TEMPLETON REAL ESTATE SECURITIES FUND        PROSPECTUS -- JANUARY 1, 1996     
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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.     
 
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PURCHASE OF    Please complete and return the Shareholder Application. If you
SHARES         need assistance in completing this form, please call our
               Shareholder Services Department. The Fund offers two classes
               to its investors: Templeton Real Estate Securities Fund--Class
               I ("Class I") and Templeton Real Estate Securities Fund--Class
               II ("Class II"). Investors can choose between Class I Shares,
               which generally bear a higher front-end sales charge and lower
               ongoing Rule 12b-1 distribution fees ("Rule 12b-1 fees"), and
               Class II Shares, which generally have a lower front-end sales
               charge and higher ongoing Rule 12b-1 fees. Investors should
               consider the differences between the two classes, including
               the impact of sales charges and distribution fees, in choosing
               the more suitable class given their anticipated investment
               amount and time horizon. See "How to Buy Shares of the Fund--
               Differences Between Class I and Class II." The minimum initial
               investment is $100 ($25 minimum for subsequent investments).
                   
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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, 1996, has been filed with
               the Securities and Exchange Commission (the "SEC") 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., P.O. Box
               33030, St. Petersburg, Florida 33733-8030 or by calling the
               Fund Information Department.     
 
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FUND INFORMATION DEPARTMENT -- 1-800/DIAL BEN     
 
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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
 
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TABLE OF CONTENTS
    

                                                                          Page
                                                                          ----
                                                                      
EXPENSE TABLE............................................................    2
FINANCIAL HIGHLIGHTS.....................................................    3
GENERAL DESCRIPTION......................................................    5
Investment Objectives and Policies.......................................    5
INVESTMENT TECHNIQUES....................................................    6
Repurchase Agreements....................................................    6
Borrowing................................................................    6
Loans of Portfolio Securities............................................    6
Options on Securities and Stock Indices..................................    7
Forward Foreign Currency Contracts.......................................    7
Futures Contracts........................................................    7
Depositary Receipts......................................................    8
RISK FACTORS.............................................................    8
HOW TO BUY SHARES OF THE FUND............................................   10
Differences Between Class I and Class II.................................   11
Deciding Which Class to Purchase.........................................   11
Offering Price--Class I..................................................   12
Offering Price--Class II.................................................   14
Net Asset Value Purchases (Both Classes).................................   14
Description of Special Net Asset Value Purchases.........................   15
Additional Dealer Compensation (Both Classes)............................   16
Purchasing Class I and Class II Shares...................................   16
Automatic Investment Plan................................................   17
Institutional Accounts...................................................   17
Account Statements.......................................................   17
Templeton STAR Service...................................................   17
Retirement Plans.........................................................   17
Net Asset Value..........................................................   17
EXCHANGE PRIVILEGE.......................................................   18
Exchanges of Class I Shares..............................................   19
Exchanges of Class II Shares.............................................   19
Transfers................................................................   20
Conversion Rights........................................................   20
Exchanges by Timing Accounts.............................................   20
HOW TO SELL SHARES OF THE FUND...........................................   21
Reinstatement Privilege..................................................   22
Systematic Withdrawal Plan...............................................   23
Redemptions by Telephone.................................................   24
Contingent Deferred Sales Charge.........................................   24
TELEPHONE TRANSACTIONS...................................................   25
Verification Procedures..................................................   25
Restricted Accounts......................................................   25
General..................................................................   25
MANAGEMENT OF THE FUND...................................................   26
Investment Manager.......................................................   26
Business Manager.........................................................   27
Transfer Agent...........................................................   27
Custodian................................................................   27
Plans of Distribution....................................................   27
Expenses.................................................................   28
Brokerage Commissions....................................................   28
GENERAL INFORMATION......................................................   28
Description of Shares/Share Certificates.................................   28
Voting Rights............................................................   28
Meetings of Shareholders.................................................   29
Dividends and Distributions..............................................   29
Federal Tax Information..................................................   29
Inquiries................................................................   30
Performance Information..................................................   30
Statements and Reports...................................................   30
WITHHOLDING INFORMATION..................................................   31
CORPORATE RESOLUTION.....................................................   32
AUTHORIZATION AGREEMENT..................................................   33
THE FRANKLIN TEMPLETON GROUP.............................................   34
    
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SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE
LOSS OF CAPITAL.     
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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
 
  The purpose of this table is to assist an investor in understanding the
various costs and expenses that a Shareholder will bear directly or indirectly
in connection with an investment in the Fund. The figures are estimates of the
Fund's expenses for the current fiscal year, restated to reflect current sales
charges and Rule 12b-1 fees for each class.
 


                                                            CLASS I   CLASS II
                                                            -------   --------
                                                                
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage
 of Offering Price).......................................    5.75%     1.00%/1/
Deferred Sales Charge.....................................    None/2/   1.00%/3/
Exchange Fee (per transaction)............................   $5.00/4/  $5.00/4/
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees...........................................   0.75%      0.75%
Rule 12b-1 Fees/5/........................................   0.25%      1.00%
Other Expenses (audit, legal, business management,
 transfer agent and custodian)............................   0.55%      0.55%
Total Fund Operating Expenses.............................   1.55%      2.30%

 
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/1/ Although Class II has a lower front-end sales charge than Class I, over time
    the higher Rule 12b-1 fees for Class II may cause Shareholders to pay more
    for Class II Shares than for Class I Shares. Given the maximum front-end
    sales charge and the rate of Rule 12b-1 fees for each class, it is estimated
    that this would take less than six years for Shareholders who maintain total
    Shares valued at less than $50,000 in the Franklin Templeton Funds.
    Shareholders with larger investments in the Franklin Templeton Funds will
    reach the cross-over point more quickly. (See "How to Buy Shares of the
    Fund.")
/2/ Class I investments of $1 million or more are not subject to a front-end
    sales charge; however, a contingent deferred sales charge of 1%, is
    generally imposed on certain redemptions within a "contingency period" of 12
    months of the calendar month of such investments. See "How to Sell Shares of
    the Fund--Contingent Deferred Sales Charge."
/3/ Class II Shares redeemed within a "contingency period" of 18 months of the
    calendar month of such investments are subject to a 1% contingent deferred
    sales charge. See "How to Sell Shares of the Fund--Contingent Deferred Sales
    Charge."
/4/ $5.00 fee imposed only on Timing Accounts as described under "Exchange
    Privilege." All other exchanges are processed without a fee.
/5/ Annual Rule 12b-1 fees may not exceed 0.25% of the Fund's average net assets
    attributable to Class I Shares and 1% of the Fund's average net assets
    attributable to Class II Shares. 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.
 
  Investors should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with an individual's own
investment in the Fund. Rather, the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. The information in this 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. For a more detailed
discussion of these matters, investors should refer to the appropriate
sections of this Prospectus.
 
EXAMPLE
 
  As required by SEC regulations, the following example illustrates the
expenses, including the maximum front-end sales charge and applicable
contingent deferred sales charge, that apply to a $1,000 investment in the
Fund over various time periods assuming (1) a 5% annual rate of return and (2)
redemption at the end of each time period.
 


                                     ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
                                     -------- ----------- ---------- ---------
                                                         
   Class I..........................   $72       $104        $137      $231
   Class II.........................   $43        $81        $132      $271
   You would pay the following
    expenses on the same investment
    in Class II Shares, assuming no
    redemption......................   $33        $81        $132      $271

 
  For the purpose of this example, it is assumed that a contingent deferred
sales charge will not apply to Class I Shares.
 
  THIS EXAMPLE IS BASED ON THE ESTIMATED ANNUAL OPERATING EXPENSES, INCLUDING
FEES SET BY CONTRACT, SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN
THOSE SHOWN. The operating expenses are borne by the Fund and only indirectly
by Shareholders as a result of their investment in the Fund. In addition,
federal securities regulations require the example to assume an annual rate of
return of 5%, but the Fund's actual return may be more or less than 5%.
 
                                       2

 
                             FINANCIAL HIGHLIGHTS
 
  The following tables of selected financial information have been audited by
McGladrey & Pullen, LLP, independent certified public accountants, whose
report thereon, which is incorporated by reference, appears in the Fund's 1995
Annual Report to Shareholders. These statements should be read in conjunction
with the other financial statements and notes thereto included in the Fund's
1995 Annual Report to Shareholders, which contains further information about
the Fund's performance, and which is available to Shareholders upon request
and without charge.
 


