FRANKLIN REAL ESTATE SECURITIES TRUST
497, 1996-03-20
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FRANKLIN
REAL ESTATE
SECURITIES FUND

Franklin Real Estate Securities Trust

PROSPECTUS             September 1, 1995
as amended March 19, 1996

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

Franklin Real Estate Securities Fund (the "Fund") is a non-diversified series of
Franklin Real Estate Securities Trust ("Trust"), an open-end management
investment company, with the investment objective of maximizing total return. In
connection with this objective, the Fund will invest primarily in securities of
companies operating in the real estate industry. Under normal circumstances at
least 65% of the Fund's total assets will be invested in real estate securities,
primarily equity real estate investment trusts ("REITs"). The Fund may also
invest in equity securities issued by home builders and developers and in debt
and convertible securities issued by REITs, home builders and developers.

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

SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.

A Statement of Additional Information ("SAI") concerning the Fund, dated
September 1, 1995, as may be amended from time to time, provides a further
discussion of certain areas in this Prospectus and other matters which may be of
interest to some investors. It has been filed with the Securities and Exchange
Commission ("SEC") and is incorporated herein by reference. A copy is available
without charge from the Fund or the Fund's principal underwriter,
Franklin/Templeton Distributors, Inc. ("Distributors"), at the address or
telephone number shown above.

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

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

The Fund offers two classes of shares: Franklin Real Estate Securities Fund -
Class I ("Class I") and Franklin Real Estate Securities Fund - Class II ("Class
II"). Investors can choose between Class I shares, which generally bear a higher
front-end sales charge and lower ongoing Rule 12b-1 distribution fees ("Rule
12b-1 fees"), and Class II shares, which generally have a lower front-end sales
charge and higher ongoing Rule 12b-1 fees. Investors should consider the
differences between the two classes, including the impact of sales charges and
Rule 12b-1 fees, in choosing the more suitable class given their anticipated
investment amount and time horizon. See "How to Buy Shares of the Fund -
Differences Between Class I and Class II."

CONTENTS                                                   PAGE

Expense Table............................................     2
Financial Highlights.....................................     4
About the Fund...........................................     4
Investment Objective
and Policies of the Fund.................................     5
Management of the Fund...................................    13
Distributions to Shareholders............................    15
Taxation of the Fund and Its Shareholders................    17
How to Buy Shares of the Fund............................    18
Other Programs and Privileges
Available to Fund Shareholders...........................    24
Exchange Privilege.......................................    26
How to Sell Shares of the Fund...........................    30
Telephone Transactions...................................    34
Valuation of Fund Shares.................................    35
How to Get Information Regarding
an Investment in the Fund................................    35
Performance..............................................    36
General Information......................................    37
Account Registrations....................................    38
Important Notice Regarding
Taxpayer IRS Certifications..............................    39
Portfolio Operations.....................................    40
Appendix.................................................    40

Expense Table

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear directly or indirectly in
connection with an investment in the Fund. The figures for both classes of
shares are based on the aggregate operating expenses of the Class I shares
before fee waivers and expense reductions for the fiscal year ended April 30,
1995.

                                                     Class I        Class II

Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)......................4.50%      1.00%+
Deferred Sales Charge...................................NONE++      1.00%+++
Exchange Fee (per transaction)..........................$5.00++++  $5.00++++

                                                        Class I     Class II

Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees........................................ 0.63%**      0.63%**
Rule 12b-1 Fees........................................ 0.20%*       1.00%*
Other Expenses......................................... 0.57%        0.57%
Total Fund Operating Expenses.......................... 1.40%**      2.20%**

+Although Class II has a lower front-end sales charge than Class I, over time
the higher Rule 12b-1 fee for Class II may cause shareholders to pay more for
Class II shares than for Class I shares. Given the maximum front-end sales
charge and the rate of Rule 12b-1 fees of each class, it is estimated that this
will take less than six years for shareholders who maintain total shares valued
at less than $100,000 in the Franklin Templeton Funds. Shareholders with larger
investments in the Franklin Templeton Funds will reach the crossover point more
quickly. (See "How to Buy Shares of the Fund - Purchase Price of Fund Shares"
for the definition of Franklin Templeton Funds and similar references.)

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

+++Class II shares redeemed within a "contingency period" of 18 months of the
calendar month of such investments are subject to a 1% contingent deferred sales
charge. See "How to Sell Shares of the Fund - Contingent Deferred Sales Charge."

++++$5.00 fee imposed only on Market Timers as described under "Exchange
Privilege." All other exchanges are processed without a fee.

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

**Represents the management fee before any fee waiver by the investment manager.
The investment manager has agreed in advance, however, to waive all of its
management fees and to make certain payments to reduce expenses. With this
waiver and expense reduction, the Fund paid no management fees, and total
operating expenses represented 0.25% of the average net assets of Fund shares.
"Other Expenses" for Class II shares are estimates based on the actual expenses
incurred by Class I shares for the fiscal year ended April 30, 1995.

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

EXAMPLE

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

                           One Year    Three Years  Five Years   Ten Years
Class I*................      $59          $87         $118        $205
Class II................      $42          $78         $127        $261

*Assumes that a contingent deferred sales charge will not apply to Class I
shares.

A shareholder would incur the following expenses on the same investment in Class
II shares, assuming no redemption.

                         One Year    Three Years  Five Years   Ten Years

Class II                    $32          $78         $127        $261

THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES, BEFORE FEE
WAIVERS AND EXPENSE REDUCTIONS, SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN THOSE
SHOWN. The operating expenses are borne by the Fund and only indirectly by
shareholders as a result of their investment in the Fund. In addition, federal
securities regulations require the example to assume an annual return of 5%, but
the Fund's actual return may be more or less than 5%.

