to allocate brokerage business to brokers who have provided brokerage and research services, as such services are defined in Section 28(e) of the Securities Exchange Act of 1934 (the "1934 Act"), for the Fund and/or other accounts, if any, for which the Investment Manager exercises investment discretion (as defined in Section 3(a)(35) of the 1934 Act) and, as to transactions to which fixed minimum commission rates are not applicable, to cause the Fund to pay a commission for effecting a securities transaction in excess of the amount another broker would have charged for effecting that transaction, if the Investment Manager in making the selection in question determines in good faith that such amount of commission is reasonable in relation to the value of the brokerage and research services provided by such broker, viewed in terms of either that particular transaction or the Investment Manager's overall responsibilities with respect to the Fund and the other accounts, if any, as to which it exercises investment discretion. In reaching such determination, the Investment Manager is not required to place or attempt to place a specific dollar value on the research or execution services of a broker or on the portion of any commission reflecting either of said services. In demonstrating that such determinations were made in good faith, the Investment Manager shall be prepared to show that all commissions were allocated and paid for purposes contemplated by the Fund's brokerage policy; that the research services provide lawful and appropriate assistance to the Investment Manager in the performance of its investment decision-making responsibilities; and that the commissions paid were within a reasonable range. The determination that commissions were within a reasonable range shall be based on any available information as to the level of commissions known to be charged by other brokers on comparable transactions, but there shall be taken into account the Fund's policies that (i) obtaining a low commission is deemed secondary to obtaining a favorable securities price, since it is recognized that usually it is more beneficial to the Fund to obtain a favorable price than to pay the lowest commission; and (ii) the quality, comprehensiveness and frequency of research studies which are provided for the Investment Manager are useful to the Investment Manager in performing its advisory services under its Agreement with the Fund. Research services provided by brokers to the Investment Manager are considered to be in addition to, and not in lieu of, services required to be performed by the Investment Manager under its Investment Management Agreement with the Fund. Research furnished by brokers through whom the Fund effects securities transactions may be used by the Investment Manager for any of its accounts, and not all such research may be used by the Investment Manager for the Fund. When execution of portfolio transactions is allocated to brokers trading on exchanges with fixed brokerage commission rates, account may be taken of various services provided by the broker, including quotations outside the United States for daily pricing of foreign securities held in the Fund's portfolio. 4. Purchases and sales of portfolio securities within the United States other than on a securities exchange are executed with primary market makers acting as principal, except where, in the judgment of the Investment Manager, better prices and execution may be obtained on a commission basis or from other sources. 5. Sales of the Fund's Shares (which shall be deemed to include Shares of other companies registered under the 1940 Act which have either the same investment adviser or an investment adviser affiliated with the Fund's Investment Manager) made by a broker are one factor among others to be taken into account in deciding to allocate portfolio transactions (including agency transactions, principal transactions, purchases in underwritings or tenders in response to tender offers) for the account of the Fund to that broker; provided that the broker shall furnish "best execution," as defined in paragraph 1 above, and that such allocation shall be within the scope of the Fund's other policies as stated above; and provided further, that in every allocation made to a broker in which the sale of Shares is taken into account there shall be no increase in the amount of the commissions or other compensation paid to such broker beyond a reasonable commission or other compensation determined, as set forth in paragraph 3 above, on the basis of best execution alone or best execution plus research services, without taking account of or placing any value upon such sale of Shares. Insofar as known to management, no Trustee or officer of the Fund, nor the Investment Manager or Principal Underwriter or any person affiliated with either of them, has any material direct or indirect interest in any broker employed by or on behalf of the Fund. Franklin Templeton Distributors, Inc., the Fund's Principal Underwriter, is a registered broker-dealer, but has never executed any purchase or sale transactions for the Fund's portfolio or participated in any commissions on any such transactions, and has no intention of doing so in the future. The total brokerage commissions on the portfolio transactions for the Fund during the fiscal years ended August 31, 1994, 1993, and 1992, (not including any spreads or concessions on principal transactions) were $412,000, $156,000, and $64,989, respectively. All portfolio transactions are allocated to broker-dealers only when their prices and execution, in the judgment of the Investment Manager, are equal to the best available within the scope of the Fund's policies. There is no fixed method used in determining which broker-dealers receive which order or how many orders. PURCHASE, REDEMPTION AND PRICING OF SHARES The Prospectus describes the manner in which the Fund's Shares may be purchased and redeemed. See "How to Buy Shares of the Fund" and "How to Sell Shares of the Fund" in the Prospectus. Net asset value per Share is determined as of the close of business on the New York Stock Exchange, every Monday through Friday (exclusive of national business holidays). The Fund's offices will be closed, and net asset value will not be calculated, on those days on which the New York Stock Exchange is closed, which currently are: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Trading in securities on European and Far Eastern securities exchanges and over-the-counter markets is normally completed well before the close of business in New York on each day on which the New York Stock Exchange is open. Trading of European or Far Eastern securities generally, or in a particular country or countries, may not take place on every New York business day. Furthermore, trading takes place in various foreign markets on days which are not business days in New York and on which the Fund's net asset value is not calculated. The Fund calculates net asset value per Share, and therefore effects sales, redemptions and repurchases of its Shares, as of the close of the New York Stock Exchange once on each day on which that Exchange is open. Such calculation does not take place contemporaneously with the determination of the prices of many of the portfolio securities used in such calculation and if events occur which materially affect the value of those foreign securities, they will be valued at fair market value as determined by the management and approved in good faith by the Board of Trustees. The Board of Trustees may establish procedures under which the Fund may suspend the determination of net asset value for the whole or any part of any period during which (1) the New York Stock Exchange is closed other than for customary weekend and holiday closings, (2) trading on the New York Stock Exchange is restricted, (3) an emergency exists as a result of which disposal of securities owned by the Fund is not reasonably practicable or it is not reasonably practicable for the Fund fairly to determine the value of its net assets, or (4) for such other period as the Securities and Exchange Commission may by order permit for the protection of the holders of the Fund's Shares. Ownership and Authority Disputes. In the event of disputes involving multiple claims of ownership or authority to control a shareholder's account, the Fund has the right (but has no obligation) to: (a) freeze the account and require the written agreement of all persons deemed by the Fund to have a potential property interest in the account, prior to executing instructions regarding the account; or (b) interplead disputed funds or accounts with a court of competent jurisdiction. Moreover, the Fund may surrender ownership of all or a portion of an account to the Internal Revenue Service in response to a Notice of Levy. In addition to the special purchase plans described in the Prospectus, other special purchase plans also are available: Tax Deferred Retirement Plans. The Fund offers its Shareholders the opportunity to participate in the following types of retirement plans: o For individuals whether or not covered by other qualified plans; o For simplified employee pensions; o For employees of tax-exempt organizations; and o For corporations, self-employed individuals and partnerships. Capital gains and income received by the foregoing plans generally are exempt from taxation until distribution from the plans. Investors considering participation in any such plan should review specific tax laws relating thereto and should consult their attorneys or tax advisers with respect to the establishment and maintenance of any such plan. Additional information, including the fees and charges with respect to all of these plans, is available upon request to the Principal Underwriter. No distribution under a retirement plan will be made until Templeton Funds Trust Company receives the participant's election on IRS Form W-4P (available on request from the Transfer Agent) and such other documentation as it deems necessary, as to whether or not U.S. income tax is to be withheld from such distribution. Individual Retirement Account (IRA). All individuals (whether or not covered by qualified private or governmental retirement plans) may purchase Shares of the Fund pursuant to an Individual Retirement Account. However, contributions to an IRA by an individual who is covered by a qualified private or governmental plan may not be tax-deductible depending on the individual's income. Custodial services for Individual Retirement Accounts are available through Templeton Funds Trust Company. Disclosure statements summarizing certain aspects of Individual Retirement Accounts are furnished to all persons investing in such accounts, in accordance with Internal Revenue Service regulations. Simplified Employee Pensions (SEP-IRA). For employers who wish to establish a simplified form of employee retirement program investing in Shares of the Fund, there are available Simplified Employee Pensions invested in IRA plans. Details and materials relating to these plans will be furnished upon request to the Principal Underwriter. Retirement Plan for Employees of Tax-Exempt Organizations (403(b)). Employees of public school systems and certain types of charitable organizations may enter into a deferred compensation arrangement for the purchase of Shares of the Fund without being taxed currently on the investment. Contributions which are made by the employer through salary reduction are excludable from the gross income of the employee. Such deferred compensation plans, which are intended to qualify under Section 403(b) of the Internal Revenue Code of 1986, as amended, are available through the Principal Underwriter. Custodial services are provided by Templeton Funds Trust Company. Qualified Plan for Corporations, Self-Employed Individuals and Partnerships. For employers who wish to purchase Shares of the Fund in conjunction with employee retirement plans, there is a prototype master plan which has been approved by the Internal Revenue Service. A "Section 401(k) plan" is also available. Templeton Funds Trust Company furnishes custodial services for these plans. For further details, including custodian fees and plan administration services, see the master plan and related material which is available from the Principal Underwriter. Letter of Intent. Purchasers who intend to invest $50,000 or more in Class I Shares of the Fund or any other fund in the Franklin Templeton Group (except Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, Templeton Variable Products Series Fund, Franklin Valuemark Funds and Franklin Government Securities Trust) within 13 months (whether in one lump sum or in installments, the first of which may not be less than 5% of the total intended amount and each subsequent installment not less than $25 unless the investor is a qualifying employee benefit plan (the "Benefit Plan"), including automatic investment and payroll deduction plans), and to beneficially hold the total amount of such Class I Shares fully paid for and outstanding simultaneously for at least one full business day before the expiration of that period, should execute a Letter of Intent ("LOI") on the form provided in the Shareholder Application in the Prospectus. Payment for not less than 5% of the total intended amount must accompany the executed LOI unless the investor is a Benefit Plan. Except for purchases of Shares by a Benefit Plan, those Class I Shares purchased with the first 5% of the intended amount stated in the LOI will be held as "Escrowed Shares" for as long as the LOI remains unfulfilled. Although the Escrowed Shares are registered in the investor's name, his full ownership of them is conditional upon fulfillment of the LOI. No Escrowed Shares can be redeemed by the investor for any purpose until the LOI is fulfilled or terminated. If the LOI is