                          CLASS I
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PER SHARE OPERATING                     YEAR ENDED AUGUST 31,
PERFORMANCE               -------------------------------------------------------
(for a Share outstanding
throughout the period)      1995       1994     1993     1992     1991    1990++
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Net asset value, begin-
 ning of period            $ 13.66    $ 12.66  $ 10.40  $ 10.08  $  8.88  $ 10.00
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Income from investment
operations
Net investment income         0.39       0.22     0.25     0.37     0.53     0.29
Net realized and
 unrealized gain (loss)      (0.64)      1.00     2.36     0.43     1.13    (1.33)
                          --------   --------  -------  -------  -------  -------
Total from investment
 operations                   0.25       1.22     2.61     0.80     1.66    (1.04)
                          --------   --------  -------  -------  -------  -------
Less distributions
Dividends from net in-
 vestment income             (0.21)     (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          (0.21)     (0.22)   (0.35)   (0.48)   (0.46)   (0.08)
                          --------   --------  -------  -------  -------  -------
Change in net asset
 value for the period        (0.46)      1.00     2.26     0.32     1.20    (1.12)
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Net asset value, end of
 period                    $ 13.20    $ 13.66  $ 12.66  $ 10.40  $ 10.08  $  8.88
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TOTAL RETURN+                (1.74)%     9.69%   25.94%    8.29%   20.06%  (10.48)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of pe-
 riod (000)               $130,149   $131,544  $61,820  $36,955  $32,830  $10,065
Ratio to average net as-
 sets of:
 Expenses                     1.55%      1.58%    1.68%    1.69%    1.98%    2.77%*
 Expenses, net of reim-
  bursement                   1.55%      1.58%    1.68%    1.69%    1.25%    1.25%*
 Net investment income        3.05%      1.97%    2.60%    3.64%    5.48%    3.59%*
Portfolio turnover rate      38.69%     32.34%   19.74%   32.35%   25.24%    9.54%
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++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.
 
                                       3

 
                        FINANCIAL HIGHLIGHTS (continued)
 


                                                     CLASS II
                                                     --------
                                                  FOR THE PERIOD
                                                    MAY 1, 1995
PER SHARE OPERATING PERFORMANCE                       THROUGH
(for a Share outstanding throughout the period)  AUGUST 31, 1995++
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Net asset value,
 beginning of period                                  $ 12.25
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Income from investment
 operations
Net investment income                                    0.03
Net realized and
 unrealized gain (loss)                                  0.89
                                                      -------
Total from investment
 operations                                              0.92
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Net asset value, end of
 period                                               $ 13.17
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TOTAL RETURN+                                            7.51%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
 period (000)                                         $ 1,823
Ratio to average net
 assets of:
 Expenses                                                2.26%*
 Net investment income                                   1.71%*
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++Commencement of offering of Shares.
+ Not annualized in periods of less than one year. Does not reflect sales
  charges.
* Annualized.
 
 
                                       4

 
                              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, as amended (the "1940 Act"), as an open-end
diversified management investment company. The Fund has two classes of Shares
of beneficial interest with a par value of $0.01: Templeton Real Estate
Securities Fund--Class I and Templeton Real Estate Securities Fund--Class II.
All Fund Shares outstanding before May 1, 1995 have been redesignated as Class
I Shares, and will retain their previous rights and privileges, except for
legally required modifications to Shareholder voting procedures, as discussed
in "General Information--Voting Rights."
 
  Shares of the Fund may be purchased (minimum investment of $100 initially
and $25 thereafter) at the current public Offering Price. The current public
Offering Price of the Class I Shares is equal to the net asset value per Share
(see "How to Buy Shares of the Fund--Net Asset Value"), plus a variable sales
charge not exceeding 5.75% of the Offering Price depending upon the amount
invested. The current public Offering Price of the Class II Shares is equal to
the net asset value per Share, plus a sales charge of 1% of 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. There can be no assurance that the
Fund's investment objective will be achieved.
 
  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 (which may include structured investments, as
described in the SAI under "Investment Objectives and Policies--Structured
Investments") 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 Global Advisors Limited (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
 
                                       5

 
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.
 
  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
 
  The Fund is authorized to use the various investment techniques described
below. Although these strategies are regularly used by some investment
companies and other institutional investors in various markets, some of these
strategies cannot at the present time be used to a significant extent by the
Fund in some of the markets in which the Fund will invest and may not be
available for extensive use in the future.
 
  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 incur
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
 
                                       6

 
(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
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
 
                                       7

 
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.
 
                                 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. 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. The value of
debt securities held by the Fund generally will vary inversely with changes in
prevailing interest rates. 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
 
                                       8

 
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
developing 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), foreign investment controls on daily
stock market movements, 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. The Fund may encounter
difficulties or be unable to vote proxies, exercise shareholder rights, pursue
legal remedies, and obtain judgments in foreign courts.
 
  Brokerage commissions, custodial services and other costs relating to
investment in foreign countries are generally more expensive than in the
United States. 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. There is an increased risk,
therefore, of uninsured loss due to lost, stolen, or counterfeit stock
certificates. In addition, 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.
 
                                       9

 
  Prior governmental approval of foreign investments may be required under
certain circumstances in some developing countries, and the extent of foreign
investment in domestic companies may be subject to limitation in other
developing countries. Foreign ownership limitations also may be imposed by the
charters of individual companies in developing countries to prevent, among
other concerns, violation of foreign investment limitations.
 
  Repatriation of investment income, capital and proceeds of sales by foreign
investors may require governmental registration and/or approval in some
developing countries. The Fund could be adversely affected by delays in or a
refusal to grant any required governmental registration or approval for such
repatriation.
 
  Further, the economies of developing countries generally are heavily
dependent upon international trade and, accordingly, have been and may
continue to be adversely affected by trade barriers, exchange controls,
managed adjustments in relative currency values and other protectionist
measures imposed or negotiated by the countries with which they trade. These
economies also have been and may continue to be adversely affected by economic
conditions in the countries with which they trade.
 
  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
payable in U.S. currency. Shares of both classes of the Fund are offered at
their respective public Offering Prices, which are determined by adding the
net asset value per Share plus a front-end 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). The minimum
initial investment is $100, and subsequent investments must be $25 or more.
These minimums may be waived when the Shares are being purchased through
retirement plans providing for regular periodic investments, as described
below under "Retirement Plans."
 
                                      10

 
  DIFFERENCES BETWEEN CLASS I AND CLASS II. The differences between Class I
and Class II Shares lie primarily in their front-end and contingent deferred
sales charges and Rule 12b-1 fees as described below.
 
  Class I. All Fund Shares outstanding before the implementation of the
multiclass structure have been redesignated as Class I Shares, and will retain
their previous rights and privileges. Voting rights of each class will be the
same on matters affecting the Fund as a whole, but each will vote separately
on matters affecting its class. Class I Shares are generally subject to a
variable sales charge upon purchase and not subject to any sales charge upon
redemption. Class I Shares are subject to Rule 12b-1 fees of up to an annual
maximum of 0.25% of average daily net assets of such Shares. With this
multiclass structure, Class I Shares have higher front-end sales charges than
Class II Shares and comparatively lower Rule 12b-1 fees. Class I Shares may be
purchased at reduced front-end sales charges, or at net asset value if certain
conditions are 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. The current public Offering Price of Class II Shares is equal to
the net asset value per Share, plus a front-end sales charge of 1% of the
amount invested. Class II Shares are also subject to a contingent deferred
sales charge of 1% if Shares are redeemed within 18 months of the calendar
month of the purchase. In addition, Class II Shares are subject to Rule 12b-1
fees of up to a maximum of 1% per annum of average daily net assets of such
Shares, 0.75% of which will be retained by FTD during the first year of
investment. Class II Shares have lower front-end sales charges than Class I
Shares and comparatively higher Rule 12b-1 fees. See "How to Sell Shares of
the Fund--Contingent Deferred Sales Charge."
 
  Purchases of Class II Shares are limited to purchases below $1 million. Any
purchases of $1 million or more will automatically be invested in Class I
Shares, since that is more beneficial to investors. Such purchases, however,
may be subject to a contingent deferred sales charge. Investors may exceed $1
million in Class II Shares by cumulative purchases over a period of time.
Investors who intend to make investments exceeding $1 million, however, should
consider purchasing Class I Shares through a Letter of Intent instead of
purchasing Class II Shares.
 
  DECIDING WHICH CLASS TO PURCHASE. Investors should carefully evaluate their
anticipated investment amount and time horizon prior to determining which
class of Shares to purchase. Generally, an investor who expects to invest less
than $50,000 in the Franklin Templeton Funds and who expects to make
substantial redemptions within approximately six years or less of investment
should consider purchasing Class II Shares. However, the higher Rule 12b-1
fees on the Class II Shares will result in higher operating expenses, which
will accumulate over time to outweigh the difference in front-end sales
charges, and will lower dividends for Class II Shares. 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
definitely should consider purchasing Class I Shares, especially if they
intend to hold their Shares approximately six years or more. Investors who
qualify to purchase Class I Shares at reduced sales charges but who intend to
hold their Shares less than approximately six years should evaluate whether it
is more economical to purchase Class I Shares through a Letter of Intent or
under cumulative quantity discount rather than purchasing Class II Shares.
INVESTORS INVESTING $1 MILLION OR MORE IN A SINGLE PAYMENT AND OTHER INVESTORS
WHO QUALIFY TO PURCHASE CLASS I SHARES AT NET ASSET VALUE WILL BE PRECLUDED
FROM PURCHASING CLASS II SHARES.
 