FINANCIAL HIGHLIGHTS

Set forth below is a table containing the financial highlights for a Class I
share of the Fund. The information for the period January 3, 1994 (effective
date of registration) through April 30, 1994, and the fiscal year ended April
30, 1995, has been audited by Coopers & Lybrand L.L.P., independent auditors,
whose audit report appears in the financial statements in the Fund's Annual
Report to Shareholders dated April 30, 1995. Information regarding Class II
shares will be included in this table after they have been offered to the public
for a reasonable period of time. See the discussion "Reports to Shareholders"
under "General Information" in this Prospectus.


<TABLE>
<CAPTION>

                     Per Share Operating Performance                                          Ratios/Supplemental Data

                                                                                                   Ratio of Ex-
         Net                                                                                    penses to Aver-   Ratio
        Asset               Net        Total    Distri-                                         age Net Assets   of Net
      Value at    Net   Realized &     From     butions  Net Asset        Net Assets   Ratio of   (Excluding   Investment
Year   Begin-   Invest- Unrealized    Invest-  From Net    Value            at End     Expenses   Waiver and     Income   Portfolio
Ended   ning     ment    Gains on      ment   Investment  at End    Total   of Year   to Average  Payment by   to Average  Turnover
April  of Year  Income  Securities  Operations  Income    of Year Return**(in 000's)  Net Assets  Manager)++   Net Assets    Rate
30
<C>    <C>       <C>      <C>       <C>         <C>     <C>         <C>    <C>          <C>        <C>          <C>       <C> 
1994*  $10.00    $0.06    $ 0.86    $ 0.92       --     $(10.92)    9.20%  $  5,634     0.25%+     2.91%+       3.19%+     --%
1995    10.92     0.39     (0.45)    (0.06)    (0.28)     10.58    (0.48)    16,694     0.25       1.40         4.86      3.74
</TABLE>

*January 3, 1994 (effective date of registration) to April 30, 1995.

**Total return measures the change in value of an investment over the period
indicated. It is not annualized. It does not include the maximum front-end sales
charge and assumes reinvestment of dividends and capital gains, if any, at net
asset value.

+Annualized.

++During the periods indicated, the investment manager agreed in advance to
waive its management fees and made certain payments of other expenses.

ABOUT THE FUND

Franklin Real Estate Securities Trust is an open-end management investment
company, commonly called a "mutual fund," which is registered with the SEC under
the Investment Company Act of 1940, as amended ("1940 Act"). The Trust is a
Delaware business trust, organized on September 14, 1993. The Fund has two
classes of shares of beneficial interest ("multiclass" structure) with a par
value of $.01 per share: Franklin Real Estate Securities Fund - Class I and
Franklin Real Estate Securities Fund - Class II. All Fund shares outstanding
before May 1, 1995, have been redesignated as Class I shares, and will retain
their previous rights and privileges, except for legally required modifications
to shareholder voting procedures, as discussed in "General Information
Organization and Voting Rights."

INVESTMENT OBJECTIVE AND POLICIES OF THE FUND

The Fund's investment objective is to maximize total return. In connection with
this objective, the Fund will invest primarily in securities of companies
operating in the real estate industry. The Fund's objective is a fundamental
policy and may not be changed without shareholder approval. Under normal
circumstances at least 65% of the Fund's total assets will be invested in real
estate securities, primarily equity real estate investment trusts. The Fund may
also invest in equity securities issued by home builders and developers and in
debt and convertible securities issued by REITs, home builders and developers.
Under ordinary market conditions, the Fund will seek to achieve maximum total
return. The Fund will seek to accomplish this objective in the context of its
policy of investing primarily in the equity securities of companies operating in
the real estate industry.

"Real estate securities" include equity, convertible and debt securities of
companies having the following characteristics and will be subject to the
following limitations:

1. Companies qualifying as a REIT for federal income tax purposes. In order to
qualify as a REIT, a company must derive at least 75% of its gross income from
real estate sources (rents, mortgage interest, gains from the sale of real
estate assets), and at least 95% from real estate sources, plus dividends,
interest and gains from the sale of securities. Real property, mortgage loans,
cash and certain securities must comprise 75% of a company's assets. In order to
qualify as a REIT, a company must also make distributions to shareholders
aggregating annually at least 95% of its REIT taxable income.

2. Companies, such as home builders and developers, having at least 50% of their
assets related to, or deriving at least 50% of their revenues from, the
ownership, construction, management, or sale of residential, commercial or
industrial real estate.

The Fund will invest primarily in equity real estate securities of companies
listed on a securities exchange or over-the-counter markets. The Fund will
invest more than 25% of its total assets in the real estate industry as
described above.

The Fund may enter into repurchase agreements, loan its portfolio securities,
and engage in other activities which are discussed more fully below under "Some
of the Fund's Other Investment Policies."

RISK FACTORS/SPECIAL CONSIDERATIONS RELATING TO THE FUND'S INVESTMENTS IN REAL
ESTATE SECURITIES

An investment in the Fund will generally be subject to the risks associated with
real estate because of its policy of concentration in the securities of
companies in the real estate industry. These risks include declines in the value
of real estate, risks related to general and local economic conditions,
overbuilding and increased competition, increases in property taxes and
operating expenses, changes in zoning laws, casualty or condemnation losses,
variations in rental income, changes in neighborhood values, the appeal of
properties to tenants and increases in interest rates. The value of securities
of companies which service the real estate industry will also be affected by
such risks.

