FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST, 497, 1999-11-03

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
497, 1999-11-03

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PROSPECTUS

FRANKLIN TEMPLETON
VARIABLE INSURANCE PRODUCTS TRUST

CLASS 1 SHARES

MAY 1, 1999
AS AMENDED NOVEMBER 1, 1999

[[Insert Franklin Templeton Ben Head]

As with all fund prospectuses, the SEC has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.

CONTENTS

FRANKLIN TEMPLETON VARIABLE
INSURANCE PRODUCTS TRUST

[Begin callout]
INFORMATION ABOUT EACH FUND YOU SHOULD KNOW BEFORE INVESTING
[End callout]

1 Overview of the Trust

INDIVIDUAL FUND DESCRIPTIONS

CAPITAL PRESERVATION AND INCOME
2 Franklin Fund - Class 1

INCOME
4 Franklin High Income Fund - Class 1

7 Franklin U.S. Government Fund - Class 1

10 Franklin Zero Coupon Funds, 2000, 2005, 2010 -Class 1

13 Templeton Global Income Securities Fund - Class 1

GROWTH AND INCOME
16 Franklin Global Utilities Securities Fund - Class 1
(EFFECTIVE NOVEMBER 15, 1999, THE FUND'S NAME WILL CHANGE TO
FRANKLIN GLOBAL COMMUNICATIONS SECURITIES FUND)

20 Franklin Growth and Income Fund - Class 1

22 Franklin Income Securities Fund - Class 1

26 Franklin Real Estate Fund - Class 1

29 Franklin Rising Dividends Securities Fund - Class 1

32 Franklin Value Securities Fund - Class 1

35 Mutual Shares Securities Fund - Class 1

39 Templeton Global Asset Allocation Fund - Class 1

CAPITAL GROWTH
42 Franklin Capital Growth Fund - Class 1
(EFFECTIVE DECEMBER 15, 1999, THE FUND'S NAME WILL CHANGE TO
FRANKLIN LARGE CAP GROWTH SECURITIES FUND)

45 Franklin Global Health Care Securities Fund - Class 1

48 Franklin Natural Resources Securities Fund - Class 1

51 Franklin Small Cap Fund - Class 1

53 Mutual Discovery Securities Fund - Class 1

58 Templeton Developing Markets Equity Fund - Class 1

61 Templeton Global Growth Fund - Class 1

64 Templeton International Equity Fund - Class 1

67 Templeton International Smaller Companies Fund -Class 1

70 Templeton Pacific Growth Fund - Class 1

ADDITIONAL INFORMATION, ALL FUNDS

73 Important Recent Developments

73 Distributions and Taxes

74 Financial Highlights

FUND ACCOUNT INFORMATION

[Begin callout]
INFORMATION ABOUT FUND ACCOUNT TRANSACTIONS
AND SERVICES
[End callout]

78 Buying Shares

78 Selling Shares

78 Exchanging Shares

78 Fund Account Policies

79 Questions

FOR MORE INFORMATION

[Begin callout]
WHERE TO LEARN MORE ABOUT EACH FUND
[End callout]

Back Cover

FRANKLIN TEMPLETON
VARIABLE INSURANCE PRODUCTS TRUST

[Insert graphic of pyramid] OVERVIEW OF THE TRUST

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST (THE TRUST), FORMERLY
FRANKLIN VALUEMARK FUNDS, CURRENTLY CONSISTS OF TWENTY-SIX SEPARATE FUNDS,
OFFERING A WIDE VARIETY OF INVESTMENT CHOICES. EACH FUND HAS TWO CLASSES OF
SHARES, CLASS 1 AND CLASS 2. THE FUNDS ARE ONLY AVAILABLE AS INVESTMENT
OPTIONS IN VARIABLE ANNUITY OR VARIABLE LIFE INSURANCE CONTRACTS. THE
ACCOMPANYING CONTRACT PROSPECTUS INDICATES WHICH FUNDS AND CLASSES ARE
AVAILABLE TO YOU.

INVESTMENT CONSIDERATIONS

o Each fund has its own investment strategy and risk profile. Generally,
the higher the expected rate of return, the greater the risk of loss.

o No single fund can be a complete investment program; consider
diversifying your fund choices.

o You should evaluate each fund in relation to your personal financial
situation, investment goals, and comfort with risk. Your investment
representative can help you determine which funds are right for you.

RISKS

o There can be no assurance that any fund will achieve its investment goal.

o Because you could lose money by investing in a fund, take the time to
read each fund description and consider all risks before investing.

o All securities markets, interest rates, and currency valuations move up
and down, sometimes dramatically, and mixed with the good years can be some
bad years. Since no one can predict exactly how financial markets will
perform, you may want to exercise patience and focus not on short-term
market movements, but on your long-term investments goals.

o Fund shares are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other agency of
the U.S. Government. Fund shares involve investment risks, including the
possible loss of principal.

MORE DETAILED INFORMATION ABOUT EACH FUND, ITS INVESTMENT POLICIES, AND ITS
PARTICULAR RISKS CAN BE FOUND IN THE TRUST'S STATEMENT OF ADDITIONAL
INFORMATION (SAI).

MANAGEMENT

The funds' investment managers and their affiliates manage over $218 billion
in assets. In 1992, Franklin joined forces with Templeton, a pioneer in
international investing. The Mutual Advisers organization became part of the
Franklin Templeton organization four years later. Today, Franklin Templeton
is one of the largest mutual fund organizations in the United States, and
offers money management expertise spanning a variety of investment objectives.

<PAGE>

FRANKLIN MONEY MARKET FUND

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES

GOAL The fund's goal is high current income, consistent with liquidity and
capital preservation. The fund also seeks to maintain a stable share price of
$1.00.

PRINCIPAL INVESTMENTS The fund invests exclusively in U.S. dollar
denominated money market debt instruments, including those issued by:

o U.S. or foreign corporations;

o U.S. and foreign banks;

o the U.S. Government, its agencies or authorities; and

o foreign governments or multinational organizations such as the World
Bank.

[Begin callout]
THE FUND INVESTS EXCLUSIVELY IN MONEY MARKET SECURITIES.
[End callout]

A debt instrument obligates the issuer both to repay a loan of money at a
future date and generally to pay interest. Money market securities are
high-quality, short-term (maturing in 13 months or less) debt instruments
that may have fixed, floating or variable interest rates. Common money market
securities are U.S. Treasury bills, U.S. Government agency securities,
commercial paper (unsecured promissory note issued by large companies or
financial firms), bank certificates of deposit, repurchase agreements,
short-term corporate obligations, and bankers acceptances (credit instruments
guaranteed by a bank).

Under the SEC's money fund rules, the fund maintains a dollar-weighted
average portfolio maturity of 90 days or less and only buys securities:

o with remaining maturities of 397 days or less, and

o that the fund's Board of Trustees determines present minimal credit
risks, and

o that are rated in the top two short-term rating categories by
independent rating agencies or, if unrated, determined by the fund's Board
of Trustees to be comparable.

No more than 25% of the fund's total assets may be invested in money market
securities issued by foreign banks or foreign branches of U.S. banks. No more
than 5% of assets may be invested in securities rated in the second highest
category (or comparable unrated). The fund may acquire securities on a
when-issued or delayed delivery basis, lend portfolio securities, and invest
up to 10% of its assets in illiquid investments.

PORTFOLIO SELECTION In selecting investments for the fund, the manager uses
a conservative investment approach, focusing on the highest quality and the
most liquid of eligible money market securities. The manager then assesses
the relative value of each security meeting its stringent credit criteria in
order to find the best combination of assets that it believes will maximize
the fund's yield relative to its investment environment expectations. The
manager also monitors short-term interest rates, economic conditions, and
Federal Reserve monetary policy to determine the portfolio maturity it
believes will provide a high overall return to the fund. Consistent with the
manager's strategy of providing a higher-quality investment, the fund does
not invest in potentially volatile securities.

[Insert graphic of chart with line going up and down] MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

INTEREST RATE Rate changes can be sudden and unpredictable. When interest
rates rise, debt securities can lose market value. Similarly, when interest
rates fall, debt securities can gain value. In general, securities with
longer maturities are more sensitive to these price changes. A sub-category
of interest rate risk is reinvestment risk, which is the risk that interest
rates will be lower when the fund seeks to reinvest interest payments, or the
proceeds from a matured debt security. In that case, the fund would receive
less income, resulting in lower total return. Since the fund limits its
investments to high-quality, short-term securities, it will generally earn
lower yields than a fund with lower-quality, longer-term securities subject
to more risk.

CREDIT The fund's investments in securities which are not backed by the full
faith and credit of the U.S. Government depend on the ability of the issuer
to meet interest or principal payments. Changes in an issuer's financial
strength may affect the debt security's value and, thus, impact the value of
fund shares. Even securities supported by credit enhancements have the credit
risk of the entity providing credit support.

FOREIGN SECURITIES The fund's investments in foreign money market securities
are always dollar denominated. Nonetheless, securities or credit support,
issued by a foreign entity are subject to possible adverse foreign economic,
political or legal developments that may affect the ability of that entity to
meet its obligations. In addition, non-U.S. companies are not subject to the
same disclosure, accounting, auditing and financial reporting standards and
practices as U.S. companies. Non-U.S. stock exchanges, trading systems,
brokers, and companies generally have less government supervision and
regulation than in the U.S.

[Begin callout]
An investment in the fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the fund tries
to keep a $1 share price, it is possible to lose money by investing in the
fund.
[End callout]

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS Securities purchased on a
when-issued or delayed delivery basis are subject to market fluctuations and
their value at delivery may be higher or lower than the purchase price.

See "Important Recent Developments" in this prospectus for Year 2000
discussion, and any potential impact on the fund's portfolio and operations.
More detailed information about the fund, its policies, and risks can be
found in the SAI.

[Insert graphic of bull and bear] PAST PERFORMANCE

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows the fund's average
annual total returns. Of course, past performance cannot predict or guarantee
future results.

PERFORMANCE REFLECTS ALL FUND EXPENSES BUT DOES NOT INCLUDE ANY FEES OR SALES
CHARGES IMPOSED BY THE VARIABLE INSURANCE CONTRACT FOR WHICH THE FUND IS AN
INVESTMENT OPTION. IF THEY HAD BEEN INCLUDED, PERFORMANCE WOULD BE LOWER.

FRANKLIN MONEY MARKET FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

[Begin callout]
BEST
QUARTER:

Q4 '89
1.96 %

WORST
QUARTER:

Q2 '93
0.61%
[End callout]

[Insert bar graph]

7.62% 5.48% 3.06% 2.54% 3.82% 5.74% 5.16% 5.24% 5.22%
90 91 92 93 94 95 96 97 98
YEAR

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

SINCE INCEPTION
PAST 1 YEAR PAST 5 YEARS (01/24/89)
- -------------------------------------------------------------------------------
FRANKLIN MONEY MARKET FUND -
CLASS 1 1 5.22% 5.04% 5.16%

1. All fund performance assumes reinvestment of dividends. Past expense
reductions by the manager increased returns.

To obtain the fund's current yield information, please call 1-800/342-3863.

[Insert graphic of briefcase] MANAGEMENT

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California 94403-7777, is the fund's investment manager.

The fund pays the manager a fee for managing the fund's assets, making its
investment decisions, and providing certain administrative facilities and
services for the fund. For the fiscal year ended December 31, 1998,
management fees, before any advance waiver, were 0.51% of the fund's average
daily net assets. Under an agreement by the manager to limit its fees, the
fund paid 0.43% of its average daily net assets to the manager in 1998. The
manager ended its fee waiver arrangement beginning January 1, 1999.

FRANKLIN HIGH INCOME FUND

[Insert graphic of bullseye and arrows] GOALS AND STRATEGIES

GOALS The fund's principal investment goal is to earn a high level of
current income. Its secondary goal is capital appreciation.

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in debt securities. The fund seeks to invest
in debt securities that are offering the highest yield and expected total
return. A debt security obligates the issuer to the bondholders, both to
repay a loan of money at a future date and generally to pay interest. Common
debt securities are bonds, including bonds convertible into common stock or
unsecured bonds; zero coupon bonds; notes; and short-term investments,
including cash or cash equivalents. While the fund may also invest in
dividend-paying common or preferred stocks, it more typically holds equity as
a result of receiving those securities in a corporate restructuring. Equities
represent ownership interests in individual companies and give shareholders a
claim in the company's earnings and assets. They include common and preferred
stocks, and securities convertible into common stock.

[Begin callout]
The fund invests primarily in high yield, lower rated bonds.
[End callout]

The fund may invest up to 100% of its assets in high yield, lower quality
debt securities ("junk bonds"). These securities are either rated below
investment grade (below the top four rating categories) by independent rating
agencies such as Standard & Poor's Corporation (S&P) and Moody's Investors
Service, Inc. (Moody's), or are unrated securities the manager determines are
comparable. Nevertheless, the fund generally invests in securities rated at
least Caa by Moody's or CCC by S&P or unrated securities the fund's manager
determines are comparable. The fund will not purchase defaulted securities.
If, however, a security is downgraded in rating or goes into default, the
fund will not automatically sell the security. Generally, lower rated
securities pay higher yields than more highly rated securities to compensate
investors for the higher risk. During 1998, about 97.2% of the fund's
portfolio was invested in lower rated and comparable quality unrated debt
securities.

The fund may also invest up to 20% of its total assets in foreign securities,
including up to 10% in emerging markets, and will typically focus on
dollar-denominated corporate debt. Many debt securities of non-U.S. issuers,
and especially emerging market issuers, are rated below investment grade or
are unrated so that their selection depends on the manager's internal
analysis.

PORTFOLIO SELECTION Yield and expected return are the primary criteria used
by the manager in selecting securities. The manager searches for securities
it believes offer opportunities for income today and growth tomorrow. It
performs independent analysis of the corporate debt securities being
considered for the fund's portfolio, rather than relying principally on the
ratings assigned by rating agencies. In its analysis, the manager considers a
variety of factors, including:

o a security's relative value based on such factors as anticipated cash
flow, interest or dividend coverage, asset coverage, and earnings prospects;

o the experience and managerial strength of the company;

o responsiveness to changes in interest rates and business conditions;

o debt maturity schedules and borrowing requirements; and

o the company's changing financial condition and market recognition of the
change.

TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in U.S. or non-U.S. currency
short-term investments, including cash or cash equivalents. Under these
circumstances, the fund may temporarily be unable to pursue its investment
goals.

[Insert graphic of chart with line going up and down] MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

INTEREST RATE Rate changes can be sudden and unpredictable. When interest
rates rise, debt securities can lose market value. Similarly, when interest
rates fall, debt securities can gain value. In general, securities with
longer maturities are more sensitive to these price changes. A sub-category
of interest rate risk is reinvestment risk, which is the risk that interest
rates will be lower when the fund seeks to reinvest interest payments, or the
proceeds from a matured debt security, resulting in less income received by
the fund.

[Begin callout]
Changes in interest rates affect the prices of the fund's debt securities. If
rates rise, the value of the fund's debt securities will fall and so too will
the fund's share price.
This means you could lose money.
[End callout]

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

LOWER-RATED SECURITIES. Securities rated below investment grade, sometimes
called "junk bonds," generally have more risk than higher-rated securities.
Companies issuing high yield debt securities are not as strong financially as
those with higher credit ratings. These companies are more likely to
encounter financial difficulties and are more vulnerable to changes in the
economy, such as a recession or a sustained period of rising interest rates,
that could prevent them from making interest and principal payments. If an
issuer stops paying interest and/or principal, payments may never resume. The
fund may lose its entire investment on bonds that may be, or are, in default.

The prices of high yield debt securities fluctuate more than higher quality
securities. Prices are especially sensitive to developments affecting the
company's business and to changes in the ratings assigned by ratings
agencies. Prices are often closely linked with the company's stock prices and
typically rise and fall in response to factors that affect stock prices. In
addition, the entire high yield securities market can experience sudden and
sharp price swings due to changes in economic conditions, stock market
activity, large sustained sales by major investors, a high-profile default,
or other factors. High yield securities are also generally less liquid than
higher-quality bonds. Many of these securities do not trade frequently, and
when they do trade their prices may be significantly higher or lower than
expected. At times, it may be difficult to sell these securities promptly at
an acceptable price, which may limit the fund's ability to sell securities in
response to specific economic events or to meet redemption requests.

FOREIGN SECURITIES Securities of companies and governments located outside
the U.S. involve risks that can increase the potential for losses in the fund.

CURRENCY Where the fund's investments are denominated in foreign currencies,
changes in foreign currency exchange rates, including devaluation of currency
by a country's government, will increase or decrease the fund's returns from
its foreign portfolio holdings. Currency markets generally are not as
regulated as securities markets.

COUNTRY General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns
that trade in that country. The political, economic, and social structures of
some countries the fund invests in may be less stable and more volatile than
those in the U.S. The risks of investing in these countries include the
possibility of currency devaluations, the imposition of exchange controls,
foreign ownership limitations, expropriation, restrictions on removal of
currency or other assets, nationalization of assets, punitive taxes and
certain custody and settlement risks. Non-U.S. companies are not subject to
the same disclosure, accounting, auditing and financial reporting standards
and practices as U.S. companies and their securities may not be as liquid as
securities of similar U.S. companies, or may become illiquid. Non-U.S. stock
exchanges, trading systems, brokers, and companies generally have less
government supervision and regulation than in the U.S.

Emerging market countries have additional risks due to a lack of established
legal, business and social frameworks to support securities markets, and a
greater likelihood of currency devaluations. While short-term volatility in
these markets can be disconcerting, declines in excess of 50% are not unusual.

See "Important Recent Developments" in this prospectus for Year 2000 and euro
discussion, and any potential impact on the fund's portfolio and operations.
More detailed information about the fund, its policies, risks, and bond
ratings can be found in the SAI.

[Insert graphic of bull and bear]PAST PERFORMANCE

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.

FRANKLIN HIGH INCOME FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

[Insert bar graph]

- -6.67% 30.15% 16.21% 15.71% -2.26% 19.76% 13.90%11.47%0.99%
90 91 92 93 94 95 96 97 98

YEAR

[Begin callout]
BEST QUARTER:

Q1 '91 11.19%

WORST QUARTER:

Q3 '90 -8.87%
[End callout]

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

SINCE INCEPTION
PAST 1 YEAR PAST 5 YEARS (01/24/89)
- -------------------------------------------------------------------------------
FRANKLIN HIGH INCOME FUND -
CLASS 1 1 0.99% 8.46% 9.35%
CS FIRST BOSTON HIGH YIELD INDEX 2 0.58% 8.16% 10.65%

1. All fund performance assumes reinvestment of dividends and capital gains.

2. Source: Standard & Poor's(R) Micropal. The unmanaged CS First Boston High
Yield Index is a trader-priced portfolio constructed to mirror the public
high yield debt market. Indices include reinvested dividends and/or interest.
One cannot invest directly in an index, nor is an index representative of the
fund's investments.

[Insert graphic of briefcase] MANAGEMENT

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California 94403-7777, is the fund's investment manager.

MANAGEMENT TEAM The team responsible for the fund's management is:

JEFF HOLBROOK, CFA
Vice President, Advisers

Mr. Holbrook has been a manager of the fund since 1997, and has been with the
Franklin Templeton Group since 1992.

CHRIS MOLUMPHY, CFA
Senior Vice President, Advisers

Mr. Molumphy has been a manager of the fund since its inception in 1989, and
has been with the Franklin Templeton Group since 1988.

R. MARTIN WISKEMANN
Vice President, Advisers

Mr. Wiskemann has been a manager of the fund since its inception in 1989.
Mr. Wiskemann has more than 30 years' experience in the securities industry.

The fund pays the manager a fee for managing its assets, making its
investment decisions, and providing certain administrative facilities and
services for the fund. For the fiscal year ended December 31, 1998, the fund
paid 0.50% of its average daily net assets to the manager.

FRANKLIN U.S. GOVERNMENT FUND

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES

GOAL The fund's investment goal is income.

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest in
a portfolio limited to U.S. Government securities, primarily fixed and
variable rate mortgage-backed securities. The fund currently invests a
substantial portion of its assets in Government National Mortgage Association
obligations ("Ginnie Maes").

[Begin callout]
The fund invests primarily in mortgage-backed U.S. Government securities.
[End callout]

Ginnie Maes represent an ownership interest in mortgage loans made by banks
and other financial institutions to finance purchases of homes. The
individual loans are packaged or "pooled" together for sale to investors. As
the underlying mortgage loans are paid off, investors receive principal and
interest payments. Ginnie Maes carry a guarantee backed by the full faith and
credit of the U.S. Government. The guarantee applies only to the timely
payment of principal and interest on the mortgages in the pool, and does not
apply to the market prices and yields of the Ginnie Maes or to the net asset
value or performance of the fund, which will vary with changes in interest
rates and other market conditions. Ginnie Mae yields (interest income as a
percent of price) have historically exceeded the current yields on other
types of U.S. Government securities with comparable maturities, although
interest rate changes and unpredictable prepayments can greatly change total
return.

In addition to Ginnie Maes, the fund may invest in mortgage-backed securities
issued or guaranteed by the Federal National Mortgage Association, Federal
Home Loan Mortgage Corporation, or other U.S. Government agencies. The fund
may also invest in U.S. Government securities backed by other types of
assets, including business loans guaranteed by the U.S. Small Business
Administration, and obligations of the Tennessee Valley Authority. Finally,
the fund may invest in U.S. Treasury bonds, notes and bills, and securities
issued by U.S. Government agencies or authorities. Securities issued or
guaranteed by FNMA, FHLMC, TVA and certain other entities are not backed by
the full faith and credit of the U.S. Government, but are generally supported
by the creditworthiness of the issuer.

These debt securities may be fixed-rate, adjustable-rate, a hybrid of the
two, or zero coupon securities. A debt security obligates the issuer to the
bondholders, both to repay a loan of money at a future date and generally to
pay interest. Zero coupon securities are debt securities that make no
periodic interest payments but instead are sold at substantial discounts from
their value at maturity. The fund typically invests in zero coupon bonds
issued or created by the U.S. Government or its agencies, where the coupons
have been stripped off a bond and the principal and interest payments are
sold separately.

The fund may purchase securities on a "to-be-announced" and "delayed
delivery" basis. This means the securities will be paid for and delivered to
the fund at a future date, generally in 30 to 45 days.

PORTFOLIO SELECTION The manager generally buys, and holds, high quality
securities which pay high current interest rates. Using this straightforward,
low turnover approach, the manager seeks to produce high current income with
a high degree of credit safety and lower price volatility, from a
conservatively managed portfolio of U.S. Government securities.

TEMPORARY INVESTMENTS When the manager believes market or economic conditions
are unfavorable for investors, is unable to locate suitable investment
opportunities, or seeks to maintain liquidity, it may invest all or
substantially all of the fund's assets in short-term investments, including
cash or cash equivalents. Under these circumstances, the fund may temporarily
be unable to pursue its investment goal.

[Insert graphic of chart with line going up and down] MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

INTEREST RATE Rate changes can be sudden and unpredictable. When interest
rates rise, debt securities can lose market value. Similarly, when interest
rates fall, debt securities can gain value. Zero coupon bonds are more
sensitive to interest rate changes and their price will fluctuate more than
the prices of interest-paying bonds or notes for comparable maturities. In
general, securities with longer maturities are more sensitive to these price
changes. A sub-category of interest rate risk is reinvestment risk, which is
the risk that interest rates will be lower when the fund seeks to reinvest
interest payments or the proceeds from a matured debt security, resulting in
less income received by the fund.

GINNIE MAES Ginnie Maes, and other mortgage and asset-backed securities,
differ from conventional debt securities because principal is paid back over
the life of the security rather than at maturity. The fund may receive
unscheduled prepayments of principal due to voluntary prepayments,
refinancing or foreclosure on the underlying mortgage or other loans. During
periods of declining interest rates, the volume of principal prepayments
generally increases as borrowers refinance their mortgages at lower rates.
The fund may be forced to reinvest returned principal at lower interest
rates, reducing the fund's income. For this reason, Ginnie Maes may be less
effective than other types of securities as a means of "locking in" long-term
interest rates and may have less potential for capital appreciation during
periods of falling interest rates than other investments with similar
maturities. A reduction in the anticipated rate of principal prepayments,
especially during periods of rising interest rates, may increase the
effective maturity of Ginnie Maes making them more susceptible than other
debt securities to a decline in market value when interest rates rise. This
could increase volatility of the fund's returns and share price.

CREDIT This is the possibility that an issuer will be unable to make interest
payments or repay principal. The fund's investments in securities which are
not backed by the full faith and credit of the U.S. Government depend upon
the ability of the issuing agency or instrumentality to meet interest or
principal payments, and may not permit recourse against the U.S. Treasury.

[Insert graphic of bull and bear] PAST PERFORMANCE

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years calendar years or since the fund's inception. The table shows how the
fund's average annual total returns compare with those of a broad-based
index. Of course, past performance cannot predict or guarantee future results.

FRANKLIN U.S. GOVERNMENT FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

[Insert bar graph]

8.92% 15.93% 7.69% 9.71% -4.55% 19.46% 3.62% 9.31% 7.44%
90 91 92 93 94 95 96 97 98

[Begin callout]
Best
Quarter:

Q2 '95
6.53%

Worst
Quarter:

Q1 '94
- -4.24%
[End callout]

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

SINCE INCEPTION
PAST 1 YEAR PAST 5 YEARS (03/14/89)
- -------------------------------------------------------------------------------

FRANKLIN U.S. GOVERNMENT
FUND - CLASS 1 1 7.44% 6.77% 8.29%

LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT BOND INDEX 2 8.49% 6.45% 8.43%

1. All fund performance assumes reinvestment of dividends and capital gains.

2. Source: Standard & Poor's(R) Micropal. Lehman Brothers Intermediate
Government Bond Index is an unmanaged index of fixed-rate bonds issued by the
U.S. Government and its agencies that are rated investment grade or higher
and have one to ten years remaining until maturity and at least $100 million
outstanding. Indices include reinvested dividends and/or interest. One cannot
invest directly in an index, nor is an index representative of the fund's
investments.

[Insert graphic of briefcase] MANAGEMENT

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California 94403-7777, is the fund's investment manager.

MANAGEMENT TEAM The team responsible for the fund's management is:

JACK LEMEIN
Executive Vice President, Advisers

Mr. Lemein has been a manager of the fund since its inception in 1989.
Mr. Lemein has more than 30 years experience in the securities industry.

DAVID CAPURRO
Senior Vice President, Advisers

Mr. Capurro has been a manager of the fund since its inception in 1989, and
has been with the Franklin Templeton Group since 1983.

ROGER BAYSTON, CFA
Senior Vice President, Advisers

Mr. Bayston has been a manager of the fund since 1993, and has been with the
Franklin Templeton Group since 1991.

T. ANTHONY COFFEY, CFA
Vice President, Advisers

Mr. Coffey has been a manager of the fund since 1996, and has been with the
Franklin Templeton Group since 1989.

The fund pays the manager a fee for managing its assets, making its
investment decisions, and providing certain administrative facilities and
services for the fund. For the fiscal year ended December 31, 1998, the fund
paid 0.48% of its average daily net assets to the manager.

Franklin Zero Coupon Funds:
maturing in December 2000, 2005, 2010

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES

GOAL Each fund's investment goal is to provide as high an investment return
as is consistent with capital preservation.

PRINCIPAL INVESTMENTS Under normal market conditions, each fund will invest
at least 65% of its net assets in
zero coupon securities, primarily U.S. Treasury issued stripped securities
and stripped securities issued by the U.S. Government, and its agencies and
authorities. The fund may also invest a lesser amount in zero coupon
securities issued by U.S. companies and stripped eurodollar obligations,
which are U.S. dollar denominated debt securities typically issued by foreign
subsidiaries of U.S. companies.