terminated for any reason other than fulfillment, the Transfer Agent will redeem that portion of the Escrowed Shares required and apply the proceeds to pay any adjustment that may be appropriate to the sales commission on all Class I Shares (including the Escrowed Shares) already purchased under the LOI and apply any unused balance to the investor's account. The LOI is not a binding obligation to purchase any amount of Shares, but its execution will result in the purchaser paying a lower sales charge at the appropriate quantity purchase level. A purchase not originally made pursuant to an LOI may be included under a subsequent LOI executed within 90 days of such purchase. In this case, an adjustment will be made at the end of 13 months from the effective date of the LOI at the net asset value per Share then in effect, unless the investor makes an earlier written request to the Principal Underwriter upon fulfilling the purchase of Shares under the LOI. In addition, the aggregate value of any Shares purchased prior to the 90-day period referred to above may be applied to purchases under a current LOI in fulfilling the total intended purchases under the LOI. However, no adjustment of sales charges previously paid on purchases prior to the 90-day period will be made. If an LOI is executed on behalf of a benefit plan (such plans are described under "How to Buy Shares of the Fund--Net Asset Value Purchases" in the Prospectus), the level and any reduction in sales charge for these employee benefit plans will be based on actual plan participation and the projected investments in the Franklin Templeton Group (except Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, Templeton Variable Products Series Fund, Franklin Valuemark Funds and Franklin Government Securities Trust) under the LOI. Benefit Plans are not subject to the requirement to reserve 5% of the total intended purchase, or to any penalty as a result of the early termination of a plan, nor are Benefit Plans entitled to receive retroactive adjustments in price for investments made before executing LOIs. Purchases at Net Asset Value. The following amounts will be paid by FTD, from its own resources, to securities dealers who initiate and are responsible for purchases of $1 million or more and for purchases made at net asset value by certain designated retirement plans (excluding IRA and IRA rollovers), certain trust companies and trust departments of banks and certain retirement plans of organizations with collective retirement plan assets of $10 million or more: 1.00% on sales of $1 million but less $2 million, plus 0.80% on sales of $2 million but less than $3 million, plus 0.50% on sales of $3 million but less than $50 million, plus 0.25% on sales of $50 million but less than $100 million, plus 0.15% on sales of $100 million or more. Dealer concession breakpoints are reset every 12 months for purposes of additional purchases. As described in the Prospectus, FTD or its affiliates may make payments, from its own resources, to securities dealers responsible for certain purchases at net asset value. As a condition of such payments, FTD or its affiliates may require reimbursement from such securities dealers with respect to certain redemptions made within 12 months of the calendar month following purchase as well as other conditions, all of which may be imposed by an agreement between FTD, or its affiliates, and the securities dealers. TAX STATUS The Fund intends normally to pay a dividend at least once annually representing substantially all of its net investment income and to distribute at least annually any realized capital gains. By so doing and meeting certain diversification of assets and other requirements of the Internal Revenue Code of 1986, as amended (the "Code"), the Fund intends to qualify annually as a regulated investment company under the Code. The status of the Fund as a regulated investment company does not involve government supervision of management or of its investment practices or policies. As a regulated investment company, the Fund generally will be relieved of liability for United States Federal income tax on that portion of its net investment income (which includes, among other items, dividends and interest) and net realized capital gains which it distributes to its Shareholders. Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement also are subject to a nondeductible 4% excise tax. To prevent application of the excise tax, the Fund intends to make distributions in accordance with the calendar year distribution requirement. Among other things, in order for the Fund to qualify as a regulated investment company, at least 90% of its income for each taxable year must be so-called "qualifying income" (e.g., interest, dividends, gains from the sale or other disposition of stocks and securities, and other income (including gains from options, futures, and forward contracts) derived with respect to the business of investing in stocks or securities). Certain of the debt securities acquired by the Fund may be secured in whole or in part by interests in real estate. If the Fund were to acquire real estate (by foreclosure, for example), income, if any, generated by that real estate (including rental income and gain on its disposition) may not be regarded as qualifying income. If the Fund's non-qualifying income for a taxable year exceeded 10% of its gross income, it would fail to qualify as a regulated investment company and it would be taxed in the same manner as an ordinary corporation. In that case, the Fund would be ineligible to deduct its distributions to its Shareholders and those distributions, to the extent derived from the Fund's current and accumulated earnings and profits, would constitute dividends (which may be eligible for the corporate dividends- received deduction) which are taxable to Shareholders as ordinary income, even though those distributions might otherwise, at least in part, have been treated in the Shareholder's hands as long-term capital gain. If the Fund fails to qualify as a regulated investment company in a given taxable year, it must distribute its earnings and profits accumulated in that year in order to qualify again as a regulated investment company. Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% excise tax. To prevent application of the tax, the Fund must distribute or be deemed to have distributed with respect to each calendar year an amount equal to the sum of: (1) at least 98% of its ordinary income (not taking into account any capital gains or losses) for the calendar year; (2) at least 98% of its capital gains in excess of its capital losses (adjusted for certain ordinary losses) for the 12-month period ending on October 31 of the calendar year; and (3) all taxable ordinary income and capital gains for previous years that were not distributed during such years. A distribution will be treated as paid on December 31 of the calendar year if it is declared by the Fund in October, November, or December of that year to Shareholders of record on a date in such a month and paid by the Fund during January of the following calendar year. Such distributions will be treated as received by Shareholders in the calendar year in which the distributions are declared, rather than the calendar year in which the distributions are received. Dividends of net investment income and net short-term capital gains are taxable to Shareholders as ordinary income. Distributions of net investment income may be eligible for the corporate dividends-received deduction to the extent attributable to the Fund's qualifying dividend income. However, the alternative minimum tax applicable to corporations may reduce the benefit of the dividends-received deduction. Distributions of net capital gains (the excess of net long-term capital gains over net short-term capital losses) designated by the Fund as capital gain dividends are taxable to Shareholders as long-term capital gains, regardless of the length of time the Fund's Shares have been held by a Shareholder, and are not eligible for the dividends-received deduction. All dividends and distributions are taxable to Shareholders, whether or not reinvested in Shares of the Fund. Shareholders will be notified annually as to the Federal tax status of dividends and distributions they receive and any tax withheld thereon. Distributions by the Fund reduce the net asset value of the Fund Shares. Should a distribution reduce the net asset value below a Shareholder's cost basis, the distribution nevertheless would be taxable to the Shareholder as ordinary income or capital gain as described above, even though, from an investment standpoint, it may constitute a partial return of capital. In particular, investors should be careful to consider the tax implications of buying Shares just prior to a distribution by the Fund. The price of Shares purchased at that time includes the amount of the forthcoming distribution, but the distribution will generally be taxable to them. The Fund may invest in real estate investment trusts ("REITs") that hold residual interests in real estate mortgage investment conduits ("REMICs"). Under Treasury regulations that have not yet been issued, but may apply retroactively, a portion of the Fund's income from a REIT that is attributable to the REITs residual interest in a REMIC (referred to in the Code as an "excess inclusion") will be subject to Federal income tax in all events. These regulations are also expected to provide that excess inclusion income of a regulated investment company, such as the Fund, will be allocated to shareholders of the regulated investment company in proportion to the dividends received by such shareholders, with the same consequences as if the shareholders held the related REMIC residual interest directly. In general, excess inclusion income allocated to shareholders (i) cannot be offset by net operating losses (subject to a limited exception for certain thrift institutions), (ii) will constitute unrelated business taxable income to entities (including a qualified pension plan, an individual retirement account, a 401(k) plan, a Keogh plan or other tax-exempt entity) subject to tax on unrelated business income, thereby potentially requiring such an entity that is allocated excess inclusion income, and otherwise might not be required to file a tax return, to file a tax return and pay tax on such income, and (iii) in the case of a foreign shareholder, will not qualify for any reduction in U.S. federal withholding tax. In addition, if at any time during any taxable year a "disqualified organization" (as defined in the Code) is a record holder of a share in a regulated investment company, then the regulated investment company will be subject to a tax equal to that portion of its excess inclusion income for the taxable year that is allocable to the disqualified organization, multiplied by the highest federal income tax rate imposed on corporations. The Investment Manager does not intend on behalf of the Fund to invest in REITs, a substantial portion of the assets of which consists of residual interests in REMICs. The Fund may invest in stocks of foreign companies that are classified under the Code as passive foreign investment companies ("PFICs"). In general, a foreign company is classified as a PFIC if at least one-half of its assets constitute investment-type assets or 75% or more of its gross income is investment-type income. Under the PFIC rules, an "excess distribution" received with respect to PFIC stock is treated as having been realized ratably over the period during which the Fund held the PFIC stock. The Fund itself will be subject to tax on the portion, if any, of the excess distribution that is allocated to the Fund's holding period in prior taxable years (and an interest factor will be added to the tax, as if the tax had actually been payable in such prior taxable years) even though the Fund distributes the corresponding income to Shareholders. Excess distributions include any gain from the sale of PFIC stock as well as certain distributions from a PFIC. All excess distributions are taxable as ordinary income. The Fund may be able to elect alternative tax treatment with respect to PFIC stock. Under an election that currently may be available, the Fund generally would be required to include in its gross income its share of the earnings of a PFIC on a current basis, regardless of whether any distributions are received from the PFIC. If this election were made, the special rules, discussed above, relating to the taxation of excess distributions, would not apply. In addition, another election may be available that would involve marking to market the Fund's PFIC shares at the end of each taxable year (and on certain other dates prescribed in the Code), with the result that unrealized gains are treated as though they were realized. If this election were made, tax at the fund level under the PFIC rules would generally be eliminated, but the Fund could, in limited circumstances, incur nondeductible interest charges. The Fund's intention to qualify annually as a regulated investment company may limit its elections with respect to PFIC shares. Because the application of the PFIC rules may affect, among other things, the character of gains, the amount of gain or loss and the timing of the recognition of income with respect to PFIC stock, as well as subject the Fund itself to tax on certain income from PFIC stock, the amount that must be distributed to Shareholders, and which will be taxed to Shareholders as ordinary income or long-term capital gain, may be increased or decreased substantially as compared to a fund that did not invest in PFIC stock. Income received by the Fund 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 the Fund's total assets at the close of its taxable year consists of securities of foreign corporations, the Fund will be