In addition, equity REITs will be affected by changes in the value of the
underlying property owned by the trusts, while a mortgage real estate investment
trust will be affected by the quality of the properties to which it has extended
credit. Equity and mortgage real estate investment trusts are dependent upon the
REITs' management skill, may not be diversified and are subject to the risks of
financing projects. Because the Fund invests primarily in the real estate
industry, it could conceivably own real estate directly as a result of a default
on debt securities it may own. If the Fund has rental income or income from the
disposition of real property, the receipt of such income may adversely affect
its ability to retain its tax status as a regulated investment company. REITS
are also subject to heavy cash flow dependency, defaults by borrowers,
self-liquidation and the possibility of failing to qualify for tax-free
pass-through of income under the Internal Revenue Code and to maintain exemption
from the 1940 Act. Changes in prevailing interest rates also will inversely
affect the value of the debt securities in which the Fund will invest. By
investing in real estate investment trusts indirectly through the Fund, a
shareholder will bear not only his proportionate share of the expenses of the
Fund, but also, indirectly, similar expenses of the real estate investment
trusts.

The Fund is non-diversified under the federal securities laws. As a
non-diversified Fund, there is no restriction under the 1940 Act on the
percentage of assets that may be invested at any time in the securities of any
one issuer. To the extent the Fund is not fully diversified, it may be more
susceptible to adverse economic, political or regulatory developments affecting
a single issuer than would be the case if it were more broadly diversified.
However, the Fund intends to comply with the diversification and other
requirements of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable to "regulated investment companies" so that it will not be subject to
U.S. federal income tax on income and capital gain distributions to
shareholders. Accordingly, the Fund will not purchase securities if, as a
result, more than 25% of its total assets would be invested in the securities of
a single issuer or, with respect to 50% of its total assets, more than 5% of
such assets would be invested in the securities of a single issuer.

SOME OF THE FUND'S OTHER INVESTMENT POLICIES

To maximize the return on uninvested cash, as well as for other specified
purposes, the Fund may invest up to 35% of its assets in a combination of the
following types of investments subject to the same limitations regarding ratings
previously discussed.

Real Estate Related Investments. In addition to the Fund's investments in real
estate securities, as defined above, the Fund may also invest a portion of its
assets in debt or equity securities of issuers engaged in businesses closely
related to the real estate industry and publicly traded on an exchange or in the
over-the-counter market, including companies whose products and services are
closely related to the real estate industry, such as manufacturers and
distributors of building supplies; financial institutions that issue or service
mortgages, such as savings and loan associations or mortgage bankers; and
companies whose principal business is unrelated to the real estate industry but
who have significant real estate holdings (at least 50% of their respective
assets) believed to be undervalued relative to the price of those companies'
securities.

Short-Term Investments. The Fund may invest its cash, including cash resulting
from purchases and sales of Fund shares, in short-term debt instruments,
including U.S. government securities, high grade commercial paper, repurchase
agreements and other money market equivalents and, subject to the terms of an
order of exemption from the SEC, the shares of affiliated money market funds
that invest primarily in short-term debt securities. Such temporary investments
may be made either for liquidity purposes, to meet shareholder redemption
requirements or as a temporary defensive measure.

Repurchase Agreements. The Fund may engage in repurchase transactions, in which
the Fund purchases a U.S. government security subject to resale to a bank or
dealer at an agreed-upon price and date. The transaction requires the
collateralization of the seller's obligation by the transfer of securities with
an initial market value, including accrued interest, equal to at least 102% of
the dollar amount invested by the Fund in each agreement, with the value of the
underlying security marked-to-market daily to maintain coverage of at least
100%. A default by the seller might cause the Fund to experience a loss or delay
in the liquidation of the collateral securing the repurchase agreement. The Fund
might also incur disposition costs in liquidating the collateral. The Fund,
however, intends to enter into repurchase agreements only with financial
institutions such as broker-dealers and banks which are deemed creditworthy by
the Fund's investment manager. A repurchase agreement is deemed to be a loan by
the Fund under the 1940 Act. The U.S. government security subject to resale (the
collateral) will be held on behalf of the Fund by a custodian approved by the
Trust's Board of Trustees and will be held pursuant to a written agreement.

Borrowing. As a fundamental policy, the Fund does not borrow money or mortgage
or pledge any of the assets of the Fund, except that the Fund may borrow up to
10% of its total asset value to meet redemption requests and for other temporary
or emergency purposes. While borrowings exceed 5% of the Fund's total assets,
the Fund will not make any additional investments.

Illiquid Investments. It is the policy of the Fund that illiquid securities
(securities that cannot be disposed of within seven days in the normal course of
business at approximately the amount at which the Fund has valued the
securities, and include illiquid equity securities, illiquid securities with
legal or contractual restriction on resale, repurchase agreements of more than
seven days duration, illiquid real estate investment trusts, and other
securities which are not readily marketable) may not constitute, at the time of
purchase, more than 10% of the net assets of the Fund. The Trust's Board of
Trustees has authorized the Fund to invest in restricted securities (which might
otherwise be considered illiquid) where such investment is consistent with the
Fund's investment objective and has authorized such securities to be considered
to be liquid (and thus not subject to the foregoing 10% limitation), to the
extent the investment manager determines on a daily basis that there is a liquid
institutional or other market for such securities. The Trust's Board of Trustees
will review the investment manager's determinations of liquidity, retain
ultimate responsibility for such determinations and will consider appropriate
action, consistent with the Fund's objective and policies, if a security should
become illiquid subsequent to its purchase. To the extent the Fund invests in
restricted securities that are deemed liquid, the general level of illiquidity
in the Fund may be increased if qualified institutional buyers are no longer
interested in purchasing these securities or the market for these securities
contracts. See "The Fund's Investment Objective and Restrictions - Short-term
Investments," in the SAI.