[Begin callout]
Each fund seeks to return a reasonably assured targeted dollar amount,
predictable at the time of investment, on a specific date in the future by
investing primarily in zero coupon securities.
[End callout]

Stripped U.S. Treasury securities are backed by the full faith and credit of
the U.S. Government. The guarantee applies only to the timely payment of
principal and does not apply to the market prices and yields of the zero
coupon bonds or to the net asset value or performance of the fund, which will
vary with changes in interest rates and other market conditions. Where the
fund invests in other than stripped U.S. Treasury securities, the zero coupon
bonds will be rated at least A by independent rating agencies such as
Standard & Poor's Corporation (S&P) or Moody's Investors Services, Inc.
(Moody's) or, if unrated, securities determined by the Manager to be
comparable.

A debt security obligates the issuer to the bondholders, both to repay a loan
of money at a future date and generally to pay interest. Zero coupon
securities are debt securities that make no periodic interest payments but
instead are sold at substantial discounts from their value at maturity. The
buyer receives the rate of return by the gradual appreciation of the zero
coupon bond, which is redeemed at face value on the specified maturity date.
The most common zero coupon security is the zero coupon bond which may be
issued by a government or a corporation, or may be created by a dealer firm
when it strips the coupons off a bond and sells the principal and interest
payments separately.

As a fund approaches its Target Date, its investments will be made up of
increasingly larger amounts of short-term money market investments, including
cash and cash equivalents. Each fund reserves the right to invest up to 10%
of its total assets in foreign securities, although typically each fund
invests less, and only in dollar denominated obligations.

PORTFOLIO SELECTION In selecting investments for the funds, the manager
seeks to keep the average duration of each fund to within twelve months of
each fund's maturity Target Date. Duration is a measure of the length of an
investment, taking into account the timing and amount of any interest
payments and the principal repayment. By balancing investments with slightly
longer and shorter durations, the manager believes it can reduce its unknown
"reinvestment risk." Since each fund will not be invested entirely in zero
coupon securities maturing on the Target Date but will also invest in money
market securities, there will be some reinvestment risk and liquidation costs.

TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in short-term investments,
including cash or cash equivalents. Under these circumstances, the fund may
temporarily be unable to pursue its investment goal.

MATURITY Each fund matures on the third Friday of December of its specific
maturity year (Target Date). On each fund's Target Date, the fund will be
converted into cash. At least 30 days prior to the Target Date, contract
owners will be notified and given an opportunity to select another investment
option. If an investor does not complete an instruction form directing what
should be done with the cash proceeds, the proceeds will be automatically
invested in the Money Market Fund and the contract owners will be notified of
such event.

[Insert graphic of chart with line going up and down] MAIN RISKS

Each fund's main risks can affect its share price, its distributions or
income, and therefore, the fund's performance.

If fund shares are redeemed prior to the maturity of the fund, an investor
may receive a significantly different investment return than anticipated at
the time of purchase. Therefore, the Zero Coupon Funds may not be appropriate
for contract owners who do not plan to invest for the long-term or until
maturity.

INTEREST RATE Rate changes can be sudden and unpredictable. When interest
rates rise, debt securities can lose market value. Similarly, when interest
rates fall, debt securities can gain value. Because zero coupon securities do
not pay interest, the market value of zeros can fall more dramatically than
interest-paying securities of similar maturities when interest rates rise.
When interest rates fall, however, zeros rise more rapidly in value. In
general, securities with longer maturities usually are more sensitive to
price changes. Thus, the Zero Coupon Fund 2010 may experience more volatility
in its share price than the Zero Coupon Fund 2000. A sub-category of interest
rate risk is reinvestment risk, which is the risk that interest rates will be
lower when the fund seeks to reinvest interest payments or the proceeds from
a matured debt security, resulting in less income received by the fund.

CREDIT This is the possibility that an issuer will be unable to make
interest payments or repay principal. Changes in an issuer's financial
strength may affect the debt security's value and, thus, impact the value of
fund shares.

[Insert graphic of a bull and a bear] PAST PERFORMANCE

The bar charts and tables show the volatility of each fund's returns, which
is one indicator of the risks of investing in the funds. The bar charts show
changes in the funds' returns for each full calendar year over the past ten
years calendar years or since the funds' inception. The tables show how the
funds' average annual total returns compare to those of broad-based indices.
Of course, past performance cannot predict or guarantee future results.

FRANKLIN ZERO COUPON FUND - 2000 CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

- ----------------------------------------------------------------------
5.91% 20.19% 9.04% 16.15% -6.76% 20.67% 2.43% 7.11% 7.50%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
90 91 92 93 94 95 96 97 98
- ----------------------------------------------------------------------

YEAR

[Begin callout]
Best
Quarter:

Q4 '90
9.51%

Worst
Quarter:

Q1 '94
- -5.18%
[End callout]

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

SINCE INCEPTION
PAST 1 YEAR PAST 5 YEARS (3/14/89)
- -------------------------------------------------------------------------------
FRANKLIN ZERO COUPON - 2000
CLASS 1 1 7.50% 5.82% 9.21%
MERRILL LYNCH ZERO COUPON 1-YEAR
BOND TOTAL RETURN INDEX 2 6.22% 5.82% 6.81%
MERRILL LYNCH ZERO COUPON 5-YEAR
BOND TOTAL RETURN INDEX 2 10.57% 6.88% 9.89%
FRANKLIN ZERO COUPON FUND - 2005 CLASS 1
CALENDAR YEAR TOTAL RETURNS 1
- ----------------------------------------------------------------------
2.69% 20.37% 10.81% 22.21% -9.60% 31.76% -0.50% 11.37% 12.53%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
90 91 92 93 94 95 96 97 98
- ----------------------------------------------------------------------

YEAR

[Begin callout]
Best
Quarter:

Q1 '89
13.10%

Worst
Quarter:

Q1 '94
- -8.15%
[End callout]

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

SINCE INCEPTION
PAST 1 YEAR PAST 5 YEARS (3/14/89)
- -------------------------------------------------------------------------------
FRANKLIN ZERO COUPON - 2005
CLASS 1 1 12.53% 8.24% 11.35%
MERRILL LYNCH ZERO COUPON 5-YEAR
BOND TOTAL RETURN INDEX 2 10.57% 6.88% 9.89%
MERRILL LYNCH ZERO COUPON 10-YEAR
BOND TOTAL RETURN INDEX 2 15.53% 9.52% 12.55%

FRANKLIN ZERO COUPON FUND - 2010 CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

- ----------------------------------------------------------------------
0.57% 20.09% 10.31% 25.47% -10.97%42.79% -2.69% 16.57% 14.45%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
90 91 92 93 94 95 96 97 98
- ----------------------------------------------------------------------

YEAR
[Begin callout]
Best
Quarter:

Q2 '95
16.03%

Worst
Quarter:

Q1 '90
- -10.43%
[End callout]

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

SINCE INCEPTION
PAST 1 YEAR PAST 5 YEARS (3/14/89)
- -------------------------------------------------------------------------------
Franklin Zero Coupon - 2010
Class 1 1 14.45% 10.54% 12.61%
Merrill Lynch Zero Coupon 10-Year
Bond Total Return Index 2 15.53% 9.52% 12.55%
Merrill Lynch Zero Coupon 20-Year
Bond Total Return Index 2 15.98% 12.80% 15.41%

1. All fund performance assumes reinvestment of dividends. Past expense
reductions by the manager increased returns.

2. Source: Standard & Poor's(R) Micropal. The unmanaged Merrill Lynch Zero
Coupon indices include zero coupon bonds that pay no interest and are issued
at a discount from redemption price. One cannot invest directly in an index,
nor is an index representative of the fund's investments.

[Insert graphic of briefcase] MANAGEMENT

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California 94403-7777, is the funds' investment manager.

MANAGEMENT TEAM The team responsible for the funds' management is:

DAVID CAPURRO
Senior Vice President, Advisers

Mr. Capurro has been a manager of the fund since its inception in 1989, and
has been with the Franklin Templeton Group since 1983.

JACK LEMEIN
Executive Vice President, Advisers

Mr. Lemein has been a manager of the fund since its inception in 1989.
Mr. Lemein has more than 30 years' experience in the securities industry.

T. ANTHONY COFFEY, CFA
Vice President, Advisers

Mr. Coffey has been a manager of the fund since 1989, and has been with the
Franklin Templeton Group since 1989.

Each fund pays the manager a fee for managing the fund's assets, making its
investment decisions, and providing certain administrative facilities and
services for the funds. For the fiscal year ended December 31, 1998,
management fees, before any advance waiver, were 0.63% each for the 2000 and
2005 funds, and 0.62% for the 2010 fund, as a percentage of each fund's
average daily net assets. Under an agreement by the manager to limit its
fees, the 2000 and 2005 funds each paid 0.37%, and the 2010 fund paid 0.36%,
of average daily net assets to the manager in 1998. The manager ended its fee
waiver agreement beginning January 1, 1999.

Templeton Global Income Securities Fund

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES

GOAL The fund's investment goal is high current income. Capital appreciation
is a secondary consideration.

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in the debt securities of governments and
their political subdivisions and agencies, supranational organizations, and
companies located anywhere in the world, including emerging markets. A debt
security obligates the issuer to the bondholders, both to repay a loan of
money at a future date and generally to pay interest. Common debt securities
are bonds, including bonds convertible into common stock or unsecured bonds;
notes; and short-term investments, including cash or cash equivalents.

[Begin callout]
The fund invests primarily in bonds of governments located around the world.
[End callout]

The fund focuses on "investment grade" debt securities. These are issues
rated in the top four rating categories (AAA to BBB) by independent rating
agencies such as Standard & Poor's Corporation (S&P) or Moody's Investors
Services, Inc. (Moody's) or, if unrated, determined by the fund's manager to
be comparable. The fund may also invest up to 30% of its net assets in high
yield, lower rated debt securities ("junk bonds") that are rated at least B,
including emerging market debt, or if unrated, determined by the fund's
manager to be comparable. The fund will not purchase defaulted securities.
If, however, a security is downgraded in rating or goes into default, the
fund will not automatically sell the security. During 1998, about 20.2% of
the fund's portfolio was invested in lower rated and comparable quality
unrated debt securities.

Many debt securities of non-U.S. issuers, and especially emerging market
issuers, are rated below investment grade or are unrated so that their
selection depends on the manager's internal analysis. The average maturity of
debt securities in the fund's portfolio is medium-term (about 5 to 15 years)
but will fluctuate depending on the manager's outlook on the country and
future interest rate changes.

PORTFOLIO SELECTION The fund's manager allocates its assets among issuers,
geographic regions, and currencies based upon its assessment of relative
interest rates among currencies, the manager's outlook for changes in
interest rates, and credit risks. In considering these factors, a country's
changing market, economic, and political conditions, such as inflation rate,
growth prospects, global trade patterns, and government policies will be
evaluated. The manager intends to manage the fund's exposure to various
currencies, and may from time to time seek to hedge (protect) against
currency risk by using forward currency exchange contracts (Hedging
Instruments).

[Insert graphic of chart with line going up and down] MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

INTEREST RATE Rate changes can be sudden and unpredictable. When interest
rates rise, debt securities can lose market value. Similarly, when interest
rates fall, debt securities can gain value. In general, securities with
longer maturities are more sensitive to these price changes. A sub-category
of interest rate risk is reinvestment risk, which is the risk that interest
rates will be lower when the fund seeks to reinvest interest payments, or the
proceeds from a matured debt security, resulting in less income received by
the fund.

FOREIGN SECURITIES Securities of governments and companies located outside
the U.S. involve risks that can increase the potential for losses in the fund.

Changes in global interest rates affect the prices of the fund's debt
securities.

[Begin callout]
If rates rise, the value of the fund's debt securities will fall and so too
will the fund's share price. This means you could
lose money.
[End callout]

CURRENCY Many of the fund's investments are denominated in foreign
currencies. Generally, when the U.S. dollar rises in value against a foreign
currency, an investment in that country loses value because the investment is
worth fewer dollars. Currency markets are generally not as regulated as
securities markets.

COUNTRY General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns
that trade in that country.

The political, economic and social structures of some countries the fund
invests in may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of currency
devaluations by a country's government or banking authority, the imposition
of exchange controls, foreign ownership limitations, expropriation,
restrictions on removal of currency or other assets, nationalization of
assets, punitive taxes, and certain custody and settlement risks. In
addition, political or economic conditions can cause previously established
securities markets to become limited trading markets, potentially causing
liquid securities to become illiquid, particularly in emerging market
countries.

Emerging market countries are subject to all of the risks of foreign
investing generally, and have additional heightened risks due to a lack of
established legal, business, and social frameworks to support securities
markets, and a greater likelihood of currency devaluations. Non-U.S.
securities markets, particularly emerging markets, may have substantially
lower trading volumes than U.S. markets, resulting in less liquidity and more
volatility than experienced in the U.S. While short-term volatility in these
markets can be disconcerting, declines in excess of 50% are not unusual.

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

LOWER-RATED SECURITIES Junk bonds generally have more risk than higher-rated
securities, and can be considered speculative. Companies issuing high yield
debt securities are not as strong financially, and are more likely to
encounter financial difficulties and be more vulnerable to changes in the
economy, such as a recession or a sustained period of rising interest rates.
If an issuer stops paying interest and/or principal, payments may never
resume. The fund may lose its entire investment on bonds that may be, or are,
in default.

The prices of high yield debt securities fluctuate more than higher quality
securities. Prices are especially sensitive to developments affecting the
company's business and to rating changes, and typically rise and fall in
response to factors that affect the company's stock prices. In addition, the
entire high yield securities market can experience sudden and sharp price
swings due to changes in economic conditions, market activity, large
sustained sales, a high-profile default, or other factors. High yield
securities generally are less liquid than higher-quality bonds, and
infrequent trades can make accurate pricing more difficult. At times, it may
be difficult to sell these securities promptly at an acceptable price.

HEDGING INSTRUMENTS Hedging Instruments used by the fund are considered
derivative investments. Their successful use will depend on the manager's
ability to predict market movements, and losses from their use can be greater
than if they had not been used. Risks include potential loss to the fund due
to the imposition of controls by a government on the exchange of foreign
currencies, delivery failure, default by the other party, or inability to
close out a position because the trading market becomes illiquid.

DIVERSIFICATION The fund is non-diversified under federal securities laws.
As such, it may invest a greater portion of its assets in one issuer and have
a smaller number of issuers than a diversified fund. Therefore, the fund may
be more sensitive to economic, business, political or other changes affecting
similar issuers or securities. The fund will, however, meet tax
diversification requirements.

PORTFOLIO TURNOVER The manager's rebalancing of the portfolio to keep
interest rate risk and country allocations at desired levels, as well as bond
maturities, may cause the fund's portfolio turnover rate to be high. High
turnover generally increases the fund's transaction costs.

[Insert graphic of a bull and a bear] PAST PERFORMANCE

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.

TEMPLETON GLOBAL INCOME FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

- ----------------------------------------------------------------------
9.83% 12.34% -0.40% 16.68% -4.99% 14.68% 9.56% 2.55% 7.08%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
90 91 92 93 94 95 96 97 98
- ----------------------------------------------------------------------

YEAR

[Begin callout]
Best
Quarter:

Q1 '93
5.33%

Worst
Quarter:

Q3 '92
- -4.84%
[End callout]

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

SINCE INCEPTION
PAST 1 YEAR PAST 5 YEARS (01/24/89)
- -------------------------------------------------------------------------------
TEMPLETON GLOBAL INCOME
SECURITIES FUND - CLASS 1 1 7.08% 5.56% 7.52%
JP MORGAN GLOBAL
GOVERNMENT BOND INDEX 2 15.31% 8.09% 9.23%

1. All fund performance assumes reinvestment of dividends and capital gains.

2. Source: Standard & Poor's(R) Micropal. The unmanaged JP Morgan Global
Government Bond Index tracks the performance of government bond markets in 13
countries. Indices include reinvested dividends and/or interest. One cannot
invest directly in an index, nor is an index representative of the fund's
investments.

[Insert graphic of briefcase] MANAGEMENT

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California 94403-7777, is the fund's investment manager.

Under an agreement with Advisers, Templeton Investment Counsel, Inc. (TICI),
Broward Financial Centre, Suite 2100, Fort Lauderdale, Florida 33394, through
its Templeton Global Bond Managers division (Global Bond Managers), is the
fund's sub-advisor. A team from Global Bond Managers provides Advisers with
investment management advice and assistance and is responsible for the
day-to-day management of
the fund.

Franklin Global Utilities Securities Fund

[Insert graphic of bullseye and arrows] GOALS AND STRATEGIES

Effective November 15, 1999, the fund's name will be changed to "Franklin
Global Communications Securities Fund" and the fund's strategy will be
restated to one of investing at least 65% of total assets in equity
securities of companies that are primarily engaged in providing
communications services and communications equipment. These changes will
reflect better the fund's principal investment strategy of investing
primarily in the communications industries which have come to represent over
70% of the global public utilities sector. The fund's principal risks are
those related to communications investments.

GOALS The fund's investment goals are capital appreciation and current
income.

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in equity securities of U.S. and non-U.S.
companies in the public utilities industry. These companies are primarily
engaged in the ownership, operation or other services, or manufacture of
facilities or equipment used to provide telecommunication services,
electricity, natural gas or water.

Because telecommunications industries have increasingly come to dominate the
global utilities sector, the fund will invest substantially in communications
companies. These are companies that are involved in the development,
manufacture or sale of communications services and communications equipment
(communications companies). These may include, for example, companies that
provide:

o local and long distance telephone services or equipment;

o cellular and other wireless communications, paging, and local and wide area
network services or equipment;

o satellite, microwave, cable and other pay television services or equipment;
and

o internet-related services or equipment, including internet service
providers, web hosting and web content providers and internet portals.

Equities represent ownership interests in individual companies and give
shareholders a claim in the company's earnings and assets. They include
common and preferred stocks, and securities convertible into common stock.
The fund may buy public utilities companies anywhere in the world, including
emerging markets, but generally invests a greater percentage of its assets in
U.S. companies than any other single country.

[Begin callout]
The fund concentrates in common stocks of U.S. and non-U.S. companies engaged
in the public utilities industry, and invests substantially in communications
companies.
[End callout]

The fund may also invest a significant portion of its assets in small-cap
companies which have market capitalization values (share price times the
number of common stock shares outstanding) of less than $1.5 billion.

PORTFOLIO SELECTION The manager is a research driven, fundamental investor,
pursuing a disciplined value-oriented strategy. Relying on a team of analysts
to provide in-depth industry expertise, the manager looks for companies that
will position the fund to benefit from potential future technological
advances and increasing worldwide demand in the public utilities sector. As a
"bottom-up" investor focusing primarily on individual securities, the fund's
manager will focus on the market price of a company's securities relative to
its evaluation of the company's long-term earnings, asset value and cash flow
potential. A company's historical value measures, including price/earnings
ratio, profit margins, and liquidation value, will also be considered.

[Insert graphic of chart with lines going up and down] MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

UTILITIES INDUSTRY By concentrating in a single industry sector, the fund
carries much greater risk of adverse developments in that sector than a fund
that invests in a wide variety of industries. Utility companies in the U.S.
and in non-U.S. countries have generally been subject to substantial
government regulation. Major changes in government policies, ranging from
increased regulation or expropriation to deregulation, privatization or
increased competition, may dramatically increase or reduce opportunities for
companies in these industries. For example, while certain companies may
develop more profitable opportunities, others may be forced to defend their
core businesses and may be less profitable.

Moreover, by investing substantially in the securities of communications
companies within the utilities sector, the fund carries greater risk of
adverse developments affecting these companies than a fund that invests more
broadly. The securities of communications companies may experience more price
volatility than securities of companies in other industries. For example,
communications companies are subject to significant competitive pressures,
such as new market entrants, aggressive pricing and competition for market
share and the potential for falling profit margins. These companies also face
the risks that new services, equipment or technologies will not be accepted
by consumers and businesses or will become rapidly obsolete. These factors
can affect the profitability of communications companies and, as a result,
the value of their securities. In addition, many wireless telecommunication
and internet-related companies are in the emerging stage of development and
are particularly vulnerable to the risks of rapidly changing technologies.
Prices of these companies' securities historically have been more volatile
than other securities, especially over the short term.

In addition, electric utility companies have historically been subject to
price regulation; risks associated with high interest costs on borrowings or
reduced ability to borrow; restrictions on operations and increased costs due
to environmental and safety regulations; regulators disallowing these higher
costs in rate authorizations; difficulties in obtaining fuel for electric
generation at reasonable prices; risks associated with the operation of
nuclear power plants; and the effects of energy conservation and other
factors affecting the level of demand for services.

Gas transmission and distribution companies continue to undergo significant
changes as well. Many companies have diversified into oil and gas exploration
and development, making returns more sensitive to energy prices.

The wireless telecommunications industry is in its early developmental
stages, characterized by emerging, rapidly growing companies, and is subject
to the risk of rapidly changing technology. The water supply industry is
highly fragmented due to local ownership. Water supply company securities are
often thinly traded and their markets less liquid than other utility
securities.

[Begin callout]
Because the stocks the fund holds fluctuate in price with global market
conditions, currencies, and interest rate movements, the value of your
investment in the fund will go up and down. This means you could lose money
over short or even extended periods.
[End callout]

INTEREST RATE Rate changes can be sudden and unpredictable. Utility company
stocks often pay relatively high dividends, so they are particularly
sensitive to interest rate movements. Therefore, like bonds, their stock
prices may rise as interest rates fall or fall as interest rates rise.

FOREIGN SECURITIES Securities of companies and governments located outside
the U.S. involve risks that can increase the potential for losses in the fund.

CURRENCY Many of the fund's investments are denominated in foreign
currencies. Generally, when the U.S. dollar rises in value against a foreign
currency, an investment in that country loses value because the investment is
worth fewer dollars. Currency markets generally are not as regulated as
securities markets.

COUNTRY General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns
that trade in that country.

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

SMALLER COMPANIES While smaller companies, and to a lesser extent mid-size
companies, may offer greater opportunities for capital growth than larger,
more established companies, they also have more risk. Historically, smaller
company securities have been more volatile in price and have fluctuated
independently from larger company securities, especially over the
shorter-term. Smaller or relatively new companies can be particularly
sensitive to changing economic conditions, their growth prospects are less
certain, their securities are less liquid, and they can be considered
speculative. These companies may suffer significant losses, and technology
and biotechnology industry stocks, in particular, can be subject to abrupt or
erratic price movements.

[Insert graphic of a bull and a bear] PAST PERFORMANCE

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.

FRANKLIN GLOBAL UTILITIES SECURITIES FUND -
CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

- ----------------------------------------------------------------------
1.84% 24.56% 9.69% 10.54% -11.56%31.35% 7.07% 26.76% 11.19%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
90 91 92 93 94 95 96 97 98
- ----------------------------------------------------------------------

YEAR

[Begin callout]
Best
Quarter:

Q4 '97
13.45%

Worst
Quarter:

Q1 '94
- -10.27%
[End callout]

AVERAGE ANNUAL TOTAL RETURNS

For the periods ended December 31, 1998

SINCE INCEPTION
PAST 1 YEAR PAST 5 YEARS (01/24/89)
- -------------------------------------------------------------------------------

FRANKLIN GLOBAL UTILITIES SECURITIES
FUND - CLASS 1 1 11.19% 11.88% 12.57%
S&P 500(R)INDEX 2 28.58% 24.06% 18.70%
FT/S&P ACTUARIES WORLD
UTILITIES INDEX 2 36.67% 15.96% 12.95%

1. All fund performance assumes reinvestment of dividends and capital gains.

2. Source: Standard & Poor's(R) Micropal. The S&P 500(R) Index is an unmanaged
group of widely held common stocks covering a variety of industries. The
Financial Times/S&P Actuaries World Utilities Index includes electric
utilities, waterworks supply, natural gas and telephone companies. Indices
include reinvested dividends and/or interest. One cannot invest directly in
an index, nor is an index representative of the fund's investments.

[Insert graphic of briefcase] MANAGEMENT

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California 94403-7777, is the fund's investment manager.

MANAGEMENT TEAM The team responsible for the fund's management is:

IAN LINK, CFA
Vice President, Advisers

Mr. Link has been a manager of the fund since 1995, and has been with the
Franklin Templeton Group since 1989.

ALEX W. PETERS
PORTFOLIO MANAGER, Advisers

Mr. Peters has been a manager of the fund since 1999, and has been with the
Franklin Templeton Group since 1992.

The fund pays the manager a fee for managing its assets, making its
investment decisions, and providing certain administrative facilities and
services for the fund. For the fiscal year ended December 31, 1998, the fund
paid 0.47% of its average daily net assets to the manager.

Franklin Growth and Income Fund

[Insert graphic of bulleye and arrows] GOALS AND STRATEGIES

GOALS The fund's principal investment goal is capital appreciation. Its
secondary goal is to provide current income.

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in a broadly diversified portfolio of equity
securities that the manager believes have the potential to increase in value.
To help identify undervalued financially strong companies with attractive
long-term growth prospects, the manager uses a current relative yield
analysis. Dividend yield is a stock's annual per share dividends divided by
its per share market price. Following this strategy, the fund will invest
predominantly in common stocks that have dividend yields at least equal to
the yield of the Standard & Poor's 500 Index. The fund seeks current income
through receipt of dividends from its investments. Equities represent
ownership interests in individual companies and give shareholders a claim in
the company's earnings and assets. They include common and preferred stocks,
and securities convertible into common stock.

The fund may also invest up to 30% of its total assets in foreign securities,
including Depositary Receipts and emerging markets, but currently intends to
limit such investments to 20%. The fund may also invest to a lesser extent in
equity real estate investment trusts (REITs). REITS are usually publicly
traded companies that manage a portfolio of real estate to earn profits and
tend to pay high yields since they must distribute most of their earnings.

[Begin callout]
The fund invests primarily in common stocks offering above market current
dividend yields.
[End callout]

[Insert graphic of chart with line going up and down] MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

[Begin callout]
Because the stocks the fund holds fluctuate in price with market conditions,
the value of your investment in the fund will go up and down. This means you
could lose money over short or even extended periods.
[End callout]

FOREIGN SECURITIES Securities of companies and governments located outside
the U.S., including Depositary Receipts, involve risks that can increase the
potential for losses in the fund.

COUNTRY General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns
that trade in that country. The political, economic, and social structures of
some countries the fund invests in may be less stable and more volatile than
those in the U.S. The risks of investing in these countries include the
possibility of currency devaluations, the imposition of exchange controls,
foreign ownership limitations, expropriation, restrictions on removal of
currency or other assets, nationalization of assets, punitive taxes, and
certain custody and settlement risks. Non-U.S. companies are not subject to
the same disclosure, accounting, auditing and financial reporting standards
and practices as U.S. companies and their securities may not be as liquid as
securities of similar U.S. companies, or may become illiquid. Non-U.S. stock
exchanges, trading systems, brokers, and companies generally have less
government supervision and regulation than in the U.S.

Emerging market countries have additional risks due to a lack of established
legal, business, and social frameworks to support securities markets, and a
greater likelihood of currency devaluations. While short-term volatility in
these markets can be disconcerting, declines in excess of 50% are not unusual.

REITS A REIT's performance depends on the types and locations of the
properties it owns and on how well it manages those properties. The value of
a REIT may also be affected by factors that affect the underlying properties,
the real estate industry, or local or general economic conditions.

[Insert graphic of a bull and a bear] PAST PERFORMANCE

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.

FRANKLIN GROWTH AND INCOME FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

- ----------------------------------------------------------------------
-2.35% 23.63% 6.73% 10.32% -3.41% 32.83% 14.19% 27.74% 8.33%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
90 91 92 93 94 95 96 97 98
- ----------------------------------------------------------------------

YEAR

[Begin callout]
Best
Quarter:

Q1 '91
10.93%

Worst
Quarter:

Q3 '90
- -12.63%
[End callout]

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

SINCE INCEPTION
PAST 1 YEAR PAST 5 YEARS (01/24/89)
- -------------------------------------------------------------------------------
FRANKLIN GROWTH AND INCOME
FUND - CLASS 1 1 8.33% 15.51% 11.72%
S&P 500(R)INDEX 2 28.58% 24.06% 18.70%

1. All fund performance assumes reinvestment of dividends and capital gains.

2. Source: Standard & Poor's(R) Micropal. The S&P 500(R) Index is an unmanaged
group of widely held common stocks covering a variety of industries. Indices
include reinvested dividends and/or interest. One cannot invest directly in
an index, nor is an index representative of the fund's investments.