  Each class represents the same interest in the investment portfolio of the
Fund and has the same rights, except that each class has a different sales
charge, bears the separate expenses of its Rule 12b-1 distribution plan, and
has exclusive voting rights with respect to such plan. The two classes also
have separate exchange privileges.
 
 
                                      11

 
  Each class also has a separate schedule for compensating securities dealers
for selling Fund Shares. Investors should take all of the factors regarding an
investment in each class into account before deciding which class of Shares to
purchase.
 
  OFFERING PRICE--CLASS I. The sales charge for Class I Shares is a variable
percentage of the Offering Price depending upon the amount of the sale. The
method of calculating net asset value per Share is described under "Net Asset
Value."
 
  The price to the public on purchases of Class I Shares made by a single
purchaser, by an individual together with his or her spouse and their children
under age 21 and grandchildren under age 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.
 


                                      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/1/,/3/
- -----------------        --------------------- ---------------------- --------------------------
                                                             
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)/2/

- --------
 /1/ Financial/institutions or their affiliated brokers may receive an agency
     transaction fee in the percentages set forth above.
 /2/ 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.
 /3/ At the discretion of FTD, all sales charges may at times be reallowed to 
     the securities dealer. If 90% or more of the sales commission is 
     reallowed, such securities dealer may be deemed to be an underwriter as 
     that term is defined in the Securities Act of 1933.
 
  No front-end sales charge applies to investments of $1 million or more, but a
contingent deferred sales charge of 1% is imposed on certain redemptions of all
or a portion of investments of $1 million or more within 12 months of the
calendar month of such investments ("contingency period"). See "How to Sell
Shares of the Fund--Contingent Deferred Sales Charge."
 
  The size of a transaction which determines the applicable sales charge on the
purchases of Class I Shares is determined by adding the amount of the
Shareholder's current purchase plus the cost or current value (whichever is
higher) of a Shareholder's existing investment in one or more of the funds in
the Franklin Group of Funds (R) and the Templeton Family of Funds. Included for
three aggregation purposes are (i) the mutual funds in the Franklin Group of
Funds (R) except Franklin Valuemark Funds and Franklin Government Securities
Trust (the "Franklin Funds"); (ii) 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); and (iii)
the U.S.-registered mutual funds in the Templeton Family of Funds except
Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, and
Templeton Variable Products Series Fund (the "Templeton Funds"). (Franklin
Funds and Templeton Funds are collectively referred to as the "Franklin
Templeton Funds.") Sales charge reductions based upon aggregate holdings of
(i), (ii) or (iii) above ("Franklin Templeton Investments") may be effective
only after notification to FTD that the investment qualifies for a discount.
 
  Other Payments to Securities Dealers. 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
 
                                       12

 
companies and trust departments of banks and certain retirement plans of
organizations with collective retirement plan assets of $10 million or more.
See definitions under "Description of Special Net Asset Value Purchases" below
and as set forth in the SAI.
 
  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 account 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.
 
  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 (i) the
value (calculated at the applicable Offering Price) or (ii) the purchase
price, of 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, their children under age 21 and their
grandchildren 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. An investor may be eligible for reduced 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 Franklin Templeton
Fund. 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.
 
                                      13

 
  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, 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.
 
  OFFERING PRICE--CLASS II. Unlike Class I Shares, the front-end sales charges
and dealer concessions for Class II Shares do not vary depending on the amount
of purchase. The total sales charges or underwriting commissions and dealer
concessions for Class II Shares are set forth below.
 


                                       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 (less than $1
 million)...............          1.00%                  1.01%                 1.00%

- -------
   
 * FTD, or one of its affiliates, may make additional payments to securities
   dealers, from its own resources, of up to 1% of the amount invested. During
   the first year following a purchase of Class II Shares, FTD may retain a
   portion of the Rule 12b-1 fees assessed on those Shares to partially recoup
   fees FTD pays to securities dealers.     
 
  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 or the net asset value of such Shares at the time of purchase,
unless such charge is waived as described under "How to Sell Shares of the
Fund--Contingent Deferred Sales Charge."
   
  NET ASSET VALUE PURCHASES (BOTH CLASSES). Class I Shares may be purchased
without the imposition of a front-end sales charge ("net asset value") or a
contingent deferred sales charge by (i) officers, trustees, directors, and
full-time employees of the Fund, any of the Franklin Templeton Funds, or
Franklin Resources, Inc. and its subsidiaries (the "Franklin Templeton
Group"), and their spouses and family members, including any subsequent
payments made by such parties after cessation of employment; (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 Franklin Templeton Group; (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 affiliates, and by their spouses and family members, in
accordance with the internal policies and procedures of the employing
securities dealer.     
       
   
  For either Class I or Class II, the same class of Shares of the Fund may be
purchased at net asset value with the proceeds from (i) a redemption of Shares
of the Fund or shares of any other Franklin Templeton Fund, except any of the
Franklin Templeton money market funds (unless the redemption proceeds are from
Class I shares of a fund with a lower initial sales charge than that charged
by the Fund and have been held in that fund for less than six months), or (ii)
a dividend or distribution paid by any of the Franklin Templeton Funds, within
365 days after the date of the redemption or dividend or distribution. See
"How to Sell Shares of the Fund--Reinstatement Privilege." Class II
Shareholders may also invest such distributions at net asset value in a Class
I Franklin Templeton Fund.     
       
       
   
  Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by investors who have, within
the past 60 days, redeemed an investment in a mutual fund which is not part of
the Franklin Templeton Funds, which was subject to a front-end sales charge or
a contingent deferred sales charge and which has investment objectives similar
to those of the Fund.     
 
 
                                      14

 
  Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by broker-dealers who have
entered into a supplemental agreement with FTD, or by registered investment
advisers affiliated with such broker-dealers, on behalf of their clients who
are participating in a comprehensive fee program (also known as a wrap fee
program).
 
  Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by anyone who has taken a
distribution from an existing retirement plan already invested in the Franklin
Templeton Funds (including former participants of the Franklin Templeton
Profit Sharing 401(k) plan), to the extent of such distribution. In order to
exercise this privilege, a written order for the purchase of Shares of the
Fund must be received by Franklin Templeton Trust Company ("FTTC"), the Fund,
or Franklin Templeton Investor Services, Inc. (the "Transfer Agent") within
365 days after the plan distribution.
 
  Class I Shares 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.
 
  DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES. Class I Shares may also be
purchased at net asset value and without the imposition of a contingent
deferred sales charge by certain designated retirement plans, including
profit-sharing, pension, 401(k) and simplified employee pension plans
("designated plans"), subject to minimum requirements with respect to number
of employees or amount of purchase, which may be established by 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.
 
  Class I Shares 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.
 
  Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trustees or other
fiduciaries purchasing securities for certain retirement plans of
organizations with collective retirement plan assets of $10 million or more,
without regard to where such assets are currently invested.
 
  Refer to the SAI for further information regarding net asset value purchases
of Class I Shares.
 
                                      15

 
  ADDITIONAL DEALER COMPENSATION (BOTH CLASSES). FTD, or one of its
affiliates, from its own resources, may also provide additional compensation
to securities dealers in connection with sales of shares of the Franklin
Templeton Funds. Compensation may include financial assistance to securities
dealers in connection with conferences, sales or training programs for their
employees, seminars for the public, advertising, sales campaigns and/or
shareholder services and programs regarding one or more of the Franklin
Templeton Funds and other dealer-sponsored programs or events. In some
instances, this compensation may be made available only to certain securities
dealers whose representatives have sold or are expected to sell significant
amounts of shares of the Franklin Templeton Funds. Compensation may include
payment for travel expenses, including lodging, incurred in connection with
trips taken by invited registered representatives and members of their
families to locations within or outside of the United States for meetings or
seminars of a business nature. Securities 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 (annual rate of
0.15% of the average daily net assets of Class I Shares purchased prior to
January 1, 1993), and 1% 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, establishing Shareholder accounts and providing
certain information and assistance with respect to the Fund. For purchases of
Class I Shares on or after February 1, 1995 for which FTD advanced a
commission to a securities dealer, the dealer will receive ongoing payments
beginning in the thirteenth month after the date of purchase. For all
purchases of Class II Shares, 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 additional
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, and beginning May 1, 1997 for exchanges from Templeton
American Trust, Inc., if the exchanged shares were purchased prior to May 1,
1995.
 
  PURCHASING CLASS I AND CLASS II SHARES. When placing purchase orders,
investors should clearly indicate which class of Shares they intend to
purchase. A purchase order that fails to specify a class will automatically be
invested in Class I Shares. Purchases of $1 million or more in a single
payment will be invested in Class I Shares. There are no conversion features
attached to either class of Shares.
 