eligible and intends to elect to "pass through" to the Fund's Shareholders the amount of foreign taxes paid by the Fund. Pursuant to this election, a Shareholder will be required to include in gross income (in addition to taxable dividends actually received) his pro rata share of the foreign taxes paid by the Fund, and will be entitled either to deduct (as an itemized deduction) his pro rata share of foreign income and similar taxes in computing his taxable income or to use it as a foreign tax credit against his U.S. Federal income tax liability, subject to limitations. No deduction for foreign taxes may be claimed by a Shareholder who does not itemize deductions, but such a Shareholder may be eligible to claim the foreign tax credit (see below). Each Shareholder will be notified within 60 days after the close of the Fund's taxable year whether the foreign taxes paid by the Fund will "pass through" for that year. Generally, a credit for foreign taxes is subject to the limitation that it may not exceed the Shareholder's U.S. tax attributable to his foreign source taxable income. For this purpose, if the pass-through election is made, the source of the Fund's income flows through to its Shareholders. With respect to the 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. Shareholders may be unable to claim a credit for the full amount of their proportionate share of the foreign taxes paid by the 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 the 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 the Fund will be treated as United States source income. Certain options, futures contracts and forward contracts in which the Fund may invest are "section 1256 contracts." Gains or losses on section 1256 contracts generally are considered 60% long-term and 40% short-term capital gains or losses ("60/40"); however, foreign currency gains or losses (as discussed below) arising from certain section 1256 contracts may be treated as ordinary income or loss. Also, section 1256 contracts held by the Fund at the end of each taxable year (and at certain other times prescribed pursuant to the Code) are "marked-to-market" with the result that unrealized gains or losses are treated as though they were realized. Generally, the hedging transactions undertaken by the Fund may result in "straddles" for U.S. Federal income tax purposes. The straddle rules may affect the character of gains (or losses) realized by the Fund. In addition, losses realized by the Fund on positions that are part of a straddle may be deferred under the straddle rules, rather than being taken into account in calculating the taxable income for the taxable year in which the losses are realized. Because only a few regulations implementing the straddle rules have been promulgated, the tax consequences to the Fund of hedging transactions are not entirely clear. The hedging transactions may increase the amount of short-term capital gain realized by the Fund which is taxed as ordinary income when distributed to Shareholders. The Fund may make one or more of the elections available under the Code which are applicable to straddles. If the Fund makes any of the elections, the amount, character, and timing of the recognition of gains or losses from the affected straddle positions will be determined under rules that vary according to the election(s) made. The rules applied under certain of the elections may operate to accelerate the recognition of gains or losses from the affected straddle positions. Because application of the straddle rules may affect the character of gains or losses, defer losses and/or accelerate the recognition of gains or losses from the affected straddle positions, the amount which must be distributed to Shareholders and which will be taxed to Shareholders as ordinary income or long-term capital gain may be increased or decreased as compared to a fund that did not engage in such hedging transactions. Requirements relating to the Fund's tax status as a regulated investment company may limit the extent to which the Fund will be able to engage in transactions in options, futures contracts and forward contracts. Under the Code, gains or losses attributable to fluctuations in foreign currency exchange rates which occur between the time the Fund accrues income or other receivables or accrues expenses or other liabilities denominated in a foreign currency and the time the Fund actually collects such receivables or pays such liabilities generally are treated as ordinary income or ordinary loss. Similarly, on disposition of debt securities denominated in a foreign currency and on disposition of certain futures contracts, forward contracts, and options, gains or losses attributable to fluctuations in the value of foreign currency between the date of acquisition of the security or contract and the date of disposition also are treated as ordinary gain or loss. These gains and losses, referred to under the Code as "section 988" gains and losses, may increase or decrease the amount of the Fund's net investment income to be distributed to its Shareholders as ordinary income. For example, fluctuations in exchange rates may increase the amount of income that the Fund must distribute in order to qualify for treatment as a regulated investment company and to prevent application of an excise tax on undistributed income. Alternatively, fluctuations in exchange rates may decrease or eliminate income available for distribution. If section 988 losses exceed other net investment income during a taxable year, the Fund would not be able to make ordinary dividend distributions, or distributions made before the losses were realized would be recharacterized as a return of capital to Shareholders for Federal income tax purposes, rather than as an ordinary dividend, reducing each Shareholder's basis in his Fund Shares. Upon the sale or exchange of his Shares, a Shareholder will realize a taxable gain or loss depending upon his basis in the Shares. Such gain or loss will be treated as capital gain or loss if the Shares are capital assets in the Shareholder's hands, and generally will be long-term if the Shareholder's holding period for the Shares is more than one year and generally otherwise will be short-term. Any loss realized on a sale or exchange will be disallowed to the extent that the Shares disposed of are replaced (including replacement through the reinvesting of dividends and capital gain distributions in the Fund) within a period of 61 days beginning 30 days before and ending 30 days after the disposition of the Shares. In such a case, the basis of the Shares acquired will be adjusted to reflect the disallowed loss. Any loss realized by a Shareholder on the sale of Fund Shares held by the Shareholder for six months or less will be treated for Federal income tax purposes as a long-term capital loss to the extent of any distributions of long-term capital gains received by the Shareholder with respect to such Shares. Under certain circumstances, the sales charge incurred in acquiring Shares of the Fund may not be taken into account in determining the gain or loss on the disposition of those Shares. This rule applies where Shares of the Fund are exchanged within 90 days after the date they were purchased and new Shares of the Fund or another eligible regulated investment company are acquired without a sales charge or at a reduced sales charge. In that case, the gain or loss recognized on the exchange will be determined by excluding from the tax basis of the Shares exchanged all or a portion of the sales charge incurred in acquiring those Shares. This exclusion applies to the extent that the otherwise applicable sales charge with respect to the newly acquired Shares is reduced as a result of having incurred a sales charge initially. The portion of the sales charge affected by this rule will be treated as a sales charge paid for the new Shares. The Fund generally will be required to withhold Federal income tax at a rate of 31% ("backup withholding") from dividends paid, capital gain distributions, and redemption proceeds to Shareholders if (1) the Shareholder fails to furnish the Fund with the Shareholder's correct taxpayer identification number or social security number and to make such certifications as the Fund may require, (2) the Internal Revenue Service notifies the Shareholder or the Fund that the Shareholder has failed to report properly certain interest and dividend income to the Internal Revenue Service and to respond to notices to that effect, or (3) when required to do so, the Shareholder fails to certify that he is not subject to backup withholding. Any amounts withheld may be credited against the Shareholder's Federal income tax liability. Distributions also may be subject to state, local and foreign taxes. U.S. tax rules applicable to foreign investors may differ significantly from those outlined above. Shareholders are advised to consult their own tax advisers for details with respect to the particular tax consequences to them of an investment in the Fund. PRINCIPAL UNDERWRITER Franklin Templeton Distributors, Inc. ("FTD" or the "Principal Underwriter"), 700 Central Avenue, P.O. Box 33030, St. Petersburg, Florida 33733-8030, toll free telephone (800) 237- 0738, is the Principal Underwriter of the Fund's Shares. FTD is a wholly owned subsidiary of Franklin. The Fund, pursuant to Rule 12b-1 under the 1940 Act, has adopted Distribution Plans (the "Plans"). Under the Plans adopted with respect to Class I Shares, the Fund may reimburse the Principal Underwriter monthly (subject to a limit of 0.25% per annum of the Fund's average daily net assets attributable to Class I Shares) for FTD's costs and expenses in connection with any activity which is primarily intended to result in the sale of Fund Shares. Under the Plans adopted with respect to Class II Shares, the Fund may reimburse FTD monthly (subject to a limit of $1.00% per annum of the Fund's average daily assets attributable to Class II Shares of which up to 0.25% of such net assets may be paid to dealers for personal service and/or maintenance of Shareholder accounts) for FTD's costs and expenses in connection with any activity which is primarily intended to result in the sale of the Fund's Shares. Payments to FTD could be for various types of activities, including (1) payments to broker-dealers who provide certain services of value to the Fund's Shareholders (sometimes referred to as a "trail fee"); (2) reimbursement of expenses relating to selling and servicing efforts or of organizing and conducting sales seminars; (3) payments to employees or agents of the Principal Underwriter who engage in or support distribution of Shares; (4) payments of the costs of preparing, printing and distributing Prospectuses and reports to prospective investors and of printing and advertising expenses; (5) payment of dealer commissions and wholesaler compensation in connection with sales of Fund Shares exceeding $1 million (on which the Fund imposes no initial sales charge) and interest or carrying charges in connection therewith; and (6) such other similar services as the Fund's Board of Trustees determines to be reasonably calculated to result in the sale of Shares. Under the Plans, the costs and expenses not reimbursed in any one given month (including costs and expenses not reimbursed because they exceed the percentage limit applicable to either class of Shares) may be reimbursed in subsequent months or years. During the fiscal year ended August 31, 1994, FTD incurred costs and expenses of $245,069 in connection with distribution of Class I Shares of the Fund. During the same period, the Fund made reimbursements pursuant to the Plan in the amount of $244,400. As indicated above, unreimbursed expenses, which amount to $669 for Class I Shares of the Fund, may be reimbursed by the Fund during the fiscal year ending August 31, 1995 or in subsequent years. In the event that the Plan is terminated, the Fund will not be liable to FTD for any unreimbursed expenses that had been carried forward from previous months or years. During the fiscal year ended August 31, 1994, FTD spent, pursuant to the Plan, the following amounts on: compensation to dealers, $189,177; sales promotion, $1,949; printing, $42,525; advertising, $66; and wholesale costs and expenses, $11,352. The Underwriting Agreement provides that the Principal Underwriter will use its best efforts to maintain a broad distribution of the Fund's Shares among bona fide investors and may sign selling agreements with responsible dealers, as well as sell to individual investors. The Shares are sold only at the Offering Price in effect at the time of sale, and the Fund receives not less than the full net asset value of the Shares sold. The discount between the Offering Price and the net asset value may be retained by the Principal Underwriter or it may reallow all or any part of such discount to dealers. During the fiscal years ended August 31, 1994, 1993, and 1992, FTD (and, prior to June 1, 1993, Templeton Funds Distributor, Inc.) retained of such discount $422,672, $141,190, and $51,868, or approximately 15.52%, 16%, and 11.42%, respectively. The Principal Underwriter in all cases buys Shares from the Fund acting as principal for its own account. Dealers generally act as principal for their own account in buying Shares from the Principal Underwriter. No agency relationship exists between any dealer and the Fund or the Principal Underwriter. The Underwriting Agreement provides that the Fund shall pay the costs and expenses incident to registering and qualifying its Shares for sale under the Securities Act of 1933 and under the applicable Blue Sky laws of the jurisdictions in which the Principal Underwriter desires to distribute such Shares, and for preparing, printing and distributing reports to Shareholders. The Principal Underwriter pays the cost of printing additional