[Insert graphic of briefcase] MANAGEMENT

Franklin Advisers, Inc. (Advisers) 777 Mariners Island Blvd., San Mateo,
California 94403-7777, is the fund's investment manager.

MANAGEMENT TEAM The team responsible for the fund's management is:

FRANK FELICELLI, CFA
Senior Vice President, Advisers

Mr. Felicelli has been a manager of the fund since 1995, and has been with
the Franklin Templeton Group since 1986.

WILLIAM HAWES
PORTFOLIO MANAGER, Advisers

Mr. Hawes has been a manager of the fund since 1999, and has been with the
Franklin Templeton Group since 1998.

The fund pays the manager a fee for managing its assets, making its
investment decisions, and providing certain administrative facilities and
services for the fund. For the fiscal year ended December 31, 1998, the fund
paid 0.47% of its average daily net assets to the manager.

Franklin Income Securities Fund

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES

GOAL The fund's investment goal is to maximize income while maintaining
prospects for capital appreciation.

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
primarily in a diversified portfolio of debt and equity securities. A debt
security obligates the issuer to the bondholders, both to repay a loan of
money at a future date and generally to pay interest. Common debt securities
are bonds, including bonds convertible into common stock or unsecured bonds;
notes; and short-term investments, including cash or cash equivalents.
Equities represent ownership interests in individual companies and give
shareholders a claim in the company's earnings and assets. They include
common and preferred stocks, and securities convertible into common stock.

The fund seeks income by selecting investments such as corporate, foreign,
and U.S. Treasury bonds. In its search for income-producing growth
opportunities, the fund invests in common stocks with attractive dividend
yields of companies from a variety of industries such as utilities, oil, gas,
real estate, and consumer goods. From time to time, the fund may invest
substantially in certain sectors, including utilities.

The fund may invest up to 100% of its total assets in debt securities that
are below investment grade, including up to 5% in defaulted debt, but it is
not currently expected that the fund will invest more than 50% of its assets
in these securities. Investment grade debt securities are rated in the top
four rating categories by independent rating agencies such as Standard &
Poor's Corporation (S&P) and Moody's Investors Service, Inc. (Moody's). The
fund generally invests in securities rated at least Caa by Moody's or CCC by
S&P or, if unrated, determined by the fund's manager to be comparable.
Generally, lower rated securities pay higher yields than more highly rated
securities to compensate investors for the higher risk. During 1998, about
30% of the fund's portfolio was invested in lower rated and comparable
quality unrated debt securities.

The fund may invest up to 25% of its assets in foreign securities, including
emerging markets. It ordinarily buys foreign securities that are traded in
the U.S or American Depositary Receipts, which are certificates issued by a
bank or trust company that give their holders the right to receive securities
issued by a foreign or domestic company. Many debt securities of non-U.S.
issuers, and especially emerging market issuers, are rated below investment
grade or are unrated so that their selection depends on the manager's
internal analysis.

[Begin callout]
The fund invests primarily in a diversified portfolio of high yield lower
rated bonds, and stocks.
[End callout]

PORTFOLIO SELECTION The manager searches for undervalued or out-of-favor
securities it believes offer opportunities for income today and growth
tomorrow. It performs independent analysis of the debt securities being
considered for the fund's portfolio, rather than relying principally on the
ratings assigned by rating agencies. In its analysis, the manager considers a
variety of factors, including:

o a security's relative value based on such factors as anticipated cash flow,
interest or dividend coverage, asset coverage, and earnings prospects;

o the experience and managerial strength of the company;

o responsiveness to changes in interest rates and business conditions;

o debt maturity schedules and borrowing requirements; and

o the company's changing financial condition and market recognition of the
change.

[Insert graphic of chart with line going up and down] MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

INTEREST RATE Rate changes can be sudden and unpredictable. When interest
rates rise, debt securities can lose market value. Similarly, when interest
rates fall, debt securities can gain value. In general, securities with
longer maturities are more sensitive to these price changes. A sub-category
of interest rate risk is reinvestment risk, which is the risk that interest
rates will be lower when the funds seek to reinvest interest payments, or the
proceeds from a matured debt security, resulting in less income received by
the fund.

[Begin callout]
Because the bonds and stocks the fund holds fluctuate in price with interest
rate changes and market conditions, the value of your investment in the fund
will go up and down. This means you could lose money.
[End callout]

STOCKS While stocks have historically outperformed other asset classes over
the long term, they tend to go up and down more dramatically over the short
term. These price movements may result from factors affecting individual
companies, industries, or securities markets. Value stock prices are
considered "cheap" relative to the company's perceived value and are often
out of favor with other investors. If other investors fail to recognize the
company's value and do not become buyers, or if they become sellers, or in
markets favoring faster-growing companies, value stocks may not increase in
value as anticipated by the manager or may decline further. Utility company
stocks pay relatively high dividends, so they are particularly sensitive to
interest rate movements: like bonds, when interest rates rise, their stock
prices tend to fall.

CONVERTIBLE SECURITIES The value of convertible securities may rise and fall
with the market value of the underlying stock or, like a debt security, vary
with changes in interest rates and the credit quality of the issuer. Because
its value can be influenced by many different factors, a convertible security
is not as sensitive to interest rate changes as a similar non-convertible
debt security, and generally has less potential for gain or loss than the
underlying stock.

FOREIGN SECURITIES Securities of companies and governments located outside
the U.S., including Depositary Receipts, involve risks that can increase the
potential for losses in the fund.

COUNTRY General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns
that trade in that country. The political, economic, and social structures of
some countries the fund invests in may be less stable and more volatile than
those in the U.S. The risks of investing in these countries include the
possibility of currency devaluations, the imposition of exchange controls,
foreign ownership limitations, expropriation, restrictions on removal of
currency or other assets, nationalization of assets, punitive taxes, and
certain custody and settlement risks. Non-U.S. companies are not subject to
the same disclosure, accounting, auditing and financial reporting standards
and practices as U.S. companies and their securities may not be as liquid as
securities of similar U.S. companies, or may become illiquid. Non-U.S. stock
exchanges, trading systems, brokers, and companies generally have less
government supervision and regulation than in the U.S.

[Insert graphic of a bull and a bear] PAST PERFORMANCE

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.

FRANKLININCOME SECURITIES FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

- ----------------------------------------------------------------------
-7.42% 39.93% 13.20% 18.59% -6.27% 22.40% 11.28% 17.09% 1.64%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
90 91 92 93 94 95 96 97 98
- ----------------------------------------------------------------------

YEAR

[Begin callout]
Best
Quarter:

Q1 '91
16.48%

Worst
Quarter:

Q3 '90
- -8.42%
[End callout]

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

SINCE INCEPTION
PAST 1 YEAR PAST 5 YEARS (01/24/89)
- -------------------------------------------------------------------------------
FRANKLIN INCOME SECURITIES
FUND - CLASS 1 1 1.64% 8.73% 11.23%
LEHMAN BROTHERS GOVERNMENT
CORPORATE BOND INDEX 2 9.47% 7.30% 9.29%
S&P 500(R)INDEX 2 28.58% 24.06% 18.70%

1. All fund performance assumes reinvestment of dividends and capital gains.

2. Source: Standard & Poor's(R) Micropal. The Lehman Brothers
Government/Corporate Bond Index is an unmanaged index of fixed-rate U.S.
Government and foreign and domestic corporate bonds that are rated investment
grade or higher and have maturities of one year or more and at least $50
million outstanding. The S&P 500(R) Index is an unmanaged group of widely held
common stocks covering a variety of industries. Indices include reinvested
dividends and/or interest. One cannot invest directly in an index, nor is an
index representative of the fund's portfolio.

[Insert graphic of briefcase] MANAGEMENT

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California 94403-7777, is the fund's investment manager.

MANAGEMENT TEAM The team responsible for the fund's management is:

CHARLES B. JOHNSON
Chairman of the Board, Advisers

Mr. Johnson has been a manager of the fund since its inception in 1989, and
has been with the Franklin Templeton Group since 1957.

MATTHEW F. AVERY
Senior Vice President, Advisers

Mr. Avery has been a manager of the fund since its inception in 1989, and has
been with the Franklin Templeton Group since 1987.

FREDERICK G. FROMM
Vice President, Advisers

Mr. Fromm has been a manager of the fund since 1998, and has been with the
Franklin Templeton Group since 1992.

The fund pays the manager a fee for managing its assets, making its
investment decisions, and providing certain administrative facilities and
services for the fund. For the fiscal year ended December 31, 1998, the fund
paid 0.47% of its average daily net assets to the manager.

Franklin Real Estate Fund

[Insert graphic of bullseye and arrows] GOALS AND STRATEGIES

GOALS The fund's principal goal is capital appreciation. Its secondary goal
is to earn current income.

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in securities of companies operating in the
real estate industry, primarily equity real estate investment trusts (REITs).
Real estate companies include:

o companies qualifying under federal tax law as REITs,

o real estate operating companies, real
estate services companies, homebuilders and developers that derive at least
half of their assets or revenues from the ownership, construction,
management or other services, or sale of residential, commercial or
industrial real estate.

[Begin callout]
The fund concentrates in securities of companies in the real estate industry,
primarily equity REITs.
[End callout]

REITs are real estate investment trust companies, usually publicly traded,
that manage a portfolio of income-producing real estate properties such as
apartments, hotels, office buildings, or shopping centers. Equity REITs take
ownership positions in real estate and shareholders receive income from the
rents received, and receive capital gains on the properties sold at a profit.
Other types, for example mortgage REITs, specialize in lending money to
developers and pass interest income on to shareholders. Still others are
hybrid REITs, having a mix of equity and debt investments. The fund generally
invests in medium-cap (less than $5 billion) to small-cap (less than $1.5
billion) REITs, because that is reflective of the industry itself. Market
capitalization is defined as share price times the number of common stock
shares outstanding.

In addition to its principal investments, the fund may invest in equity or
debt securities of issuers engaged in businesses whose products and services
are closely related to the real estate industry, and issuers whose principal
business is unrelated to the real estate industry but who have very
significant real estate holdings believed to be undervalued relative to the
company's securities. Equities represent ownership interests in individual
companies and give shareholders a claim in the company's earnings and assets.
A debt security obligates the issuer to the bondholders, both to repay a loan
of money at a future date and generally to pay interest. Common debt
securities are bonds, including bonds convertible into common stock or
unsecured bonds; notes; and short-term investments, including cash or cash
equivalents.

The manager seeks to manage the risks of industry concentration by
diversifying into different types of real estate investments although such
risks cannot be eliminated. Historically, there has been a low correlation
between the real estate market and the broader equity market. While there is
no certainty those trends will continue in the future, investments in real
estate securities may be a useful way to diversify one's overall portfolio.

PORTFOLIO SELECTION The manager is a research driven, fundamental investor,
pursuing a disciplined value-oriented strategy for this fund. As a
"bottom-up" investor focusing primarily on individual securities, the fund's
manager will focus on the market price of a company's security relative to
its evaluation of the company's long-term earnings, asset value, and cash
flow potential. Using both qualitative and quantitative analysis and on-site
visits, the manager evaluates security characteristics, the strength and
quality of management, and underlying properties. In addition, the manager
may consider other factors, such as the supply and demand outlook for various
property types and regional markets.

TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in short-term investments,
including cash or cash equivalents. Under these circumstances, the fund may
temporarily be unable to pursue its investment goals.

[Insert graphic of chart with line going up and down] MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

REAL ESTATE SECURITIES By concentrating in a single industry sector, the
fund carries much greater risk of adverse developments in that sector than a
fund that invests in a wide variety of industries. Real estate values rise
and fall in response to a variety of factors, including local, regional and
national economic conditions and tax considerations, the strength of specific
industries renting properties, and other factors affecting the supply and
demand for properties. When economic growth is slowing, demand for property
decreases and prices may decline. Rising interest rates, which drive up
mortgage and financing costs, can restrain construction and buying and
selling activity and make other investments more attractive. Property values
could decrease because of overbuilding, increases in property taxes and
operating expenses, changes in zoning laws, environmental regulations or
hazards, uninsured casualty or condemnation losses, or a general decline in
neighborhood values.

REITS Equity REITs can be affected by any changes in the value of the
properties owned, while mortgage REITs can be affected by the quality of any
credit extended. A REIT's performance depends on the types and locations of
the properties it owns and on how well it manages those properties or loan
financings. A decline in rental income could occur because of extended
vacancies, increased competition from other properties, tenants' failure to
pay rent or poor management.

A REIT's performance also depends on the company's ability to finance
property purchases and renovations and manage its cash flows. Because REITs
are typically invested in a limited number of projects or in a particular
market segment, they are more susceptible to adverse developments affecting a
single project or market segment than more broadly diversified investments.
Loss of status as a qualified REIT or changes in the treatment of REITs under
the federal tax law, could adversely affect the value of a particular REIT or
the market for REITs as a whole.

[Begin callout]
Because the securities the fund holds fluctuate in price with real estate
market conditions, the value of your investment in the fund will go up and
down. This means you could lose money over short or even extended periods.
[End callout]

SMALLER COMPANIES Smaller or relatively new companies can be particularly
sensitive to changing economic conditions, their growth prospects are less
certain, their securities are less liquid, and they can be considered
speculative. These companies may suffer significant losses. Small cap REITs
can be subject to greater risks than mid- or large-cap issuers due to greater
regional concentration and less diversification in terms of the regions,
clients and types of properties available for investment.

[Insert graphic of a bull and a bear] PAST PERFORMANCE

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.

FRANKLINREAL ESTATE FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

- ----------------------------------------------------------------------
- -11.98% 33.47% 12.12% 19.01% 2.89% 17.53% 32.82% 20.70% -16.82%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
90 91 92 93 94 95 96 97 98
- ----------------------------------------------------------------------

YEAR

[Begin callout]
Best
Quarter:

Q1 '91
20.13%

Worst
Quarter:

Q3 '90
- -14.14%
[End callout]

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

SINCE INCEPTION
1 YEAR 5 YEARS (01/24/89)
- -------------------------------------------------------------------------------
FRANKLIN REAL ESTATE FUND -
CLASS 1 1 -16.82% 10.03% 10.30%
S&P 500(R)INDEX 2 28.58% 24.06% 18.70%
WILSHIRE REAL ESTATE
SECURITIES INDEX 2 -17.43% 9.36% 4.57%

1. All fund performance assumes reinvestment of dividends and capital gains.

2. Source: Standard & Poor's(R) Micropal. The S&P 500(R) Index is an unmanaged
group of widely held common stocks covering a variety of industries. The
Wilshire Real Estate Securities Index is a market-cap weighted index of
publicly traded real estate securities. Indices include reinvested dividends
and/or interest. One cannot invest directly in an index, nor is an index
representative of the fund's investments.

[Insert graphic of briefcase] MANAGEMENT

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California 94403-7777, is the fund's investment manager.

MANAGEMENT TEAM The team responsible for the fund's management is:

DOUGLAS BARTON, CFA
Vice President, Advisers

Mr. Barton has been a manager of the fund since 1998, and has been with the
Franklin Templeton Group since 1988.

MATTHEW F. AVERY
Senior Vice President, Advisers

Mr. Avery has been a manager of the fund since its inception in 1989, and has
been with the Franklin Templeton Group since 1987.

Franklin Rising Dividends Securities Fund

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES

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

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in the securities of companies that have:

o consistently increased dividends in at least 8 out of the last 10 years and
have not decreased dividends during that time;

o increased dividends substantially (at least 100%) over the past ten years;

o reinvested earnings, paying out less than 65% of current earnings in
dividends (except for utility companies);

o strong balance sheets, with long-term debt representing no more than 30% of
total capitalization (except for utility companies); and

o attractive prices, either in the lower half of the stock's price/earnings
ratio range for the past 10 years or less than the average current market
price/earnings ratio of the stocks comprising the Standard & Poor's(R) 500
Stock Index (this criterion applies only at the time of purchase).

[Begin callout]
The fund will invest primarily in the common stocks of financially sound
companies that have paid consistently rising dividends.
[End callout]

The fund typically invests the rest of its assets in equity securities of
companies that pay dividends but do not meet all of these criteria. Following
these policies, the fund typically invests predominantly in equity securities
issued by large- and mid-cap U.S. companies, which generally have market
capitalization values (share price times the number of common stock shares
outstanding) greater than $1.5 billion. It may also invest substantially in
small-cap companies which generally have lower market capitalizations.
Equities represent ownership interests in individual companies and give
shareholders a claim in the company's earnings and assets. They include
common and preferred stocks, and securities convertible into common stock.

PORTFOLIO SELECTION The manager is a research driven, fundamental investor,
pursuing a disciplined value-oriented strategy. As a "bottom-up" investor
focusing primarily on individual securities, the manager will focus on the
market price of a company's securities relative to its evaluation of the
company's long-term earnings, and in particular a strong dividend record,
asset value, and cash flow potential. The manager seeks bargains among
companies with steadily rising dividends and strong balance sheets - out of
favor companies that offer, in the manager's opinion, excellent long-term
potential that might include companies that have stumbled recently, dropping
sharply in price, but with significant potential.

TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in short-term investments,
including cash or cash equivalents. Under these circumstances, the fund may
temporarily be unable to pursue its investment goal.

[Insert graphic of chart with line going up and down] MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

For example, smaller companies may lack depth of management or may have
limited financial resources for growth or development. They may have limited
product lines or market share. Smaller companies may be in new industries, or
their new products and services may not find an established market or may
become obsolete. Smaller companies may suffer significant losses, their
securities can be less liquid, and investments in these companies may be
speculative.

[Insert graphic of a bull and a bear] PAST PERFORMANCE

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.

FRANKLIN RISING DIVIDENDS SECURITIES FUND -
CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

- ----------------------------------------------------------------------
- -3.48% -4.08% 29.74% 24.18% 33.03% 6.92%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
93 94 95 96 97 98
- ----------------------------------------------------------------------

YEAR
[Begin callout]
Best
Quarter:

Q4 '98
19.38%

Worst
Quarter:

Q3 '98
- -14.78%
[End callout]

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

SINCE INCEPTION
PAST 1 YEAR PAST 5 YEARS (01/27/92)
- -------------------------------------------------------------------------------

FRANKLIN RISING DIVIDENDS
SECURITIES FUND - CLASS 1 1 6.92% 17.06% 12.98%
WILSHIRE MIDCAP COMPANY
GROWTH INDEX 2 -1.08% 13.83% 13.61%

1. All fund performance assumes reinvestment of dividends and capital gains.

2. Source: Standard & Poor's(R) Micropal. The Wilshire MidCap Company Growth
Index is an unmanaged group of securities of companies selected based on
growth characteristics from among the middle capitalization universe of the
Wilshire 5000. Indices include reinvested dividends and/or interest. One
cannot invest directly in an index, nor is an index representative of the
fund's investments.

[Insert graphic of briefcase] MANAGEMENT

Franklin Advisory Services, LLC (Advisory Services), One Parker Plaza, Ninth
Floor, Fort Lee, New Jersey 07024, is the fund's investment manager.

MANAGEMENT TEAM The team responsible for the fund's management is:

DONALD G. TAYLOR
Senior Vice President,
Advisory Services

Mr. Taylor has been a manager of the fund since 1996. Before joining the
Franklin Templeton Group in 1996, he was a Portfolio Manager for Fidelity
Management & Research Co.

WILLIAM J. LIPPMAN
President, Advisory Services

Mr. Lippman has been a manager of the fund since its inception in 1992. He
has more than 30 years' experience in the securities industry and joined the
Franklin Templeton Group in 1988.

BRUCE C. BAUGHMAN
Senior Vice President,
Advisory Services

Mr. Baughman has been a manager of the fund since its inception in 1992, and
has been with the Franklin Templeton Group since 1988.

MARGARET MCGEE
Vice President, Advisory Services

Ms. McGee has been a manager of the fund since its inception in 1992, and has
been with the Franklin Templeton Group since 1988.

The fund pays the manager a fee for managing its assets, making its
investment decisions, and providing certain administrative facilities and
services for the fund. For the fiscal year ended December 31, 1998, the fund
paid 0.70% of its average daily net assets to the manager.

Franklin Value Securities Fund

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES

GOAL The fund's investment goal is long-term total return.

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in equity securities of companies of various
sizes that the fund's manager believes are selling substantially below the
underlying value of their assets or their private market value (what a
sophisticated investor would pay for the entire company). Following this
strategy, the fund will invest in companies with, for example: low prices
relative to book value, cash flow, or earnings (of the market, of the
industry group or earnings growth); valuable intangibles not reflected in the
stock price such as franchises, trademarks, distribution channels or market
share for particular products or services; underused or understated assets or
cash; or strong balance sheets. Equities represent ownership interests in
individual companies and give shareholders a claim in the company's earnings
and assets. They include common and preferred stocks, and securities
convertible into common stock.

[Begin callout]
The fund invests primarily in the common stocks of companies the manager
believes are significantly undervalued.
[End callout]

The fund may invest substantially in securities of small-cap companies, which
have market capitalization values (share price times the number of common
stock shares outstanding) of less than $1.5 billion, at the time of purchase.
The fund may also invest up to 25% of its total assets in foreign securities,
including Depositary Receipts and emerging markets, but has no current
intention of investing more than 15%.

PORTFOLIO SELECTION The manager is a research driven, fundamental investor,
pursuing a disciplined value-oriented strategy for this fund. As a
"bottom-up" investor focusing primarily on individual securities, the manager
will focus on the market price of a company's securities relative to its
evaluation of the company's long-term earnings, asset value and cash flow
potential. The manager seeks bargains among the "under researched and
unloved" - out of favor companies that offer, in the manager's opinion,
excellent long-term potential that might include former growth companies that
have stumbled recently, dropping sharply in price, but with significant
potential ("fallen angels") or companies that are a potential turnaround or
takeover target.

[Insert graphic of chart with line going up and down] MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

STOCKS While stocks have historically outperformed other asset classes over
the long term, they tend to go up and down more dramatically over the short
term. These price movements may result from factors affecting individual
companies, industries, or securities markets. Value stock prices are
considered "cheap" relative to the company's perceived value and are often
out of favor with other investors. If other investors fail to recognize the
company's value and do not become buyers, or if they become sellers, or in
markets favoring faster-growing companies, value stocks may not increase in
value as anticipated by the manager or may decline further. The fund's
bargain-driven focus may result in the fund choosing securities that are not
widely followed by other investors, including companies reporting poor
earnings, companies whose share prices have declined sharply, turnarounds,
cyclical companies, or companies emerging from bankruptcy, which may have
higher risk.

For example, smaller companies may lack depth of management, or may have
limited financial resources for growth or development. They may have limited
product lines or market share. Smaller companies may be in new industries, or
their new products or services may not find an established market or may
become quickly obsolete. Smaller companies may suffer significant losses,
their securities can be less liquid, and investments in these companies may
be speculative. Technology and biotechnology industry stocks, in particular,
can be subject to abrupt or erratic price movements.

FOREIGN SECURITIES Securities of companies and governments located outside
the U.S., including Depositary Receipts, involve risks that can increase the
potential for losses in the fund.

COUNTRY General foreign securities market movements in any country where the
fund has investments are likely to affect the value of the securities the
fund owns that trade in that country. The political, economic, and social
structures of some countries the fund invests in may be less stable and more
volatile than those in the U.S. The risks of investing in these countries
include the possibility of currency devaluations, the imposition of exchange
controls, foreign ownership limitations, expropriation, restrictions on
removal of currency or other assets, nationalization of assets, punitive
taxes, and certain custody and settlement risks. Non-U.S. companies are not
subject to the same disclosure, accounting, auditing and financial reporting
standards and practices as U.S. companies and their securities may not be as
liquid as securities of similar U.S. companies, or may become illiquid.
Non-U.S. stock exchanges, trading systems, brokers, and companies generally
have less government supervision and regulation than in the U.S.

[Insert graphic of a bull and a bear] PERFORMANCE

Because the fund is new, it has no performance history.

[Insert graphic of briefcase] MANAGEMENT

Franklin Advisory Services, LLC (Advisory Services), One Parker Plaza, Ninth
Floor, Fort Lee, New Jersey 07024, is the fund's investment manager.

MANAGEMENT TEAM The team responsible for the fund's management is:

WILLIAM J. LIPPMAN
President, Advisory Services

Mr. Lippman has been a manager of the fund since its inception in 1998. He
has more than 30 years' experience in the securities industry and joined the
Franklin Templeton Group in 1988.

BRUCE C. BAUGHMAN
Senior Vice President,
Advisory Services

Mr. Baughman has been a manager of the fund since its inception in 1998, and
has been with the Franklin Templeton Group since 1988.

MARGARET MCGEE
Vice President, Advisory Services

Ms. McGee has been a manager of the fund since its inception in 1998 and
has been with the Franklin Templeton Group since 1988.

The fund pays the manager a fee for managing the fund's assets and making its
investment decisions. The fee is equal to an annual rate of 0.60% of the
average daily net assets up to an including $200 million; 0.50% of the
average daily net assets up to $1.3 billion; and 0.40% of the average daily
net assets over $1.3 billion.

Mutual Shares Securities Fund

[Insert graphic of bullseye and arrows] GOALS AND STRATEGIES

GOALS The fund's principal goal is capital appreciation. Its secondary goal
is income.

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in equity securities of companies that the
manager believes are available at market prices less than their actual value
based on certain recognized or objective criteria (intrinsic value).
Following this value-oriented strategy, the fund will primarily invest in:

o UNDERVALUED STOCKS Stocks trading at a discount to asset value.

o REORGANIZING COMPANIES Securities of companies in the midst of change such
as mergers, consolidations, liquidations, reorganizations, financial
restructurings, or companies with takeover, tender or exchange offers or
likely to receive such offers (Reorganizing Companies). The fund may
participate in such transactions.

o DISTRESSED COMPANIES Securities of companies that are distressed or even in
bankruptcy.

[Begin callout]
The fund invests primarily in common stocks of companies the manager believes
are significantly undervalued.
[End callout]

The fund invests primarily in companies with market capitalization values
(share price times the number of common stock shares outstanding) greater
than $1.5 billion, but may invest a small portion in small-cap companies,
which have more risk. Equities represent ownership interests in individual
companies and give shareholders a claim in the company's earnings and assets.
They include common and preferred stocks, and securities convertible into
common stock.

While the fund generally purchases securities for investment purposes, the
manager may use the fund's ownership in a company to seek to influence or
control management, or invest in other companies that do so, when the manager
believes the fund may benefit.

The fund may invest in debt securities rated in any rating category
established by an independent rating agency, including high yield, lower
rated or defaulted debt securities ("junk bonds"), or if unrated, determined
by the manager to be comparable. A debt security obligates the issuer to the
bondholders, both to repay a loan of money at a future date and generally to
pay interest. Common debt securities are bonds, including bonds convertible
into common stock or unsecured bonds; notes; and short-term investments,
including cash or cash equivalents.

The fund typically invests in unrated and lower rated debt securities of
Reorganizing Companies or Distressed Companies. Such debt securities are
primarily secured or unsecured indebtedness or participations in the
indebtedness, including loan participations and trade claims. Indebtedness
represents a specific commercial loan or portion of a loan which has been
given to a company by a financial institution such as a bank or insurance
company. By purchasing direct indebtedness of companies, a fund steps into
the shoes of a financial institution. Participation interests in indebtedness
represent fractional interests in a company's indebtedness.

The fund currently intends to invest up to approximately 20% of its total
assets in foreign equity and debt securities, including American, European
and Global Depositary Receipts. Depositary receipts are certificates
typically issued by a bank or trust company that give their holders the right
to receive securities issued by a foreign or domestic company. The fund
generally seeks to hedge (protect) against currency risks, largely using
forward foreign currency exchange contracts, where available, and in the
manager's opinion, it is economical to do so (Hedging Instruments).

PORTFOLIO SELECTION The manager is a research driven, fundamental investor,
pursuing a disciplined value strategy. In choosing equity investments, the
manager focuses on the market price of a company's securities relative to its
evaluation of the company's asset value, including an analysis of book value,
cash flow potential, long-term earnings, and multiples of earnings of
comparable securities. Similarly, debt securities are generally selected
based on the manager's own analysis of the security's intrinsic value rather
than the coupon rate or rating. Thus, each security is examined separately
and there are no set criteria as to asset size, earnings or industry type.