  Investors who qualify to purchase Class I Shares at net asset value should
purchase Class I rather than Class II Shares. See the section "Net Asset Value
Purchases (Both Classes)" and "Description of Special Net Asset Value
Purchases" above for a discussion of when Shares may be purchased at net asset
value.
 
  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 ("NYSE")
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.
 
                                      16

 
  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 be additional methods
of opening accounts, and 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. From a touch-tone phone, Templeton and Franklin
shareholders may access an automated system (day or night) which offers the
following features:
 
  By calling the Templeton STAR Service, shareholders may obtain current price
and yield information specific to a Templeton Fund, regardless of class;
obtain account information; and request duplicate confirmation or year-end
statements and money fund checks, if applicable.
 
  By calling the Franklin TeleFACTS system, Class I shareholders may obtain
current price, yield or other performance information specific to a Class I
Franklin Fund; process an exchange into an identically registered Class I
Franklin account; obtain account information; and request duplicate
confirmation or year-end statements, money fund checks, if applicable, and
deposit slips.
 
  Share prices and account information specific to Templeton Class I or II
shares and Franklin Class II shares may also be accessed on TeleFACTS by
Franklin and Templeton Class I and Class II shareholders.
 
  The Templeton STAR Service is accessible by calling 1-800-654-0123. The
TeleFACTS system is accessible by calling 1-800-247-1753. TEMPLETON CLASS I
AND CLASS II SHARE CODES FOR THE FUND, WHICH WILL BE NEEDED TO ACCESS SYSTEM
INFORMATION, ARE 410 AND 510, respectively. The system's automated operator
will prompt the caller with easy to follow step-by-step instructions from the
main menu. Other features may be added in the future.
 
  RETIREMENT PLANS. Shares of the Fund may be purchased through various
retirement plans including the following plans for which FTTC 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. A plan document must be adopted in order for a
retirement plan to be in existence. For further information about any of the
plans, agreements, applications and annual fees, contact FTD. To determine
which retirement plan is appropriate, an investor should contact his or her
tax adviser.
 
  NET ASSET VALUE. The net asset value per Share of each class of the Fund is
determined as of the scheduled closing time of the NYSE (generally 4:00 p.m.,
New York time) each day the NYSE 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
 
                                      17

 
NASDAQ is valued at its last sale price on the principal exchange on which the
security is traded. The value of a foreign security is determined in its
national currency as of the as of the close of trading on the foreign exchange
on which it is traded or as of the scheduled closing time of the NYSE
(generally 4:00 p.m., New York time), 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 NYSE, 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.
 
  Each of the Fund's classes will bear, pro-rata, all of the common expenses
of the Fund. The net asset value of all outstanding Shares of each class of
the Fund will be computed on a pro-rata basis for each outstanding Share based
on the proportionate participation in the Fund represented by the value of
Shares of such classes, except that the Class I and Class II Shares will bear
the Rule 12b-1 expenses payable under their respective plans. Due to the
specific distribution expenses and other costs that will be allocable to each
class, the dividends paid to each class of the Fund may vary.
 
                              EXCHANGE PRIVILEGE
   
  A Shareholder may exchange Shares for the same class of shares of other
Franklin Templeton Funds which are eligible for sale in the Shareholder's
state of residence and in conformity with such fund's stated eligibility
requirements and investment minimums. Some funds, however, may not offer Class
II shares. Class I Shares may be exchanged for Class I shares of any Franklin
Templeton Funds. Class II Shares may be exchanged for Class II shares of any
Franklin Templeton Funds. No exchanges between different classes of shares
will be allowed. 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 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. Exchanges of the same
class of shares are made on the basis of the net asset values of the class
involved, except as set forth below. Exchanges of shares of a class which were
originally purchased without a sales charge will be charged a sales charge in
accordance with the terms of the prospectus of the fund and the class of
shares being purchased, unless the original investment on which no sales
charge was paid was transferred in from a fund on which the investor paid a
sales charge. Exchanges of shares from the Franklin Templeton money market
funds are subject to applicable sales charges on the funds being purchased,
unless the Franklin Templeton money market fund shares were acquired by an
exchange from a fund having a sales charge, or by reinvestment of dividends or
capital gain 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       
 
                                      18

 
1-800-632-2301. Telephone exchange instructions must be received by FTD by the
scheduled closing time of the NYSE (generally 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 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 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.
 
  If a substantial portion of the Fund's Shareholders should, within a short
period, elect to redeem their shares of the Fund pursuant to the exchange
privilege, the Fund might have to liquidate portfolio securities it might
otherwise hold and incur the additional costs related to such transactions. On
the other hand, increased use of the exchange privilege may result in periodic
large inflows of money. If this should occur, it is the general policy of the
Fund to initially invest this money in short-term, interest-bearing money
market instruments, unless it is felt that attractive investment opportunities
consistent with the Fund's investment objectives exist immediately.
Subsequently, this money will be withdrawn from such short-term money market
instruments and invested in portfolio securities in as orderly a manner as is
possible when attractive investment opportunities arise.
 
  EXCHANGES OF CLASS I SHARES. The contingency period of Class I Shares will
be tolled (or stopped) for the period such Shares are exchanged into and held
in a Franklin Templeton Class I money market fund. If a Class I account has
Shares subject to a contingent deferred sales charge, Class I Shares will be
exchanged into the new account on a "first-in, first-out" basis. See also "How
to Sell Shares of the Fund--Contingent Deferred Sales Charge."
 
  EXCHANGES OF CLASS II SHARES. When an account is composed of Class II Shares
subject to the contingent deferred sales charge, and Shares that are not, the
Shares will be transferred proportionately into the new fund. Shares received
from reinvestment of dividends and capital gains 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." 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, and the Shareholder exchanges
$1,500 into a new fund, $500 from each of these Shares will be exchanged into
the new fund.
 
  The only money market fund exchange option available to Class II
Shareholders is the 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 of
Money Fund II directly. Class II Shares exchanged for shares of Money Fund II
will continue to age and a contingent deferred sales charge will be assessed
if CDSC liable Shares are redeemed. No other money market funds are
 
                                      19

 
available for Class II Shareholders for exchange purposes. Class I Shares may
be exchanged for shares of any of the money market funds in the Franklin
Templeton Funds except Money Fund II. Draft writing privileges and direct
purchases are allowed on these money market funds as described in their
respective prospectuses.
 
  To the extent Shares are exchanged proportionately, as opposed to another
method, such as "first-in, first-out," or free Shares followed by CDSC liable
Shares, the exchanged Shares may, in some instances, be CDSC liable even
though a redemption of such Shares, as discussed elsewhere herein, may no
longer be subject to a CDSC. The proportional method is believed by management
to more closely meet and reflect the expectations of Class II Shareholders in
the event Shares are redeemed during the contingency period. For federal
income tax purposes, the cost basis of Shares redeemed or exchanged is
determined under the Code without regard to the method of transferring Shares
chosen by the Fund for purposes of exchanging or redeeming Shares.
 
  TRANSFERS. Transfers between identically registered accounts in the same
fund and class are treated as non-monetary and non-taxable events, and are not
subject to a contingent deferred sales charge. The transferred Shares will
continue to age from the date of original purchase. Shares of each class will
be transferred on the same basis as described above for exchanges.
 
  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, subject to
all applicable sales charges.
 
  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 objective 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.
 

                                      20

 
                        HOW TO SELL SHARES OF THE FUND
 
  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 (a) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (b) national securities
exchanges, registered securities associations and clearing agencies; (c)
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 (d)
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 (i) the current address of one or more joint owners of an
account cannot be confirmed; (ii) multiple owners have a dispute or give
inconsistent instructions to the Fund; (iii) the Fund has been notified of an
adverse claim; (iv) the instructions received by the Fund are given by an
agent, not the actual registered owner; (v) the Fund determines that joint
owners who are married to each other are separated or may be the subject of
divorce proceedings; or (vi) 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;
    . 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 FTTC 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
 
                                      21

 
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 Shareholder Services Department by
calling 1-800-632-2301.     
 