copies of Prospectuses and reports to Shareholders used for selling purposes. (The Fund pays costs of preparation, set-up and initial supply of the Fund's Prospectus for existing Shareholders.) The Underwriting Agreement is subject to renewal from year to year in accordance with the provisions of the 1940 Act and terminates automatically in the event of its assignment. The Underwriting Agreement may be terminated without penalty by either party upon 60 days' written notice to the other, provided termination by the Fund shall be approved by the Board of Trustees or a majority (as defined in the 1940 Act) of the Shareholders. The Principal Underwriter is relieved of liability for any act or omission in the course of its performance of the Underwriting Agreement, in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations. FTD is the principal underwriter for the other Templeton Funds. DESCRIPTION OF SHARES The Shares have non-cumulative voting rights so that the holders of a plurality of the Shares voting for the election of Trustees at a meeting at which 50% of the outstanding Shares are present can elect all the Trustees and, in such event, the holders of the remaining Shares voting for the election of Trustees will not be able to elect any person or persons to the Board of Trustees. The Declaration of Trust provides that the holders of not less than two-thirds of the outstanding Shares of the Fund may remove a person serving as Trustee either by declaration in writing or at a meeting called for such purpose. The Trustees are required to call a meeting for the purpose of considering the removal of a person serving as Trustee if requested in writing to do so by the holders of not less than 10% of the outstanding Shares of the Fund. In addition, the Fund is required to assist Shareholder communication in connection with the calling of a Shareholder meeting to consider the removal of a Trustee. Under Massachusetts law, Shareholders could, under certain circumstances, be held personally liable for the obligations of the Fund. However, the Declaration of Trust disclaims liability of the Shareholders, Trustees or officers of the Fund for acts or obligations of the Fund, which are binding only on the assets and property of the Fund. The Declaration of Trust provides for indemnification out of Fund property for all loss and expenses of any Shareholder held personally liable for the obligations of the Fund. The risk of a Shareholder incurring financial loss on account of Shareholder liability is limited to circumstances in which the Fund itself would be unable to meet its obligations and, thus, should be considered remote. PERFORMANCE INFORMATION The Fund may, from time to time, include its total return in advertisements or reports to Shareholders or prospective investors. Quotations of average annual total return for the Fund will be expressed in terms of the average annual compounded rate of return for periods in excess of one year or the total return for periods less than one year of a hypothetical investment in the Fund over a period of one, five and ten years (or, if less, up to the life of the Fund) calculated pursuant to the following formula: P(1 + T)n = ERV (where P = a hypothetical initial payment of $1,000, T = the average annual total return for periods of one year or more or the total return for periods of less than one year, n = the number of years, and ERV = the ending redeemable value of a hypothetical $1,000 payment made at the beginning of the period). All total return figures reflect the deduction of the maximum initial sales charge and deduction of a proportional share of Fund expenses on an annual basis, and assume that all dividends and distributions are reinvested when paid. The average annualized total return for the one-year period ended August 31, 1994 and for the period from commencement of operations on September 12, 1989 to August 31, 1994 was 3.33% and 8.73%, respectively. Performance information for the Fund may be compared, in reports and promotional literature, to: (i) the Standard & Poor's 500 Stock Index, Dow Jones Industrial Average, or other unmanaged indices so that investors may compare the Fund's results with those of a group of unmanaged securities widely regarded by investors as representative of the securities market in general; (ii) other groups of mutual funds tracked by Lipper Analytical Services, Inc., a widely used independent research firm which ranks mutual funds by overall performance, investment objectives and assets, or tracked by other services, companies, publications, or persons who rank mutual funds on overall performance or other criteria; and (iii) the Consumer Price Index (measure for inflation) to assess the real rate of return from an investment in the Fund. Unmanaged indices may assume the reinvestment of dividends but generally do not reflect deductions for administrative and management costs and expenses. Performance information for the Fund reflects only the performance of a hypothetical investment in the Fund during the particular time period on which the calculations are based. Performance information should be considered in light of the Fund's investment objectives and policies, characteristics and quality of the portfolio and the market conditions during the given time period, and should not be considered as a representation of what may be achieved in the future. From time to time, the Fund and the Investment Manager may also refer to the following information: 1. The Investment Manager's and its affiliates' market share of international equities managed in mutual funds prepared or published by Strategic Insight or a similar statistical organization. 2. The performance of U.S. equity and debt markets relative to foreign markets prepared or published by Morgan Stanley Capital International or a similar financial organization. 3. The capitalization of U.S. and foreign stock markets as prepared or published by the International Finance Corp., Morgan Stanley Capital International or a similar financial organization. 4. The geographic distribution of the Fund's portfolio. 5. The gross national product and populations, including age characteristics, of various countries as published by various statistical organizations. 6. To assist investors in understanding the different returns and risk characteristics of various investments, the Fund may show historical returns of various investments and published indices (e.g., Ibbotson Associates, Inc. Charts and Morgan Stanley EAFE - Index). 7. The major industries located in various jurisdictions as published by the Morgan Stanley Index. 8. Rankings by DALBAR Surveys, Inc. with respect to mutual fund shareholder services. 9. Allegorical stories illustrating the importance of persistent long-term investing. 10. The Fund's portfolio turnover rate and its ranking relative to industry standards as published by Lipper Analytical Services, Inc. or Morningstar, Inc. 11. A description of the Templeton organization's investment management philosophy and approach, including its worldwide search for undervalued or "bargain" securities and its diversification by industry, nation and type of stocks or other securities. 12. Quotations from the Templeton organization's founder, Sir John Templeton,* advocating the virtues of diversification and long-term investing, including the following: o "Never follow the crowd. Superior performance is possible only if you invest differently from the crowd." o "Diversify by company, by industry and by country." o "Always maintain a long-term perspective." o "Invest for maximum total real return." o "Invest - don't trade or speculate." o "Remain flexible and open-minded about types of investment." o "Buy low." o "When buying stocks, search for bargains among quality stocks." o "Buy value, not market trends or the economic outlook." o "Diversify. In stocks and bonds, as in much else, there is safety in numbers." o "Do your homework or hire wise experts to help you." o "Aggressively monitor your investments." o "Don't panic." o "Learn from your mistakes." _______________ * Sir John Templeton, who currently serves as Chairman of the Fund's Board, is not involved in investment decisions, which are made by the Fund's investment manager. o "Outperforming the market is a difficult task." o "An investor who has all the answers doesn't even understand all the questions." o "There's no free lunch." o "And now the last principle: Do not be fearful or negative too often." In addition, the Fund and the Investment Manager may also refer to the number of shareholders in the Fund or the aggregate number of shareholders in the Franklin Templeton Group or the dollar amount of fund and private account assets under management in advertising materials. FINANCIAL STATEMENTS The financial statements contained in the Annual Report to Shareholders of Templeton Real Estate Securities Fund dated August 31, 1994 are incorporated herein by reference. PART C OTHER INFORMATION Item 24. Financial Statements and Exhibits (a) Financial Statements: Incorporated by Reference from Registrant's 1994 Annual Report Independent Auditor's Report Investment Portfolio as of August 31, 1994 Statement of Assets and Liabilities as of August 31, 1994 Statement of Operations for the year ended August 31, 1994 Statement of Changes in Net Assets for the years ended August 31, 1994 and 1993 Notes to Financial Statements (b) Exhibits (1) (A) Declaration of Trust* (B) Second Amendment to the Declaration of Trust* (C) Third Amendment to the Declaration of Trust (D) Establishment and Designation of Classes (2) By-Laws* (3) Not Applicable (4) Specimen Security* (5) Form of Amended and Restated Investment Management Agreement (6) (A) Distribution Agreement* (B) Dealer Agreement* ______________________ Previously filed with Registration Statement No. 33-30018 and incorporated by reference herein. (7) Not Applicable (8) Custody Agreement* (9) (A) Business Management Agreement* (B) Form of Transfer Agent Agreement* (C) Form of Sub-Transfer Agent Services Agreement* (D) Form of Sub-Accounting Services Agreement* (10) Opinion and consent of counsel (filed with Rule 24f-2 Notice) (11) Consent of independent public accountants (12) Not Applicable (13) Subscription Agreement* (14) Not Applicable (15) (A) Distribution Plan -- Class I (15) (B) Distribution Plan -- Class II (16) Schedule showing computation of performance quotations provided in response to Item 22* (17) Assistant Secretary's Certificate pursuant to Rule 483(b)* Item 25. Persons Controlled by or Under Common Control with Registrant None Item 26. Number of Holders of Securities Number of Date Title of Class Recordholders January 31, 1995 Shares of 12,677 Beneficial Interest Item 27. Indemnification. Reference is made to Article IV of the Registrant's Declaration of Trust, which is filed herewith. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of the Registrant by the Registrant pursuant to the Declaration of Trust or otherwise, the Registrant is aware that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and, therefore, is unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by trustees, officers or controlling persons of the Registrant in connection with the successful defense of any act, suit or proceeding) is asserted by such trustees, officers or controlling persons in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issues. Item 28. Business and Other Connections of Investment Adviser and its Officers and Directors See "Management of the Fund." Information regarding the directors and officers of the Investment Manager is included in its Form ADV filed with the Commission and is incorporated herein by reference thereto. Item 29. Principal Underwriters (a) Franklin Templeton Distributors, Inc. also acts as principal underwriter of shares of Templeton Growth Fund, Inc., Templeton Funds, Inc., Templeton Smaller Companies Growth Fund, Inc., Templeton Income Trust, Templeton Real Estate Securities Fund, Templeton Capital Accumulator Fund, Inc., Templeton Developing Markets Trust, Templeton American Trust, Inc., Templeton Institutional Funds, Inc., Templeton Global Opportunities Trust, Templeton Variable Products Series Fund, Templeton Global Investment Trust, Templeton Variable Annuity Fund, AGE High Income Fund, Inc., Franklin Balance Sheet Investment Fund, Franklin California Tax Free Income Fund, Inc., Franklin California Tax Free Trust, Franklin Custodian Funds, Inc., Franklin Equity Fund, Franklin Federal Money Fund, Franklin Federal Tax- Free Income Fund, Franklin Gold Fund, Franklin International Trust, Franklin Investors Securities Trust, Franklin Managed Trust, Franklin Money Fund, Franklin Municipal Securities Trust, Franklin New York Tax-Free Income Fund, Franklin New York Tax-Free Trust, Franklin Premier Return Fund, Franklin Real Estate Securities Fund, Franklin Strategic Series, Franklin Tax-Advantaged High Yield Securities Fund, Franklin Tax- Advantaged International Bond Fund, Franklin Tax- Advantaged U.S. Government Securities Fund, Franklin Tax Exempt Money Fund, Franklin Tax-Free Trust, Franklin/Templeton Japan Fund, and Institutional Fiduciary Trust. (b) The directors and officers of FTD, located at 700 Central Avenue, St. Petersburg, Florida 33733-9926, are as follows: Positions and Offices Positions and Offices Name with Underwriter with Registrant Charles B. Johnson Chairman of the Board Vice President and Director Gregory E. Johnson President None Rupert H. Johnson, Jr. Executive Vice President Trustee and Director Harmon E. Burns Executive Vice President None and Director Edward V. McVey Senior Vice President None Kenneth V. Domingues Senior Vice President None Martin L. Flanagan Senior Vice President Vice President and Treasurer William J. Lippman Senior Vice President None Richard C. Stoker Senior Vice President None Charles E. Johnson Senior Vice President None Deborah R. Gatzek Senior Vice President and None Assistant Secretary Peter Black Vice President None James K. Blinn Vice President None Bernie Buckley Vice President None Joel Burns Vice President None Debra Carter Vice President None Richard O. Conboy Vice President None Joe Cronin Vice President None James F. Duryea Vice President None James A. Escobedo Vice President None Loretta Fry Vice President None Robert N. Geppner Vice President None John Gould Vice President None Sheppard G. Griswold Vice President None Mike Hackett Vice President None Brad N. Hanson Vice President None Carolyn L. Hennion Vice President None Andrew Jennings Vice President None Peter Jones Vice President None Philip J. Kearns Vice President None John Leach Vice President None Ken Leder Vice President None Jack Lemein Vice President None John R. McGee Vice President None Thomas M. Mistele Vice President Secretary Harry G. Mumford Vice President None Mike Nardone Vice President None Thomas H. O'Connor Vice President None Vivian J. Palmieri Vice President None Roger Pearson Vice President None Richard S. Petrell Vice President None John Phillips Vice President None Darrell Plocher Vice President None Dennis Shannon Vice President None Robert E. Silvani Vice President None Kent P. Strazza Vice President None Susan K. Tallarico Vice President None Leslie M. Kratter Secretary None (c) Not Applicable (Information on unaffiliated underwriters). Item 30. Location of Accounts and Records The accounts, books, and other documents required to be maintained by Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and rules promulgated thereunder are in the possession of Templeton Global Investors, Inc., 500 East Broward Blvd., Fort Lauderdale, Florida 33394. Item 31. Management Services Not Applicable. Item 32. Undertakings. (a) Not Applicable. (b) Not Applicable. (c) Registrant undertakes to furnish to each person to whom its Prospectus is provided a copy of its Annual Report, upon request and without charge. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all the requirements for effectiveness of the Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-Effective Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Washington in the District of Columbia on the 1st day of March, 1995. TEMPLETON REAL ESTATE SECURITIES FUND By:_____________________________ Mark G. Holowesko* President *By: /s/ Jeffrey L. Steele Jeffrey L. Steele as attorney-in-fact** Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated: Signature Title Date __________________ President (Chief) March 1, 1995 Mark G. Holowesko* Executive Officer) __________________ Trustee March 1, 1995 John M. Templeton __________________ Trustee March 1, 1995 F. Bruce Clarke* __________________ Trustee March 1, 1995 Betty P. Krahmer* Signature Title Date ____________________ Director March 1, 1995 Hasso-G von Diergardt* ____________________ Trustee March 1, 1995 Fred R. Millsaps* ____________________ Trustee March 1, 1995 John G. Bennett, Jr.* ____________________ Trustee March 1, 1995 Rupert H. Johnson, Jr.* ____________________ Trustee March 1, 1995 Andrew H. Hines, Jr.* ____________________ Trustee March 1, 1995 Harris J. Ashton* ____________________ Trustee March 1, 1995 S. Joseph Fortunato* ____________________ Trustee March 1, 1995 Gordon S. Macklin* ____________________ Trustee March 1, 1995 Nicholas F. Brady* ____________________ Treasurer (Chief March 1, 1995 James R. Baio* Financial and Accounting Officer) *By: /s/ Jeffrey L. Steele Jeffrey L. Steele as attorney-in-fact** ** Powers of Attorney are contained in Post-Effective Amendment No. 4 to this Registration Statement filed on August 19, 1992, Post- Effective Amendment No. 6 to this Registration Statement filed on November 2, 1993, Post-Effective Amendment No. 7 to this Registration Statement filed on December 23, 1993, and Post- Effective Amendment No. 9 to this Registration Statement filed on December 30, 1994. EX-99 2 EXHIBIT LIST EXHIBIT LIST Exhibit Number Name of Exhibit (1)(C) Third Amendment to the Declaration of Trust (1)(D) Establishment and Designation of Classes (5) Form of Amended and Restated Investment Management Agreement (11) Consent of Independent Public Accountants (15)(A) Distribution Plan -- Class I Shares (15)(B) Distribution Plan -- Class II Shares EX-99 3 AUDITOR'S CONSENT McGLADREY & PULLEN, LLP Certified Public Accountants and Consultants CONSENT OF INDEPENDENT AUDITORS We hereby consent to the use of our report dated September 27, 1994, on the financial statements of Templeton Real Estate Securities Fund referred to therein, which appears in the 1994 Annual Report to Shareholders and which is incorporated herein by reference, in Post-Effective Amendment No. 9 to the Registration Statement on Form N-1A, File No. 33-30018 as filed with the Securities and Exchange Commission. We also consent to the reference to our firm in the Statement of Additional Information under the caption "Independent Accountants" and in the Prospectus under the caption "Financial Highlights." McGladrey & Pullen, LLP New York, New York February 27, 1995 EX-99 4 DISTRIBUTION PLAN (CLASS I) DISTRIBUTION PLAN WHEREAS, Templeton Real Estate Securities Fund (the "Trust") is registered as an open-end diversified management investment company under the Investment Company Act of 1940 (the "1940 Act"); and WHEREAS, the Trust and Franklin Templeton Distributors, Inc. (the "Selling Company"), a wholly owned subsidiary of Franklin Resources, Inc. and a broker-dealer registered under the Securities Exchange Act of 1934, have entered into a Distribution Agreement pursuant to which the Selling Company will act as principal underwriter of the Class I Shares of the Trust for sale to the public; and WHEREAS, shares of beneficial interest of the Trust are divided into classes of shares, one of which is designated Class I; and WHEREAS, the Board of Trustees of the Trust has determined to adopt this Distribution Plan (the "Plan"), in accordance with the requirements of the 1940 Act and has determined that there is a reasonable likelihood that the Plan will benefit the Trust and the holders of Class I Shares. NOW THEREFORE, the Trust hereby adopts, with respect to its Class I Shares, the Plan on the following terms and conditions: 1. The Trust will reimburse the Selling Company for costs and expenses incurred in connection with the distribution and marketing of the Class I Shares of the Trust. Such distribution costs and expenses may include: (a) payments to broker-dealers who provide certain services of value to the Trust's Class I Shareholders (sometimes referred to as a "trail fee"); (b) reimbursement of expenses relating to selling and servicing efforts or of organizing and conducting sales seminars; (c) payments to employees or agents of the Selling Company who engage in or support distribution of the Class I Shares; (d) payment of the costs of preparing, printing and distributing prospectuses and reports to prospective investors and of printing and advertising expenses; (e) payment of dealer commissions and wholesaler compensation in connection with sales of the Trust's Class I Shares exceeding $1 million (for which the Trust imposes no sales charge) and interest or carrying charges in connection therewith; and (f) such other similar services as the Trust's Board of Trustees determines to be reasonably calculated to result in the sale of Class I Shares. The Selling Company will be reimbursed for such costs, expenses or payments on a monthly basis, subject to a limit of 0.25% per annum of the average daily net assets of the Trust's Class I Shares. Payments made out of or charged against the assets of the Class I Shares of the Trust must be in reimbursement for costs and expenses in connection with any activity which is primarily intended to result in the sale of the Trust's Class I Shares. The costs and expenses not reimbursed in any one given month (including costs and expenses not reimbursed because they exceeded the limit of 0.25% per annum of the average daily net assets of the Trust's Class I Shares) may be reimbursed in subsequent months or years. 2. The Plan shall not take effect with respect to the Trust's Class I Shares until it has been approved by a vote of at least a majority (as defined in the 1940 Act) of the outstanding voting securities of the Class I Shares of the Trust. With respect to the submission of the Plan for such a vote, it shall have been effectively approved with respect to the Trust's Class I Shares if a majority of the outstanding voting securities of the Class I Shares of the Trust votes for approval of the Plan. 3. The Plan shall not take effect until it has been approved, together with any related agreements and supplements, by votes of a majority of both (a) the Board of Trustees of the Trust, and (b) those Trustees of the Trust who are not "interested persons" (as defined in the 1940 Act) and have no direct or indirect financial interest in the operation of the Plan or any agreements related to it (the "Plan Trustees"), cast in person at a meeting (or meetings) called for the purpose of voting on the Plan and such related agreements. 4. The Plan shall continue in effect so long as such continuance is specifically approved at least annually in the manner provided for approval of the Plan in paragraph 3. 5. Any person authorized to direct the disposition of monies paid or payable by the Class I Shares of the Trust pursuant to the Plan or any related agreement shall provide to the Trust's Board of Trustees, and the Board shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. 6. Any agreement related to the Plan shall be in writing and shall provide: (a) that such agreement may be terminated at any time as to the Trust's Class I Shares, without payment of any penalty, by vote of a majority of the Plan Trustees or by vote of a majority of the outstanding voting securities of the Class I Shares of the Trust, on not more than sixty days' written notice to any other party to the agreement; and (b) that such agreement shall terminate automatically in the event of its assignment. 7. The Plan may be terminated at any time, without payment of any penalty, by vote of a majority of the Plan Trustees, or by vote of a majority of the outstanding Class I Shares of the Trust. 8. The Plan may be amended at any time by the Trust's Board of Trustees, provided that (a) any amendment to increase materially the costs which the Class I Shares of the Trust may bear for distribution pursuant to the Plan shall be effective only upon approval by a vote of a majority of the Class I Shares of the Trust, and (b) any material amendments of the terms of the Plan shall become effective only upon approval as provided in paragraph 3 hereof. 9. While the Plan is in effect, the selection and nomination of Trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust shall be committed to the discretion of the Trustees who are not interested persons. 10. The Trust shall preserve copies of the Plan, any related agreement and any report made pursuant to paragraph 5 hereof, for a period of not less than six years from the date of the Plan, such agreement or report, as the case may be, the first two years of which shall be in an easily accessible place. 11. It is understood and expressly stipulated that neither the holders of Class I Shares of the Trust nor any Trustee, officer, agent or employee of the Trust shall be personally liable hereunder, nor shall any resort be had to other private property for the satisfaction of any claim or obligation hereunder, but the Trust only shall be liable. IN WITNESS WHEREOF, the Trust has executed this Distribution Plan on this ___ day of _____, 1995. TEMPLETON REAL ESTATE SECURITIES FUND By: _______________________________ John R. Kay Vice President EX-99 5 DISTRIBUTION PLAN (CLASS II) DISTRIBUTION PLAN WHEREAS, Templeton Real Estate Securities Fund (the "Trust") is registered as an open-end diversified management investment company under the Investment Company Act of 1940 (the "1940 Act"); and WHEREAS, the Trust and Franklin Templeton Distributors, Inc. (the "Selling Company"), a wholly owned subsidiary of Franklin Resources, Inc. and a broker-dealer registered under the Securities Exchange Act of 1934, have entered into a Distribution Agreement pursuant to which the Selling Company will act as principal underwriter of the Class II Shares of the Trust for sale to the public; and WHEREAS, shares of beneficial interest of the Trust are divided into classes of shares, one of which is designated Class II; and WHEREAS, the Board of Trustees of the Trust has determined to adopt this Distribution Plan (the "Plan"), in accordance with the requirements of the 1940 Act and has determined that there is a reasonable likelihood that the Plan will benefit the Trust and the holders of Class II Shares. NOW THEREFORE, the Trust hereby adopts, with respect to its Class II Shares, the Plan on the following terms and conditions: 1. The Trust will reimburse the Selling Company for costs and expenses incurred in connection with the distribution and marketing of the Class II Shares of the Trust. Such distribution costs and expenses may include: (a) payments to broker-dealers who provide certain services of value to the Trust's Class II Shareholders (sometimes referred to as a "trail fee"); (b) reimbursement of expenses relating to selling and servicing efforts or of organizing and conducting sales seminars; (c) payments to employees or agents of the Selling Company who engage in or support distribution of the Class II Shares; (d) payment of the costs of preparing, printing and distributing prospectuses and reports to prospective investors and of printing and advertising expenses; (e) payment of dealer commissions and wholesaler compensation in connection with sales of the Trust's Class II Shares exceeding $1 million (for which the Trust imposes no sales charge) and interest or carrying charges in connection therewith; and (f) such other similar services as the Trust's Board of Trustees determines to be reasonably calculated to result in the sale of Class II Shares. The Selling Company will be reimbursed for such costs, expenses or payments on a monthly basis, subject to an annual limit of 1.00% per annum of the average daily net assets of the Trust's Class II Shares (of which up to 0.25% of such net assets may be paid to dealers for personal service and/or the maintenance of Class II Shareholder accounts (the "Service Fee")) and subject to any applicable restriction imposed by rules of the National Association of Securities Dealers, Inc. Payments made out of or charged against the assets of the Class II Shares of the Trust must be in reimbursement for costs and expenses in connection with any activity which is primarily intended to result in the sale of the Trust's Class II Shares or account maintenance and personal service to Shareholders. The costs and expenses not reimbursed in any one given month (including costs and expenses not reimbursed because they exceeded the limit of 1.00% per annum of the average daily net assets of the Trust's Class II Shares) may be reimbursed in subsequent months or years. 