[Insert graphic of chart with line going up and down] MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

REORGANIZING ORDISTRESSED COMPANIES The fund's bargain-driven focus may
result in the fund choosing securities that are not widely followed by other
investors, including companies reporting poor earnings, companies whose share
prices have declined sharply, turnarounds, cyclical companies, or companies
emerging from bankruptcy, which may have higher risk. There can be no
assurance that any merger or other restructuring, or tender or exchange offer
proposed at the time the fund invests in a Reorganizing Company will be
completed on the terms contemplated and therefore, benefit the fund.

FOREIGN SECURITIES Securities of companies and governments located outside
the U.S., including Depositary Receipts, involve risks that can increase the
potential for losses in the fund.

COUNTRY General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns
that trade in that country. The political, economic, and social structures of
some countries the fund invests in may be less stable and more volatile than
those in the U.S. The risks of investing in these countries include the
possibility of currency devaluations by a country's government or banking
authority, the imposition of exchange controls, foreign ownership
limitations, expropriation, restrictions on removal of currency or other
assets, nationalization of assets, punitive taxes and certain custody and
settlement risks. Non-U.S. companies are not subject to the same disclosure,
accounting, auditing and financial reporting standards and practices as U.S.
companies and their securities may not be as liquid as securities of similar
U.S. companies, or may become illiquid. Non-U.S. stock exchanges, trading
systems, brokers, and companies generally have less government supervision
and regulation than in the U.S.

INDEBTEDNESS AND PARTICIPATIONS The purchase of debt securities of
Reorganizing or Distressed Companies always involves a risk as to the
creditworthiness of the issuer and the possibility that the investment may be
lost. There are no established markets for indebtedness, making them less
liquid than other securities, and purchasers of participations, such as the
fund, must rely on the financial institution issuing the participation to
assert any rights against the borrower with respect to the underlying
indebtedness. In addition, the fund takes on the risk as to the
creditworthiness of the bank or other financial intermediary issuer, as well
as of the issuer of the underlying indebtedness.

The prices of high yield debt securities fluctuate more than higher quality
securities. Prices are especially sensitive to developments affecting the
company's business and to rating changes, and typically rise and fall in
response to factors that affect the company's stock prices. In addition, the
entire high yield securities market can experience sudden and sharp price
swings due to changes in economic conditions, market activity, large
sustained sales, a high-profile default, or other factors. High yield
securities generally are less liquid than higher-quality bonds, and
infrequent trades can make accurate pricing more difficult. At times, it may
be difficult to sell these securities promptly at an acceptable price.

HEDGING INSTRUMENTS Hedging Instruments used by this fund are considered
derivative investments. Their successful use will depend on the manager's
ability to predict market movements, and losses from their use can be greater
than if they had not been used. Risks include potential loss to the fund due
to the imposition of controls by a government on the exchange of foreign
currencies, delivery failure, default by the other party, or inability to
close out a position because the trading market becomes illiquid.

ILLIQUID SECURITIES The fund may invest up to 15% of its net assets in
illiquid securities, which are securities with a limited trading market.
There is a possible risk that the securities cannot be readily sold or can
only be resold at a price significantly lower than their value.

[Insert graphic of a bull and a bear] PAST PERFORMANCE

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results

MUTUAL SHARES SECURITIES FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

- -----------------------------
17.73% 0.09%
- -----------------------------
- -----------------------------
97 98
- -----------------------------

YEAR

[Begin callout]
Best
Quarter:

Q4 '98
12.94%

Worst
Quarter:

Q3 '98
- -17.65%
[End callout]

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

SINCE INCEPTION
PAST 1 YEAR (11/08/96)
- -------------------------------------------------------------------------------
MUTUAL SHARES SECURITIES
FUND - CLASS 1 1 0.09% 9.70%
S&P 500(R) INDEX 2 28.58% 30.66%

1. All fund performance assumes reinvestment of dividends and capital gains.

2. Source: Standard and Poor's(R) Micropal. The S&P 500(R) Index is an unmanaged
group of widely held common stocks covering a variety of industries. Indices
include reinvested dividends and/or interest. One cannot invest directly in
an index, nor is an index representative of the fund's investments.

[Insert graphic of briefcase] MANAGEMENT

Franklin Mutual Advisers, LLC (Franklin Mutual), 51 John F. Kennedy Parkway,
Short Hills, New Jersey 07078, is the fund's investment manager.

MANAGEMENT TEAM The team members primarily responsible for the fund's
management are:

LAWRENCE N. SONDIKE
Senior Vice President
Franklin Mutual

Mr. Sondike has been a manager of the fund since its inception in 1996.
Before joining the Franklin Templeton Group in 1996, he was a research
analyst for Heine Securities Corporation, the predecessor of Franklin Mutual
(Heine).

DAVID E. MARCUS
Senior Vice President
Franklin Mutual

Mr. Marcus has been a manager of the fund since its inception in 1996. Before
joining the Franklin Templeton Group in 1996, he was a research analyst for
Heine.

Michael F. Price is Chairman of the Board of Directors which oversees the
management of Franklin Mutual. The managers listed above are part of a larger
team of investment professionals with management responsibility for all of
the funds managed by Franklin Mutual, including this fund. Peter A. Langerman
is Chief Executive Officer and Robert L. Friedman is Chief Investment Officer
of Franklin Mutual. Mr. Friedman has overall supervisory responsibility for
the day to day management of the funds managed by Franklin Mutual.

The team also includes:

PETER A. LANGERMAN
Chief Executive Officer
Franklin Mutual

Mr. Langerman has been involved with the management of the fund since its
President and inception in 1996. Before joining the Franklin Templeton Group
in 1996, he was a research analyst for Heine.

ROBERT L. FRIEDMAN
Chief Investment Officer
Senior Vice President
Franklin Mutual

Mr. Friedman has been involved with the management of the fund since its
inception in 1996. Before joining the Franklin Templeton Group in 1996, he
was a research analyst for Heine.

JEFFREY A. ALTMAN
Senior Vice President
Franklin Mutual

Mr. Altman has been a manager of the fund since its inception in 1996. Before
joining the Franklin Templeton Group in 1996, he was a research analyst for
Heine.

RAYMOND GAREA
Senior Vice President
Franklin Mutual

Mr. Garea has been a manager of the fund since its inception in 1996. Before
joining the Franklin Templeton Group in 1996, he was a research analyst for
Heine.

DAVID J. WINTERS
Senior Vice President
Franklin Mutual

Mr. Winters has been a manager of the fund since 1998. Before joining the
Franklin Templeton Group in 1996, he was a research analyst for Heine.

In addition, the following Franklin Mutual employees serve as Assistant
Portfolio Managers:

JIM AGAH
Assistant Portfolio Manager
Franklin Mutual

Mr. Agah has been a manager of the fund since 1998. Before joining the
Franklin Templeton Group in 1997, he was vice president of equity sales at
Keefe, Bryette & Woods.

JEFF DIAMOND
Assistant Portfolio Manager
Franklin Mutual

Mr. Diamond has been a manager of the fund since 1998. Before joining the
Franklin Templeton Group in 1998, he was a vice president and co-manager of
Prudential Conservative Stock Fund.

The fund pays the manager a fee for managing its assets and making its
investment decisions. For the fiscal year ended December 31, 1998, the fund
paid 0.60% of its average daily net assets to the manager.

Templeton Global Asset Allocation Fund

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES

GOAL The fund's investment goal is high total return.

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
in equity securities of companies in any nation, debt securities of companies
and governments of any nation, and in money market instruments. The mix of
investments will be adjusted to capitalize on total return potential produced
by changing economic conditions throughout the world, including emerging
market countries. While there are no minimum or maximum percentage targets
for each asset class, historically stocks have been the predominant
investment.

Equities represent ownership interests in individual companies and give
shareholders a claim in the company's earnings and assets. They include
common and preferred stocks, securities convertible into common stock, and
American, European and Global Depositary Receipts. Depositary Receipts are
certificates issued by a bank or trust company that give their holders the
right to receive securities issued by a foreign or domestic company. A debt
security obligates the issuer to the bondholders, both to repay a loan of
money at a future date and generally to pay interest. Common debt securities
are bonds, including bonds convertible into common stock or unsecured bonds;
notes; and short-term investments, including cash or cash equivalents.

[Begin callout]
The fund invests primarily in common stocks and bonds of U.S. and non-U.S.
countries.
[End callout]

The fund focuses on "investment grade" debt securities. These are issues
rated in the top four rating categories (AAA to BBB) by independent rating
agencies such as Standard & Poor's Corporation (S&P) or Moody's Investors
Services, Inc. (Moody's) or, if unrated, determined by the fund's manager to
be comparable. The fund may also invest up to 25% of its total assets in high
yield, medium and lower rated debt securities ("junk bonds"), or, if unrated,
determined by the fund's manager to be comparable. The fund will not invest
in defaulted securities. During 1998, about 10.2% of the fund's portfolio was
invested in lower rated and comparable quality unrated debt securities. Many
debt securities of non-U.S. issuers, and especially emerging market issuers,
are rated below investment grade or are unrated so that their selection
depends on the manager's internal analysis.

PORTFOLIO SELECTION The Templeton investment philosophy is "bottom-up,"
value-oriented, and long-term. In choosing equity investments, the fund's
manager will focus on the market price of a company's securities relative to
its evaluation of the company's long-term earnings, asset value and cash flow
potential. A company's historical value measures, including price/earnings
ratio, profit margins, and liquidation value, will also be considered. As a
"bottom-up" investor focusing primarily on individual securities, the fund
may from time to time have significant investments in particular countries.

In choosing debt investments, the fund's manager allocates its assets among
issuers, geographic regions, and currencies based upon its assessment of
relative interest rates among currencies, the manager's outlook for changes
in interest rates, and credit risks. The manager intends to manage the fund's
exposure to various geographic regions and their currencies based on its
assessment of changing market and political conditions; with respect to debt
securities, the manager may also from time to time make use of forward
currency exchange contracts for hedging (protection) purposes (Hedging
Instruments).

[Insert graphic of chart with line going up and down] MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

[Begin callout]
Because the stocks and bonds the fund holds fluctuate in price with foreign
market conditions and currencies, the value of your investment in the fund
will go up and down. This means you could lose money over short or even
extended periods.
[End callout]

FOREIGN SECURITIES Securities of companies and governments located outside
the U.S., including Depositary Receipts, involve risks that can increase the
potential for losses in the fund.

CURRENCY Many of the fund's investments are denominated in foreign
currencies. Generally, when the U.S. dollar rises in value against a foreign
currency, an investment in that country loses value because the investment is
worth fewer dollars. Currency markets generally are not as regulated as
securities markets.

COUNTRY General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns
that trade in that country.

The prices of high yield debt securities fluctuate more than higher quality
securities. Prices are especially sensitive to developments affecting the
company's business and to rating changes, and typically rise and fall in
response to factors that affect the company's stock prices. In addition, the
entire high yield securities market can experience sudden and sharp price
swings due to changes in economic conditions, market activity, large
sustained sales, a high-profile default, or other factors. High yield
securities generally are less liquid than higher-quality bonds, and
infrequent trades can make accurate pricing more difficult. At times, it may
be difficult to sell these securities promptly at an acceptable price.

[Insert graphic of a bull and a bear] PAST PERFORMANCE

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.

TEMPLETON GLOBAL ASSET ALLOCATION FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

- ----------------------------------------
19.84% 11.71% -0.04%
- ----------------------------------------
- ----------------------------------------
96 97 98
- ----------------------------------------

YEAR

[Begin callout]
Best
Quarter:

Q4 '98
11.93%

Worst
Quarter:

Q3 '98
- -13.12%
[End callout]

AVERAGE ANNUAL TOTAL RETURNS

For the periods ended December 31, 1998

SINCE INCEPTION
PAST 1 YEAR (05/01/95)
- -------------------------------------------------------------------------------
TEMPLETON GLOBAL ASSET
ALLOCATION FUND - CLASS 1 1 -0.04% 10.25%
MSCI WORLD INDEX(R) 2 24.80% 18.24%
JP MORGAN GLOBAL GOVERNMENT
BOND INDEX 2 15.31% 7.49%

1. All fund performance assumes reinvestment of dividends and capital gains.

2. Source: Standard & Poor's(R) Micropal. The unmanaged MSCI World Index(R)
tracks the performance of approximately 1500 securities in 23 countries and
is designed to measure world stock market performance. The unmanaged JP
Morgan Global Government Bond Index tracks the performance of government bond
markets in 13 countries. Indices include reinvested dividends and/or
interest. One cannot invest directly in an index, nor is an index
representative of the fund's investments.

[Insert graphic of briefcase] MANAGEMENT

Templeton Global Advisors Limited (TGAL), Lyford Cay, Nassau, N.P., Bahamas,
is the fund's investment manager.

Under an agreement with TGAL, Templeton Investment Counsel, Inc. (TICI),
Broward Financial Centre, Suite 2100, Fort Lauderdale, Florida 33394, through
its Templeton Global Bond Managers division (Global Bond Managers), is the
fund's sub-advisor.

MANAGEMENT TEAM The team responsible for managing the equity portion of the
fund is:

DALE WINNER, CFA
Portfolio Manager, TGAL

Mr. Winner has been a manager of the fund since 1997. Before joining Franklin
Templeton in 1995, he was a trust officer at J.P. Morgan.

MARK G. HOLOWESKO, CFA
President, TGAL

Mr. Holowesko has been a manager of the fund since 1999, and has been with
the Franklin Templeton Group since 1985.

A team from Global Bond Managers is responsible for managing the debt portion
of the fund's investments.

The fund pays the manager a fee for managing its assets and making its
investment decisions. For the fiscal year ended December 31, 1998, the fund
paid 0.65% of its average daily net assets to the manager.

Franklin Capital Growth Fund

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES

Effective December 15, 1999, the fund's name will be changed to Franklin
Large Cap Growth Securities Fund and the fund's strategy will be restated to
one of investing, under normal market conditions, at least 65% of its total
assets in equity securities of U.S. large-cap growth companies ($8.5 billion
or more), focusing on those companies that are expected to have revenue
growth in excess of the economy as a whole either through above-average
industry expansion or market share gains. These companies generally dominate,
or are gaining market share, in their respective industries and have a
reputation for quality of management, as well as superior products and
services.

GOAL The fund's investment goal is capital appreciation.

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in equity securities of companies believed
to be globally competitive and to offer favorable opportunities for long-term
capital appreciation. Following this policy, the fund will typically invest
predominantly in established, large- to medium-cap companies with market
capitalization values (share price times the number of common stock shares
outstanding) greater than $1.5 billion. Equities represent ownership
interests in individual companies and give shareholders a claim in the
company's earnings and assets. They include common and preferred stocks, and
securities convertible into common stock.

[Begin callout]
The fund invests primarily in large cap growth companies' equity securities.
[End callout]

In choosing equity investments, the manager will focus on companies that have
exhibited above average growth, strong financial records, and large market
capitalization. In addition, management expertise, industry leadership,
growth in market share and sustainable competitive advantage are factors the
manager also considers. Although the manager will search for investments
across a large number of industries, it expects to have significant positions
(but not in excess of 25% of its total assets in a given sector) in the
technology (including computers, telecommunications, and electronics), health
care, and finance industries.

TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in short-term investments,
including cash or cash equivalents. Under these circumstances, the fund may
temporarily be unable to pursue its investment goal.

[Insert graphic of chart with line going up and down] MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

Because the stocks the fund holds fluctuate in price with market conditions,
the value of your investment in the fund will go up and down. This means you
could lose money over short or even extended periods.

TECHNOLOGY COMPANIES The technology sector has historically been volatile
due to the rapid pace of product change and development within the sector.
The stock prices of companies operating within this sector may be subject to
abrupt or erratic movements. In addition, the activities of
telecommunications companies fall under international, federal and state
regulations. These companies may be adversely affected by changes in
government regulations.

HEALTH CARE COMPANIES The activities of health care companies may be funded
or subsidized by federal and state governments. If government funding and
subsidies are reduced or discontinued, the profitability of these companies
could be adversely affected. Health care companies may also be affected by
government policies on health care reimbursements, regulatory approval for
new drugs and medical instruments, and similar matters. They are also subject
to legislative risk, i.e., the risk of a reform of the health care system
through legislation.

FINANCIAL SERVICES COMPANIES Financial services companies are subject to
extensive government regulation which tends to limit both the amount and
types of loans and other financial commitments such companies can make, and
the interest rates and fees they can charge. These limitations can have a
significant impact on the profitability of a financial services company since
profitability is impacted by the company's ability to make financial
commitments such as loans.

The financial services industry is currently undergoing a number of changes
such as continuing consolidations, development of new products and structures
and changes to its regulatory framework. These changes are likely to have a
significant impact on the financial services industry.

See "Important Recent Developments," in this prospectus for Year 2000
discussion, and any potential impact on the fund's portfolio and operations.
More detailed information about the fund, its policies, and risks can be
found in the SAI.

[Insert graph of a bull and a bear] PAST PERFORMANCE

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.

FRANKLIN CAPITAL GROWTH FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

- ---------------------
18.31% 20.29%
- ---------------------
- ---------------------
97 98
- ---------------------

YEAR

[Begin callout]
Best
Quarter:

Q4 '98
19.73%

Worst
Quarter:

Q3 '98
- -10.47%
[End callout]

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

SINCE INCEPTION
PAST 1 YEAR (05/01/96)
- -------------------------------------------------------------------------------
FRANKLIN CAPITAL GROWTH FUND -
CLASS 1 1 20.29% 19.72%
S&P 500(R)INDEX 2 28.58% 29.00%
RUSSELL 1000 INDEX(R) 2 227.02% 27.92%

1. All fund performance assumes reinvestment of dividends and capital gains.

2. Source: Standard & Poor's(R) Micropal. The S&P 500(R) Index is an unmanaged
group of widely held common stocks covering a variety of industries. The
Russell 1000 Index measures the 1,000 largest companies in the Russell 3000
Index. Indices include reinvested dividends and/or interest. One cannot
invest directly in an index, nor is an index representative of the fund's
investments.

[Insert graphic of briefcase] MANAGEMENT

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California 94403-7777, is the fund's investment manager.

MANAGEMENT TEAM The team responsible for the fund's management is:

KENT SHEPHERD, CFA
Vice President, Advisers

Mr. Shepherd has been a manager of the fund since its inception in 1999, and
has been with the Franklin Templeton Group since 1991.

JASON R. NUNN
Portfolio Manager, Advisers

Mr. Nunn has been a manager of the fund since September 1999. Before joining
the Franklin Templeton Group in 1998 he worked in corporate finance with
Alex, Brown & Sons.

CONRAD B. HERRMANN, CFA
Senior Vice President, Advisers

Mr. Herrmann has been a manager of the fund since its inception in 1996, and
has been with the Franklin Templeton Group since 1989.

The fund pays the manager a fee for managing its assets, making its
investment decisions, and providing certain administrative facilities and
services for the fund. For the fiscal year ended December 31, 1998, the fund
paid 0.75% of its average daily net assets to the manager.

Franklin Global Health Care Securities Fund

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES

GOAL The fund's investment goal is capital appreciation.

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 70% of its total assets in equity securities of companies in the
health care industry. These are companies whose principal assets or
activities are in research, development, production or distribution of
products and services
in industries such as pharmaceutical; biotechnology; health care facilities,
information systems and personal products; medical supplies, technology and
services; and managed care companies. Equities represent ownership interests
in individual companies and give shareholders a claim in the company's
earnings and assets. They include common and preferred stocks, and securities
convertible into common stock.

[Begin callout]
The fund concentrates in common stocks of U.S. and non-U.S. companies in the
health care industry.
[End callout]

The fund may buy health care companies anywhere in the world, but generally
invests predominantly in U.S. companies. The fund may also invest a
substantial portion of its assets in small-cap companies which have market
capitalization values (share price times the number of common stock shares
outstanding) of less than $1.5 billion.

Depending upon current market conditions, the fund may invest a significant
portion of its assets in debt securities of U.S. or non-U.S. issuers. A debt
security obligates the issuer to the bondholders, both to repay a loan of
money at a future date and generally to pay interest. Common debt securities
are bonds, including bonds convertible into common stock or unsecured bonds;
notes; and short-term investments, including cash or cash equivalents.

PORTFOLIO SELECTION The manager is a research driven, fundamental investor,
combining both growth and value strategies. As a "bottom-up" investor
focusing primarily on individual securities, the manager chooses companies
that fill particular health care niches and that it believes are positioned
for rapid growth in revenues, earnings or assets, and/or are selling at
reasonable prices using a company's historical value measures. The manager
relies on a team of analysts to provide in-depth industry expertise, and uses
both qualitative and quantitative analysis, to look for companies that will
position the fund to benefit from potential future technological advances and
increasing worldwide demand in the health care sector. In addition, the
manager evaluates companies on factors such as strength and quality of
management, strategic positioning in its industry and globally competitive
advantages.

[Insert graphic of chart with line going up and down] MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

HEALTH CARE COMPANIES By concentrating in a single industry sector, the fund
carries much greater risk of adverse developments in that sector than a fund
that invests in a wide variety of industries. Government actions may affect
health care companies in many ways. For example, foreign, U.S. federal, or
state governments could discontinue subsidies of certain research or other
activities of some companies which may have an adverse effect on these
companies. Stocks held by the fund may also be affected by government
policies on health care reimbursements, regulatory approval for new drugs and
medical instruments, or legislative reform of a health care system. Health
care companies are also subject to the risks of product liability lawsuits
and the risk that their products and services may rapidly become obsolete.

[Begin callout]
Because the stocks the fund holds fluctuate in price with global market
conditions, the value of your investment in the fund will go up and down.
This means you could lose money over short or even extended periods.
[End callout]

STOCKS While stocks have historically outperformed other asset classes over
the long term, they tend to go up and down more dramatically over the short
term. These price movements may result from factors affecting individual
companies, industries, or securities markets. Value stock prices are
considered "cheap" relative to the company's perceived value and are often
out of favor with other investors. If other investors fail to recognize the
company's value and do not become buyers, or if they become sellers, or in
markets favoring faster-growing companies, value stocks may not increase in
value as anticipated by the manager or may decline further. Growth stock
prices reflect projections of future earnings or revenues, and can,
therefore, fall dramatically if the company fails to meet those projections.

FOREIGN SECURITIES Securities of companies located outside the U.S. involve
risks that can increase the potential for losses in the fund.

CURRENCY Many of the fund's investments are denominated in foreign
currencies. Generally, when the U.S. dollar rises in value against a foreign
currency, an investment in that country loses value because the investment is
worth fewer dollars. Currency markets generally are not as regulated as
securities markets.

COUNTRY General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns
that trade in that country.

[Insert graphic of a bull and a bear] PERFORMANCE

Because the fund is new, it has no performance history.

[Insert graphic of briefcase] MANAGEMENT

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California 94403-7777, is the fund's investment manager.

MANAGEMENT TEAM The team responsible for the fund's management is:

KURT VON EMSTER, CFA
Vice President, Advisers

Mr. Von Emster has been a manager of the fund since its inception in 1998,
and has been with the Franklin Templeton Group since 1989.

EVAN MCCULLOCH, CFA
Vice President, Advisers

Mr. McCulloch has been a manager of the fund since its inception in 1998, and
has been with the Franklin Templeton Group since 1992.

RUPERT H. JOHNSON, JR.
President, Advisers

Mr. Johnson has been a manager of the fund since its inception in 1998, and
has been with the Franklin Templeton Group since 1965.

The fund pays the manager a fee for managing the fund's assets and making its
investment decisions. The fee is an amount equal to an annual rate of 0.60%
of the average daily net assets up to and including $200 million; 0.50% of
the average daily net assets up to $1.3 billion; and 0.40% of the average
daily net assets over $1.3 billion.

Franklin Natural Resources Securities Fund

[Insert graphic of bullseye and arrows] GOALS AND STRATEGIES

GOALS The fund's principal goal is capital appreciation. Its secondary goal
is to provide current income.

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in equity securities of companies
principally engaged in the natural resources sector. These are companies that
own, produce, refine, process or market natural resources. They may also
provide support services for natural resources companies, for example,
develop technologies or provide services, supplies or equipment related to
natural resources. The natural resources sector includes industries such as
integrated oil; oil and gas exploration and production; gold and precious
metals; steel, iron ore, and aluminum production; forest, farming, and paper
products; chemicals; building materials; energy services and technology; and
environmental services. The manager expects to invest substantially in the
energy industries, because of their larger weighting in the natural resources
sector itself.

The fund generally invests a substantial portion of its assets in mid-cap
companies with market capitalization values (share price times the number of
common stock shares outstanding) greater than $1.5 billion, but may invest
significantly in small-cap companies. Equities represent ownership interests
in individual companies and give shareholders a claim in the company's
earnings and assets. They include common and preferred stocks, and securities
convertible into common stock. The fund also invests in American, European,
and Global Depositary Receipts, which are certificates issued by a bank or
trust company that give their holders the right to receive securities issued
by a foreign or domestic company.

[Begin callout]
The fund concentrates in common stocks of U.S. and non-U.S. companies in the
natural resources sector.
[End callout]

The fund may buy natural resource companies anywhere in the world, including
emerging markets, but generally invests a greater percentage of its assets in
U.S. companies than any other single country. In addition, the fund will be
exposed to emerging markets through developed market companies, which often
own or depend on natural resource assets in countries with emerging markets.

In addition to its principal investments, and depending upon market
conditions, the fund may invest significantly in equity securities outside
the natural resources sector or in debt securities, of U.S. or non-U.S.
issuers. A debt security obligates the issuer to the bondholders, both to
repay a loan of money at a future date and generally to pay interest. Common
debt securities are bonds, including bonds convertible into common stock or
unsecured bonds; notes; and short-term investments, including cash or cash
equivalents. The fund may invest up to 5% in commodities (including gold
bullion or gold coins) or futures on commodities related to the natural
resources sector as defined above.

PORTFOLIO SELECTION The manager is a research driven, fundamental investor,
pursuing a disciplined, "growth at a reasonable price" strategy. As a
"bottom-up" investor focusing primarily on individual securities, the manager
looks for companies it believes are positioned for rapid growth in revenues,
earnings or assets, and are selling at reasonable prices. The manager relies
on a team of analysts to provide in-depth industry expertise and uses both
qualitative and quantitative analysis to choose companies it believes are
highly profitable with skilled management, and that have strong growth
profiles and solid financials, as well as companies with sustainable
competitive advantages either through strategic asset bases or technological
expertise. These are all factors the manager believes point to strong
long-term growth potential.

[Insert graphic of chart with line going up and down] MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

NATURAL RESOURCES By concentrating in a single industry sector, the fund
carries much greater risk of adverse developments in that sector than a fund
that invests in a wide variety of industries. The securities of companies in
the natural resources sector may experience more price volatility than
securities of companies in other industries. For example, commodity prices
and the supply or demand for commodities change dramatically for reasons
beyond a company's control. In addition, supply and demand factors may
dictate the prices at which a company acquires raw materials or sells its
products or services. These factors can affect the profitability of companies
in the natural resources sector and, as a result, the value of their
securities.

In addition, the fund may from time to time invest significantly in a
particular industry or group of industries within the natural resources
sector; such a strategy may expose the fund to greater investment risk than a
more diversified strategy within the sector.

FOREIGN SECURITIES Securities of companies and governments located outside
the U.S., including Depositary Receipts, involve risks that can increase the
potential for losses in the fund.

CURRENCY Many of the fund's investments are denominated in foreign
currencies. Generally, when the U.S. dollar rises in value against a foreign
currency, an investment in that country loses value because the investment is
worth fewer dollars. Currency markets generally are not as regulated as
securities markets.

COUNTRY General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns
that trade in that country.