  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. A gain or loss for tax purposes generally will be realized upon the
redemption, depending on the tax basis of the Shares redeemed. 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 NYSE 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 NYSE, 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, except 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 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. For either Class I or Class II, the same class of
Shares of the Fund may be purchased at net asset value with the proceeds from
(i) a redemption of Shares of the Fund or shares of any other Franklin
Templeton Fund except any of the Franklin Templeton money market funds (unless
the redemption proceeds are from Class I shares of a fund with a lower initial
sales charge than     
 
                                      22

 
that charged by the Fund and have been held in that fund for less than six
months), or (ii) a dividend or distribution paid by any of the Franklin
Templeton Funds, within 365 days after the date of the redemption or dividend
or distribution. Class II Shareholders may also invest such distributions at
net asset value in a Class I Franklin Templeton Fund. 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. An
investor may reinvest an amount not exceeding the proceeds of the redemption
or the dividend or distribution. While credit will be given for any contingent
deferred sales charge paid on the Shares redeemed, a new contingency period
will begin. Matured Shares will be reinvested at net asset value and will not
be subject to a new contingent deferred sales charge. 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 365 days
after the redemption or the payment date of the distribution. The 365 days,
however, do not begin to run on redemption proceeds placed immediately after
redemption in a Franklin Bank Certificate of Deposit ("CD") until the CD
(including any rollover) matures. Reinvestment at net asset value may also be
handled by a securities dealer or other financial institution, who may charge
the Shareholder a fee for this service. The redemption is a taxable
transaction but reinvestment without a sales charge may affect the tax basis
of the Shares reinvested, and 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. Retirement
plans subject to mandatory distribution requirements are not subject to the
$50 minimum. The Plan may be established on a monthly, quarterly, semiannual
or annual basis. If the Shareholder establishes a Plan, any capital gain
distributions and income dividends paid by the Fund 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 of the Franklin Templeton Funds, 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. Also, redemptions of Class I Shares and Class II Shares may be
subject to a contingent deferred sales charge if the Shares are redeemed
within 12 months (Class I Shares) or 18 months (Class II Shares) of the
calendar month of the original purchase date. 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.
 
  With respect to Class I Shares, the contingent deferred sales charge is
waived for redemptions through a Systematic Withdrawal Plan set up prior to
February 1, 1995. With respect to Systematic Withdrawal Plans set up on or
after February 1, 1995, the applicable contingent deferred sales charge is
waived for Class I and Class II Share redemptions of up to 1% monthly of an
account's net asset value (12% annually, 6% semiannually, 3% quarterly). For
example, if a Class I account maintained an annual balance of $1,000,000,
 
                                      23

 
only $120,000 could be withdrawn through a once-yearly Systematic Withdrawal
Plan free of charge; any amount over that $120,000 would be assessed a 1% (or
applicable) contingent deferred sales charge. Likewise, if a Class II account
maintained an annual balance of $10,000, only $1,200 could be withdrawn
through a once-yearly Systematic Withdrawal Plan free of charge.
 
  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 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 the scheduled closing
time of the NYSE (generally 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.
 
  CONTINGENT DEFERRED SALES CHARGE. In order to recover commissions paid to
securities dealers, Class I investments of $1 million or more, and any Class
II investments, redeemed within the contingency period of 12 months (Class I)
or 18 months (Class II) of the calendar month of their purchase will be
assessed a contingent deferred sales charge, unless one of the exceptions
described below applies. The charge is 1% of the lesser of the net asset value
of the Shares redeemed (exclusive of reinvested dividends and capital gain
distributions) or the net asset value at the time of purchase of such Shares,
and is retained by FTD. The contingent deferred sales charge is waived in
certain instances. See below.
 
  In determining if a contingent deferred sales charge applies, Shares not
subject to a contingent deferred sales charge are deemed to be redeemed first,
in the following order: (i) a calculated number of Shares representing amounts
attributable to capital appreciation of those Shares held less than the
contingency period (12 months in the case of Class I Shares and 18 months in
the case of Class II Shares); (ii) Shares purchased with reinvested dividends
and capital gain distributions; and (iii) other Shares held longer than the
contingency period, and followed by any Shares held less than the contingency
period, on a "first in, first out" basis. For tax purposes, a contingent
deferred sales charge is treated as either a reduction in redemption proceeds
or an adjustment to the cost basis of the Shares redeemed.
 
  The contingent deferred sales charge on each class of Shares is waived, as
applicable, for: exchanges; any account fees; distributions from an individual
retirement plan account due to death or disability, or upon periodic
distributions based on life expectancy; tax-free returns of excess
contributions from employee benefit plans; distributions from employee benefit
plans, including those due to plan termination or plan transfer; redemptions
through a Systematic Withdrawal Plan set up for Shares prior to February 1,
1995 and, for Systematic Withdrawal Plans set up thereafter, redemptions of up
to 1% monthly of an account's net asset value (3% quarterly, 6%
 
                                      24

 
semiannually or 12% annually); redemptions initiated by the Fund due to a
Shareholder's account falling below the minimum specified account size; and
redemptions following the death of the Shareholder or the beneficial owner.
 
  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, unless otherwise
specified, 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.
 
                            TELEPHONE TRANSACTIONS
 
  Shareholders of the Fund and their investment representative of record, if
any, may be able to execute various transactions by calling the Shareholder
Services at 1-800-632-2301.
 
  All Shareholders will be able to: (i) effect a change in address; (ii)
change a dividend option (see "Restricted Accounts" below); (iii) transfer
Fund Shares in one account to another identically registered account in the
Fund; (iv) request the issuance of certificates (to be sent to the address of
record only); and (v) 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. The Fund and the Transfer
Agent may be liable for any losses due to unauthorized or fraudulent
instructions in the event such reasonable procedures are not followed.
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 retirement accounts. To assure
compliance with all applicable regulations, special forms are required for any
distribution, redemption, or dividend payment. While the telephone exchange
privilege is extended to Franklin Templeton IRA and 403(b) retirement
accounts, certain restrictions may apply to other types of retirement plans.
Changes to dividend options must also be made in writing.
 
  To obtain further information regarding distribution or transfer procedures,
including any required forms, retirement account Shareholders may call to
speak to a Retirement Plan Specialist at 1-800/527-2020.
 
  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.
 
                                      25

 
  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.
 
  In developing the multiclass structure, the Fund has retained the authority
to establish additional classes of Shares. It is the Fund's present intention
to offer only two classes of Shares, but new classes may be offered in the
future.
 
  INVESTMENT MANAGER. The Investment Manager of the Fund is Templeton Global
Advisors Limited, 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 performs similar services for other funds and
accounts and there may be times when the actions taken with respect to the
Fund's portfolio will differ from those taken by the Investment Manager on
behalf of other funds and accounts. Neither the Investment Manager and its
affiliates, its officers, directors or employees, nor the officers and
Trustees of the Fund are prohibited from investing in securities held by the
Fund or other funds and accounts which are managed or administered by the
Investment Manager to the extent such transactions comply with the Fund's Code
of Ethics. Please see "Investment Management and Other Services--Investment
Management Agreement" in the SAI for further information on securities
transactions and a summary of the Fund's Code of Ethics.
 
  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.
 
  The lead portfolio manager of the Fund is Jeffrey A. Everett. Mr. Everett
holds a BS in Finance from Pennsylvania State University. He joined the
Templeton organization in 1989, and is Vice President of the Investment
Manager. Prior to joining the Templeton
 
                                      26

 
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 secondary portfolio management responsibilities
with respect to the Fund. Mr. Foyil holds a BS in Computer Science and
Accounting, as well as an MBA from the Wharton School of Business at the
University of Pennsylvania. 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 holds an AB in Economics from Harvard
University. He 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 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. A separate Plan of Distribution has been approved and
adopted for each class ("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 servicing
fees attributable to that particular class. Any portion of fees remaining from
either Plan after distribution to securities dealers of 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 incurred with respect to
such class. 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 or others 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. All expenses of distribution
and marketing in excess of 0.25% per annum will be borne by FTD, or others who
have incurred them, without reimbursement from the Fund. Under the Class I
Plan, costs and expenses not reimbursed in any one given quarter (including
costs and expenses not reimbursed because they exceed the applicable limit
under the Plan) may be reimbursed in subsequent quarters 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 quarters or years were $30,457
(0.02% of its net assets) at August 31, 1995.
 
  Under the Class II Plan, the maximum amount which the Fund is permitted to
pay to FTD or others for distribution expenses and related expenses is 0.75%
per annum of Class II's average daily net assets, payable quarterly. All
expenses of distribution, marketing and related services over that amount will
be borne by FTD, or others who have incurred them, without reimbursement by
the Fund. In addition, the Class II Plan provides for an additional payment by
the Fund of up to 0.25% per annum of Class II's average daily net assets as a
servicing fee, payable quarterly. This fee will be used to pay securities
dealers or other for, among other things, assisting in
 
                                      27

 
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; or
similar activities related to furnishing personal services and/or maintaining
Shareholder accounts.
 
  During the first year following the purchase of Class II Shares, FTD will
retain 0.75% per annum of Class II's average daily net assets to partially
recoup fees FTD pays to securities dealers. FTD, or its affiliates, may pay,
from its own resources, a commission of up to 1% of the amount invested to
securities dealers who initiate and are responsible for purchases of Class II
Shares.
 
  Both Plans also cover 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 including a discussion of the Board's policies with
regard to the amount of each Plan's fees, please see the SAI.
   