2. The Plan shall not take effect with respect to the Trust's Class II Shares until it has been approved by a vote of at least a majority (as defined in the 1940 Act) of the outstanding voting securities of the Class II Shares of the Trust. With respect to the submission of the Plan for such a vote, it shall have been effectively approved with respect to the Trust's Class II Shares if a majority of the outstanding voting securities of the Class II Shares of the Trust votes for approval of the Plan. 3. The Plan shall not take effect until it has been approved, together with any related agreements and supplements, by votes of a majority of both (a) the Board of Trustees of the Trust, and (b) those Trustees of the Trust who are not "interested persons" (as defined in the 1940 Act) and have no direct or indirect financial interest in the operation of the Plan or any agreements related to it (the "Plan Trustees"), cast in person at a meeting (or meetings) called for the purpose of voting on the Plan and such related agreements. 4. The Plan shall continue in effect so long as such continuance is specifically approved at least annually in the manner provided for approval of the Plan in paragraph 3. 5. Any person authorized to direct the disposition of monies paid or payable by the Class II Shares of the Trust pursuant to the Plan or any related agreement shall provide to the Trust's Board of Trustees, and the Board shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. 6. Any agreement related to the Plan shall be in writing and shall provide: (a) that such agreement may be terminated at any time as to the Trust's Class II Shares, without payment of any penalty, by vote of a majority of the Plan Directors or by vote of a majority of the outstanding voting securities of the Class II Shares of the Trust, on not more than sixty days' written notice to any other party to the agreement; and (b) that such agreement shall terminate automatically in the event of its assignment. 7. The Plan may be terminated at any time, without payment of any penalty, by vote of a majority of the Plan Trustees, or by vote of a majority of the outstanding Class II Shares of the Trust. 8. The Plan may be amended at any time by the Trust's Board of Trustees, provided that (a) any amendment to increase materially the costs which the Class II Shares of the Trust may bear for distribution pursuant to the Plan shall be effective only upon approval by a vote of a majority of the Class II Shares of the Trust, and (b) any material amendments of the terms of the Plan shall become effective only upon approval as provided in paragraph 3 hereof. 9. While the Plan is in effect, the selection and nomination of Trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust shall be committed to the discretion of the Trustees who are not interested persons. 10. The Trust shall preserve copies of the Plan, any related agreement and any report made pursuant to paragraph 5 hereof, for a period of not less than six years from the date of the Plan, such agreement or report, as the case may be, the first two years of which shall be in an easily accessible place. 11. It is understood and expressly stipulated that neither the holders of Class II Shares of the Trust nor any Trustee, officer, agent or employee of the Trust shall be personally liable hereunder, nor shall any resort be had to other private property for the satisfaction of any claim or obligation hereunder, but the Trust only shall be liable. IN WITNESS WHEREOF, the Trust has executed this Distribution Plan on this ___ day of ______, 1995. TEMPLETON REAL ESTATE SECURITIES FUND By: _______________________________ John R. Kay Vice President EX-99 6 AMENDMENT TO DECLARATION THIRD AMENDMENT TO DECLARATION OF TRUST OF TEMPLETON REAL ESTATE SECURITIES FUND This Third Amendment to the Declaration of Trust (the "Declaration") of Templeton Real Estate Securities Fund (the "Trust") is made this 24th day of February, 1995 by the parties signatory hereto, as Trustees of the Trust (the "Trustees"). WITNESSETH WHEREAS, the Declaration was made on July 17, 1989 and amended on September 11, 1989 and March 3, 1990 and the Trustees now desire to further amend the Declaration; and WHEREAS, Article V, Section 5.12 of the Declaration provides that the Trustees may amend the Declaration, without Shareholder action, so as to add to, delete, replace or otherwise modify any provisions relating to the Shares contained in the Declaration, provided that before adopting any such amendment without Shareholder approval the Trustees shall determine that it is consistent with the fair and equitable treatment of all Shareholders or that Shareholder approval is not otherwise required by the Investment Company Act of 1940 (the "1940 Act") or other applicable law; and WHEREAS, the Trustees have determined that the following amendment to the Declaration is consistent with the fair and equitable treatment of all Shareholders and that Shareholder approval is not otherwise required by the 1940 Act or other applicable law; NOW, THEREFORE, the Trustees hereby declare that Article V, Section 5.12 be redesignated as Article V, Section 5.13 and that Article V, Sections 5.1 and 5.11 be deleted and replaced with the following: Section 5.1. Beneficial Interest. The interest of the beneficiaries hereunder shall be divided into transferable Shares which may be divided into one or more separate and distinct series, or classes thereof, as the Trustees shall from time to time create and establish. The number of shares of beneficial interest authorized hereunder is unlimited and each Share shall have a par value of $0.01. All Shares issued hereunder including, without limitation, Shares issued in connection with a dividend in Shares or a split of Shares, shall be fully paid and non-assessable. Section 5.11. Series Designation. The Trustees, in their discretion, may authorize the division of Shares into two or more series, and the different series shall be established and designated, and the variations in the relative rights and preferences as between the different series shall be fixed and determined, by the Trustees; provided, that all Shares shall be identical except that there may be variations so fixed and determined between different series as to investment objective, purchase price, allocation of expenses, right of redemption, special and relative rights as to dividends and on liquidation, conversion rights, and conditions under which the several series shall have separate voting rights. All references to Shares in this Declaration shall be deemed to be Shares of any or all series as the context may require. If the Trustees shall divide the Shares of the Trust into two or more series, the following provisions shall be applicable: (a) All provisions herein relating to the Trust shall apply equally to each series of the Trust except as the context requires otherwise. (b) The number of authorized Shares and the number of Shares of each series that may be issued shall be unlimited. The Trustees may classify or reclassify any unissued Shares or any Shares previously issued and reacquired of any series into one or more series that may be established and designated from time to time. The Trustees may hold as treasury shares (of the same or some other series), reissue for such consideration and on such terms as they may determine, or cancel any Shares of any series reacquired by the Trust at their discretion from time to time. (c) All consideration received by the Trust for the issue or sale of Shares of a particular series, together with all assets in which such consideration is invested or reinvested, all income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall irrevocably belong to that series for all purposes, subject only to the rights of creditors of such series and except as may otherwise be required by applicable tax laws, and shall be so recorded upon the books of account of the Trust. In the event that there are any assets, income, earnings, profits, and proceeds thereof, funds, or payments which are not readily identifiable as belonging to any particular series, the Trustees shall allocate them among any one or more of the series established and designated from time to time in such manner and on such basis as they, in their sole discretion, deem fair and equitable. Each such allocation by the Trustees shall be conclusive and binding upon the Shareholders of all series for all purposes. (d) The assets belonging to each particular series shall be charged with the liabilities of the Trust in respect of that series and all expenses, costs, charges and reserves attributable to that series, and any general liabilities, expenses, costs, charges or reserves of the Trust which are not readily identifiable as belonging to any particular series shall be allocated and charged by the Trustees to and among any one or more of the series established and designated from time to time in such manner and on such basis as the Trustees in their sole discretion deem fair and equitable and no series shall be liable to any person except for its allocated share. Each allocation of liabilities, expenses, costs, charges and reserves by the Trustees shall be conclusive and binding upon the Shareholders of all series for all purposes. The Trustees shall have full discretion, to the extent not inconsistent with the 1940 Act, to determine which items are capital; and each such determination and allocation shall be conclusive and binding upon the Shareholders. The assets of a particular series of the Trust shall, under no circumstances, be charged with liabilities attributable to any other series of the Trust. All persons extending credit to, or contracting with or having any claim against a particular series of the Trust shall look only to the assets of that particular series for payment of such credit, contract or claim. No Shareholder or former Shareholder of any series shall have any claim on or right to any assets allocated or belonging to any other series. (e) Each Share of a series of the Trust shall represent a beneficial interest in the net assets of such series. Each holder of Shares of a series shall be entitled to receive his pro rata share of distributions of income and capital gains made with respect to such series. Upon redemption of his Shares or indemnification for liabilities incurred by reason of his being or having been a Shareholder of a series, such Shareholder shall be paid solely out of the funds and property of such series of the Trust. Upon liquidation or termination of a series of the Trust, Shareholders of such series shall be entitled to receive a pro rata share of the net assets of such series. A Shareholder of a particular series of the Trust shall not be entitled to participate in a derivative or class action on behalf of any other series or the Shareholders of any other series of the Trust. (f) The establishment and designation of any series of Shares shall be effective upon the execution by a majority of the Trustees of an instrument setting forth such establishment and designation and the relative rights and preferences of such series, or as otherwise provided in such instrument. The Trustees may by an instrument executed by a majority of their number abolish any series and the establishment and designation thereof. Except as otherwise provided in this Article V, the Trustees shall have the power to determine the designations, preferences, privileges, limitations and rights, of each class and series of Shares. Each instrument referred to in this paragraph shall have the status of an amendment to this Declaration. Section 5.12. Class Designation. The Trustees, in their discretion, may authorize the division of the Shares of the Trust, or, if any series be established, the Shares of any series, into two or more classes, and the different classes shall be established and designated, and the variations in the relative rights and preferences as between the different classes shall be fixed and determined, by the Trustees; provided, that all Shares of the Trust or of any series shall be identical to all other Shares of the Trust or the same series, as the case may be, except that there may be variations between different classes as to allocation of expenses, right of redemption, special and relative rights as to dividends and on liquidation, conversion rights, and conditions under which the several classes shall have separate voting rights. All references to Shares in this Declaration shall be deemed to be Shares of any or all classes as the context may require. If the Trustees shall