The political, economic and social structures of some countries the fund invests
in may be less stable and more volatile than those in the U.S. The risks of
investing in these countries include the possibility of currency devaluations by
a country's government or banking authority, the imposition of exchange
controls, foreign ownership limitations, expropriation, restrictions on removal
of currency or other assets, nationalization of assets, punitive taxes, and
certain custody and settlement risks. In addition, political or economic
conditions can cause previously established securities markets to become limited
trading markets, potentially causing liquid securities to become illiquid,
particularly in emerging market countries.

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

SMALLER COMPANIES While smaller companies, and to a lesser extent mid-size
companies, may offer greater opportunities for capital growth than larger,
more established companies, they also have more risk. Historically, smaller
company securities have been more volatile in price and have fluctuated
independently from larger company securities, especially over the
shorter-term. Smaller or relatively new companies can be particularly
sensitive to changing economic conditions, their growth prospects are less
certain, and their securities are less liquid. These companies may suffer
significant losses, and can be considered speculative.

[Insert graphic of a bull and a bear] PAST PERFORMANCE

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.

FRANKLIN NATURAL RESOURCES SECURITIES FUND -
CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

- ----------------------------------------------------------------------
- -13.97% 3.86% -10.13%55.62% -2.01% 2.35% 4.00% -18.98%-25.38%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
90 91 92 93 94 95 96 97 98
- ----------------------------------------------------------------------

YEAR

[Begin callout]
Best
Quarter:

Q4 '93
21.92%

Worst
Quarter:

Q3 '98
- -19.12%
[End callout]

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

SINCE INCEPTION
PAST 1 YEAR PAST 5 YEARS (01/24/89)
- -------------------------------------------------------------------------------
FRANKLIN NATURAL RESOURCES
SECURITIES FUND - CLASS 1 1 -25.38% -8.81% -0.25%
S&P 500(R)INDEX 2 28.58% 24.06% 18.70%
FT/S&P/ACTUARIES WORLD:
ENERGY 50%/BASIC INDUSTRIES 50%
COMPOSITE INDEX 2 -0.11% 8.56% 7.04%

1. All fund performance assumes reinvestment of dividends and capital gains.

2. Source: Standard & Poor's(R) Micropal. The S&P 500(R) Index is an unmanaged
group of widely held common stocks covering a variety of industries. The
Financial Times/S&P Actuaries World (Energy 50%/Basic Industries 50%)
Composite Index is a composite of companies of which 50% are in the energy
sector and 50% are in the basic industries sectors. Indices include
reinvested dividends and/or interest. One cannot invest directly in an index,
nor is an index representative of the fund's investments.

[Insert graphic of briefcase] MANAGEMENT

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California 94403-7777, is the fund's investment manager.

MANAGEMENT TEAM The team responsible for the fund's management is:

MICHAEL R. WARD
Portfolio Manager, Advisers

Mr. Ward has been a manager of the fund since 1999, and has been with the
Franklin Templeton Group since 1992.

STEVE LAND
Portfolio Manager, Advisers

Mr. Land has been a manager of the fund since 1999, and has been with the
Franklin Templeton Group since 1997.

The fund pays the manager a fee for managing its assets, making its
investment decisions, and providing certain administrative facilities and
services for the fund. For the fiscal year ended December 31, 1998, the fund
paid 0.62% of its average daily net assets to the manager.

Franklin Small Cap Fund

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES

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

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in the equity securities of U.S. small
capitalization (small cap) growth companies. Small cap companies are
generally those with market cap values (share price times the number of
common stock shares outstanding) of less than $1.5 billion, at the time of
purchase. Equities represent ownership interests in individual companies and
give shareholders a claim in the company's earnings and assets. They include
common and preferred stocks, and securities convertible into common stock.

[Begin callout]
The fund invests primarily in common stocks of small cap U.S. companies.
[End callout]

PORTFOLIO SELECTION The manager is a research driven, fundamental investor,
pursuing a disciplined "growth at a reasonable price" strategy. As a
"bottom-up" investor focusing primarily on individual securities, the manager
chooses small cap companies that it believes are positioned for rapid growth
in revenues, earnings or assets, and are selling at reasonable prices. The
manager relies on a team of analysts to provide in-depth industry expertise
and uses both qualitative and quantitative analysis to evaluate companies for
distinct and sustainable competitive advantages. Such advantages as a
particular marketing or product niche, proven technology, and industry
leadership are all factors the manager believes point to strong long-term
growth potential. The manager diversifies the fund's assets across many
industries, and from time to time may invest substantially in certain
sectors, including technology and biotechnology.

TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in short-term investments,
including cash or cash equivalents. Under these circumstances, the fund may
temporarily be unable to pursue its investment goal.

[Insert graphic of chart with line going up and down] MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

SMALLER COMPANIES While smaller companies may offer greater opportunities
for capital growth than larger, more established companies, they also have
more risk. Historically, smaller company securities have been more volatile
in price and have fluctuated independently from larger company securities,
especially over the shorter-term. Smaller or relatively new companies can be
particularly sensitive to changing economic conditions, and their growth
prospects are less certain.

For example, smaller companies may lack depth of management or may have
limited financial resources for growth or development. They may have limited
product lines or market share. Smaller companies may be in new industries, or
their new products or services may not find an established market or may
become quickly obsolete. Smaller companies may also suffer significant
losses, their securities can be less liquid, and investments in these
companies may be speculative. Technology and biotechnology industry stocks,
in particular, can be subject to erratic or abrupt price movements.

[Insert graphic of a bull and a bear] PAST PERFORMANCE

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.

FRANKLIN SMALL CAP FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

- ---------------------------------
28.95% 17.42% -0.98%
- ---------------------------------
- ---------------------------------
96 97 98
- ---------------------------------

YEAR

[Begin callout]
Best
Quarter:

Q4 '98
24.39%

Worst
Quarter:

Q3 '98
- -24.40%
[End callout]

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

SINCE INCEPTION
PAST 1 YEAR (11/01/95)
- -------------------------------------------------------------------------------
FRANKLIN SMALL CAP FUND -
CLASS 1 1 -0.98% 14.51%
S&P 500(R) INDEX 2 28.58% 29.09%
RUSSELL 2500(R) INDEX 2 0.38% 15.45%

1. All fund performance assumes reinvestment of dividends and capital gains.

2. Source: Standard & Poor's(R) Micropal. The S&P 500(R) Index is an unmanaged
group of widely held common stocks, whereas the Russell 2500(R) Index is an
index of 2,500 companies with small market capitalizations, both covering a
variety of industries. Indices include reinvested dividends and/or interest.
One cannot invest directly in an index, nor is an index representative of the
fund's investments.

[Insert graphic of briefcase] MANAGEMENT

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California 94403-7777, is the fund's investment manager.

MANAGEMENT TEAM The team responsible for the fund's management is:

EDWARD B. JAMIESON
Executive Vice President, Advisers

Mr. Jamieson has been a manager of the fund since its inception in 1995, and
has been with the Franklin Templeton Group since 1987.

MICHAEL MCCARTHY
VICE PRESIDENT, Advisers

Mr. McCarthy has been a manager of the fund since its inception in 1995. He
joined the Franklin Templeton Group in 1992.

AIDAN O'CONNELL
Portfolio Manager, Advisers

Mr. O'Connell has been a manager of the fund since September 1998. Before
joining Franklin Templeton in May 1998, Mr. O'Connell was a research analyst
and a corporate financial analyst at Hambrecht & Quist.

The fund pays the manager a fee for managing its assets, making its
investment decisions, and providing certain administrative facilities and
services for the fund. For the fiscal year ended December 31, 1998, the fund
paid 0.75% of its average daily net assets to the manager.

Mutual Discovery Securities Fund

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES

GOAL The fund's principal goal is capital appreciation.

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in equity securities of companies of any
nation that the manager believes are available at market prices less than
their actual value based on certain recognized or objective criteria
(intrinsic value). Following this value-oriented strategy, the fund will
primarily invest in:

o UNDERVALUED STOCKS Stocks trading at a discount to asset value.

o DISTRESSED COMPANIES Securities of companies that are distressed or even in
bankruptcy.

[Begin callout]
The fund invests primarily in common stocks of non-U.S. and U.S. companies
the manager believes are significantly undervalued.
[End callout]

The fund invests primarily in companies with market capitalization values
(share price times the number of common stock shares outstanding) greater
than $1.5 billion, but may invest a lesser amount in small-cap companies.
Equities represent ownership interests in individual companies and give
shareholders a claim in the company's earnings and assets. They include
common and preferred stocks, and securities convertible into common stock.

The fund may invest 50% or more of its total assets in foreign equity and
debt securities, which may include sovereign debt and participation in
foreign government debt, and American, European and Global Depositary
Receipts. Depositary receipts are certificates issued by a bank or trust
company that give their holders the right to receive securities issued by a
foreign or domestic company. The fund generally seeks to hedge (protect)
against currency risks largely using forward foreign currency exchange
contracts, where available, and in the manager's opinion, it is economical to
do so (Hedging Instruments).

The fund may invest in debt securities rated in any rating category by an
independent rating agency, including high yield, lower rated or defaulted
debt securities ("junk bonds"), or in comparable unrated debt securities. A
debt security obligates the issuer to the bondholders, both to repay a loan
of money at a future date and generally to pay interest. Common debt
securities are bonds, including bonds convertible into common stock or
unsecured bonds; notes; and short-term investments, including cash or cash
equivalents.

The fund typically invests in unrated and lower rated debt securities of
Reorganizing Companies or Distressed Companies. Such debt securities are
primarily secured or unsecured, indebtedness or participations in the
indebtedness, including loan participations and trade claims. Indebtedness
represents a specific commercial loan or portion of a loan which has been
given to a company by a financial institution such as a bank or insurance
company. By purchasing direct indebtedness of companies, a fund steps into
the shoes of a financial institution. Participation interests in indebtedness
represent fractional interests in a company's indebtedness.

PORTFOLIO SELECTION The manager is a research driven, fundamental investor,
pursuing a disciplined value strategy. In choosing equity investments, the
manager focuses on the market price of a company's securities relative to its
evaluation of the company's asset value, book value, cash flow potential,
long-term earnings, and multiples of earnings of comparable securities.
Similarly, debt securities are generally selected based on the manager's own
analysis of the security's intrinsic value rather than the coupon rate or
rating. Thus, each security is examined separately and there are no set
criteria as to asset size, earnings or industry type.

[Insert graphic of chart with line going up and down] MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

REORGANIZING OR DISTRESSED COMPANIES The fund's bargain-driven focus may
result in the fund choosing securities that are not widely followed by other
investors, including companies reporting poor earnings, companies whose share
prices have declined sharply, turnarounds, cyclical companies, or companies
emerging from bankruptcy, which may have higher risk. There can be no
assurance that any merger or other restructuring, or tender or exchange offer
proposed at the time the fund invests in a Reorganizing Company will be
completed on the terms contemplated, and therefore, benefit the fund.

FOREIGN SECURITIES Securities of companies and governments located outside
the U.S., including Depositary Receipts, involve risks that can increase the
potential for losses in the fund.

CURRENCY Many of the fund's investments are denominated in foreign
currencies. Generally, when the U.S. dollar rises in value against a foreign
currency, an investment in that country loses value because the investment is
worth fewer dollars. Currency markets generally are not as regulated as
securities markets.

COUNTRY General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns
that trade in that country. The political, economic and social structures of
some countries the fund invests in may be less stable and more volatile than
those in the U.S. The risks of investing in these countries include the
possibility of currency devaluation by a country's government or banking
authority, the imposition of exchange controls, foreign ownership
limitations, expropriation, restrictions on removal of currency or other
assets, nationalization of assets, punitive taxes, and certain custody and
settlement risks. In addition, political or economic conditions can cause
previously established securities markets to become limited trading markets,
potentially causing liquid securities to become illiquid, particularly in
emerging market countries.

Emerging market countries are subject to all of the risks of foreign
investing generally, and have additional heightened risks due to a lack of
established legal, business, and social frameworks to support securities
markets, and a greater likelihood of currency devaluation. Non-U.S.
securities markets, particularly emerging markets, may have substantially
lower trading volumes than U.S. markets, resulting in less liquidity and more
volatility than experienced in the U.S. While short-term volatility in these
markets can be disconcerting, declines in excess of 50% are not unusual.

The prices of high yield debt securities fluctuate more than higher quality
securities. Prices are especially sensitive to developments affecting the
company's business and to rating changes, and typically rise and fall in
response to factors that affect the company's stock prices. In addition, the
entire high yield securities market can experience sudden and sharp price
swings due to changes in economic conditions, market activity, large
sustained sales, a high-profile default, or other factors. High yield
securities are also generally less liquid than higher-quality bonds, and
infrequent trades can make accurate pricing more difficult. At times, it may
be difficult to sell these securities promptly at an acceptable price.

HEDGING INSTRUMENTS Hedging Instruments used by this fund are considered
derivative investments. Their successful use will depend on the manager's
ability to predict market movements, and losses from their use can be greater
than if they had not been used. Risks include potential loss to the fund due
to the imposition of controls by a government on the exchange of foreign
currencies, delivery failure, default by the other party, or inability to
close out its position because the trading market becomes illiquid.

ILLIQUID SECURITIES The fund may invest up to 15% of its net assets in
illiquid securities, which are securities with a limited trading market.
Illiquid securities have the risk that the securities cannot be readily sold
or can only be resold at a price significantly lower than their value.

[Insert graphic of a bull and a bear] PAST PERFORMANCE

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.

MUTUAL DISCOVERY SECURITIES FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

- ---------------------
19.25% -5.00%
- ---------------------
- ---------------------
97 98
- ---------------------

YEAR

[Begin callout]
Best
Quarter:

Q1 '98
10.85%

Worst
Quarter:

Q3 '98
- -20.97%
[End callout]

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

SINCE INCEPTION
PAST 1 YEAR (11/08/96)
- -------------------------------------------------------------------------------
MUTUAL DISCOVERY SECURITIES
FUND - CLASS 1 1 -5.00% 7.02%
S&P 500(R) INDEX 2 28.58% 30.66%

1. All fund performance assumes reinvestment of dividends and capital gains.

[Insert graphic of briefcase] MANAGEMENT

Franklin Mutual Advisers, LLC (Franklin Mutual), 51 John F. Kennedy Parkway,
Short Hills, New Jersey 07078, is the fund's investment manager.

Management Team The team members primarily responsible for the fund's
management are:

ROBERT L. FRIEDMAN
Chief Investment Officer
Senior Vice President
Franklin Mutual

Mr. Friedman has been a manager of the fund since its inception in 1996.
Before joining the Franklin Templeton Group in 1996, he was a research
analyst for Heine Securities Corporation, the predecessor of Franklin Mutual
(Heine).

DAVID E. MARCUS
Senior Vice President
Franklin Mutual

Mr. Marcus has been a manager of the fund since its inception in 1996. Before
joining the Franklin Templeton Group in 1996, he was a research analyst for
Heine.

The team also includes:

PETER A. LANGERMAN
President and
Chief Executive Officer
Franklin Mutual

Mr. Langerman has been involved with the management of the fund since its
inception in 1996. Before joining the Franklin Templeton Group in 1996, he
was a research analyst for Heine.

LAWRENCE N. SONDIKE
Senior Vice President
Franklin Mutual

Mr. Sondike has been a manager of the fund since its inception in 1996.
Before joining the Franklin Templeton Group in 1996, he was a research
analyst for Heine.

JEFFREY A. ALTMAN
Senior Vice President
Franklin Mutual

Mr. Altman has been a manager of the fund since its inception in 1996. Before
joining the Franklin Templeton Group in 1996, he was a research analyst for
Heine.

RAYMOND GAREA
Senior Vice President
Franklin Mutual

Mr. Garea has been a manager of the fund since its inception in 1998. Before
joining the Franklin Templeton Group in 1996, he was a research analyst for
Heine.

DAVID J. WINTERS
Senior Vice President
Franklin Mutual

Mr. Winters has been a manager of the fund since 1996. Before joining the
Franklin Templeton Group in 1996, he was a research analyst for Heine.

In addition, the following Franklin Mutual employees serve as Assistant
Portfolio Managers:

JIM AGAH
Assistant Portfolio Manager
Franklin Mutual

Mr. Agah has been a manager of the fund since 1998. Before joining the
Franklin Templeton Group in 1997, he was vice president of equity sales at
Keefe, Bryette & Woods.

JEFF DIAMOND
Assistant Portfolio Manager
Franklin Mutual

Mr. Diamond has been a manager of the fund since 1998. Before joining the
Franklin Templeton Group in 1998, he was a vice president and co-manager of
Prudential Conservative Stock Fund.

The fund pays the manager a fee for managing its assets and making its
investment decisions. For the fiscal year ended December 31, 1998, the fund
paid 0.80% of its average daily net assets to the manager.

Templeton Developing Markets Equity Fund

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES

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

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in emerging markets equity securities.
Emerging market equity securities generally include equity securities that
trade in emerging markets or are issued by companies that have their
principal activities in emerging market countries.

Emerging market countries generally include those considered to be emerging
by the World Bank, the International Finance Corporation, the United Nations,
or the countries' authorities. These countries are typically located in the
Asia-Pacific region, Eastern Europe, Central and South America, and Africa.
Emerging market equity securities and emerging market countries are more
fully described in the SAI.

Equities represent ownership interests in individual companies and give
shareholders a claim in the company's earnings and assets. They include
common and preferred stock, and securities convertible into common stock. The
fund also invests in American, European and Global Depositary Receipts, which
are certificates issued by a bank or trust company that give their holders
the right to receive securities issued by a foreign or domestic company.

[Begin callout]
The fund invests primarily in the common stocks of companies located in
emerging market countries.
[End callout]

In addition to its principal investments, the fund may invest significantly
in securities of issuers in developed market countries, and particularly
those developed market countries that are linked by tradition, economic
markets, geography or political events to emerging market countries.

Depending upon current market conditions, or for capital appreciation, the
fund may also invest a substantial portion of its assets in rated or unrated
debt securities of companies and governments located anywhere in the world. A
debt security obligates the issuer to the bondholders, both to repay a loan
of money at a future date and generally to pay interest. Common debt
securities are bonds, including bonds convertible into common stock or
unsecured bonds; notes; and short-term investments, including cash or cash
equivalents. The fund may also invest up to 10% of its total assets in
securities of closed-end investment companies to facilitate foreign
investment.

PORTFOLIO SELECTION The Templeton investment philosophy is "bottom-up,"
value-oriented, and long-term. In choosing investments, the fund's manager
will focus on the market price of a company's securities relative to its
evaluation of the company's long-term earnings, asset value and cash flow
potential. A company's historical value measures, including price/earnings
ratio, profit margins and liquidation value, will also be considered. As a
"bottom-up" investor focusing primarily on individual companies and
securities, the fund may from time to time have significant investments in
particular countries. The manager intends to manage the fund's exposure to
various geographic regions and their currencies based on its assessment of
changing market and political conditions.

TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in U.S. or non-U.S. currency
investments. Such investments may be medium-term (less than 5 years for this
fund) or short-term, including cash or cash equivalents. Under these
circumstances, the fund may temporarily be unable to pursue its investment
goal.

[Insert graphic of chart with line going up and down] MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

FOREIGN SECURITIES Securities of companies and governments located outside
the U.S., including Depositary Receipts, involve risks that can increase the
potential for losses in the fund. Emerging markets in particular can
experience significant price volatility in any given year, and even daily.
The fund should be thought of as a long-term investment for the aggressive
portion of a well diversified portfolio.

[Begin callout]
Because the stocks the fund holds fluctuate in price with emerging market
conditions and currencies, the value of your investment in the fund will go
up and down. This means you could lose money over short or even extended
periods.
[End callout]

CURRENCY Many of the fund's investments are denominated in foreign
currencies. Generally, when the U.S. dollar rises in value against a foreign
currency, an investment in that country loses value because that currency is
worth fewer U.S. dollars. Currency markets generally are not as regulated as
securities markets.

COUNTRY General securities market movements in
any country where the fund has investments are likely
to affect the value of the securities the fund owns that trade in that
country.

[Insert graphic of bull and bear] PAST PERFORMANCE

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.

TEMPLETON DEVELOPING MARKETS EQUITY FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

[Insert bar graph]

2.77% 21.59% -8.72% -21.61%
95 96 97 98
YEAR

[Begin callout]
BEST
QUARTER:
Q4 '98
20.59%

WORST
QUARTER:
Q4 '97
- -23.44%
[End callout]

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

SINCE INCEPTION
1 YEAR (03/15/94)
- -------------------------------------------------------------------------------
Templeton Developing Markets
Equity Fund - Class 1 1 21.61% -3.22%
MSCI Emerging Markets Free Index 2 -25.34% -8.80%
IFC Investable Composite Index 2 -22.01% -9.24%

1. All fund performance assumes reinvestment of dividends and capital gains.
2. Source: Standard & Poor's(R) Micropal. The unmanaged MSCI Emerging Markets
Free Index measures the performance of securities located in 25 emerging
market countries such as Brazil, China, Korea and Poland. The International
Finance Corporation's Investable Composite Index is an emerging markets index
that includes 650 stocks from 18 countries including Mexico, South Korea,
Brazil, Jordan and Turkey. Indices include reinvested dividends and/or
interest. One cannot invest directly in an index, nor is an index
representative of the fund's investments.

[Insert graphic of briefcase] MANAGEMENT

Templeton Asset Management Ltd. (TAML), 7 Temasek Blvd., #38-03 Suntec Tower
One, Singapore, 038987, is the fund's investment manager.

MANAGEMENT TEAM The team responsible for the fund's management is:

DR. J. MARK MOBIUS.
Managing Director, TAML

Dr. Mobius has been a manager of the fund since its inception in 1994, and
has been with the Franklin Templeton Group since 1987.

TOM WU
Director, TAML

Mr. Wu has been a manager of the fund since its inception in 1994, and has
been with the Franklin Templeton Group since 1987.

H. ALLAN LAM
Portfolio Manager, TAML

Mr. Lam has been a manager of the fund since its inception in 1994, and has
been with the Franklin Templeton Group since 1987.

EDDIE CHOW
portfolio manager, TAML

Mr. Chow has been a manager of the fund since 1996, and has been with the
Franklin Templeton Group since 1994.

DENNIS LIM
director, TAML

Mr. Lim has been a manager of the fund since 1996, and has been with the
Franklin Templeton Group since 1990.

TEK-KHOAN ONG
Portfolio Manager, TAML

Mr. Ong has been a manager if the fund since 1996, and has been with the
Franklin Templeton Group since 1993.

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

Templeton Global Growth Fund

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES

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

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in the equity securities of companies
located anywhere in the world, including in the U.S. and emerging markets.
While there are no set percentage targets, the fund generally invests in
large- to medium-cap companies with market capitalization values (share
price times the number of common stock shares outstanding) greater than $1.5
billion, but may invest a small portion in small-cap companies which have
more risk. Equities represent ownership interests in individual companies and
give shareholders a claim in the company's earnings and assets. They include
common and preferred stocks, and securities convertible into common stock.
The fund also invests in American, European, and Global Depositary Receipts,
which are certificates issued by a bank or trust company that give their
holders the right to receive securities issued by a foreign or domestic
company.

[Begin callout]
The fund invests primarily in a diversified portfolio of U.S. and non-U.S.
common stocks.
[End callout]

Depending upon current market conditions, the fund may invest a significant
portion of its assets in debt securities of companies and governments located
anywhere in the world. A debt security obligates the issuer to the bondholders,
to repay a loan of money at a future date and generally to pay interest. Common
debt securities are bonds, including bonds convertible into common stocks or
unsecured bonds; notes; and short-term investments, including cash or cash
equivalents.

PORTFOLIO SELECTION The Templeton investment philosophy is "bottom-up,"
value-oriented, and long-term. In choosing investments, the fund's manager
will focus on the market price of a company's securities relative to its
evaluation of the company's long-term earnings, asset value and cash flow
potential. A company's historical value measures, including price/earnings
ratio, profit margins and liquidation value, will also be considered. As a
"bottom-up" investor focusing primarily on individual securities, the fund
may from time to time have significant investments in particular countries.
The manager intends to manage the fund's exposure to various geographic
regions and their currencies based on its assessment of changing market and
political conditions.

[Insert graphic of chart with line going up and down] MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

FOREIGN SECURITIES Securities of companies and governments located outside
the U.S., including Depositary Receipts, involve risks that can increase the
potential for losses in the fund.

[Begin callout]
Because the stocks the fund holds fluctuate in price with foreign market
conditions and currencies, the value of your investment in the fund will go
up and down. This means you could lose money over short or even extended
periods.
[End callout]

CURRENCY Many of the fund's investments are denominated in foreign
currencies. Generally, when the U.S. dollar rises in value against a foreign
currency, an investment in that country loses value because that currency is
worth fewer U.S. dollars. Currency markets generally are not as regulated as
securities markets.

COUNTRY General securities market movements in
any country where the fund has investments are likely
to affect the value of the securities the fund owns that trade in that
country.

[Insert graphic of bull and bear] PAST PERFORMANCE

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.

TEMPLETON GLOBAL GROWTH FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

[Insert bar graph]

12.72% 21.28% 13.50% 8.98%
95 96 97 98
YEAR

[Begin callout]
BEST
QUARTER:
Q4 '98
16.30%

WORST
QUARTER:
Q3 '98
- -13.78%
[End callout]

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

SINCE INCEPTION
PAST 1 YEAR (03/15/94)
- -------------------------------------------------------------------------------
Templeton Global Growth Fund - Class 1 1 8.98% 12.30%
MSCI All Country World Free(R)Index 2 21.97% 14.79%

1. All fund performance assumes reinvestment of dividends and capital gains.
2. Source: Standard & Poor's(R) Micropal. The unmanaged MSCI All Country World
Free(R) Index measures the performance of securities located in 48 countries,
including emerging markets in Latin America, Asia and Eastern Europe. Indices
include reinvested dividends and/or interest. One cannot invest directly in
an index, nor is an index representative of the fund's investments.

[Insert graphic of briefcase] MANAGEMENT

Templeton Global Advisors Limited (TGAL), Lyford Cay, Nassau, N.P., Bahamas,
is the fund's investment manager.

MANAGEMENT TEAM The team responsible for the fund's management is:

RICHARD SEAN FARRINGTON, CFA
Senior Vice President, TGAL

Mr. Farrington has been a manager of the fund since 1995, and has been with
the Franklin Templeton Group since 1990.

JEFFREY A. EVERETT, CFA
Executive Vice President, TGAL

Mr. Everett has been a manager of the fund since its inception in 1994, and
has been with the Franklin Templeton Group since 1990.

The fund pays the manager a fee for managing its assets, making its
investment decisions and providing certain administrative facilities and
services to the fund. For the fiscal year ended December 31, 1998, the fund
paid 0.83% of its average daily net assets to the manager.

Templeton International Equity Fund

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES

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

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in equity securities that trade in non-U.S.
markets, including emerging markets, and that are issued by companies that
have their principal activities outside the U.S. While there are no set
percentage targets, the fund generally invests in large- to medium-cap
companies with market capitalization values (share price times the number of
common stock shares outstanding) greater than $1.5 billion, but may invest a
small portion in small-cap companies which have more risk. Equities represent
ownership interests in individual companies and give shareholders a claim in
the company's earnings and assets. They include common and preferred stocks,
and securities convertible into common stock. The fund also invests in
American, European, and Global Depositary Receipts, which are certificates
issued by a bank or trust company that give their holders the right to
receive securities issued by a foreign or domestic company.

[Begin callout]
The fund invests primarily in a diversified portfolio of non-U.S. common
stocks.
[End callout]

Depending upon current market conditions, the fund may invest a significant
portion of its assets in debt securities of companies and governments located
anywhere in the world. A debt security obligates the issuer to the bondholders,
both to repay a loan of money at a future date and generally to pay interest.
Common debt securities are bonds, including bonds convertible into common stock
or unsecured bonds; notes; and short-term investments, including cash or cash
equivalents.

PORTFOLIO SELECTION The Templeton investment philosophy is "bottom-up,"
value-oriented, and long-term. In choosing equity investments, the fund's
manager will focus on the market price of a company's securities relative to its
evaluation of the company's long-term earnings, asset value and cash flow
potential. A company's historical value measures, including price/earnings
ratio, profit margins and liquidation value, will also be considered. As a
"bottom-up" investor focusing primarily on individual securities, the fund may
from time to time have significant investments in particular countries. The
manager intends to manage the fund's exposure to various geographic regions and
their currencies based on its assessment of changing market and political
conditions.