  EXPENSES. For the fiscal year ended August 31, 1995, expenses borne by Class
I Shares of the Fund amounted to 1.55% of the Fund's average net assets of
such class, and expenses borne by Class II Shares of the Fund amounted to
2.26% (annualized) of the average net assets of such Class. See the Expense
Table for information on regarding estimated expenses of both Classes of
Shares for the current fiscal year.     
 
  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.
 
                              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 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.
       
   
  Shares for an initial investment, as well as subsequent investments,
including the reinvestment of dividends and capital gains distributions, are
generally credited to an account in the name of an investor on the books of
the Fund, without the issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss
or theft of a share certificate. No charge is made for the issuance of one
certificate for all or some of the Shares purchased in a single order. A lost,
stolen or destroyed certificate cannot be replaced without obtaining a
sufficient indemnity bond. The cost of such a bond, which is generally borne
by the shareholder, can be 2% or more of the value of the lost, stolen or
destroyed certificate. A certificate will be issued if requested by the
shareholder or by the securities dealer.     
 
  VOTING RIGHTS. Shares of each class represent proportionate interests in the
assets of the Fund and have the same voting and other rights and preferences
as the other class of the Fund for matters that affect the Fund as a whole.
For matters that only affect a
 
                                      28

 
certain class of the Fund's Shares, however, only Shareholders of that class
will be entitled to vote. Therefore, each class of Shares will vote separately
on matters (1) affecting only that class, (2) expressly required to be voted
on separately by state law, or (3) required to be voted on separately by the
1940 Act or the rules adopted thereunder. For instance, if a change to the
Rule 12b-1 plan relating to Class I Shares requires Shareholder approval, only
Shareholders of Class I may vote on changes to the Rule 12b-1 plan affecting
that class. Similarly, if a change to the Rule 12b-1 plan relating to Class II
Shares requires Shareholder approval, only Shareholders of Class II may vote
on the change to such plan. On the other hand, if there is a proposed change
to the investment objective of the Fund, this affects all Shareholders,
regardless of which class of Shares they hold, and therefore, each Share has
the same voting rights.
 
  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. The Fund intends to pay a dividend at least
annually representing substantially all of its net investment income and any
net realized capital gains. According to the requirements of the Code,
dividends and capital gains will be calculated and distributed in the same
manner for Class I and Class II Shares. The per share amount of any income
dividends will generally differ only to the extent that each class is subject
to different Rule 12b-1 fees. Unless otherwise requested, income dividends and
capital gain distributions paid by the Fund, other than on those Shares whose
owners keep them registered in the name of a broker-dealer, are automatically
reinvested on the payment date 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. By completing the "Special Payment
Instructions for Distributions" section of the Shareholder Application, Class
I Shareholders may direct that their dividends and/or capital gain
distributions be reinvested in Class I Shares of the Fund or Class I Shares of
any other Franklin Templeton Fund, and Class II Shareholders may direct that
their dividends and/or capital gain distributions be reinvested in either
Class I or Class II Shares of the Fund or any other Franklin Templeton Fund.
Shareholders may also direct the payment of their dividends or capital gain
distributions to another person. The processing date for the reinvestment of
dividends may vary from time to time, and does not affect the amount or value
of the Shares acquired. Income dividends and capital gain distributions will
be paid in cash on Shares during the time that 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 in 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 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 net 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
 
                                      29

 
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. Sales
or other dispositions of Fund Shares generally will give rise to taxable gain
or loss. 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 1-800-632-2301.
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 semiannual reports
(containing unaudited financial statements) are sent to Shareholders each year.
To reduce the volume of mail sent to one household as well as to reduce Fund
expenses, the Transfer Agent will attempt to identify related Shareholders
within a household and send only one copy of the report. Additional copies may
be obtained, without charge, upon request to the Fund Information Department--
telephone 1-800/DIAL BEN. 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.
 
                                       30

 
                       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 Internal Revenue Service ("IRS").
 
OBTAINING A NUMBER. If you do not have a Social Security Number/Taxpayer
Identification Number ("SSN/TIN"), 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 taxpayer identification number you have given is correct, and (2) the
IRS 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
 
                                      31

 
                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
the following is a and that 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)
 
                                      32

 
      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
Templeton 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.
 
                                      33

 
       
   
The Franklin Templeton Group     
   
Literature Request -- Call today for a free descriptive brochure and
prospectus on any of the funds listed below. The prospectus contains more
complete information, including fees, charges and expenses, and should be read
carefully before investing or sending money.     
                                                                          
TEMPLETON FUNDS                              Maryland                          FRANKLIN FUNDS SEEKING
American Trust                               Massachusetts***                  HIGH CURRENT INCOME 
Americas Government Securities Fund          Michigan***                       AGE High Income Fund
Developing Markets Trust                     Minnesota***                      German Government Bond Fund
Foreign Fund                                 Missouri                          Global Government Income Fund 
Global Infrastructure Fund                   New Jersey                        Investment Grade Income  Fund
Global Opportunities Trust                   New York*                         U.S. Government Securities Fund 
Greater European Fund                        North Carolina            
Growth Fund                                  Ohio***                           FRANKLIN FUNDS SEEKING HIGH CURRENT 
Growth and Income Fund                       Oregon                            INCOME AND STABILITY OF PRINCIPAL
Income Fund                                  Pennsylvania                      Adjustable Rate Securities Fund 
Japan Fund                                   Tennessee**                       Adjustable U.S. Government Securities Fund 
Latin America Fund                           Texas                             Short-Intermediate U.S. Government Securities Fund 
Money Fund                                   Virginia                          
Real Estate Securities Fund                  Washington**                      FRANKLIN FUNDS FOR NON-U.S. INVESTORS 
Smaller Companies Growth Fund                                                  Tax-Advantaged High Yield Securities Fund
World Fund                                   FRANKLIN FUNDS                    Tax-Advantaged International Bond Fund     
                                             SEEKING CAPITAL GROWTH            Tax-Advantaged U.S. Government Securities Fund 
FRANKLIN FUNDS                               California Growth Fund               
SEEKING TAX-FREE INCOME                      DynaTech Fund                     FRANKLIN TEMPLETON INTERNATIONAL 
Federal Intermediate Term                    Equity Fund                       CURRENCY FUNDS 
Tax-Free Income Fund                         Global Health Care Fund           Global Currency Fund
Federal Tax-Free Income Fund                 Gold Fund                         Hard Currency Fund 
High Yield Tax-Free Income                   Growth Fund                       High Income Currency Fund 
Fund                                         International Equity Fund 
Insured Tax-Free Income Fund***              Pacific Growth Fund               FRANKLIN MONEY MARKET FUNDS 
Puerto Rico Tax-Free Income Fund             Real Estate Securities Fund       California Tax-Exempt Money Fund
FRANKLIN STATE-SPECIFIC FUNDS                Small Cap Growth Fund             Federal Money Fund  
SEEKING TAX-FREE INCOME                                                        IFT U.S. Treasury Money Market Portfolio  
Alabama                                      FRANKLIN FUNDS SEEKING            Money Fund  
Arizona*                                     GROWTH AND INCOME                 New York Tax-Exempt Money Fund 
Arkansas**                                   Balance Sheet Investment Fund     Tax-Exempt Money Fund 
California*                                  Convertible Securities Fund  
Colorado                                     Equity Income Fund                FRANKLIN FUND FOR CORPORATIONS  
Connecticut                                  Global Utilities Fund             Corporate Qualified Dividend Fund  
Florida*                                     Income Fund                 
Georgia                                      Premier Return Fund               FRANKLIN TEMPLETON VARIABLE ANNUITIES  
Hawaii**                                     Rising Dividends Fund             Franklin Valuemark 
Indiana                                      Strategic Income Fund             Franklin Templeton Valuemark Income 
Kentucky                                     Utilities Fund                    Plus (an immediate annuity)  
Louisiana  
     
      

    
Toll-free 1-800-DIAL BEN (1-800-342-5236)      
    
*   Two or more fund options available: long-term portfolio, intermediate-term
    portfolio, a portfolio of municipal securities, and a high yield portfolio
    (CA).     
    
**  The fund may invest up to 100% of its assets in bonds that pay interest
    subject to the federal alternative minimum tax.     

    
*** Portfolio of insured municipal securities.     




 
                                      34


 
                                     NOTES
                                     ----- 
                                       35

 
 
 
- --------------------------------------------------------------------------------
    
 TEMPLETON REAL
 ESTATE SECURITIES
 FUND     
 
 PRINCIPAL UNDERWRITER:
 
 Franklin Templeton
 Distributors, Inc.
 700 Central Avenue
 St. Petersburg,
 Florida 33701-3628
    
 Shareholder Services     
    
 1-800-632-2301     
 
 Fund Information
    
 1-800/DIAL BEN     
    
 Institutional Services     
    
 1-800-321-8563     
    
 Dealer Services     
    
 1-800-524-4040     
    
 Retirement Plan Services     
    
 1-800-527-2020     
 
 This Prospectus is not an offering of the securities herein described in any
 state in which the offeringis 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.
 