Loans of Portfolio Securities. Consistent with procedures approved by the Board
of Trustees and subject to the following conditions, the Fund may lend its
portfolio securities to qualified securities dealers or other institutional
investors, provided that such loans do not exceed 10% of the value of the Fund's
total assets at the time of the most recent loan. The borrower must deposit with
the Fund's custodian collateral with an initial market value of at least 102% of
the initial market value of the securities loaned, including any accrued
interest, with the value of the collateral and loaned securities
marked-to-market daily to maintain collateral coverage of at least 100%. Such
collateral shall consist of cash, securities issued by the U.S. Government, its
agencies or instrumentalities, or irrevocable letters of credit. The lending of
securities is a common practice in the securities industry. The Fund engages in
security loan arrangements with the primary objective of increasing the Fund's
income either through investing the cash collateral in short-term interest
bearing obligations or by receiving a loan premium from the borrower. Under the
securities loan agreement, the Fund continues to be entitled to all dividends or
interest on any loaned securities. As with any extension of credit, there are
risks of delay in recovery and loss of rights in the collateral should the
borrower of the security fail financially.

Options and Financial Futures. The Fund may write covered put and call options
and purchase put and call options which trade on securities exchanges and in the
over-the-counter market in order to hedge against the risk of market or
industry-wide stock price fluctuations or to increase income to the Fund.
Transactions in options are generally considered "derivative securities."
Pending receipt of a waiver of applicable requirements from state securities
regulators, the Fund will not engage in options in the over-the-counter market.
The Fund may purchase and sell futures and options on futures with respect to
securities and securities indices and purchase futures and options to
"close-out" futures and options it may have written. Additionally, the Fund may
sell futures and options to "close out" futures and options it may have
purchased. The Fund will not enter into any futures contract or related options
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial deposits and premiums on open contracts and options would
exceed 5% of the Fund's total assets (taken at current value). The Fund will not
engage in any stock options or stock index options if the option premiums paid
regarding its open option positions exceed 5% of the value of the Fund's total
assets.

The Fund's options and futures investments involve certain risks. Such risks
include the risks that the effectiveness of an options and futures strategy
depends on the degree to which price movements in the underlying index or
securities correlate with price movements in the relevant portion of the Fund's
portfolio. The Fund bears the risk that the prices of its portfolio securities
will not move in the same amount as the option or future it has purchased, or
that there may be a negative correlation which would result in a loss on both
such securities and the option or future.

Positions in exchange traded options and futures may be closed out only on an
exchange which provides a secondary market. There may not always be a liquid
secondary market for a futures or option contract at a time when the Fund seeks
to "close out" its position. There can be no assurance that a liquid secondary
market will exist for any particular option or futures contract at any specific
time.

The Fund understands the current position of the staff of the SEC to be that
purchased over-the-counter options ("OTC" options) are illiquid securities and
that the assets used to cover the sale of an OTC option are considered illiquid.
The Fund disagrees with this position. Nevertheless, pending a change in the
staff's position, the Fund will treat OTC options and "cover" assets as subject
to the Fund's limitation on illiquid securities.

In addition, adverse market movements could cause the Fund to lose up to its
full investment in a call option contract and/or to experience substantial
losses on an investment in a futures contract. There is also the risk of loss by
the Fund of margin deposits in the event of bankruptcy of a broker with whom the
Fund has an open position in a futures contract or option.

The Fund's investment in options and futures contracts may be limited by the
requirements of the Code for qualification as a regulated investment company and
are subject to special tax rules that may affect the amount, timing and
character of distributions to shareholders. These securities also require the
application of complex and special tax rules and elections, more information
about which is included in the SAI.

Convertible and Debt Securities. A portion of the Fund's assets may be invested
in convertible and debt securities of issuers in any industry. A convertible
security is a security which may be converted at a stated price within a
specified period of time into a certain quantity of the common stock of the same
or a different issuer. Convertible and debt securities are senior to common
stocks in a corporation's capital structure, although convertible securities are
usually subordinated to similar nonconvertible securities. Convertible and debt
securities provide a fixed income stream and the opportunity, through its
conversion feature, to participate in the capital appreciation resulting from a
market price advance in the convertible security's underlying common stock. Just
as with debt securities, convertible securities tend to increase in market value
when interest rates decline and tend to decrease in value when interest rates
rise. However, the price of a convertible security is also influenced by the
market value of the security's underlying common stock and tends to increase as
the market value of the underlying stock rises, whereas it tends to decrease as
the market value of the underlying stock declines. Convertible and debt
securities within the top three categories (e.g., AAA, AA and A by Standard &
Poor's Corporation ["S&P"] or Aaa, Aa or A by Moody's Investors Service
["Moody's"]) comprise what are known as high-grade securities and are regarded
as having a strong capacity to pay dividends. Medium-grade convertible and debt
securities (e.g., BBB by S&P or Baa by Moody's) are regarded as having an
adequate capacity to pay dividends but with greater vulnerability to adverse
economic conditions and some speculative characteristics. See the Appendix to
this Prospectus for a description of these ratings. Convertible and debt
securities acquired by the Fund may be rated below investment grade, or unrated;
however, the Fund will not acquire such securities rated lower than B by Moody's
or S&P or that are not rated but determined by the investment manager to be of
comparable quality. Lower rated securities, those rated BB or lower by S&P or Ba
or lower by Moody's, are considered by S&P and Moody's, on balance, to be
predominantly speculative with respect to capacity to pay preferred stock
dividends or principal or interest, as the case may be, in accordance with the
terms of the obligation and will generally involve more credit risk than
securities in the higher rating categories. These lower rated convertible and
debt securities are subject to credit risk considerations substantially similar
to such considerations affecting high risk, high yield bonds, commonly referred
to as "junk bonds." The Fund does not intend to invest more than 10% of its
entire portfolio in such high risk, high yield bonds.