[Insert graphic of chart with line going up and down] MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

FOREIGN SECURITIES Securities of companies and governments located outside
the U.S., including Depositary Receipts, involve risks that can increase the
potential for losses in the fund.

Because the stocks the fund holds fluctuate in price with foreign market
conditions and currencies, the value of your investment in the fund will go
up and down. This means you could lose money over short or even extended
periods.

CURRENCY Many of the fund's investments are denominated in foreign
currencies. Generally, when the U.S. dollar rises in value against a foreign
currency, an investment in that country loses value because that currency is
worth fewer U.S. dollars. Currency markets generally are not as regulated as
securities markets.

COUNTRY General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns that
trade in that country.

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

[Insert graphic of bull and bear] PAST PERFORMANCE

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.

[Insert bar graph]

93 94 95 96 97 98
28.56% 0.87% 10.59% 22.98% 11.69% 5.56%
YEAR

TEMPLETON INTERNATIONAL EQUITY FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

[Begin callout]
BEST
QUARTER:
Q4 '93
13.64%

WORST
QUARTER:
Q3 '98
- -16.86%
[End callout]

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

SINCE INCEPTION
PAST 1 YEAR PAST 5 YEARS (01/27/92)
- -------------------------------------------------------------------------------
TEMPLETON INTERNATIONAL EQUITY
FUND - CLASS 1 1 5.56% 10.09% 10.75%
MSCI ALL COUNTRY WORLD
EX-U.S. FREE INDEX 2 14.46% 7.87% 8.64%

1. All fund performance assumes reinvestment of dividends and capital gains.
2. Source: Standard & Poor's(R) Micropal. The unmanaged MSCI All Country World
Ex-U.S. Free Index measures the performance of securities located in 48
countries, both developed and emerging markets, except the U.S. Indices
include reinvested dividends and/or interest. One cannot invest directly in
an index, nor is an index representative of the fund's investments.

[Insert graphic of briefcase] MANAGEMENT

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California 94403-7777, is the fund's investment manager.

Under an agreement with Advisers, Templeton Investment Counsel, Inc., (TICI),
Broward Financial Centre, Suite 2100, Fort Lauderdale, Florida 33394, is the
fund's sub-advisor. TICI provides Advisers with investment management advice
and assistance.

MANAGEMENT TEAM The team responsible for the fund's management is:

HOWARD J. LEONARD CFA
Executive Vice President, TICI

Mr. Leonard has been a manager of the fund since 1997, and has been with the
Franklin Templeton Group since 1989.

MARK R. BEVERIDGE CFA
Senior Vice President, TICI

Mr. Beveridge has been a manager of the fund since 1994, and has been with
the Franklin Templeton Group since 1994

The fund pays the manager a fee for managing its assets, making its
investment decisions, and providing certain administrative facilities and
services for the fund. For the fiscal year ended December 31, 1998, the fund
paid 0.80% of its average daily net assets to the manager.

Templeton International Smaller Companies Fund

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES

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

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in the equity securities of smaller
companies located outside the U.S., including in emerging markets. Smaller
companies generally are those with market capitalization values (share price
times the number of common stock shares outstanding) of less than $1.5
billion, at the time of purchase. Equities represent ownership interests in
individual companies and give shareholders a claim in the company's earnings
and assets. They include common and preferred stocks, and securities
convertible into common stock. The fund also invests in American, European,
and Global Depositary Receipts, which are certificates issued by a bank or
trust company that give their holders the right to receive securities issued
by a foreign or domestic company.

[Begin callout]
The fund invests primarily in an internationally diversified portfolio of
smaller companies' common stocks.
[End callout]

In addition to its principal investments, the fund may invest significantly
in equity securities of larger capitalized companies located outside the
U.S., equity securities of U.S. companies (though currently not more than 5%
of its assets), and depending upon current market conditions, in debt
securities of companies and governments located anywhere in the world. A debt
security obligates the issuer to the bondholders, both to repay a loan of
money at a future date and generally to pay interest. Common debt securities
are bonds, including bonds convertible into common stock or unsecured bonds;
notes; and short-term investments, including cash or cash equivalents.

PORTFOLIO SELECTION The Templeton investment philosophy is "bottom-up,"
value-oriented, and long-term. In choosing equity investments, the fund's
manager will focus on the market price of a company's securities relative to
its evaluation of the company's long-term earnings, asset value and cash flow
potential. A company's historical value measures, including price/earnings
ratio, profit margins and liquidation value, will also be considered. As a
"bottom-up" investor focusing primarily on individual securities, the fund
may from time to time have significant investments in particular countries.
The manager intends to manage the fund's exposure to various geographic
regions and their currencies based on its assessment of changing market and
political conditions.

TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may
invest all or substantially all of the fund's assets in U.S.
or non-U.S. currency investments. Such investments may be medium-term (less
than 5 years for this fund) or short-term, including cash or cash
equivalents. Under these circumstances, the fund may temporarily be unable to
pursue its investment goal.

[Insert graphic of chart with line going up and down] MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

For example, smaller companies may lack depth of management or may have
limited financial resources for growth or development. They may have limited
product lines or market share. Smaller companies may be in new industries, or
their new products or services may not find an established market or may
become quickly obsolete. Smaller companies may suffer significant losses,
their securities can be less liquid, and investments in these companies can
be speculative. Technology and biotechnology industry stocks, in particular,
can be subject to abrupt or erratic price movements.

FOREIGN SECURITIES Securities of companies and governments located outside
the U.S., including Depositary Receipts, involve risks that can increase the
potential for losses in the fund.

CURRENCY Many of the fund's investments are denominated in foreign
currencies. Generally, when the U.S. dollar rises in value against a foreign
currency, an investment in that country loses value because that currency is
worth fewer U.S. dollars. Currency markets generally are not as regulated as
securities markets.

COUNTRY General securities market movements in
any country where the fund has investments are likely
to affect the value of the securities the fund owns that trade in that
country.

Emerging market countries are subject to all of the risks of foreign
investing generally, and have additional heightened risks due to a lack of
established legal, business, and social frameworks to support securities
markets, and a greater likelihood of currency devaluations. Non-U.S.
securities markets, particularly emerging markets, may
have substantially lower trading volumes than U.S. markets, resulting in less
liquidity and more volatility than experienced in the U.S. While short-term
volatility in these markets can be disconcerting, declines in excess of 50%
are not unusual.

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

[Insert graphic of bull and bear] PAST PERFORMANCE

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.

TEMPLETON INTERNATIONAL SMALLER
COMPANIES FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

[Insert bar graph]

-1.50% -12.27%
97 98
YEAR

[Begin callout]
BEST
QUARTER:
Q1 '98
10.34%

WORST
QUARTER:
Q3 '98
- -19.96%
[End callout]

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

Since Inception
Past 1 Year (05/01/96)
- ------------------------------------------------------------------------------
Templeton International Smaller Companies -12.27% -1.06%
Fund - Class 1 1
Salomon Global Ex-U.S.
Less Than $1 Billion Index 2 1.26% -6.86%

1. All fund performance assumes reinvestment of dividends and capital gains.

2. Source: Standard & Poor's(R) Micropal. The Salomon Global Ex-U.S. Less Than
$1 Billion Index includes companies from developed and emerging markets,
excluding the U.S., with a market capitalization below U.S. $1 billion.
Indices include reinvested dividends and/or interest. One cannot invest
directly in an index, nor is an index representative of the fund's
investments.

[Insert graphic of briefcase] MANAGEMENT

Templeton Investment Counsel, Inc. (TICI), Broward Financial Centre, Suite
2100, Fort Lauderdale, Florida 33394, is the fund's investment manager.

MANAGEMENT TEAM The team responsible for the fund's management is:

SIMON RUDOLPH
Senior Vice President, TICI

Mr. Rudolph has been a manager of the fund since 1997. Before joining the
Franklin Templeton Group in 1997, he was an executive director with Morgan
Stanley.

PETER A. NORI, CFA
Senior Vice President, TICI

Mr. Nori has been a manager of the fund since 1997, and has been with the
Franklin Templeton Group since 1987.

The fund pays the manager a fee for managing its assets and making its
investment decisions. For the fiscal year ended December 31, 1998, the fund
paid 0.85% of its average daily net assets to the manager.

TEMPLETON PACIFIC GROWTH FUND

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES

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

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest at
least 65% of its total assets in equity securities that trade in Pacific Rim
markets, including emerging markets, and are issued by companies that have their
principal activities in the Pacific Rim. Pacific Rim countries include
Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand,
Pakistan, Philippines, Singapore, South Korea, and Thailand. Equities represent
ownership interests in individual companies and give shareholders a claim in the
company's earnings and assets. They include common and preferred stocks, and
securities convertible into common stock. The fund also invests in American,
European and Global Depositary Receipts, which are certificates issued by a bank
or trust company that give their holders the right to receive securities issued
by a foreign or domestic company.

[Begin callout]
The fund invests primarily in the common stocks of Pacific Rim companies.
[End callout]

In addition to the fund's principal investments, the fund may invest
significantly in securities of issuers domiciled outside the Pacific Rim,
including the U.S., and those that are linked by tradition, economic markets,
geography or political events to countries in the Pacific Rim. Depending upon
current market conditions, the fund may also invest in debt securities of
companies and governments located anywhere in the world. A debt security
obligates the issuer to the bondholders, both to repay a loan of money at a
future date and generally to pay interest. Common debt securities are bonds,
including bonds convertible into common stock and unsecured bonds; notes; and
short-term investments, including cash or cash equivalents.

PORTFOLIO SELECTION The Templeton investment philosophy is "bottom-up,"
value-oriented, and long-term. In choosing investments, the fund's manager
will focus on the market price of a company's securities relative to its
evaluation of the company's long-term earnings, asset value and cash flow
potential. A company's historical value measures, including price/earnings
ratio, profit margins and liquidation value, will also be considered. As a
"bottom-up" investor focusing primarily on individual securities, the fund
may from time to time have significant investments in particular countries.
While the manager intends to manage the fund's exposure to countries and
their currencies based on its assessment of changing market and political
conditions, it is limited to certain geographic regions.

[Insert graphic of chart with line going up and down] MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

[Begin callout]
Because the stocks the fund holds fluctuate in price with Pacific Rim market
conditions and currencies, the value of your investment in the fund will go
up and down. This means you could lose money over short or even extended
periods.
[End callout]

CURRENCY Many of the fund's investments are denominated in foreign
currencies. Generally, when the U.S. dollar rises in value against a foreign
currency, an investment in that country loses value because that currency is
worth fewer U.S. dollars. Currency markets generally are not as regulated as
securities markets.

COUNTRY General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns
that trade in that country.

REGION Because the fund invests a significant amount of its assets in issuers
located in a particular region of the world, and because the correlation among
the Singapore, Malaysia, Thailand and Hong Kong markets is very high, the fund
is subject to much greater risks of adverse events, including currency
devaluations, and may experience greater volatility than a fund that is more
broadly diversified geographically.

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

[Insert graphic of bull and bear] PAST PERFORMANCE

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.

Performance reflects all fund expenses but does not include any fees or sales
charges imposed by the variable insurance contract for which the fund is an
investment option. If they had been included, performance would be lower.

TEMPLETON PACIFIC GROWTH FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

[Begin callout]
BEST
QUARTER:

Q4 '98
34.11%

WORST
QUARTER:

Q4 '97
- -28.67%
[End callout]

[Insert bar graph]

47.87% -8.79% 7.97% 11.10% -35.95% -13.13%
93 94 95 96 97 98
YEAR

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

SINCE INCEPTION
PAST 1 YEAR PAST 5 YEARS (01/27/92)
- -------------------------------------------------------------------------------
Templeton Pacific Growth
Fund - Class 1 1 -13.13% -9.45% -1.68%
MSCI Pacific Index 2 2.69% -3.95% -0.88%

1. All fund performance assumes reinvestment of dividends and capital gains.

2. Source: Standard & Poor's(R) Micropal. The unmanaged MSCI Pacific Index
tracks approximately 450 companies in Australia, Hong Kong, Japan, New
Zealand, and Singapore. This is a total return index in U.S. dollars, with
gross dividends reinvested. One cannot invest directly in an index, nor is an
index representative of the fund's investments.

[Insert graphic of briefcase] MANAGEMENT

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California 94403-7777, is the fund's investment manager.

MANAGEMENT TEAM The team responsible for the fund's management is:

WILLIAM T. HOWARD, JR., CFA
Senior Vice President, TICI

Mr. Howard has been a manager of the fund since 1993, and has been with the
Franklin Templeton Group since 1993.

MARK R. BEVERIDGE, CFA
Senior Vice President, TICI

Mr. Beveridge has been a manager of the fund since 1994, and has been with
the Franklin Templeton Group since 1985.

The fund pays the manager a fee for managing its assets, making its
investment decisions, and providing certain administrative facilities and
services for the fund. For the fiscal year ended December 31, 1998, the fund
paid 0.99% of its average daily net assets to the manager.

[Insert graphic of STAR] IMPORTANT RECENT DEVELOPMENTS

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

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

When evaluating current and potential portfolio positions, Year 2000 is one
of the factors that the funds' managers consider. The managers will rely
upon public filings and other statements made by companies regarding their
Year 2000 readiness. Issuers in countries outside of the U.S., particularly
in emerging markets, may be more susceptible to Year 2000 problems and may
not be required to make the same level of disclosure regarding Year 2000
readiness as is required in the U.S. The managers, of course, cannot audit
any company or their major suppliers to verify their Year 2000 readiness.
If a company in which any fund is invested is adversely affected by Year
2000 problems, it is likely that the price of its security will also be
adversely affected. A decrease in the value of one or more of a fund's
portfolio holdings will have similar impact on the price of the funds'
shares.

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

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

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

[Insert graphic of dollar signs and stacks of coins] DISTRIBUTIONS AND TAXES

INCOME AND CAPITAL GAINS DISTRIBUTIONS Each fund will declare as dividends
substantially all of its net investment income. Except for the Money Fund,
each fund typically pays dividends from net investment income and net capital
gains, if any, following the close of the calendar year. Dividends or
distributions by the funds will reduce the per share net asset value (NAV) by
the per share amount paid.

The Money Fund declares a dividend each day the fund's NAV is calculated,
equal to all of its daily net income, payable as of the close of business the
preceding day. The amount of dividend may fluctuate from day to day and may
be omitted on some days, depending on changes in the factors that comprise
the fund's net income.

Dividends paid by a fund will be automatically reinvested in additional
shares of that fund or, if requested, paid in cash to the insurance company
shareholder.

TAX CONSIDERATIONS The tax consequences for contract owners will depend on
the provisions of the variable annuity or variable life insurance contract
through which they are invested in the funds. For more information, please
consult the accompanying contract prospectus.

[Insert graphic of dollar bill] FINANCIAL HIGHLIGHTS

The financial highlights table provides further details to help you understand
the financial performance of Class 1 of each fund for the past five years or
since the fund's inception. The table shows certain information on a single fund
share basis (per share performance). It also shows some key fund statistics,
such as total return (past performance) and expense ratios. Total return
represents the annual change in value of a share assuming reinvestment of
dividends and capital gains.This information has been audited by
PricewaterhouseCoopers LLP, independent auditors. Their report, along with the
financial statements, are included in the fund's Annual Report (available upon
request).

PER SHARE OPERATING PERFORMANCE ($) RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------- ------------------------------------------

RATIO
OF
DISTRI- DISTRI- ASSETS, NET
NET NET BUTIONS BUTIONS NET RATIO OF INVEST-
ASSET REALIZED & TOTAL FROM FROM ASSET NET EXPENSES MENT PORT-
VALUE, NET UNREAL- FROM NET NET VALUE, ASSETS, TO INCOME TO FOLIO
BEGIN- INVEST- IZED INVEST- INVEST- REAL- TOTAL END TOTAL END OF AVERAGE AVERAGE TURN-
PERIOD NING MENT GAINS MENT MENT IZED DISTRI- OF RETURN+ YEAR NET NET OVER
ENDED OF PERIOD INCOME (LOSSES) OPERATIONS INCOME GAINS BUTIONS PERIOD (%) (000'S)($) ASSETS(%)ASSETS(%)RATE(%)
- --------------------------------------------------------------------------------------------------------------------
FRANKLIN CAPITAL GROWTH FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

1996 4 10.00 .03 1.33 1.36 - - - 11.36 13.60 44,667 .77* .96* 3.91

1997 11.36 .06 2.02 2.08 (.02) - (.02)13.42 18.31 109,355 .77 .72 19.90

1998 13.42 .10 2.62 2.72 (.06) - (.06)16.08 20.29 220,952 .77 1.00 12.17

FRANKLIN GLOBAL HEALTH CARE SECURITIES FUND

19986 10.00 .03 .68 .71 - - - 10.71 7.10 8,990 .84* .84* 40.80

FRANKLIN GLOBAL UTILITIES SECURITIES FUND

1994 17.14 .95 (2.94) (1.99) (.62) (.11) (.73)14.42 (11.56)1,155,110 .52 5.58 11.74

1995 14.42 .84 3.54 4.38 (.90) - (.90)17.90 31.35 1,423,446 .50 5.14 13.27

1996 17.90 .91 .29 1.20 (.92) - (.92)18.18 7.07 1,202,290 .50 4.20 29.69

1997 18.18 .90 3.54 4.44 (.96) (1.33) (2.29)20.33 26.76 1,129,904 .50 3.91 17.00

1998 20.33 .76 1.41 2.17 (.83) (1.22) (2.05)20.45 11.19 986,755 .50 3.15 33.85

FRANKLIN GROWTH AND INCOME FUND

1994 13.99 .19 (.47) (.28) (.09) (.20) (.29)13.42 (3.41) 517,877 .54 1.81 99.21

1995 13.42 .41 3.92 4.33 (.20) (.41) (.61)17.14 32.83 889,487 .52 3.30 116.54

1996 17.14 .62 1.64 2.26 (.41) (1.44) (1.85)17.55 14.19 1,077,989 .50 4.06 23.01

1997 17.55 .67 4.05 4.72 (.64) (.62) (1.26)21.01 27.74 1,338,476 .49 3.53 36.71

1998 21.01 .69 .99 1.68 (.69) (1.64) (2.33)20.36 8.33 1,318,743 .49 3.27 27.32

FRANKLIN HIGH INCOME FUND

1994 13.13 .88 (1.18) (.30) (.55) (.07) (.62)12.21 (2.26) 255,036 .60 9.45 22.94

1995 12.21 1.06 1.30 2.36 (.91) - (.91)13.66 19.76 360,904 .56 9.63 20.65

1996 13.66 1.20 .56 1.76 (1.20) (.06) (1.26)14.16 13.90 446,096 .54 9.63 27.16

1997 14.16 1.33 .22 1.55 (1.22) (.04) (1.26)14.45 11.47 496,036 .53 9.64 36.38

1998 14.45 1.43 (1.25) .18 (1.27) (.08) (1.35)13.28 .99 446,609 .53 9.96 41.71

FRANKLIN INCOME SECURITIES FUND

1994 15.80 .82 (1.80) (.98) (.44) (.07) (.51)14.31 (6.27)1,000,002 .54 7.27 13.33

1995 14.31 1.16 1.96 3.12 (.89) (.07) (.96)16.47 22.40 1,266,538 .51 8.05 33.14

1996 16.47 1.32 .44 1.76 (.87) (.15) (1.02)17.21 11.28 1,350,659 .50 7.96 15.28

1997 17.21 1.40 1.38 2.78 (1.33) (.29) (1.62)18.37 17.09 1,406,787 .50 7.53 14.68

1998 18.37 1.37 (1.07) .30 (1.42) (.33) (1.75)16.92 1.64 1,185,840 .49 6.94 12.22

FRANKLIN MONEY MARKET FUND

1994 1.00 .04 - .04 (.04) - (.04) 1.00 3.82 518,618 .467 4.05 -

1995 1.00 .06 - .06 (.06) - (.06) 1.00 5.74 429,547 .407 5.58 -

1996 1.00 .05 - .05 (.05) - (.05) 1.00 5.16 408,930 .437 5.04 -

1997 1.00 .05 - .05 (.05) - (.05) 1.00 5.24 367,449 .457 5.11 -

1998 1.00 .05 - .05 (.05) - (.05) 1.00 5.22 414,341 .457 5.08 -

Franklin Natural Resources Securities Fund

1994 14.46 .16 (.45) (.29) (.08) - (.08)14.09 (2.01) 125,078 .68 1.63 7.66

1995 14.09 .22 .12 .34 (.20) (.15) (.35)14.08 2.35 105,109 .66 1.40 15.66

1996 14.08 .15 .44 .59 (.20) (.18) (.38)14.29 4.00 109,579 .65 1.00 21.77

1997 14.29 .15 (2.83) (2.68) (.20) - (.20)11.41 (18.98) 74,924 .69 1.00 85.22

1998 11.41 .15 (3.02) (2.87) (.15) - (.15) 8.39 (25.38) 45,927 .64 1.21 64.68
</TABLE>

PER SHARE OPERATING PERFORMANCE ($) RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------- ------------------------------------------
RATIO
OF
DISTRI- DISTRI- ASSETS, NET
NET NET BUTIONS BUTIONS NET RATIO OF INVEST-
ASSET REALIZED & TOTAL FROM FROM ASSET NET EXPENSES MENT PORT-
VALUE, NET UNREAL- FROM NET NET VALUE, ASSETS, TO INCOME TO FOLIO
BEGIN- INVEST- IZED INVEST- INVEST- REAL- TOTAL END TOTAL END OF AVERAGE AVERAGE TURN-
PERIOD NING MENT GAINS MENT MENT IZED DISTRI- OF RETURN+ YEAR NET NET OVER
ENDED OF PERIOD INCOME (LOSSES) OPERATIONS INCOME GAINS BUTIONS PERIOD (%) (000'S)($) ASSETS(%)ASSETS(%)RATE(%)
- --------------------------------------------------------------------------------------------------------------------
FRANKLIN REAL ESTATE FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

1994 15.04 .38 .06 .44 (.17) - (.17)15.31 2.89 195,697 .62 4.00 11.73

1995 15.31 .78 1.83 2.61 (.52) - (.52)17.40 17.53 213,473 .59 4.74 22.15

1996 17.40 .79 4.74 5.53 (.78) - (.78)22.15 32.82 322,721 .57 4.80 10.32

1997 22.15 .72 3.72 4.44 (.67) (.32) (.99)25.60 20.70 440,554 .54 3.59 11.62

1998 25.60 1.45 (5.60) (4.15) (.94) (.58)(1.52)19.93 (16.82)282,290 .54 5.44 13.21

FRANKLIN RISING DIVIDENDS SECURITIES FUND

1994 10.57 .26 (.69) (.43) (.17) - (.17) 9.97 (4.08)309,929 .80 2.71 24.07

1995 9.97 .27 2.66 2.93 (.24) - (.24)12.66 29.74 463,253 .78 2.72 18.72

1996 12.66 .25 2.77 3.02 (.28) - (.28)15.40 24.18 597,424 .76 1.96 27.97

1997 15.40 .22 4.77 4.99 (.26) (.45) (.71)19.68 33.03 780,298 .74 1.24 37.04

1998 19.68 .23 1.07 1.30 (.22) (2.65)(2.87)18.11 6.92 751,869 .72 1.20 26.44

FRANKLIN SMALL CAP FUND

1995 3 10.00 .03 .21 .24 - - - 10.24 2.30 13,301 .90* 2.70* 16.04

1996 10.24 .02 2.95 2.97 (.01) - (.01)13.20 28.95 170,969 .77 .63 63.72

1997 13.20 .01 2.24 2.25 (.03) (.37) (.40)15.05 17.42 313,462 .77 .06 64.07

1998 15.05 .07 (.20) (.13) (.01) (1.19)(1.20)13.72 (.98)315,460 .77 .51 53.01

Franklin U.S. Government Fund

1994 13.92 .96 (1.59) (.63) (.67) (.05) (.72)12.57 (4.55)579,039 .53 6.87 18.25**

1995 12.57 .93 1.46 2.39 (.96) - (.96)14.00 19.46 643,165 .52 6.72 18.68**

1996 14.00 .75 (.31) .44 (.97) - (.97)13.47 3.62 843,858 .51 6.66 12.93***

1997 13.47 1.00 .21 1.21 (.76) - (.76)13.92 9.31 765,084 .50 6.49 16.84

1998 13.92 .99 .01 1.00 (1.03) - (1.03)13.89 7.44 710,832 .50 6.22 31.34

FRANKLIN VALUE SECURITIES FUND

1998 6 10.00 .02 (2.23) (2.21) - - - 7.79 (22.10) 9,013 .83* .95* 22.79

Franklin Zero Coupon Fund - 2000

1994 15.44 .68 (1.71) (1.03) (.69) (.10) (.79)13.62 (6.76) 94,230 .407 6.37 -

1995 13.62 .75 2.03 2.78 (.67) - (.67)15.73 20.67 137,357 .407 6.14 1.63

1996 15.73 .98 (.65) .33 (.86) (.01) (.87)15.19 2.43 129,601 .407 6.14 .58

1997 15.19 1.15 (.12) 1.03 (1.06) (.02)(1.08)15.14 7.11 111,650 .407 6.47 6.16

1998 15.14 1.22 (.15) 1.07 (1.21) (.19)(1.40)14.81 7.50 93,543 .407 6.67 17.70

Franklin Zero Coupon Fund - 2005

1994 16.08 .71 (2.24) (1.53) (.60) (.19) (.79)13.76 (9.60) 51,499 .407 6.53 2.00

1995 13.76 .78 3.53 4.31 (.69) - (.69)17.38 31.76 83,222 .407 6.19 1.72

1996 17.38 .96 (1.13) (.17) (.86) - (.86)16.35 (.50) 82,603 .407 6.15 2.06

1997 16.35 1.14 .63 1.77 (1.06) (.01)(1.07)17.05 11.37 77,296 .407 6.16 4.52

1998 17.05 1.01 1.03 2.04 (1.10) (.25)(1.35)17.74 12.53 84,487 .407 5.82 3.87

Franklin Zero Coupon Fund - 2010

1994 15.68 .55 (2.27) (1.72) (.63) (.31) (.94)13.02 (10.97) 45,361 .407 6.57 4.34

1995 13.02 .76 4.75 5.51 (.49) - (.49)18.04 42.79 85,633 .407 6.41 31.45

1996 18.04 1.02 (1.65) (.63) (.88) (.24)(1.12)16.29 (2.69) 78,816 .407 6.24 16.10

1997 16.29 1.02 1.54 2.56 (1.01) (.01)(1.02)17.83 16.57 85,515 .407 6.21 12.20

1998 17.83 1.09 1.39 2.48 (1.11) (.15)(1.26)19.05 14.45 93,515 .407 5.55 15.92

Mutual Discovery Securities Fund

1996 5 10.00 .02 .19 .21 - - - 10.21 2.10 15,418 1.37* 2.11* .14

1997 10.21 .13 1.84 1.97 (.01) - (.01)12.17 19.25 198,653 1.06 1.19 55.93

1998 12.17 .20 (.76) (.56) (.17) (.15) (.32)11.29 (5.00)224,656 1.00 1.94 93.99

Mutual Shares Securities Fund

1996 5 10.00 .02 .33 .35 - - - 10.35 3.50 27,677 1.00* 2.56* 1.31

1997 10.35 .13 1.71 1.84 (.01) - (.01)12.18 17.73 387,787 .80 2.10 49.01

1998 12.18 .28 (.25) .03 (.13) (.12) (.25)11.96 .09 482,444 .77 2.60 70.19

Templeton Developing Markets Equity Fund

1994 1 10.00 .07 (.51) (.44) - - - 9.56 (4.40) 98,189 1.53* 1.85* 1.15

1995 9.56 .09 .18 .27 (.04) (.01) (.05) 9.78 2.77 158,084 1.41 2.01 19.96

1996 9.78 .12 1.97 2.09 (.10) (.18) (.28)11.59 21.59 272,098 1.49 1.68 12.42

1997 11.59 .18 (1.10) (.92) (.15) (.23) (.38)10.29 (8.72)279,680 1.42 1.57 20.59

1998 10.29 .20 (2.35) (2.15) (.29) (.94)(1.23) 6.91 (21.61)162,433 1.41 2.04 36.58
</TABLE>

Per share operating performance ($)Ratios/supplemental data
- -------------------------------------------------------------- ------------------------------------------
RATIO
OF
DISTRI- DISTRI- ASSETS, NET
NET NET BUTIONS BUTIONS NET RATIO OF INVEST-
ASSET REALIZED & TOTAL FROM FROM ASSET NET EXPENSES MENT PORT-
VALUE, NET UNREAL- FROM NET NET VALUE, ASSETS, TO INCOME TO FOLIO
BEGIN- INVEST- IZED INVEST- INVEST- REAL- TOTAL END TOTAL END OF AVERAGE AVERAGE TURN-
PERIOD NING MENT GAINS MENT MENT IZED DISTRI- OF RETURN+ YEAR NET NET OVER
ENDED OF PERIOD INCOME (LOSSES) OPERATIONS INCOME GAINS BUTIONS PERIOD (%) (000'S)($) ASSETS(%)ASSETS(%)RATE(%)
- --------------------------------------------------------------------------------------------------------------------
TEMPLETON GLOBAL ASSET ALLOCATION FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