- --------------------------------------------------------------------------------
                           
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]                      
TEMPLETON
       
REAL
ESTATE
   
SECURITIES     
FUND
 
Prospectus
   
January 1, 1996     
       
       
[LOGO OF RECYCLED PAPER APPEARS HERE]
                 
TL410 P 1/96      

 
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]

                                                     Mail to: FRANKLIN TEMPLETON
              P.O. Box 33031  St. Petersburg, Florida 33733-8031  (800) 393-3001

Please do not use this form for any Retirement Plan for which Franklin Templeton
Trust Company serves as custodian or trustee, or for Templeton Money Fund,
Templeton Institutional Funds or Templeton Capital Accumulator Fund. Request
separate Applications and/or Prospectuses.

- --------------------------------------------------------------------------------
  SHAREHOLDER APPLICATION OR REVISION  
  [_] Please check the box if this is a revision and see Section 8
- --------------------------------------------------------------------------------
 
Please check Class I or Class II, if applicable, next to your Fund selection.
Class I and Class II shares have different sales charges and operating expenses,
among other differences, as described in each Fund's prospectus.     
 
                                                        Date  __________________
 
 
 
 CLASS                                                  CLASS     
 I   II        TEMPLETON                                I   II        TEMPLETON
                                                                                      
[_] [_]$______ AMERICAN TRUST                          [_] [_]$______ GLOBAL OPPORTUNITIES TRUST      
[_]     ______ AMERICAS GOVERNMENT SECURITIES FUND     [_] [_] ______ GREATER EUROPEAN FUND          
[_] [_] ______ DEVELOPING MARKETS TRUST                [_] [_] ______ GROWTH FUND                     
[_] [_] ______ FOREIGN FUND                            [_] [_] ______ GROWTH AND INCOME FUND       
[_] [_] ______ GLOBAL INFRASTRUCTURE FUND              [_] [_] ______ INCOME FUND                     


                                              
 CLASS                                                  CLASS
 I   II        TEMPLETON                                I   II     
                                                                  
[_]    $______ JAPAN FUND                              [_] [_] OTHER:             $___________
[_] [_] ______ LATIN AMERICA FUND                              (Except for Class II Money Fund)
[_] [_] ______ REAL ESTATE SECURITIES FUND                     _______________________________                 
[_] [_] ______ SMALLER COMPANIES GROWTH FUND                   _______________________________                 
[_] [_] ______ WORLD FUND                                      _______________________________      
 

- --------------------------------------------------------------------------------
  1 ACCOUNT REGISTRATION  (PLEASE PRINT)
- --------------------------------------------------------------------------------
 
[_] INDIVIDUAL OR JOINT ACCOUNT
                                                          _           _
__________________________________________________  ____________________________
First Name      Middle Initial        Last Name     Social Security Number (SSN)
                                                          _           _
__________________________________________________  ____________________________
Joint Owner(s) (Joint ownership means "Joint        Social Security Number (SSN)
Tenants With Rights of Survivorship" unless 
otherwise specified) All owners must sign Section 4.
 
- --------------------------------------------------------------------------------
[_] GIFT/TRANSFER TO A MINOR
 
_______________________________ As Custodian For________________________________
Name of Custodian (one only)                    Minor's Name (one only)
                                                          _           _
_____________Uniform Gifts/Transfers to Minors Act______________________________
State of Residence                                Minor's Social Security Number

Please Note: Custodian's Signature, not Minor's, is required in Section 4.

- --------------------------------------------------------------------------------
[_] TRUST, CORPORATION, PARTNERSHIP, RETIREMENT PLAN, OR OTHER ENTITY
                                                          _
__________________________________________  ___________________________________
Name                                        Taxpayer Identification Number (TIN)

__________________________________________  ____________________________________
Name of Beneficiary (if to be included in    Date of Trust Document (must be 
the Registration)                            completed for registration)

________________________________________________________________________________
Name of Each Trustee (if to be included in the Registration)

- --------------------------------------------------------------------------------
  2 ADDRESS
- --------------------------------------------------------------------------------

___________________________________________  Daytime Phone (___)________________
Street Address                                              Area Code
                                 _
___________________________________________  Evening Phone (___)________________
City              State    Zip Code                         Area Code

I am a Citizen of: [_] U.S. or [_]______________________________
                                  Country of Residence
 
- --------------------------------------------------------------------------------
  3 INITIAL INVESTMENT ($100 minimum initial investment)
- --------------------------------------------------------------------------------
 
Check(s) enclosed for $___________________ . (Payable to the Fund(s) 
                                             indicated above.)
 
- --------------------------------------------------------------------------------
  4 SIGNATURE AND TAX CERTIFICATIONS 
    (All registered owners must sign application)
- --------------------------------------------------------------------------------
See "Important Notice Regarding Taxpayer IRS Certifications" in back of
prospectus. The Fund reserves the right to refuse to open an account without
either a certified Taxpayer Identification Number ("TIN") or a certification of
foreign status. Failure to provide tax certifications in this section may result
in backup withholding on payments relating to your account and/or in your
inability to qualify for treaty withholding rates.
 
I am(We are) not subject to backup withholding because I(we) have not been 
notified by the IRS that I am(we are) subject to backup withholding as a result 
of a failure to report all interest or dividends or because the IRS has notified
me(us) that I am(we are) no longer subject to backup withholding. (If you are 
currently subject to backup withholding as a result of a failure to report all 
interest or dividends, please cross out the preceding statement.)
 
[_] The number shown above is my(our) correct TIN, or that of the Minor named in
    Section 1.
 
[_] AWAITING TIN. I am(We are) waiting for a number to be issued to me(us). 
    I(We) understand that if I(we) do not provide a TIN to the Fund within 60
    days, the Fund is required to commence 31% backup withholding until I(we)
    provide a certified TIN.
 
[_] EXEMPT RECIPIENT. Individuals cannot be exempt. Check this box only after 
    reading the instructions to see whether you qualify as an exempt recipient.
    (You should still provide a TIN.)

[_] EXEMPT FOREIGN PERSON. Check this box only if the following statement 
    applies: "I am(we are) neither a citizen nor a resident of the United
    States. I(we) certify to the best of my(our) knowledge and belief, I(we)
    qualify as an exempt foreign person and/or entity as described in the
    instructions."

    Permanent address for tax purposes:
 
________________________________________________________________________________
Street Address            City        State        Country       Postal Code
 
PLEASE NOTE: The IRS only allows one TIN to be listed on an account. On joint 
accounts, it is preferred that the primary account owner (or person listed first
on the account) list his/her number as requested above.
 
CERTIFICATION - Under the penalties of perjury, I(we) certify that (1) the 
information provided on this application is true, correct and complete, (2) 
I(we) have read the prospectus(es) for the Fund(s) in which I am(we are)
investing and agree to the terms thereof, and (3) I am(we are) of legal age or
an emancipated minor. I (we) acknowledge that Shares of the Fund(s) are not
insured or guaranteed by any agency or institution and that an investment in the
Shares involves risks, including the possible loss of principal.
 
X                                        X
- ---------------------------------------- ---------------------------------------
Signature                                Signature
 
X                                        X
- ---------------------------------------- ---------------------------------------

- --------------------------------------------------------------------------------
  5 BROKER/DEALER USE ONLY (PLEASE PRINT)
- --------------------------------------------------------------------------------
 
                                                        ----------------------- 
We hereby submit this application for the purchase of   Templeton Dealer Number 
shares of the Fund indicated above in accordance with                           
the terms of our selling agreement with Franklin        ----------------------- 
Templeton Distributors, Inc. ("FTD"), and with the
Prospectus for the Fund. We agree to notify FTD of any
purchases of Class I shares which may be eligible for
reduced or eliminated sales charges.
 
  -----------------------------------------------------------------------------
    WIRE ORDER ONLY: The attached check for $_______ should be applied against 
     Wire Order
         Confirmation Number ___________ Dated___________ For__________ Shares
  -----------------------------------------------------------------------------
 
Securities Dealer Name__________________________________________________________
 
Main Office Address________________ Main Office Telephone Number (___)__________
 
Branch Number________ Representative Number ________ Representative Name________
 
Branch Address_________________________ Branch Telephone Number (___)___________
 
Authorized Signature, Securities Dealer______________________ Title_____________
 
- --------------------------------------------------------------------------------
ACCEPTED: Franklin Templeton Distributors, Inc. By___________ Date______________
- --------------------------------------------------------------------------------
 
          Please see reverse side for Shareholder Account Privileges:
 
[_] Distribution Options              [_] Special Instructions for Distributions
[_] Systematic Withdrawal Plan        [_] Automatic Investment Plan
 
[_] Telephone Exchange Service        [_] Letter of Intent
[_] Cumulative Quantity Discount
 
     This application must be preceded or accompanied by a prospectus for 
                         the Fund(s) being purchased.
 