Generally, when interest rates rise, the value of the Fund's convertible and
debt investments will decline. Conversely, when rates fall, the value of such
investments may rise. As a result, the value of the Fund's shares and the
dividends per share paid by the Fund may fluctuate.

The Fund should not be considered suitable for investors who are unable or
unwilling to assume the risks of loss inherent in such a program, nor should
investment in the Fund be considered a balanced or complete investment program.

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

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

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

When-Issued and Delayed Delivery Transactions. The Fund may purchase debt
obligations on a "when-issued" or "delayed delivery" basis. Such securities are
subject to market fluctuations prior to delivery to the Fund and generally do
not earn interest until their scheduled delivery date. When the Fund is the
buyer in such transactions, it will maintain, in a segregated account with its
custodian, cash or high-grade marketable securities having an aggregate value
equal to the amount of such purchase commitments until payment is made. To the
extent the Fund engages in when-issued and delayed delivery transactions, it
will do so only for the purpose of acquiring portfolio securities consistent
with the Fund's investment objective and policies, and not for the purpose of
investment leverage. Nonetheless, purchases of securities on such basis may
involve more risk than other types of purchases, for example, counterparty
delivery risk. If the seller fails to complete the transaction, the Fund may
miss a price or yield considered advantageous. See the SAI for additional
information.

Foreign Securities. The Fund may also invest in foreign securities not publicly
traded in the United States. It is, however, the Fund's current investment
strategy to limit such investments to less than 5% of the Fund's net assets.

RISK FACTORS RELATING TO THE FUND'S INVESTMENTS IN LOWER-RATED CONVERTIBLE AND
DEBT SECURITIES

The Fund's investments in convertible and debt securities rated below investment
grade and in unrated securities of comparable quality (referred to in this
discussion as "lower-rated" securities) have credit characteristics similar to
lower-rated bonds. The market values of lower-rated securities tend to reflect
individual corporate developments to a greater extent than do higher-rated
securities, which react primarily to fluctuations in the general level of
interest rates. Such lower-rated securities also tend to be more sensitive to
economic conditions than higher-rated securities. Even securities rated BBB or
Baa by S&P and Moody's, respectively, ratings which are considered investment
grade, possess some speculative characteristics.

Companies that issue lower-rated, convertible and debt securities are often
highly leveraged and may not have more traditional methods of financing
available to them. Therefore, the risk associated with acquiring the securities
of such issuers is generally greater than is the case with higher-rated
securities. For example, during an economic downturn or a sustained period of
rising interest rates, highly leveraged issuers of lower-rated securities may
experience financial stress. During these periods, such issuers may not have
sufficient cash flow to meet their interest payment obligations. The issuer's
ability to service its debt obligations may also be adversely affected by
specific corporate developments, or the issuer's inability to meet specific
projected business forecasts, or the unavailability of additional financing. An
economic downturn may disrupt the market for lower-rated securities and
adversely affect the value of outstanding convertible and debt securities and
the ability of issuers of such securities to pay dividends, or principal or
interest, as the case may be. Any one of these negative developments may cause
the market value of a lower-rated security to decline, and such decline will be
reflected in the value of the Fund's shares. At the extreme, if an issuer is
unable to meet these obligations, the issue may go into default or bankruptcy
and the Fund may lose all, or a significant portion, of its investment.

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

The Fund is authorized to acquire lower-rated, convertible and debt securities
that are sold without registration under the federal securities laws and
therefore carry restrictions on resale. Many recently issued lower-rated
securities have been sold with registration rights, covenants and penalty
provisions for delayed registration. If the Fund is required to sell such
restricted securities before the securities have been registered, it may be
deemed an underwriter of such securities as defined in the Securities Act of
1933, which entails special responsibilities and liabilities. The Fund may incur
special costs in disposing of such securities; however, the Fund will generally
incur no costs when the issuer is responsible for registering the securities.

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

Certain provisions of federal income tax law place limitations on the use of
high yielding securities by issuers in connection with leveraged buy-outs,
mergers and acquisitions, or limit the deductibility of interest payments on
such securities. This legislation could reduce the market for such securities
generally, could negatively affect the financial condition of issuers of high
yield securities by removing or reducing a source of future financing, and could
negatively affect the value of specific high yield issues and the high yield
market in general.

Factors adversely impacting the market value of lower-rated securities will
adversely impact the Fund's net asset value. The Fund will rely on the
investment manager's judgment, analysis and experience in evaluating the
creditworthiness of an issuer. In this evaluation, the investment manager will
take into consideration, among other things, the issuer's financial resources,
its sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters.

The prices of many lower-rated securities may also be depressed by adverse
publicity regarding such securities, such as the publicity which appeared during
1989 and 1990, or by poor general economic conditions, such as the economic
slowdown which occurred during 1991 and continued for some period thereafter.

CONVERSION TO MASTER/FEEDER FUND STRUCTURE

Currently, in seeking to accomplish its objective of maximizing total return,
the Fund invests directly in a portfolio of equity securities of companies
primarily engaged in the real estate industry, and in debt and convertible
securities issued by such companies. Certain funds administered by the
investment manager participate as feeder funds in master/feeder fund structures.
Under a master/ feeder structure, one or more feeder funds, such as the Fund,
invests its assets in a master fund which, in turn, invests its assets directly
in the securities. The Fund hereby reserves the right to convert to a
master/feeder fund structure at a future date. Various state governments have
adopted the North American Securities Administrators Association Guidelines for
registration of master/feeder funds. If required by those guidelines, as then in
effect, the Fund will seek shareholder approval prior to converting the Fund to
a master/feeder structure, subject to there not being adopted a superseding
contrary provision or ruling under federal law. If it is determined by the
requisite regulatory authorities that such approval is not required,
shareholders will be deemed to have consented to such conversion by their
purchase of Fund shares and no further shareholder approval will be sought or
needed. Shareholders will, however, be informed in writing in advance of the
conversion. The determination to convert the Fund to a master/feeder fund
structure will not result in an increase in the fees or expenses paid by the
Fund or its shareholders. The investment objective and other fundamental
policies of the Fund, which can be changed only with shareholder approval, are
structured so as to permit the Fund to invest directly in securities or
indirectly in securities through a master/feeder fund structure.