1995 2 10.00 .18 .52 .70 (.18) - (.18)10.52 7.01 14,729 .90* 3.84* 30.00

1996 10.52 .34 1.75 2.09 (.01) (.01) (.02)12.59 19.84 56,274 .86 4.21 52.35

1997 12.59 .42 1.04 1.46 (.26) (.07) (.33)13.72 11.71 93,402 .94 4.22 61.93

1998 13.72 .61 (.59) .02 (.49) (.58)(1.07)12.67 (.04) 81,670 .84 4.32 59.03

Templeton Global Growth Fund

1994 1 10.15 .07 .26 .33 - - - 10.48 3.25 158,856 1.14* 2.49* 7.14

1995 10.48 .16 1.17 1.33 (.06) - (.06)11.75 12.72 338,755 .97 2.46 30.92

1996 11.75 .25 2.22 2.47 (.21) (.21) (.42)13.80 21.28 579,877 .93 2.20 12.32

1997 13.80 .33 1.53 1.86 (.24) (.08) (.32)15.34 13.50 758,445 .88 2.49 24.81

1998 15.34 .35 .98 1.33 (.41) (1.49)(1.90)14.77 8.98 747,080 .88 2.27 32.30

Templeton Global Income Securities Fund

1994 13.31 .86 (1.52) (.66) (.33) (.13) (.46)12.19 (4.99) 254,311 .71 7.99 79.38

1995 12.19 .29 1.47 1.76 (.49) - (.49)13.46 14.68 243,194 .64 7.59 152.89

1996 13.46 1.02 .17 1.19 (1.04) - (1.04)13.61 9.56 221,722 .61 7.30 140.96

1997 13.61 1.05 (.73) .32 (.96) - (.96)12.97 2.55 185,016 .62 7.03 181.61

1998 12.97 1.07 (.19) .88 (.98) - (.98)12.87 7.08 150,941 .63 6.86 84.17

Templeton International Equity Fund

1994 12.50 .19 (.07) .12 (.04) (.07) (.11)12.51 .87 785,124 .99 2.17 12.22

1995 12.51 .37 .94 1.31 (.22) (.28) (.50)13.32 10.59 850,117 .92 2.87 16.42

1996 13.32 .40 2.58 2.98 (.38) (.47) (.85)15.45 22.98 1,108,099 .89 3.07 27.52

1997 15.45 .30 1.51 1.81 (.45) (.69)(1.14)16.12 11.69 1,161,430 .89 3.01 26.96

1998 16.12 .56 .42 .98 (.53) (1.05)(1.58)15.52 5.56 955,900 .88 2.90 5.98

Templeton International Smaller Companies Fund

1996 4 10.00 .10 1.15 1.25 - - - 11.25 12.50 16,255 1.16* 2.51* -

1997 11.25 .23 (.39) (.16) (.07) - (.07)11.02 (1.50) 32,201 1.06 2.74 21.38

1998 11.02 .25 (1.52) (1.27) (.25) (.30) (.55) 9.20 (12.27) 24,999 1.10 2.26 18.45

Templeton Pacific Growth Fund

1994 14.61 .22 (1.50) (1.28) (.03) (.06) (.09)13.24 (8.79) 375,832 1.07 2.04 4.29

1995 13.24 .33 .71 1.04 (.26) (.11) (.37)13.91 7.97 331,936 1.01 2.08 36.06

1996 13.91 .21 1.34 1.55 (.44) (.26) (.70)14.76 11.10 356,759 .99 1.51 12.85

1997 14.76 .29 (5.49) (5.20) (.28) - (.28) 9.28 (35.95) 165,404 1.03 1.97 11.87

1998 9.28 .21 (1.52) (1.31) (.35) (.11) (.46) 7.51 (13.13) 98,769 1.10 2.60 12.55
</TABLE>

*Annualized

**The portfolio turnover rate excludes mortgage dollar roll transactions.

***The portfolio turnover rate excludes transactions related to the
liquidation of the Investment Grade Intermediate Bond Fund and the Adjustable
U.S. Government Fund and mortgage dollar roll transactions.

+Total return does not include deductions at the contract level for cost of
insurance charges, premium load, administrative changes, mortality and
expense risk charges or other charges that may be incurred under the variable
insurance contracts for which the funds serve as underlying investments. If
they had been included, total return would be lower. Total return is not
annualized.

1. For the period March 15, 1994 (effective date) to December 31, 1994.

2. For the period April 19, 1995 (seed date) to December 31, 1995.

3. For the period November 1, 1995 (effective date) to December 31, 1995.

4. For the period May 1, 1996 (effective date) to December 31, 1996.

5. For the period November 8, 1996 (effective date) to December 31, 1996.

6. For the period May 1, 1998 (effective date) to December 31, 1998.

7. During the periods indicated below, Franklin Advisers, Inc., the
investment manager, agreed in advance to waive a portion of its management
fees incurred by the Funds in the Trust. Had such action not been taken, the
ratio of expenses to average net assets would have been as follows:

Franklin Money Market Fund

1994 .54%

1995 .53

1996 .53

1997 .53

1998 .53

Franklin Zero Coupon Fund - 2000

1994 .66%

1995 .63

1996 .62

1997 .63

1998 .66

Franklin Zero Coupon Fund - 2005

1994 .68%

1995 .66

1996 .65

1997 .65

1998 .66

Franklin Zero Coupon Fund - 2010

1994 .68%

1995 .66

1996 .65

1997 .65

1998 .66

Fund Account Information

[Insert graphic of paper with lines
and someone writing] BUYING SHARES

Shares of each fund are sold at net asset value (NAV) to insurance company
separate accounts to serve as investment options for variable annuity or
variable life insurance contracts. The funds' Board monitors this to be sure
there are no material conflicts of interest between the two different types
of contract owners. If there were, the Board would take corrective action.

Contract owners' payments will be allocated by the insurance company separate
account to purchase shares of each fund chosen by the contract owner, and are
subject to any limits or conditions in the contract. Requests to buy shares
are processed at the NAV next calculated after we receive the request in
proper form. The funds do not issue share certificates.

[Insert graphic of a certificate] SELLING SHARES

Each insurance company shareholder sells shares of the applicable fund to
make benefit or surrender payments or to execute exchanges (transfers)
between investment options under the terms of its contracts. Requests to sell
shares are processed at the NAV next calculated after we receive the request
in proper form.

[Insert graphic of two arrows going
in different directions] EXCHANGING SHARES

Contract owners may exchange shares of any one class or fund for shares of
other classes or funds through a transfer between investment options
available under a variable insurance contract, subject to the terms and any
specific limitations on the exchange (or "transfer") privilege described in
the contract prospectus.

Frequent exchanges can interfere with fund management or operations and drive
up fund costs. To protect shareholders, there are limits on the number and
amount of fund exchanges that may be made (please see "Market Timers" below).

[Insert graphic of paper and pen] FUND ACCOUNT POLICIES

CALCULATING SHARE PRICE The funds calculate their NAV per share each
business day at the close of trading on the New York Stock Exchange (normally
1:00 p.m. Pacific time). Each class' NAV is calculated by dividing its net
assets by the number of its shares outstanding.

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

Requests to buy and sell shares are processed on any day the funds are open
for business at the NAV next calculated after we receive the request in
proper form.

STATEMENTS AND REPORTS Contract owners will receive confirmations and
account statements that show account transactions. Insurance company
shareholders will receive the fund's financial reports every six months. To
reduce fund expenses, if you need additional copies, please call
1-800/342-3863.

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

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

ADDITIONAL POLICIES Please note that the funds maintain additional policies
and reserves certain rights, including:

o Each fund may refuse any order to buy shares.

o At any time, each fund may establish or change investment minimums.

o Each fund may modify or discontinue the exchange privilege on 60 days'
notice to insurance company shareholders.

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

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

o To permit investors to obtain the current price, insurance companies are
responsible for transmitting all orders to the fund promptly.

SHARE CLASSES Each fund has two classes of shares, class 1 and class 2. Each
class is identical except that class 2 has a distribution plan or "rule
12b-1" plan which is described in prospectuses offering class 2 shares.

[Insert graphic of question mark] QUESTIONS

More detailed information about the Trust and the funds' account policies can
be found in the funds' Statement of Additional Information (SAI). If you have
any questions about the funds, you can write to us at 777 Mariners Island
Blvd., P.O. Box 7777, San Mateo, CA 94403-7777. You can also call us at
1-800/342-3863. For your protection and to help ensure we provide you with
quality service, all calls may be monitored or recorded.

FOR MORE INFORMATION

The funds of Franklin Templeton Variable Insurance Products Trust (the
Trust), formerly Franklin Valuemark Funds, are only available as investment
options in variable annuity or variable life insurance contracts. Please
consult the accompanying contract prospectus for information about the terms
of an investment in a contract.

You can learn more about the funds in the following documents:

ANNUAL/SEMIANNUAL FUND REPORTS TO SHAREHOLDERS

Includes a discussion of recent market conditions and investment strategies,
financial statements, detailed performance information, fund holdings, and
the auditor's report (Annual Report only).

STATEMENT OF ADDITIONAL INFORMATION (SAI)

Contains more information about the funds, their investments, policies, and
risks. It is incorporated by reference (is legally a part of this prospectus).

You may obtain these free reports by contacting your investment
representative or by calling us at the number below.

Franklin(R)Templeton(R)
1-800/342-3863

You can also obtain information about the funds by visiting the SEC's Public
Reference Room in Washington, D.C. (phone 1-800/SEC-0330) or by sending your
request and a duplicating fee to the SEC's Public Reference Section,
Washington, D.C. 20549-6009. You can also visit the SEC's Internet site at
http://www.sec.gov.

Investment Company Act file #811-5583

PROSPECTUS

FRANKLIN TEMPLETON
VARIABLE INSURANCE PRODUCTS TRUST

CLASS 2 SHARES

MAY 1, 1999
AS SUPPLEMENTED NOVEMBER 1, 1999

As with all fund prospectuses, the SEC has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
CONTENTS

FRANKLIN TEMPLETON VARIABLE
INSURANCE PRODUCTS TRUST

[Begin callout]
Information about each fund
you should know before
investing
[End callout]

[insert page #] Overview of the Trust

INDIVIDUAL FUND DESCRIPTIONS

CAPITAL PRESERVATION AND INCOME
[insert page #] Franklin Money Market Fund - Class 2

INCOME
[insert page #] Franklin High Income Fund - Class 2

[insert page #] Franklin U.S. Government Fund - Class 2

[insert page #] Templeton Global Income Securities Fund - Class 2

GROWTH AND INCOME
[insert page #] Franklin Global Utilities Securities Fund - Class
2(Effective November 15, 1999, the fund's name will change
to Franklin Global Communications Securities Fund)

[insert page #] Franklin Growth and Income Fund - Class 2

[insert page #] Franklin Income Securities Fund - Class 2

[insert page #] Franklin Real Estate Fund - Class 2

[insert page #] Franklin Rising Dividends Securities Fund - Class 2

[insert page #] Franklin Value Securities Fund - Class 2

[insert page #] Mutual Shares Securities Fund - Class 2

[insert page #] Templeton Global Asset Allocation Fund - Class 2

CAPITAL GROWTH
[insert page #] Franklin Capital Growth Fund - Class 2
(Effective December 15, 1999, the fund's name will change
to Franklin Large Cap Growth Securities Fund)

[insert page #] Franklin Global Health Care Securities Fund - Class 2

[insert page #] Franklin Natural Resources Securities Fund - Class 2

[insert page #] Franklin Small Cap Fund - Class 2

[insert page #] Mutual Discovery Securities Fund - Class 2

[insert page #] Templeton Developing Markets Equity Fund - Class 2

[insert page #] Templeton Global Growth Fund - Class 2

[insert page #] Templeton International Equity Fund - Class 2

[insert page #] Templeton International Smaller Companies Fund -
Class 2

[insert page #] Templeton Pacific Growth Fund - Class 2

ADDITIONAL INFORMATION, ALL FUNDS

[insert page #] Important Recent Developments

[insert page #] Distributions and Taxes

FUND ACCOUNT INFORMATION

[Begin callout]
Information about fund
account transactions
and services
[End callout]

[insert page #] Buying Shares

[insert page #] Selling Shares

[insert page #] Exchanging Shares

[insert page #] Fund Account Policies

[insert page #] Questions

FOR MORE INFORMATION

[Begin callout]
Where to learn more about
each fund
[End callout]

Back Cover

FRANKLIN TEMPLETON
VARIABLE INSURANCE PRODUCTS TRUST

[Insert graphic of pyramid] OVERVIEW OF THE TRUST

INVESTMENT CONSIDERATIONS

o Each fund has its own investment strategy and risk profile. Generally,
the higher the expected rate of return, the greater the risk of loss.

o No single fund can be a complete investment program; consider
diversifying your fund choices.

RISKS

o There can be no assurance that any fund will achieve its investment goal.

o Because you could lose money by investing in a fund, take the time to
read each fund description and consider all risks before investing.

MORE DETAILED INFORMATION ABOUT EACH FUND, ITS INVESTMENT POLICIES, AND ITS
PARTICULAR RISKS CAN BE FOUND IN THE TRUST'S STATEMENT OF ADDITIONAL
INFORMATION (SAI).

MANAGEMENT

FRANKLIN MONEY MARKET FUND

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES

GOAL The fund's goal is high current income, consistent with liquidity and
capital preservation. The fund also seeks to maintain a stable share price of
$1.00.

PRINCIPAL INVESTMENTS The fund invests exclusively in U.S. dollar
denominated money market debt instruments, including those issued by:

o U.S. or foreign corporations;

o U.S. and foreign banks;

o the U.S. Government, its agencies or authorities; and

o foreign governments or multinational organizations such as the World
Bank.

[Begin callout]
The fund invests exclusively
in money market securities.
[End callout]

Under the SEC's money fund rules, the fund maintains a dollar-weighted
average portfolio maturity of 90 days or less and only buys securities:

o with remaining maturities of 397 days or less, and

o that the fund's Board of Trustees determines present minimal credit
risks, and

o that are rated in the top two short-term rating categories by
independent rating agencies or, if unrated, determined by the fund's Board
of Trustees to be comparable.

[Insert graphic of chart with line going up and down] MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

INTEREST RATE Rate changes can be sudden and unpredictable. When interest
rates rise, debt securities can lose market value. Similarly, when interest
rates fall, debt securities can gain value. In general, securities with
longer maturities are more sensitive to these price changes. A sub-category
of interest rate risk is REINVESTMENT RISK, which is the risk that interest
rates will be lower when the fund seeks to reinvest interest payments, or the
proceeds from a matured debt security. In that case, the fund would receive
less income, resulting in lower total return. Since the fund limits its
investments to high-quality, short-term securities, it will generally earn
lower yields than a fund with lower-quality, longer-term securities subject
to more risk.

See "Important Recent Developments" in this prospectus for Year 2000
discussion, and any potential impact on
the fund's portfolio and operations. More detailed information about the
fund, its policies, and risks can be found in the SAI.

[Insert graphic of bull and bear] PAST PERFORMANCE

Because class 2 shares were not offered until January 6th, 1999, the fund's
class 1 performance is shown.

FRANKLIN MONEY MARKET FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

7.62% 5.48% 3.06% 2.54% 3.82% 5.74% 5.16% 5.24% 5.22%
90 91 92 93 94 95 96 97 98
YEAR

[Begin callout]
BEST
QUARTER:
Q4 '89
1.96 %

WORST
QUARTER:
Q2 '93
0.61%
[End callout]

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

SINCE
PAST 1 YEAR PAST 5 YEARS INCEPTION
(01/24/89)
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
FRANKLIN MONEY MARKET FUND -
CLASS 1 1 5.22% 5.04% 5.16%

1. All fund performance assumes reinvestment of dividends and capital gains.
Because class 2 shares were not offered until January 6th, 1999, performance
shown represents class 1 shares, which are not offered in this prospectus.
Although invested in the same portfolio of securities as class 1, class 2
performance will differ because of class 2's higher annual fees and expenses
resulting from its rule 12b-1 plan. Current annual 12b-1 expenses are 0.25%.
Past expense reductions by the manager increased returns.

To obtain the fund's current yield information, please call 1-800/342-3863.

[Insert graphic of briefcase] MANAGEMENT

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California, 94403-7777, is the fund's investment manager.

FRANKLIN HIGH INCOME FUND

[Insert graphic of bullseye and arrows] GOALS AND STRATEGIES

GOALS The fund's principal investment goal is to earn a high level of
current income. Its secondary goal is capital appreciation.

[Begin callout]
The fund invests primarily in high yield, lower rated bonds.
[End callout]

o a security's relative value based on such factors as anticipated cash
flow, interest or dividend coverage, asset coverage, and earnings prospects;

o the experience and managerial strength of the company;

o responsiveness to changes in interest rates and business conditions;

o debt maturity schedules and borrowing requirements; and

o the company's changing financial condition and market recognition of the
change.

[Insert graphic of chart with line going up and down]MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

INTEREST RATE Rate changes can be sudden and unpredictable. When interest
rates rise, debt securities can lose market value. Similarly, when interest
rates fall, debt securities can gain value. In general, securities with
longer maturities are more sensitive to these price changes. A sub-category
of interest rate risk is reinvestment risk, which is the risk that interest
rates will be lower when the fund seeks to reinvest interest payments, or the
proceeds from a matured debt security, resulting in less income received by
the fund.

FOREIGN SECURITIES Securities of companies and governments located outside
the U.S. involve risks that can increase the potential for losses in the fund.

COUNTRY General securities market movements in any country where the fund
has investments are likely to affect the value of the securities the fund
owns that trade in that country. The political, economic, and social
structures of some countries the fund invests in may be less stable and more
volatile than those in the U.S. The risks of investing in these countries
include the possibility of currency devaluations, the imposition of exchange
controls, foreign ownership limitations, expropriation, restrictions on
removal of currency or other assets, nationalization of assets, punitive
taxes and certain custody and settlement risks. Non-U.S. companies are not
subject to the same disclosure, accounting, auditing and financial reporting
standards and practices as U.S. companies and their securities may not be as
liquid as securities of similar U.S. companies, or may become illiquid.
Non-U.S. stock exchanges, trading systems, brokers, and companies generally
have less government supervision and regulation than in the U.S.

[Insert graphic of bull and bear]PAST PERFORMANCE

Because class 2 shares were not offered until January 6th, 1999, the fund's
class 1 performance is shown.

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.

FRANKLIN HIGH INCOME FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

-8.67% 30.15% 16.21% 15.71% -2.26% 19.76% 13.90% 11.47% 0.99%
90 91 92 93 94 95 96 97 98
YEAR

[Begin callout]
BEST
QUARTER:
Q1 '91
11.19%

WORST
QUARTER:
Q3 '90
- -8.87%
[End callout]

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

SINCE INCEPTION
PAST 1 YEAR PAST 5 YEARS (01/24/89)
- -------------------------------------------------------------------------------
FRANKLIN HIGH INCOME FUND - 0.99% 8.46% 9.35%
CLASS 1 1
CSFIRST BOSTON HIGH YIELD 0.58% 8.16% 10.65%
INDEX 2

[Insert graphic of briefcase] MANAGEMENT

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California, 94403-7777, is the fund's investment manager.

MANAGEMENT TEAM The team responsible for the fund's management is:

JEFF HOLBROOK, CFA Mr. Holbrook has been a manager
Vice President, Advisers of the fund since 1997, and has
been with the Franklin Templeton
Group since 1992.

CHRIS MOLUMPHY, CFA Mr. Molumphy has been a manager
Senior Vice President, Advisers of the fund since its inception
in 1989, and has been with the
Franklin Templeton Group since
1988.

R. MARTIN WISKEMANN Mr. Wiskemann has been a manager
Vice President, Advisers of the fund since its inception
in 1989. Mr. Wiskemann has more
than 30 years' experience in the
securities industry.

FRANKLIN U.S. GOVERNMENT FUND

[Insert graphic of bullseye and arrows]GOAL AND STRATEGIES

GOAL The fund's investment goal is income.

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
in a portfolio limited to U.S. Government securities, primarily fixed and
variable rate mortgage-backed securities. The fund currently invests a
substantial portion of its assets in Government National Mortgage Association
obligations ("Ginnie Maes").

[Begin callout]
The fund invests primarily in mortgage-backed U.S. Government securities.
[End callout]

GINNIE MAES represent an ownership interest in mortgage loans made by banks
and other financial institutions to finance purchases of homes. The
individual loans are packaged or "pooled" together for sale to investors. As
the underlying mortgage loans are paid off, investors receive principal and
interest payments. Ginnie Maes carry a guarantee backed by the full faith and
credit of the U.S. Government. The guarantee applies only to the timely
payment of principal and interest on the mortgages in the pool, and does not
apply to the market prices and yields of the Ginnie Maes or to the net asset
value or performance of the fund, which will vary with changes in interest
rates and other market conditions. Ginnie Mae yields (interest income as a
percent of price) have historically exceeded the current yields on other
types of U.S. Government securities with comparable maturities, although
interest rate changes and unpredictable prepayments can greatly change total
return.

TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in short-term investments,
including cash or cash equivalents. Under these circumstances, the fund may
temporarily be unable to pursue its investment goal.

[Insert graphic of chart with line going up and down]MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

INTEREST RATE Rate changes can be sudden and unpredictable. When interest
rates rise, debt securities can lose market value. Similarly, when interest
rates fall, debt securities can gain value. Zero coupon bonds are more
sensitive to interest rate changes and their price will fluctuate more than
the prices of interest-paying bonds or notes for comparable maturities. In
general, securities with longer maturities are more sensitive to these price
changes. A sub-category of interest rate risk is reinvestment risk, which is
the risk that interest rates will be lower when the fund seeks to reinvest
interest payments or the proceeds from a matured debt security, resulting in
less income received by the fund.

GINNIE MAES Ginnie Maes, and other mortgage- and asset-backed securities,
differ from conventional debt securities because principal is paid back over
the life of the security rather than at maturity. The fund may receive
unscheduled prepayments of principal due to voluntary prepayments,
refinancing or foreclosure on the underlying mortgage or other loans. During
periods of declining interest rates, the volume of principal prepayments
generally increases as borrowers refinance their mortgages at lower rates.
The fund may be forced to reinvest returned principal at lower interest
rates, reducing the fund's income. For this reason, Ginnie Maes may be less
effective than other types of securities as a means of "locking in" long-term
interest rates and may have less potential for capital appreciation during
periods of falling interest rates than other investments with similar
maturities. A reduction in the anticipated rate of principal prepayments,
especially during periods of rising interest rates, may increase the
effective maturity of Ginnie Maes making them more susceptible than other
debt securities to a decline in market value when interest rates rise. This
could increase volatility of the fund's returns and share price.

CREDIT This is the possibility that an issuer will be unable to make
interest payments or repay principal. The fund's investments in securities
which are not backed by the full faith and credit of the U.S. Government
depend upon the ability of the issuing agency or instrumentality to meet
interest or principal payments, and may not permit recourse against the U.S.
Treasury.

[Insert graphic of bull and bear]PAST PERFORMANCE

Because class 2 shares were not offered until January 6th, 1999, the fund's
class 1 performance is shown.

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years calendar years or since the fund's inception. The table shows how the
fund's average annual total returns compare with those of a broad-based
index. Of course, past performance cannot predict or guarantee future results.

FRANKLIN U.S. GOVERNMENT FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

8.92% 15.93% 7.69% 9.71% -4.55% 19.46% 3.62% 9.31% 7.44%
90 91 92 93 94 95 96 97 98
YEAR

[Begin callout]
BEST
QUARTER:
Q2 '95
6.53%

WORST
QUARTER:
Q1 '94
- -4.24%
[End callout]

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

SINCE INCEPTION
PAST 1 YEAR PAST 5 YEARS (03/14/89)
- -------------------------------------------------------------------------------
FRANKLIN U.S. GOVERNMENT
FUND - CLASS 1 1 7.44% 6.77% 8.29%
LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT BOND INDEX 2 8.49% 6.45% 8.43%

[Insert graphic of briefcase]MANAGEMENT

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California, 94403-7777, is the fund's investment manager.

MANAGEMENT TEAM The team responsible for the fund's management is:

JACK LEMEIN Mr. Lemein has been a manager of
Executive Vice President, Advisers the fund since its inception in
1989. Mr. Lemein has more than
30 years experience in the
securities industry.

DAVID CAPURRO Mr. Capurro has been a manager
Senior Vice President, Advisers of the fund since its inception
in 1989, and has been with the
Franklin Templeton Group since
1983.

ROGER BAYSTON, CFA Mr. Bayston has been a manager
Senior Vice President, Advisers of the fund since 1993, and has
been with the Franklin Templeton
Group since 1991.

T. ANTHONY COFFEY, CFA Mr. Coffey has been a manager of
Vice President, Advisers the fund since 1996, and has
been with the Franklin Templeton
Group since 1989.

The fund pays the manager a fee for managing its assets, making its
investment decisions, and providing certain administrative facilities and
services for the fund. For the fiscal year ended December 31, 1998, the fund
paid 0.48% of its average daily net assets to the manager.

TEMPLETON GLOBAL INCOME SECURITIES FUND

[Insert graphic of bullseye and arrows]GOAL AND STRATEGIES

GOAL The fund's investment goal is high current income. Capital appreciation
is a secondary consideration.

[Begin callout]
The fund invests primarily in bonds of governments located around the world.
[End callout]

[Insert graphic of chart with line going up and down]MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

INTEREST RATE Rate changes can be sudden and unpredictable. When interest
rates rise, debt securities can lose market value. Similarly, when interest
rates fall, debt securities can gain value. In general, securities with
longer maturities are more sensitive to these price changes. A sub-category
of interest rate risk is REINVESTMENT RISK, which is the risk that interest
rates will be lower when the fund seeks to reinvest interest payments, or the
proceeds from a matured debt security, resulting in less income received by
the fund.

FOREIGN SECURITIES Securities of governments and companies located outside
the U.S. involve risks that can increase the potential for losses in the fund.

[Begin callout]
Changes in global interest rates affect the prices of the fund's debt
securities. If rates rise, the value of the fund's debt securities will fall
and so too will the fund's share price.
This means you could lose money.
[End callout]

COUNTRY General securities market movements in any country where the fund
has investments are likely to affect the value of the securities the fund
owns that trade in that country.

The prices of high yield debt securities fluctuate more than higher quality
securities. Prices are especially sensitive to developments affecting the
company's business and to rating changes, and typically rise and fall in
response to factors that affect the company's stock prices. In addition, the
entire high yield securities market can experience sudden and sharp price
swings due to changes in economic conditions, market activity, large
sustained sales, a high-profile default, or other factors. High yield
securities generally are less liquid than higher-quality bonds, and
infrequent trades can make accurate pricing more difficult. At times, it may
be difficult to sell these securities promptly at an acceptable price.