divide the Shares of the Trust or any series into two or more classes, the following provisions shall be applicable: (a) All provisions herein relating to the Trust, or any series of the Trust, shall apply equally to each class of Shares of the Trust or of any series of the Trust, except as the context requires otherwise. (b) The number of Shares of each class that may be issued shall be unlimited. The Trustees may classify or reclassify any unissued Shares of the Trust or any series or any Shares previously issued and reacquired of any class of the Trust or of any series into one or more classes that may be established and designated from time to time. The Trustees may hold as treasury Shares (of the same or some other class), reissue for such consideration and on such terms as they may determine, or cancel any Shares of any class reacquired by the Trust at their discretion from time to time. (c) Liabilities, expenses, costs, charges and reserves related to the distribution of, and other identified expenses that should properly be allocated to, the Shares of a particular class may be charged to and borne solely by such class and the bearing of expenses solely by a class of Shares may be appropriately reflected (in a manner determined by the Trustees) and cause differences in the net asset value attributable to, and the dividend, redemption and liquidation rights of, the Shares of different classes. Each allocation of liabilities, expenses, costs, charges and reserves by the Trustees shall be conclusive and binding upon the Shareholders of all classes for all purposes. (d) The establishment and designation of any class of Shares shall be effective upon the execution of a majority of the then Trustees of an instrument setting forth such establishment and designation and the relative rights and preferences of such class, or as otherwise provided in such instrument. The Trustees may, by an instrument executed by a majority of their number, abolish any class and the establishment and designation thereof. Each instrument referred to in this paragraph shall have the status of an amendment to this Declaration. IN WITNESS WHEREOF, the undersigned have executed this instrument this 24th day of February, 1995. ______________________________ John M. Templeton ______________________________ F. Bruce Clarke ______________________________ Hasso-G von Diergardt-Naglo ______________________________ Betty P. Krahmer ______________________________ John G. Bennett, Jr. ______________________________ Harris J. Ashton ______________________________ S. Joseph Fortunato ______________________________ Fred R. Millsaps ______________________________ Andrew H. Hines, Jr. ______________________________ Rupert H. Johnson, Jr. ______________________________ Gordon S. Macklin ______________________________ Nicholas F. Brady CERTIFICATE Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this Amendment to the Declaration of Trust of Templeton Real Estate Securities Fund is made in accordance with the provisions of the Declaration, and shall be effective upon its filing with the Secretary of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 1995. ___________________________________ John M. Templeton CERTIFICATE Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this Amendment to the Declaration of Trust of Templeton Real Estate Securities Fund is made in accordance with the provisions of the Declaration, and shall be effective upon its filing with the Secretary of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 1995. ___________________________________ F. Bruce Clarke CERTIFICATE Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this Amendment to the Declaration of Trust of Templeton Real Estate Securities Fund is made in accordance with the provisions of the Declaration, and shall be effective upon its filing with the Secretary of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 1995. ___________________________________ Hasso-G von Diergardt-Naglo CERTIFICATE Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this Amendment to the Declaration of Trust of Templeton Real Estate Securities Fund is made in accordance with the provisions of the Declaration, and shall be effective upon its filing with the Secretary of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 1995. ___________________________________ Betty P. Krahmer CERTIFICATE Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this Amendment to the Declaration of Trust of Templeton Real Estate Securities Fund is made in accordance with the provisions of the Declaration, and shall be effective upon its filing with the Secretary of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 1995. ___________________________________ John G. Bennett, Jr. CERTIFICATE Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this Amendment to the Declaration of Trust of Templeton Real Estate Securities Fund is made in accordance with the provisions of the Declaration, and shall be effective upon its filing with the Secretary of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 1995. ___________________________________ Harris J. Ashton CERTIFICATE Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this Amendment to the Declaration of Trust of Templeton Real Estate Securities Fund is made in accordance with the provisions of the Declaration, and shall be effective upon its filing with the Secretary of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 1995. ___________________________________ S. Joseph Fortunato CERTIFICATE Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this Amendment to the Declaration of Trust of Templeton Real Estate Securities Fund is made in accordance with the provisions of the Declaration, and shall be effective upon its filing with the Secretary of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 1995. ___________________________________ Fred R. Millsaps CERTIFICATE Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this Amendment to the Declaration of Trust of Templeton Real Estate Securities Fund is made in accordance with the provisions of the Declaration, and shall be effective upon its filing with the Secretary of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 1995. ___________________________________ Andrew H. Hines, Jr. CERTIFICATE Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this Amendment to the Declaration of Trust of Templeton Real Estate Securities Fund is made in accordance with the provisions of the Declaration, and shall be effective upon its filing with the Secretary of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 1995. ___________________________________ Rupert H. Johnson, Jr. CERTIFICATE Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this Amendment to the Declaration of Trust of Templeton Real Estate Securities Fund is made in accordance with the provisions of the Declaration, and shall be effective upon its filing with the Secretary of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 1995. ___________________________________ Gordon S. Macklin CERTIFICATE Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this Amendment to the Declaration of Trust of Templeton Real Estate Securities Fund is made in accordance with the provisions of the Declaration, and shall be effective upon its filing with the Secretary of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 1995. ___________________________________ Nicholas F. Brady EX-99 7 ESTABLISHMENT OF CLASSES Establishment and Designation Of Classes of Shares of Beneficial Interest Par Value $0.01 Per Share The undersigned, being a majority of the Trustees of Templeton Real Estate Securities Fund, a Massachusetts business trust (the "Trust"), acting pursuant to Section 5.12 of the Declaration of Trust dated July 17, 1989, as previously amended (the "Declaration of Trust") of the Trust, hereby divide the shares of beneficial interest of the Trust into two separate classes, each class to have the following special and relative rights: 1. The classes shall be designated "Templeton Real Estate Securities Fund Class I" and "Templeton Real Estate Securities Fund Class II." 2. The Trust shall be authorized to invest in cash, securities, instruments and other property as from time to time described in the Trust's then currently effective registration statement under the Securities Act of 1933. Each share of beneficial interest of the Trust ("Share") shall be redeemable, shall be entitled to one vote (or fraction thereof in respect of a fractional Share) on matters on which Shares of the Trust shall be entitled to vote (subject to paragraph 3 below), shall represent a pro rata beneficial interest in the assets of the Trust (subject to paragraph 4 below) and shall be entitled to receive its pro rata share of net assets of the Trust upon liquidation of the Trust, all as provided in the Declaration of Trust. 3. Shareholders of the Trust shall vote together as a single class on any matter, except to the extent required by the Investment Company Act of 1940, as amended (the "1940 Act"), or when the Trustees have determined that the matter affects only the interests of Shareholders of a particular class of Shares, in which case only the Shareholders of such class shall be entitled to vote thereon. Any matter shall be deemed to have been effectively acted upon with respect to any class as provided in Rule 18f-2 under the 1940 Act, or any successor rule, and in the Declaration of Trust. 4. Liabilities, expenses, costs, charges and reserves related to the distribution of, and other identified expenses that should properly be allocated to, the Shares of a particular class may be charged to and borne solely by such class and the bearing of expenses solely by a class of Shares may be appropriately reflected (in a manner determined by the Trustees), and cause differences in, the net asset value attributable to, and the dividend, redemption and liquidation rights of, the Shares of different classes. Each allocation of liabilities, expenses, costs, charges and reserves by the Trustees shall be conclusive and binding upon the Shareholders of all classes for all purposes. 5. Shares of each class of the Trust may vary between themselves as to rights of redemption and conversion rights, as may be approved by the Trustees and set forth in the Trust's then-current prospectus. 6. The Trustees shall have the right at any time and from time to time to reallocate assets and expenses or to change the designation of any series or any class thereof hitherto or hereafter created, or to otherwise change the special and relative rights of any series or any class thereof, provided that such change shall not adversely affect to rights of the Shareholders of such series or class. IN WITNESS WHEREOF, the undersigned have executed this instrument this 24th day of February, 1995. ______________________________ ______________________________ John M. Templeton S. Joseph Fortunato ______________________________ ______________________________ F. Bruce Clarke Fred R. Millsaps ______________________________ ______________________________ Hasso-G von Diergardt-Naglo Andrew H. Hines, Jr. ______________________________ ______________________________ Betty P. Krahmer Rupert H. Johnson, Jr. ______________________________ ______________________________ John G. Bennett, Jr. Gordon S. Macklin ______________________________ ______________________________ Harris J. Ashton Nicholas F. Brady CERTIFICATE Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this instrument is made in accordance with the provisions of the Declaration, and shall be effective upon its filing with the Secretary of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 1995. ___________________________________ John M. Templeton CERTIFICATE Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this instrument is made in accordance with the provisions of the Declaration, and shall be effective upon its filing with the Secretary of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 1995. ___________________________________ F. Bruce Clarke CERTIFICATE Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this instrument is made in accordance with the provisions of the Declaration, and shall be effective upon its filing with the Secretary of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 1995. ___________________________________ Hasso-G von Diergardt-Naglo CERTIFICATE Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this instrument is made in accordance with the provisions of the Declaration, and shall be effective upon its filing with the Secretary of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 1995. ___________________________________ Betty P. Krahmer CERTIFICATE Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this instrument is made in accordance with the provisions of the Declaration, and shall be effective upon its filing with the Secretary of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 1995. ___________________________________ John G. Bennett, Jr. CERTIFICATE Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this instrument is made in accordance with the provisions of the Declaration, and shall be effective upon its filing with the Secretary of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 1995. ___________________________________ Harris J. Ashton CERTIFICATE Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this instrument is made in accordance with the provisions of the Declaration, and shall be effective upon its filing with the Secretary of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 1995. ___________________________________ S. Joseph Fortunato CERTIFICATE Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this instrument is made in accordance with the provisions of the Declaration, and shall be effective upon its filing with the Secretary of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 1995. ___________________________________ Fred R. Millsaps CERTIFICATE Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this instrument is made in accordance with the provisions of the Declaration, and shall be effective upon its filing with the Secretary of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 1995. ___________________________________ Andrew H. Hines, Jr. CERTIFICATE Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this instrument is made in accordance with the provisions of the Declaration, and shall be effective upon its filing with the Secretary of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 1995. ___________________________________ Rupert H. Johnson, Jr. CERTIFICATE Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this instrument is made in accordance with the provisions of the Declaration, and shall be effective upon its filing with the Secretary of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 1995. ___________________________________ Gordon S. Macklin CERTIFICATE Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this instrument is made in accordance with the provisions of the Declaration, and shall be effective upon its filing with the Secretary of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 1995. ___________________________________ Nicholas F. Brady EX-27 8 FINANCIAL DATA SCHEDULE