HOW SHAREHOLDERS PARTICIPATE IN  THE RESULTS OF THE FUND'S ACTIVITIES

The assets of the Fund are invested in portfolio securities. If the securities
owned by the Fund increase in value, the value of the shares of the Fund which
the shareholder owns will increase. If the securities owned by the Fund decrease
in value, the value of the shareholder's shares will also decline. In this way,
shareholders participate in any change in the value of the securities owned by
the Fund. In addition to the factors which affect the value of individual
securities, as described in the preceding sections, a shareholder may anticipate
that the value of Fund shares will fluctuate with movements in the broader
equity and bond markets, as well.

To the extent the Fund's investments consist of debt securities, changes in
interest rates will affect the value of the Fund's portfolio and thus its share
price. Increased rates of interest which frequently accompany higher inflation
and/or a growing economy are likely to have a negative effect on the value of
Fund shares. To the extent the Fund's investments consist of common stocks, a
decline in the market, expressed for example by a drop in the Dow Jones
Industrials or the Standard & Poor's 500 average or any other equity based
index, may also be reflected in declines in the Fund's share price. History
reflects both increases and decreases in the prevailing rate of interest and in
the valuation of the market, and these may reoccur unpredictably in the future.

MANAGEMENT OF THE FUND

The Board of Trustees (the "Board") has the primary responsibility for the
overall management of the Fund and for electing the officers of the Trust who
are responsible for administering the Fund's day-to-day operations.

The Board has carefully reviewed the multiclass structure to ensure that no
material conflict exists between the two classes of shares. Although the Board
does not expect to encounter material conflicts in the future, the Board will
continue to monitor the Fund and will take appropriate action to resolve such
conflicts if any should arise.

In developing the multiclass structure the Fund has retained the authority to
establish additional classes of shares. It is the Fund's present intention to
offer only two classes of shares, but new classes may be offered in the future.

Franklin Advisers, Inc. ("Advisers" or "Manager"), serves as the Fund's
investment manager. Advisers is a wholly-owned subsidiary of Franklin Resources,
Inc. ("Resources"), a publicly owned holding company, the principal shareholders
of which are Charles B. Johnson and Rupert H. Johnson, Jr., who own
approximately 20% and 16%, respectively, of Resources' outstanding shares.
Resources is engaged in various aspects of the financial services industry
through its various subsidiaries (the "Franklin Templeton Group"). Advisers acts
as investment manager or administrator to 36 U.S. registered investment
companies (118 separate series) with aggregate assets of over $80 billion.

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

During the fiscal year ended April 30, 1995, management fees, before any advance
waiver, totaled 0.625% of average net assets of the Fund. Total operating
expenses, including management fees, before any advance waiver, totaled 1.40% of
the average net assets of the Fund. Pursuant to an agreement by Advisers to
waive its fees, the Fund paid no management fees and paid operating expenses
totaling 0.25% of the average net assets of the Fund. This arrangement may be
terminated by the Manager at any time upon notice to the Fund's Board.

Among the responsibilities of the Manager under the management agreement is the
selection of brokers and dealers through whom transactions in the Fund's
portfolio securities will be effected. The Manager tries to obtain the best
execution on all such transactions. If it is felt that more than one broker is
able to provide the best execution, the Manager will consider the furnishing of
quotations and of other market services, research, statistical and other data
for the Manager and its affiliates, as well as the sale of shares of the Fund,
as factors in selecting a broker. Further information is included under "The
Fund's Policies Regarding Brokers Used on Portfolio Transactions" in the SAI.

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

PLANS OF DISTRIBUTION

A separate plan of distribution has been approved and adopted for each class
("Class I Plan" and "Class II Plan," respectively, or "Plan(s)") pursuant to
Rule 12b-1 under the 1940 Act. The Rule 12b-1 fees charged to each class are
based solely on the distribution and, with respect to the Class II Plan,
servicing fees attributable to that particular class. Under either Plan, the
portion of fees remaining after payment to securities dealers or others for
distributing or servicing may be paid to Distributors for routine ongoing
promotion and distribution expenses incurred with respect to such class. Such
expenses may include, but are not limited to, the printing of prospectuses and
reports used for sales purposes, expenses of preparing and distributing sales
literature and related expenses, advertisements, and other distribution-related
expenses, including a prorated portion of Distributors' overhead expenses
attributable to the distribution of Fund shares.

The maximum amount which the Fund may reimburse to Distributors or others under
the Class I Plan for such distribution expenses is 0.25% per annum of Class I's
average daily net assets payable on a quarterly basis. All expenses of
distribution in excess of 0.25% per annum will be borne by Distributors, or
others who have incurred them, without reimbursement from the Fund.

Under the Class II Plan, the Fund pays to Distributors distribution and related
expenses up to 0.75% per annum of Class II's daily net assets, payable
quarterly. Such fees may be used in order to compensate Distributors or others
for providing distribution and related services and bearing certain expenses of
the class. All expenses of distribution, marketing and related services over
that amount will be borne by Distributors or others who have incurred them,
without reimbursement by the Fund. In addition, the Class II Plan provides for
an additional payment by the Fund of up to 0.25% per annum of Class II's average
daily net assets as a servicing fee, payable quarterly. This fee will be used to
pay securities dealers or others for, among other things, assisting in
establishing and maintaining customer accounts and records; assisting with
purchase and redemption requests; receiving and answering correspondence;
monitoring dividend payments from the Fund on behalf of customers, or similar
activities related to furnishing personal services and/or maintaining
shareholder accounts.