DIVERSIFICATION The fund is non-diversified under federal securities laws.
As such, it may invest a greater portion of its assets in one issuer and have
a smaller number of issuers than a diversified fund. Therefore,
the fund may be more sensitive to economic, business, political or other
changes affecting similar issuers or securities. The fund will, however, meet
tax diversification requirements.

[Insert graphic of bull and bear]PAST PERFORMANCE

Because class 2 shares were not offered until January 6th, 1999, the fund's
class 1 performance is shown.

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.

TEMPLETON GLOBAL INCOME SECURITIES FUND -
CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

[Begin callout]
BEST
QUARTER:
Q1 '93
5.33%

WORST
QUARTER:
Q3 '92
- -4.84%
[End callout]

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

[Insert graphic of briefcase]MANAGEMENT

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California, 94403-7777, is the fund's investment manager.

Under an agreement with Advisers, Templeton Investment Counsel, Inc. (TICI),
Broward Financial Centre, Suite 2100, Fort Lauderdale, Florida, 33394,
through its Templeton Global Bond Managers division (Global Bond Managers),
is the fund's sub-advisor. A team from Global Bond Managers provides Advisers
with investment management advice and assistance and is responsible for the
day-to-day management of the fund.

FRANKLIN GLOBAL UTILITIES SECURITIES FUND

[Insert graphic of bullseye and arrows]GOALS AND STRATEGIES

GOALS The fund's investment goals are capital appreciation and current
income.

[Begin callout]
The fund concentrates in common stocks of U.S. and non-U.S. companies engaged
in the public utilities industry, and invests substantially in communications
companies.
[End callout]

Because telecommunications industries have increasingly come to dominate the
global utilities sector, the fund will invest substantially in communications
companies. These are companies that are involved in the development, manufacture
or sale of communications services and communications equipment (communications
companies). These may include, for example, companies that provide:

o local and long distance telephone services or equipment;

o cellular and other wireless communications, paging, and local and wide
area network services or equipment;

o satellite, microwave, cable and other pay television services or
equipment; and

o internet-related services or equipment, including internet service
providers, web hosting and web content providers and internet portals.

PORTFOLIO SELECTION The manager is a research driven, fundamental investor,
pursuing a disciplined value-oriented strategy. Relying on a team of analysts to
provide in-depth industry expertise, the manager looks for companies that will
position the fund to benefit from potential future technological advances and
increasing worldwide demand in the public utilities sector. As a "bottom-up"
investor focusing primarily on individual securities, the fund's manager will
focus on the market price of a company's securities relative to its evaluation
of the company's long-term earnings, asset value and cash flow potential. A
company's historical value measures, including price/earnings ratio, profit
margins, and liquidation value, will also be considered.

[Insert graphic of chart with line going up and down]MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

UTILITIES INDUSTRY By concentrating in a single industry sector, the fund
carries much greater risk of adverse developments in that sector than a fund
that invests in a wide variety of industries. Utility companies in the U.S. and
in non-U.S. countries have generally been subject to substantial government
regulation. Major changes in government policies, ranging from increased
regulation or expropriation to deregulation, privatization or increased
competition, may dramatically increase or reduce opportunities for companies in
these industries. For example, while certain companies may develop more
profitable opportunities, others may be forced to defend their core businesses
and may be less profitable.

FOREIGN SECURITIES Securities of companies and governments located outside
the U.S. involve risks that can increase the potential for losses in the fund.

CURRENCY Many of the fund's investments are denominated in foreign
currencies. Generally, when the U.S. dollar rises in value against a foreign
currency, an investment in that country loses value because the investment is
worth fewer dollars. Currency markets generally are not as regulated as
securities markets.

COUNTRY General securities market movements in any country where the fund
has investments are likely to affect the value of the securities the fund
owns that trade in that country.

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

[Insert graphic of bull and bear]PAST PERFORMANCE

Because class 2 shares were not offered until January 6th, 1999, the fund's
class 1 performance is shown.

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.

FRANKLIN GLOBAL UTILITIES SECURITIES FUND -
CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

1.84% 24.56% 9.69% 10.54% -11.56%31.35% 7.07% 26.76% 11.19%
90 91 92 93 94 95 96 97 98
YEAR

[Begin callout]
BEST
QUARTER:
Q4 '97
13.45%

WORST
QUARTER:
Q1 '94
- -10.27%
[End callout]

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

SINCE
INCEPTION
PAST 1 YEAR PAST 5 YEARS (01/24/89)
- -------------------------------------------------------------------------------
FRANKLIN GLOBAL UTILITIES
SECURITIES 11.19% 11.88% 12.57%
FUND - CLASS 1 1
S&P 500(R)INDEX 2 28.58% 24.06% 18.70%
FT/S&P ACTUARIES WORLD
UTILITIES INDEX 2 36.67% 15.96% 12.95%

[Insert graphic of briefcase]MANAGEMENT

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California, 94403-7777, is the fund's investment manager.

MANAGEMENT TEAM The team responsible for the fund's management is:

IAN LINK, CFA Mr. Link has been a manager of
Vice President, Advisers the fund since 1995, and has
been with the Franklin Templeton
Group since 1989.
ALEX W. PETERS Mr. Peters has been a manager of
PORTFOLIO MANAGER, Advisers the fund since 1999, and has
been with the Franklin Templeton
Group since 1992.

The fund pays the manager a fee for managing its assets, making its
investment decisions, and providing certain administrative facilities and
services for the fund. For the fiscal year ended December 31, 1998, the fund
paid 0.47% of its average daily net assets to the manager.

FRANKLIN GROWTH AND INCOME FUND

[Insert graphic of bullseye and arrows]GOALS AND STRATEGIES

GOALS The fund's principal investment goal is capital appreciation. Its
secondary goal is to provide current income.

[Begin callout]
The fund invests primarily in common stocks offering above market current
dividend yields.
[End callout]

TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in U.S. or non-U.S. currency
short-term investments, including cash or cash equivalents. Under these
circumstances,
the fund may temporarily be unable to pursue its investment goals.

[Insert graphic of chart with line going up and down]MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

STOCKS While stocks have historically outperformed other asset classes over the
long term, they tend to go up and down more dramatically over the shorter term.
These price movements may result from factors affecting individual companies,
industries, or securities markets. Value stock prices are considered "cheap"
relative to the company's perceived value and are often out of favor with other
investors. If other investors fail to recognize the company's value and do not
become buyers, or if they become sellers, or in markets favoring faster-growing
companies, value stocks may not increase in value as anticipated by the manager
or may decline further.

FOREIGN SECURITIES Securities of companies and governments located outside
the U.S., including Depositary Receipts, involve risks that can increase the
potential for losses in the fund.

COUNTRY General securities market movements in any country where the fund
has investments are likely to affect the value of the securities the fund
owns that trade in that country. The political, economic, and social
structures of some countries the fund invests in may be less stable and more
volatile than those in the U.S. The risks of investing in these countries
include the possibility of currency devaluations, the imposition of exchange
controls, foreign ownership limitations, expropriation, restrictions on
removal of currency or other assets, nationalization of assets, punitive
taxes, and certain custody and settlement risks. Non-U.S. companies are not
subject to the same disclosure, accounting, auditing and financial reporting
standards and practices as U.S. companies and their securities may not be as
liquid as securities of similar U.S. companies, or may become illiquid.
Non-U.S. stock exchanges, trading systems, brokers, and companies generally
have less government supervision and regulation than in the U.S.

[Insert graphic of bull and bear]PAST PERFORMANCE

Because class 2 shares were not offered until January 6th, 1999, the fund's
class 1 performance is shown.

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.

FRANKLIN GROWTH AND INCOME FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

-2.35% 23.63% 6.73% 10.32% -3.41% 32.83% 14.19% 27.74% 8.33%
90 91 92 93 94 95 96 97 98
YEAR

[Begin callout]
BEST
QUARTER:
Q1 '91
10.93%

WORST
QUARTER:
Q3 '90
- -12.63%
[End callout]

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

SINCE
INCEPTION
PAST 1 YEAR PAST 5 YEARS 01/24/89)
- -------------------------------------------------------------------------------
FRANKLIN GROWTH AND INCOME
FUND - CLASS 1 1 8.33% 15.51% 11.72%
S&P 500(R)INDEX 2 28.58% 24.06% 18.70%

[Insert graphic of briefcase]MANAGEMENT

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California, 94403-7777, is the fund's investment manager.

MANAGEMENT TEAM The team responsible for the fund's management is:

FRANK FELICELLI, CFA Mr. Felicelli has been a manager
Senior Vice President, Advisers of the fund since 1995, and has
been with the Franklin Templeton
Group since 1986.
WILLIAM HAWES Mr. Hawes has been a manager of
PORTFOLIO MANAGER, Advisers the fund since 1999, and has
been with the Franklin Templeton
Group since 1998.

The fund pays the manager a fee for managing its assets, making its
investment decisions, and providing certain administrative facilities and
services for the fund. For the fiscal year ended December 31, 1998, the fund
paid 0.47% of its average daily net assets to the manager.

FRANKLIN INCOME SECURITIES FUND

[Insert graphic of bullseye and arrows]GOAL AND STRATEGIES

GOAL The fund's investment goal is to maximize income while maintaining
prospects for capital appreciation.

[Begin callout]
The fund invests primarily in a diversified portfolio of high yield lower
rated bonds, and stocks.
[End callout]

o a security's relative value based on such factors as anticipated cash
flow, interest or dividend coverage, asset coverage, and earnings prospects;

o the experience and managerial strength of the company;

o responsiveness to changes in interest rates and business conditions;

o debt maturity schedules and borrowing requirements; and

o the company's changing financial condition and market recognition of the
change.

[Insert graphic of chart with line going up and down]MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

INTEREST RATE Rate changes can be sudden and unpredictable. When interest
rates rise, debt securities can lose market value. Similarly, when interest
rates fall, debt securities can gain value. In general, securities with
longer maturities are more sensitive to these price changes. A sub-category
of interest rate risk is REINVESTMENT RISK, which is the risk that interest
rates will be lower when the funds seek to reinvest interest payments, or the
proceeds from a matured debt security, resulting in less income received by
the fund.

FOREIGN SECURITIES Securities of companies and governments located outside
the U.S., including Depositary Receipts, involve risks that can increase the
potential for losses in the fund.

COUNTRY General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns
that trade in that country. The political, economic, and social structures of
some countries the fund invests in may be less stable and more volatile than
those in the U.S. The risks of investing in these countries include the
possibility of currency devaluations, the imposition of exchange controls,
foreign ownership limitations, expropriation, restrictions on removal of
currency or other assets, nationalization of assets, punitive taxes, and
certain custody and settlement risks. Non-U.S. companies are not subject to
the same disclosure, accounting, auditing and financial reporting standards
and practices as U.S. companies and their securities may not be as liquid as
securities of similar U.S. companies, or may become illiquid. Non-U.S. stock
exchanges, trading systems, brokers, and companies generally have less
government supervision and regulation than in the U.S.

[Insert graphic of bull and bear]PAST PERFORMANCE

Because class 2 shares were not offered until January 6th, 1999, the fund's
class 1 performance is shown.

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.

FRANKLIN INCOME SECURITIES FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

[Insert bar graph]

- -7.42% 39.93% 13.20% 18.59% -6.27% 22.40% 11.28% 17.09% 1.64%
90 91 92 93 94 95 96 97 98
YEAR

[Begin callout]
BEST
QUARTER:

Q1 '91
16.48%

WORST
QUARTER:

Q3 '90
- -8.42%
[End callout]

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

SINCE
INCEPTION
PAST 1 YEAR PAST 5 YEARS (01/24/89)
- -------------------------------------------------------------------------------
FRANKLIN INCOME SECURITIES
FUND - CLASS 1 1 1.64% 8.73% 11.23%
LEHMAN BROTHERS GOVERNMENT/
CORPORATE BOND INDEX 2 9.47% 7.30% 9.29%
S&P 500(R) INDEX2
28.58% 24.06% 18.70%

[Insert graphic of briefcase]MANAGEMENT

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California, 94403-7777, is the fund's investment manager.

MANAGEMENT TEAM The team responsible for the fund's management is:

CHARLES B. JOHNSON Mr. Johnson has been a manager
Chairman of the Board, Advisers of the fund since its inception
in 1989, and has been with the
Franklin Templeton Group since
1957.
MATTHEW F. AVERY Mr. Avery has been a manager of
Senior Vice President, Advisers the fund since its inception in
1989, and has been with the
Franklin Templeton Group since
1987.
FREDERICK G. FROMM Mr. Fromm has been a manager of
Vice President, Advisers the fund since 1998, and has
been with the Franklin Templeton
Group since 1992.

The fund pays the manager a fee for managing its assets, making its
investment decisions, and providing certain administrative facilities and
services for the fund. For the fiscal year ended December 31, 1998, the fund
paid 0.47% of its average daily net assets to the manager.

FRANKLIN REAL ESTATE FUND

[Insert graphic of bullseye and arrows]GOALS AND STRATEGIES

GOALS The fund's principal goal is capital appreciation. Its secondary goal
is to earn current income.

o companies qualifying under federal tax law as REITs,
o real estate operating companies, real
o estate services companies, homebuilders and developers that derive at
least half of their assets or revenues from the ownership, construction,
management or other services, or sale of residential, commercial or
industrial real estate.

[Begin callout]
The fund concentrates in securities of companies in the real estate industry,
primarily equity REITs.
[End callout]

REITs are real estate investment trust companies, usu-
ally publicly traded, that manage a portfolio of income-producing real estate
properties such as apartments, hotels, office buildings, or shopping centers.
Equity REITs take ownership positions in real estate and shareholders receive
income from the rents received, and receive capital gains on the properties
sold at a profit. Other types, for example mortgage REITs, specialize in
lending money to developers and pass interest income on to shareholders.
Still others are hybrid REITs, having a mix of equity and debt investments.
The fund generally invests in medium-cap (less than $5 billion) to small-cap
(less than $1.5 billion) REITs, because that is reflective of the industry
itself. Market capitalization is defined as share price times the number of
common stock shares outstanding.

PORTFOLIO SELECTION The manager is a research driven, fundamental investor,
pursuing a disciplined value-oriented strategy for this fund. As a "bottom-up"
investor focusing primarily on individual securities, the fund's manager will
focus on the market price of a company's security relative to its evaluation of
the company's long-term earnings, asset value, and cash flow potential. Using
both qualitative and quantitative analysis and on-site visits, the manager
evaluates security characteristics, the strength and quality of management, and
underlying properties. In addition, the manager may consider other factors, such
as the supply and demand outlook for various property types and regional
markets.

TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in short-term investments,
including cash or cash equivalents. Under these circumstances, the fund may
temporarily be unable to pursue its investment goals.

[Insert graphic of chart with line going up and down]MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

[Insert graphic of bull and bear]PAST PERFORMANCE

Because class 2 shares were not offered until January 6th, 1999, the fund's
class 1 performance is shown.

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.

FRANKLIN REAL ESTATE FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

[INSERT BAR GRAPH]

- -11.98% 33.47% 12.12% 19.01% 2.89% 17.53% 32.82% 20.70% -16.82%
90 91 92 93 94 95 96 97 98
YEAR

[Begin callout]
BEST
QUARTER:

Q1 '91
20.13%

WORST
QUARTER:

Q3 '90
- -14.14%
[End callout]

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

SINCE
INCEPTION
1 YEAR 5 YEARS (01/24/89)
- -------------------------------------------------------------------------------
FRANKLIN REAL ESTATE FUND -
CLASS 1 1 16.82% 10.03% 10.30%
S&P 500(R) INDEX 2 28.58% 24.06% 18.70%
WILSHIRE REAL ESTATE
SECURITIES INDEX 2 -17.43% 9.36% 4.57%

[Insert graphic of briefcase]MANAGEMENT

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California, 94403-7777, is the fund's investment manager.

MANAGEMENT TEAM The team responsible for the fund's management is:

DOUGLAS BARTON, CFA Mr. Barton has been a manager of
Vice President, Advisers the fund since 1998, and has
been with the Franklin Templeton
Group since 1988.
MATTHEW F. AVERY Mr. Avery has been a manager of
Senior Vice President, Advisers the fund since its inception in
1989, and has been with the
Franklin Templeton Group since
1987.

FRANKLIN RISING DIVIDENDS SECURITIES FUND

[Insert graphic of bullseye and arrows]GOAL AND STRATEGIES

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

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in the securities of companies that have:

o consistently increased dividends in at least 8 out of the last 10 years
and have not decreased dividends during that time;

o increased dividends substantially (at least 100%) over the past ten
years;

o reinvested earnings, paying out less than 65% of current earnings in
dividends (except for utility companies);

o strong balance sheets, with long-term debt representing no more than 30%
of total capitalization (except for utility companies); and

o attractive prices, either in the lower half of the stock's
price/earnings ratio range for the past 10 years or less than the average
current market price/earnings ratio of the stocks comprising the Standard &
Poor's(R) 500 Stock Index (this criterion applies only at the time of
purchase).

The fund will invest primarily in the common stocks of financially sound
companies that have paid consistently rising dividends.

TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in short-term investments,
including cash or cash equivalents. Under these circumstances, the fund may
temporarily be unable to pursue its investment goal.

[Insert graphic of chart with line going up and down]MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

[Insert graphic of bull and bear]PAST PERFORMANCE

Because class 2 shares were not offered until January 6th, 1999, the fund's
class 1 performance is shown.

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.

FRANKLIN RISING DIVIDENDS SECURITIESFUND -
CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

[Insert bar graph]

- -3.48% -4.08% 29.74% 24.18% 33.03% 6.92%
93 94 95 96 97 98
YEAR

[Begin callout]
BEST
QUARTER:

Q4 '98
19.38%

WORST
QUARTER:

Q3 '98
- -14.78%
[End callout]

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

SINCE
INCEPTION
PAST 1 YEAR PAST 5 YEARS (01/27/92)
- -------------------------------------------------------------------------------
FRANKLIN RISING DIVIDENDS
SECURITIES FUND - CLASS 1 1 6.92% 17.06% 12.98%
WILSHIRE MIDCAP COMPANY
GROWTH INDEX 2 -1.08% 13.83% 13.61%

[Insert graphic of briefcase]MANAGEMENT

Franklin Advisory Services, LLC (Advisory Services), One Parker Plaza, Ninth
Floor, Fort Lee, New Jersey, 07024, is the fund's investment manager.

MANAGEMENT TEAM The team responsible for the fund's management is:

DONALD G. TAYLOR Mr. Taylor has been a manager of
Senior Vice President, the fund since 1996. Before
Advisory Services joining the Franklin Templeton
Group in 1996, he was a
Portfolio Manager for Fidelity
Management & Research Co.

WILLIAM J. LIPPMAN Mr. Lippman has been a manager
President, Advisory Services of the fund since its inception
in 1992. He has more than 30
years' experience in the
securities industry and joined
the Franklin Templeton Group in
1988.

BRUCE C. BAUGHMAN Mr. Baughman has been a manager
Senior Vice President, of the fund since its inception
Advisory Services in 1992, and has been with the
Franklin Templeton Group since
1988.
MARGARET MCGEE Ms. McGee has been a manager of
Vice President, Advisory Services the fund since its inception in
1992, and has been with the
Franklin Templeton Group since
1988.

The fund pays the manager a fee for managing its assets, making its
investment decisions, and providing certain administrative facilities and
services for the fund. For the fiscal year ended December 31, 1998, the fund
paid 0.70% of its average daily net assets to the manager.

FRANKLIN VALUE SECURITIES FUND

[Insert graphic of bullseye and arrows]GOAL AND STRATEGIES

GOAL The fund's investment goal is long-term total return.

[Begin callout]
The fund invests primarily in the common stocks of companies the manager
believes are significantly undervalued.
[End callout]

PORTFOLIO SELECTION The manager is a research driven, fundamental investor,
pursuing a disciplined value-oriented strategy for this fund. As a
"bottom-up" investor focusing primarily on individual securities, the manager
will focus on the market price of a company's securities relative to its
evaluation of the company's long-term earnings, asset value and cash flow
potential. The manager seeks bargains among the "under researched and
unloved" - out of favor companies that offer, in the manager's opinion,
excellent long-term potential that might include former growth companies that
have stumbled recently, dropping sharply in price, but with significant
potential ("fallen angels") or companies that are a potential turnaround or
takeover target.

[Insert graphic of chart with line going up and down]MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

STOCKS While stocks have historically outperformed other asset classes over
the long term, they tend to go up and down more dramatically over the short
term. These price movements may result from factors affecting individual
companies, industries, or securities markets. Value stock prices are
considered "cheap" relative to the company's perceived value and are often
out of favor with other investors. If other investors fail to recognize the
company's value and do not become buyers, or if they become sellers, or in
markets favoring faster-growing companies, value stocks may not increase in
value as anticipated by the manager or may decline further. The fund's
bargain-driven focus may result in the fund choosing securities that are not
widely followed by other investors, including companies reporting poor
earnings, companies whose share prices have declined sharply, turnarounds,
cyclical companies, or companies emerging from bankruptcy, which may have
higher risk.

FOREIGN SECURITIES Securities of companies and governments located outside
the U.S., including Depositary Receipts, involve risks that can increase the
potential for losses in the fund.

[Insert graphic of bull and bear]PERFORMANCE

Because the fund is new, it has no performance history.

[Insert graphic of briefcase]MANAGEMENT

Franklin Advisory Services, LLC (Advisory Services), One Parker Plaza, Ninth
Floor, Fort Lee, New Jersey, 07024, is the fund's investment manager.

MANAGEMENT TEAM The team responsible for the fund's management is:

WILLIAM J. LIPPMAN Mr. Lippman has been a manager
President, Advisory Services of the fund since its inception
in 1998. He has more than 30
years' experience in the
securities industry and joined
the Franklin Templeton Group in
1988.
BRUCE C. BAUGHMAN Mr. Baughman has been a manager
Senior VicePresident, of the fund since its inception
Advisory Services in 1998, and has been with the
Franklin Templeton Group since
1988.
MARGARET MCGEE Ms. McGee has been a manager of
Vice President, Advisory Services the fund since its inception in
1998 and has been with the
Franklin Templeton Group since
1988.

MUTUAL SHARES SECURITIES FUND

[Insert graphic of bullseye and arrows]GOALS AND STRATEGIES

GOALS The fund's principal goal is capital appreciation. Its secondary goal
is income.

o UNDERVALUED STOCKS Stocks trading at a discount to asset value.

o REORGANIZING COMPANIES Securities of companies in the midst of change
such as mergers, consolidations, liquidations, reorganizations, financial
restructurings, or companies with takeover, tender or exchange offers or
likely to receive such offers (Reorganizing Companies). The fund may
participate in such transactions.

o DISTRESSED COMPANIES Securities of companies that are distressed or even
in bankruptcy.

[Begin callout]
The fund invests primarily in common stocks of companies the manager believes
are significantly undervalued.
[End callout]

[Insert graphic of chart with line going up and down]MAIN RISKS

The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.

FOREIGN SECURITIES Securities of companies and governments located outside
the U.S., including Depositary Receipts, involve risks that can increase the
potential for losses in the fund.

COUNTRY General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns that
trade in that country. The political, economic, and social structures of some
countries the fund invests in may be less stable and more volatile than those in
the U.S. The risks of investing in these countries include the possibility of
currency devaluations by a country's government or banking authority, the
imposition of exchange controls, foreign ownership limitations, expropriation,
restrictions on removal of currency or other assets, nationalization of assets,
punitive taxes and certain custody and settlement risks. Non-U.S. companies are
not subject to the same disclosure, accounting, auditing and financial reporting
standards and practices as U.S. companies and their securities may not be as
liquid as securities of similar U.S. companies, or may become illiquid. Non-U.S.
stock exchanges, trading systems, brokers, and companies generally have less
government supervision and regulation than in the U.S.

INDEBTEDNESS AND PARTICIPATIONS The purchase of debt securities of Reorganizing
or Distressed Companies always involves a risk as to the creditworthiness of the
issuer and the possibility that the investment may be lost. There are no
established markets for indebtedness, making them less liquid than other
securities, and purchasers of participations, such as the fund, must rely on the
financial institution issuing the participation to assert any rights against the
borrower with respect to the underlying indebtedness. In addition, the fund
takes on the risk as to the creditworthiness of the bank or other financial
intermediary issuer, as well as of the issuer of the underlying indebtedness.

The prices of high yield debt securities fluctuate more than higher quality
securities. Prices are especially sensitive to developments affecting the
company's business and to rating changes, and typically rise and fall in
response to factors that affect the company's stock prices. In addition, the
entire high yield securities market can experience sudden and sharp price
swings due to changes in economic conditions, market activity, large
sustained sales, a high-profile default, or other factors. High yield
securities generally are less liquid than higher-quality bonds, and
infrequent trades can make accurate pricing more difficult. At times, it may
be difficult to sell these securities promptly at an acceptable price.

[Insert graphic of bull and bear]PAST PERFORMANCE

Because class 2 shares were not offered until January 6th, 1999, the fund's
class 1 performance is shown.

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results

MUTUAL SHARES SECURITIES FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS 1

[Insert bar graph]

17.73% 0.09%
97 98
YEAR

[Begin callout]
BEST
QUARTER:

Q4 '98
12.94%

WORST
QUARTER:

Q3 '98
- -17.65%
[End callout]

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

SINCE
INCEPTION
PAST 1 YEAR (11/08/96)
- -------------------------------------------------------------------------------
MUTUAL SHARES SECURITIES
FUND - CLASS 1 1 0.09% 9.70%
S&P 500(R)INDEX 2 28.58% 30.66%

[Insert graphic of briefcase]MANAGEMENT

Franklin Mutual Advisers, LLC (Franklin Mutual), 51 John F. Kennedy Parkway,
Short Hills, New Jersey, 07078, is the fund's investment manager.

MANAGEMENT TEAM The team members primarily responsible for the fund's
management are:

LAWRENCE N. SONDIKE Mr. Sondike has been a manager of
Senior Vice President the fund since its inception in
Franklin Mutual 1996. Before joining the Franklin
Templeton Group in 1996, he was a
research analyst for Heine
Securities Corporation, the
predecessor of Franklin Mutual
(Heine).
DAVID E. MARCUS Mr. Marcus has been a manager of
Senior Vice President the fund since its inception in
Franklin Mutual 1996. Before joining the Franklin
Templeton Group in 1996, he was a
research analyst for Heine.

The team also includes:

PETER A. LANGERMAN Mr. Langerman has been involved
President and with the management of the fund
Chief Executive Officer since its inception in 1996.
Franklin Mutual Before joining the Franklin
Templeton Group in 1996, he was a
research analyst for Heine
ROBERT L. FRIEDMAN Mr. Friedman has been involved
Chief Investment Officer with the management of the fund
Senior Vice President since its inception in 1996.
Franklin Mutual Before joining the Franklin
Templeton Group in 1996, he was a
research analyst for Heine.

JEFFREY A. ALTMAN Mr. Altman has been a manager of
Senior Vice President the fund since its inception in
Franklin Mutual 1996. Before joining the Franklin
Templeton Group in 1996, he was a
research analyst for Heine.

RAYMOND GAREA Mr. Garea has been a manager of
Senior Vice President the fund since its inception in
Franklin Mutual 1996. Before joining the Franklin
Templeton Group in 1996, he was a
research analyst for Heine.

DAVID J. WINTERS Mr. Winters has been a manager of
Senior Vice President the fund since 1998. Before
Franklin Mutual joining the Franklin Templeton
Group in 1996, he was a research
analyst for Heine.

In addition, the following Franklin Mutual employees serve as Assistant
Portfolio Managers:

JIM AGAH Mr. Agah has been a manager of
Assistant Portfolio Manager the fund since 1998. Before
Franklin Mutual joining the Franklin Templeton
Group in 1997, he was vice
president of equity sales at
Keefe, Bryette & Woods.

JEFF DIAMOND Mr. Diamond has been a manager
Assistant Portfolio Manager of the fund since 1998. Before
Franklin Mutual joining the Franklin Templeton
Group in 1998, he was a vice
president and co-manager of
Prudential Conservative Stock
Fund.

TEMPLETON GLOBAL ASSET ALLOCATION FUND