 
- --------------------------------------------------------------------------------
  6  DISTRIBUTION OPTIONS (Check one)
- --------------------------------------------------------------------------------
 
Check one - if no box is checked, all dividends and capital gains will be 
reinvested in additional shares of the Fund.

  [_] Reinvest all dividends                    [_] Pay all dividends in cash 
      and capital gains.                            and reinvest capital gains.

  [_] Pay capital gains in cash                 [_] Pay all dividends and 
      and reinvest dividends.                       capital gains in cash.
 
- --------------------------------------------------------------------------------
  7  OPTIONAL SHAREHOLDER PRIVILEGES
- --------------------------------------------------------------------------------
 
A. SPECIAL PAYMENT INSTRUCTIONS FOR DISTRIBUTIONS (Check one box)

  [_] Invest Distributions, as noted in Section 6, or [_] withdrawals, as noted
      in section 7(B), in another Franklin or Templeton Fund. 
      Restrictions may apply to purchases of shares of a different class. See
      the prospectus for details.

      Fund Name______________________ Existing Account Number___________________
  [_] Send my Distributions to the person, named below, instead of as registered
      and addressed in Sections 1 and 2.
      Name___________________________ Street Address____________________________
      
      City___________________________ State____________________Zip Code_________

- --------------------------------------------------------------------------------
B. SYSTEMATIC WITHDRAWAL PLAN
 
   Please withdraw from my Franklin Templeton account $_____($50 minimum)
   [_]Monthly [_]Quarterly [_]Semi-Annually or [_]Annually as set forth in the
   Prospectus, starting in ______________(Month). The net asset value of the
   shares held must be at least $5,000 at the time the plan is established.
   Additional restrictions may apply to Class II or other shares subject to
   contingent deferred sales charge, as described in the prospectus. Send the
   withdrawals to: [_]Address of Record OR [_]the Franklin Templeton Fund or 
   person specified in Section 7(A) - Special Payment Instructions for 
   Distributions.
 
- --------------------------------------------------------------------------------
C. TELEPHONE TRANSACTIONS
 
   TELEPHONE EXCHANGE PRIVILEGE: If the Fund does not receive specific
   -----------------------------
   instructions from the shareholder, either in writing or by telephone, the
   Telephone Exchange Privilege (see the prospectus) is automatically extended
   to each account. The shareholder should understand, however, that the Fund
   and Franklin Templeton Investor Services, Inc. ("FTI") or Franklin Templeton 
   Trust Company and their agents will not be liable for any loss, injury,
   damage or expense as a result of acting upon instructions communicated by
   telephone reasonably believed to be genuine. The shareholder agrees to hold
   the Fund and its agents harmless from any loss, claims, or liability arising
   from its or their compliance with such instructions. The shareholder
   understands that this option is subject to the terms and conditions set forth
   in the prospectus of the fund to be acquired.
 
[_]No, I do NOT wish to participate in the Telephone Exchange Privilege or 
   authorize the Fund or its agents, including FTI or Templeton Funds Trust
   Company, to act upon instructions received by telephone to exchange shares
   for shares of any other account(s) within the Franklin Templeton Group of
   Funds. 
 
   Telephone Redemption Privilege: This is available to shareholders who
   -------------------------------
   specifically request it and who complete the Franklin Templeton Telephone
   Redemption Authorization Agreement in the back of the Fund's prospectus.
 
- --------------------------------------------------------------------------------
D. AUTOMATIC INVESTMENT PLAN
 
   IMPORTANT: ATTACH AN UNSIGNED, VOIDED CHECK (FOR CHECKING ACCOUNTS) OR A
   SAVINGS ACCOUNT DEPOSIT SLIP HERE, AND COMPLETE THE INFORMATION BELOW. I(We)
   would like to establish an Automatic Investment Plan (the "Plan") as
   described in the Prospectus. I(We) agree to reimburse FTI and/or FTD for any
   expenses or losses that they may incur in connection with my(our) plan,
   including any caused by my(our) bank's failure to act in accordance with
   my(our) request. If my(our) bank makes any erroneous payment or fails to make
   a payment after shares are purchased on my(our) behalf, any such purchase may
   be cancelled and I(we) hereby authorize redemptions and/or deductions from
   my(our) account for that purpose.
 
   Debit my (circle one) savings, checking, other ________ account monthly for
   $__________($25 minimum) on or about the [_]1st [_]5th [_]15th or [_]20th day
   starting_______(month), to be invested in (name of
   Fund)___________________Account Number (if known)_______
  
   INSTRUCTIONS TO BANK - AUTOMATIC INVESTMENT PLAN AUTHORIZATION

   To:__________________________________  ______________________________________
           Name of Your Bank                             ABA Number
 
   ___________________________  _________________  ____________  ______________
        Street Address                City            State         Zip Code    

I(We) authorize you to charge my(our) Checking/Savings Account and to make 
payment to FTD, upon instructions from FTD. I(We) agree that in making payment 
for such charges your rights shall be the same as if each were a charge made and
signed personally by me(us). This authority shall remain in effect until you 
receive written notice from me(us) changing its terms or revoking it. Until you
actually receive such notice, I(we) agree that you shall be fully protected in 
paying any charge under this authority. I(we) further agree that if any such 
charge is not made, whether with or without cause and whether intentionally or 
inadvertently, you shall be under no liability whatsoever.

X_________________________________________________  ___________________________
Signature(s) EXACTLY as shown on your bank records             Date

______________________________________  _______________________________________
              Print Name(s)                       Account Number

______________________________  _________________  ____________  ______________
   Your Street Address                City            State         Zip Code    
 
- --------------------------------------------------------------------------------
E. LETTER OF INTENT (LOI) -- Not Applicable to Purchases of Class II
 
[_]I(We) agree to the terms of the LOI and provisions for reservations of 
   Class I shares and grant FTD the security interest set forth in the
   Prospectus. Although I am(we are) not obligated to do so, it is my(our)
   intention to invest over a 13 month period in Class I and/or Class II shares
   of one or more Franklin or Templeton Funds (including all money market funds
   in the Franklin Templeton Group) an aggregate amount at least equal to that
   which is checked below. I understand that reduced sales charges will apply
   only to purchases of Class I shares.
 
                                                                                            
   [_]$50,000-99,999 (except for Income Fund  [_]$100,000-249,999 [_]$250,000-499,999 [_]$500,000-999,999 [_]$1,000,0000 or more
      and Americas Government Securities Fund)
 
    
   Purchases of Class I Shares under LOI of $1,000,000 or more are made at net
   asset value and may be subject to a contingent deferred sales charge as
   described in the prospectus.

   Purchases made within the last 90 days will be included as part of your LOI.

   Please write in your Account Number(s)____________ ____________ ____________
 
- --------------------------------------------------------------------------------
F. CUMULATIVE QUANTITY DISCOUNT -- Not Applicable to Purchases of Class II
 
   Class I shares may be purchased at the offering price applicable to the total
   of (a) the dollar amount then being purchased plus (b) the amount equal to
   the cost or current value (whichever is higher) of the combined holdings of
   the purchaser, his or her spouse, and their children or grandchildren under
   age 21, of Class I and/or Class II shares of funds in the Franklin Templeton
   Group, as well as other holdings of Franklin Templeton Investments, as that
   term is defined in the prospectus. In order for this cumulative quantity
   discount to be made available, the shareholder or his or her securities
   dealer must notify FTI or FTD of the total holdings in the Franklin Templeton
   Group each time an order is placed. I understand that reduced sales charges
   will apply only to purchases of Class I shares.

[_]I(We) own shares of more than one Fund in the Franklin Templeton Group and 
   qualify for the Cumulative Quantity Discount described above and in the 
   Prospectus.
 
   My(Our) other Account Number(s) are ___________  ___________  _______________
 
- --------------------------------------------------------------------------------
  8 ACCOUNT REVISION (If Applicable)
- --------------------------------------------------------------------------------
 
  If you are using this application to revise your Account Registration, or wish
to have Distributions sent to an address other than the address on your existing
Account's Registration, a Signature Guarantee is required. Signatures of all 
registered owners must be guaranteed by an "eligible guarantor" as defined in 
the "How to Sell Shares of the Fund" section in the Fund's Prospectus. A Notary 
Public is not an acceptable guarantor.

X________________________________________  ____________________________________ 
Signature(s) of Registered Account Owners  Account Number(s)

X________________________________________  ____________________________________ 

X________________________________________  

X________________________________________  ____________________________________ 
                                           Signature Guarantee Stamp

  NOTE: For any change in registration, please send us any outstanding 
  Certificates by Registered Mail.
 
- --------------------------------------------------------------------------------
                                                                 TLGOF APP 12/95