6 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TEMPLETON REAL ESTATE SECURITIES FUND AUGUST 31, 1994 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR AUG-31-1994 AUG-31-1994 121322261 130677033 1422100 0 5824 132104957 180500 0 380733 561233 0 123504082 9630037 4883475 1450912 0 (2766042) 0 9354772 131543724 2354659 1122622 0 1548838 1928443 2178205 2206703 6313351 0 (1220841) 0 0 5960485 (1289281) 75358 69723300 771680 (2509738) 0 0 733198 0 1548838 97759925 12.66 0.22 1.00 (0.22) 0 0 13.66 2 0 0 As a result of differing book and tax treatment for foreign currency transactions and available capital loss carryforwards, amounts have been reclassified as of August 31, 1994, to reflect a decrease in undistributed net investment income of $28,370; a decrease in accumulated net realized gain(loss) of $2,434,509 and an increase in net capital paid in on shares of beneficial interest of $2,462,879. See See The expense ratio per the Templeton Real Estate Securities Fund Annual Report August 31, 1994 is 1.58%.
EX-99 9 MANAGEMENT AGREEMENT INVESTMENT MANAGEMENT AGREEMENT AGREEMENT made as of the 30th day of October, 1992, and amended and restated as of ________________, between TEMPLETON REAL ESTATE SECURITIES FUND (hereinafter referred to as the "Fund"), and TEMPLETON INVESTMENT COUNSEL, INC. (hereinafter referred to as the "Manager"). In consideration of the mutual agreements herein made, the Fund and the Manager understand and agree as follows: (1) The Manager agrees, during the life of this Agreement, to manage the investment and reinvestment of the Fund's assets consistent with the provisions of the Fund's Declaration of Trust and the investment policies adopted and declared by the Fund's Board of Trustees. In pursuance of the foregoing, the Investment Manager shall make all determinations with respect to the investment of the Fund's assets and the purchase and sale of its investment securities, and shall take all such steps as may be necessary to implement those determinations. (2) The Manager is not required to furnish any personnel, overhead items or facilities for the Fund. (3) The Manager shall be responsible for selecting members of securities exchanges, brokers and dealers (such members, brokers and dealers being hereinafter referred to as "brokers") for the execution of the Fund's portfolio transactions consistent with the Fund's brokerage policies and, when applicable, the negotiation of commissions in connection therewith. All decisions and placements shall be made in accor- dance with the following principles: A. Purchase and sale orders will usually be placed with brokers able to achieve "best execution" of such orders. "Best execution" shall mean prompt and reliable execution at the most favorable securities price. The determination of what may constitute best execution and price in the execu- tion of a securities transaction by a broker involves a number of considerations, including, without limitation, the overall direct net econo- mic result to the Fund (involving both price paid or received and any commissions and other costs paid), the efficiency with which the transaction is effected, the ability to effect the transaction at all where a large block is involved, availability of the broker to stand ready to execute possibly difficult transactions in the future, and the financial strength and stability of the broker. Such considerations are judgmental and are weighed by the Manager in determining the overall reasonableness of brokerage commissions. B. In selecting brokers for portfolio transactions, the Manager shall take into account its past experience as to brokers qualified to achieve "best execution," including brokers who specialize in any foreign securities held by the Fund. C. The Manager is authorized to allocate brokerage business to brokers who have provided brokerage and research services, as such services are defined in Section 28(e)(3) of the Securities Exchange Act of 1934 (the "1934 Act"), for the Fund and/or other accounts, if any, for which the Manager exercises investment discretion (as defined in Section 3(a)(35) of the 1934 Act) and, as to transactions in which fixed minimum commission rates are not applicable, to cause the Fund to pay a commission for effecting a securities transaction in excess of the amount another broker would have charged for effecting that transaction, if the Manager determines in good faith that such amount of commission is reasonable in relation to the value of the broker- age and research services provided by such broker, viewed in terms of either that particular transac- tion or the Manager's overall responsibilities with respect to the Fund and the other accounts, if any, as to which it exercises investment discretion. In reaching such determination, the Manager will not be required to place or attempt to place a specific dollar value on the research or execution services of a broker or on the portion of any commission reflecting either of said services. In demonstrating that such deter- minations were made in good faith, the Manager shall be prepared to show that all commissions were allocated and paid for purposes contemplated by the Fund's brokerage policy; that the research services provide lawful and appropriate assistance to the Manager in the performance of its investment decision-making responsibilities; and that the commissions paid were within a reasonable range. Whether commissions were within a reasonable range shall be based on any available information as to the level of commission known to be charged by other brokers on comparable transac- tions, but there shall be taken into account the Fund's policies that (i) obtaining a low commission is deemed secondary to obtaining a favorable securities price, since it is recognized that usually it is more beneficial to the Fund to obtain a favorable price than to pay the lowest commission; and (ii) the quality, comprehensive- ness and frequency of research studies that are provided for the Manager are useful to the Manager in performing its advisory activities under this Agreement. Research services provided by brokers to the Manager are considered to be in addition to, and not in lieu of, services required to be performed by the Manager under this Agreement. D. Purchases and sales of portfolio securities within the United States other than on a securities exchange shall be executed with primary market makers acting as principal, except where, in the judgment of the Manager, better prices and execution may be obtained on a commission basis or from other sources. E. Sales of the Fund's shares (which shall be deemed to include also shares of other registered investment companies which have either the same adviser or an investment adviser affiliated with the Manager) by a broker are one factor among others to be taken into account in deciding to allocate portfolio transactions (including agency transactions, principal transactions, purchases in underwritings or tenders in response to tender offers) for the account of the Fund to that broker; provided that the broker shall furnish "best execution," as defined in subparagraph A above, and that such allocation shall be within the scope of the Fund's policies as stated above; provided further, that in every allocation made to a broker in which the sale of Fund shares is taken into account, there shall be no increase in the amount of the commissions or other compensation paid to such broker beyond a reasonable commission or other compensation determined, as set forth in subparagraph C above, on the basis of best execution alone or best execution plus research services, without taking account of or placing any value upon such sale of the Fund's shares. (4) The Fund shall pay to the Manager a monthly fee in dollars at an annual rate of 0.75% of the Fund's average daily net assets, payable at the end of each calendar month. (5) In rendering the services required under this Agreement, the Manager may, subject to the approval of the Fund, its shareholders and Trustees, cause such services or any portion thereof to be provided by a registered investment adviser pursuant to a sub-advisory agreement. (6) This Agreement shall become effective on October 30, 1992 and shall continue in effect until December 31, 1993. If not sooner terminated, this Agreement shall continue in effect for successive periods of 12 months each thereafter, provided that each such continuance shall be specifically approved annually by the vote of a majority of the Fund's Trustees who are not parties to this Agreement or "interested persons" (as defined in the Investment Company Act of 1940 (the "1940 Act")) of any such party, cast in person at a meeting called for the purpose of voting on such approval and either the vote of (a) a majority of the outstanding voting securities of the Fund, as defined in the 1940 Act, or (b) a majority of the Fund's Board of Trustees as a whole. (7) Notwithstanding the foregoing, this Agreement may be terminated by either party at any time, without the payment of any penalty, on sixty (60) days' written notice to the other party, provided that termination by the Fund is approved by vote of a majority of the Fund's Board of Trustees in office at the time or by vote of a majority of the outstanding voting securities of the Fund. (8) This Agreement will terminate automatically and immediately in the event of its "assignment" (as defined in the 1940 Act). (9) In the event this Agreement is terminated and the Manager no longer acts as Manager to the Fund, the Manager reserves the right to withdraw from the Fund the use of the name "Templeton" or any name misleadingly implying a continuing relationship between the Fund and the Manager or any of its affiliates. (10) The Manager may rely on information reasonably believed by it to be accurate and reliable. Except as may otherwise be provided by the 1940 Act, neither the Manager nor its officers, directors, employees or agents shall be subject to any liability for any error of judgment, mistake of law, or any loss arising out of any investment or other act or omission in the performance by the Manager of its duties under this Agreement or for any loss or damage resulting from the imposition by any government of exchange control restrictions which might affect the liquidity of the Fund's assets, or from acts or omissions of custodians or securities depositories, or from any war or politi- cal act of any foreign government to which such assets might be exposed, except for any liability, loss or damage resulting from willful misfeasance, bad faith or gross negligence on the Manager's part or by reason of reckless disregard of the Manager's duties under this Agreement. (11) It is understood that the services of the Manager are not deemed to be exclusive, and nothing in this Agreement shall prevent the Manager, or any affiliate thereof, from provid- ing similar services to other investment companies and other clients, including clients which may invest in the same types of securities as the Fund, or, in providing such services, from using information furnished by others. When the Manager determines to buy or sell the same security for the Fund that the Manager or one or more of its affiliates has selected for clients of the Manager or its affiliates, the orders for all such securities transactions shall be placed for execution by methods determined by the Manager, with approval by the Fund's Board of Trustees, to be impartial and fair. (12) This Agreement shall be construed in accordance with the laws of the Commonwealth of Massachusetts, provided that nothing herein shall be construed as being inconsistent with applicable Federal or state securities laws or any rules, regulations or orders thereunder. (13) If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby and, to this extent, the provisions of this Agreement shall be deemed to be severable. (14) It is understood and expressly stipulated that neither the holders of shares of the Fund nor any Trustee, officer, agent or employee of the Fund shall be personally liable hereunder, nor shall any resort be had to other private property for the satisfaction of any claim or obligation hereunder, but the Fund only shall be liable. (15) Nothing herein shall be construed as constituting the Manager an agent of the Fund. TEMPLETON REAL ESTATE SECURITIES FUND By: ______________________________ John R. Kay Vice President TEMPLETON INVESTMENT COUNSEL, INC. By: _______________________________ -----END PRIVACY-ENHANCED MESSAGE-----