Either Distributors or one of its affiliates may pay, from its own resources, a
commission of up to 1% of the purchase price of Class II shares to securities
dealers who initiate and are responsible for such purchases. During the first
year following such purchases, Distributors will retain a portion of Class II's
Rule 12b-1 fees equal to 0.75% per annum of Class II's average daily net assets
to partially recoup fees Distributors pays to securities dealers in connection
with initial purchases of Class II shares.

Both Plans cover any payments to or by the Fund, Advisers, Distributors, or
other parties on behalf of the Fund, Advisers or Distributors, to the extent
such payments are deemed to be for the financing of any activity primarily
intended to result in the sale of shares issued by the Fund within the context
of Rule 12b-1. The payments under the Plans are included in the maximum
operating expenses which may be borne by each class of the Fund. For more
information, including a discussion of the Board's policies with regard to the
amount of the Class I Plan's fees, please see the SAI.

DISTRIBUTIONS TO SHAREHOLDERS

There are two types of distributions which the Fund may make to its
shareholders:

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

The Fund invests primarily in REITs, which generally pay ordinary income
dividends and return of capital distributions to the Fund. Consistent with the
investment objectives and policies of the Fund, the Fund will generally
distribute the ordinary income dividends to its shareholders and retain the
return of capital distributions received from its investments.

2. Capital gain distributions. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any net capital loss carryovers) may generally
be made once a year in December to reflect any net short-term and net long-term
capital gains realized by the Fund as of October 31 of the current fiscal year
and any undistributed capital gains from the prior fiscal year. The Fund may
make more than one distribution derived from net short-term and net long-term
capital gains in any year or adjust the timing of these distributions for
operational or other reasons.

DISTRIBUTIONS TO EACH CLASS OF SHARES

According to the requirements of the Code, dividends and capital gains will be
calculated and distributed in the same manner for Class I and Class II shares.
The per share amount of any income dividends will generally differ only to the
extent that each class is subject to different Rule 12b-1 fees.

DISTRIBUTION DATE

Although subject to change by the Board, without prior notice to or approval by
shareholders, the Fund's current policy is to declare income dividends annually
in December for shareholders of record on the first business day preceding the
15th of the month, payable on or about the last business day of December. The
amount of income dividend payments by the Fund is dependent upon the amount of
net income received by the Fund from its portfolio holdings, is not guaranteed
and is subject to the discretion of the Board. Fund shares are quoted
ex-dividend on the first business day following the record date. The Fund does
not pay "interest" or guarantee any fixed rate of return on an investment in its
shares.

In order to be entitled to a dividend, an investor must have acquired Fund
shares prior to the close of business on the record date. An investor
considering purchasing Fund shares shortly before the record date of a
distribution should be aware that because the value of the Fund's shares is
based directly on the amount of its net assets, rather than on the principle of
supply and demand, any distribution of income or capital gain will result in a
decrease in the value of the Fund's shares equal to the amount of the
distribution. While a dividend or capital gain distribution received shortly
after purchasing shares represents, in effect, a return of a portion of the
shareholder's investment, it may be taxable as dividend income or capital gain.

Distribution Options

Shareholders may choose to receive their distributions from the Fund in any of
these ways:

1. Purchase additional shares of the Fund - Shareholders may purchase additional
shares of the same class of the Fund (without a sales charge or imposition of a
contingent deferred sales charge) by reinvesting capital gain distributions, or
both dividend and capital gain distributions. Shareholders who own Class II
shares may also reinvest their distributions in Class I shares of the Fund. This
is a convenient way to accumulate additional shares and maintain or increase a
shareholder's earnings base.

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

3. Receive distributions in cash - Shareholders may choose to receive dividends,
or both dividend and capital gain distributions in cash. Shareholders may have
the money sent directly to them, to another person, or to a checking account.
Shareholders choosing to send the money to a checking account should see
"Electronic Fund Transfers" below.

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

TAXATION OF THE FUND AND ITS SHAREHOLDERS

The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. Additional information on tax matters
relating to the Fund and its shareholders is included in the section entitled
"Additional Information Regarding Taxation" in the SAI.

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

For federal income tax purposes, any income dividends which the shareholder
receives from the Fund, as well as any distributions derived from the excess of
net short-term capital gain over net long-term capital loss, are treated as
ordinary income whether the shareholder has elected to receive them in cash or
in additional shares.

Distributions derived from the excess of net long-term capital gain over net
short-term capital loss are treated as long-term capital gain regardless of the
length of time the shareholder has owned Fund shares and regardless of whether
such distributions are received in cash or in additional shares.

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

For corporate shareholders, only a small portion, if any, of the distributions
received by the Fund will generally qualify for the corporate dividends-received
deduction due to the Fund's primary investment in equity securities of REITs and
debt obligations.

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

The Fund will inform shareholders of the source of their dividends and
distributions at the time they are paid and will, promptly after the close of
each calendar year, advise them of the tax status for federal income tax
purposes of such dividends and distributions. As previously stated, the Fund
will generally retain the return of capital distributions received from its
investments; however, if these distributions are in turn paid to Fund
shareholders, then such shareholders will receive nontaxable return of capital
distributions, which reduce the cost basis of Fund shares for purposes of
computing gain or loss on the redemption or other disposition of Fund shares.

Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the applicability
of U.S. withholding or other taxes to distributions received by them from the
Fund and the application of foreign tax laws to these distributions.
Shareholders should also consult their tax advisors with respect to the
applicability of any state and local intangible property or income taxes to
their shares of the Fund and distributions and redemption proceeds received from
the Fund.

How to Buy Shares of the Fund

An investor may buy shares to open a Fund account with as little as $100 and
make additional investments at any time with as little as $25. If a shareholder
is buying shares through a retirement plan established by the Franklin Templeton
Group, these minimums may be waived. To open an account, an investor may contact
an investment representative or complete and sign the enclosed Shareholder
Application and return it to the Fund with their check. An investor should
indicate which class of shares they want to buy. If an investor fails to specify
a class, the investors purchase will automatically be invested in Class I
shares.

Deciding Which Class to Buy

When deciding which class of shares to buy, an investor should consider a number
of factors, including the amount the investor expects to invest and the length
of time the investor expects to hold the investment. If the investor plans to
invest $1 million or more in a single payment or if the investor qualifies to
buy Class I shares at net asset value, Class II shares may not be purchased.

Generally, an investor should consider buying Class I shares if:

o the investor expects to invest in the Fund over the long term;

o the investor qualifies to buy Class I shares at a reduced sales charge; or

o the investor intends to purchase $1 million or more over time.

An investor should consider Class II shares if:

o the investor expects to invest less than $100,000 in Franklin Templeton Funds;
and

o the investor intends to make substantial redemptions within approximately six
years or less of investment.

Class I shares are generally more attractive for long-term investors because of
Class II's higher Rule 12b-1 fees, which accumulate over time to outweigh the
lower Class II front-end sales charge and result in lower income dividends for
Class II shareholders. If an investor qualifies to buy Class I shares at a
reduced sales charge based upon the size of their purchase or through our Letter
of Intent or Rights of Accumulation programs, but intend to hold their shares
less than approximately six years, the investor should evaluate whether it is
more economical for the investor to buy Class I or Class II shares.

For purchases of $1 million or more, it is considered more beneficial for an
investor to buy Class I shares since there is no front-end sales charge, even
though these purchases may be subject to a contingent deferred sales charge. Any
purchase of $1 million or more will therefore be automatically invested in Class
I shares. An investor may accumulate more than $1 million in Class II shares
through purchases over time, but if the investor intends to do this the investor
should determine whether it would be more beneficial to buy Class I shares
through a Letter of Intent.

All of these factors should be considered before deciding which class of shares
to buy. There are no conversion features attached to either class of shares.

Purchase Price of Fund Shares

Shares may be purchased at the public offering price of the class an investor
wishes to purchase, unless the investor qualifies to purchase shares at a
discount or without a sales charge as discussed below. The front-end sales
charge for Class II shares is 1% and, unlike Class I shares, does not vary based
upon the size of the purchase.

<TABLE>
<CAPTION>

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

Class I
<S>                                                     <C>              <C>                <C>  
Under $100,000..............................            4.50%            4.71%              4.00%
$100,000 but less than $250,000.............            3.75%            3.90%              3.25%
$250,000 but less than $500,000.............            2.25%            2.30%              2.00%
$1,000,000 or more .........................            None**           None               None***
Class II
Under $1,000,000+...........................            1.00%**          1.01%              1.00%
</TABLE>

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

**A contingent deferred sales charge of 1% may be imposed on: (i) certain
redemptions of all or a part of an investment of $1 million or more in Class I
shares; and (ii) redemptions of Class II shares within 18 months of their
purchase. See "How to Sell Shares of the Fund - Contingent Deferred Sales
Charge."

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

+Purchases of Class II shares are limited to purchases below $1 million. See
"Deciding Which Class to Buy."

The offering price for each class will be calculated to two decimal places using
standard rounding criteria.

QUANTITY DISCOUNTS IN SALES CHARGES - CLASS I SHARES ONLY

As shown in the table above, the sales charge paid when Class I shares are
purchased may be reduced based upon the size of the investors purchase.

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

Letter of Intent. Investors may purchase Class I shares at a reduced sales
charge by completing the Letter of Intent section of the Shareholder
Application. A Letter of Intent is a commitment by the investor to invest a
specified dollar amount during a 13 month period. The amount the investor agrees
to invest determines the sales charge paid on Class I shares. The investor or
investment representative must inform the Fund that the Letter of Intent is in
effect each time shares are purchased.

By completing the Letter of Intent section of the Shareholder Application, an
investor acknowledges and agrees to the following:

o The investor authorizes Distributors to reserve five percent (5%) of the
amount of the total intended purchase in Class I shares registered in the
investors name.

o The investor grants Distributors a security interest in these shares and
appoints Distributors as attorney-in-fact with full power of substitution to
redeem any or all of these reserved shares to pay any unpaid sales charge if the
terms of the Letter of Intent are not fulfilled by the investor.

o The Fund will include the reserved shares in the total shares owned by the
shareholder as reflected on the periodic statements.

o The shareholder will receive dividend and capital gain distributions on the
reserved shares; the Fund will pay or reinvest these distributions as the
shareholder directs.

o Although shareholders may exchange shares, a shareholder may not liquidate
reserved shares until the Letter of Intent is completed or pay the higher sales
charge.

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

For more information about the Letter of Intent privilege, please see the SAI or
call the Shareholder Services Department.

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

Distributors define a qualified group as one which (i) has been in existence for
more than six months, (ii) has a purpose other than acquiring Fund shares at a
discount and (iii) satisfies uniform criteria which enable Distributors to
realize economies of scale in its costs of distributing shares.

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

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

Purchases at Net Asset Value

Investments of money from the following sources may be made in Class I shares of
the Fund without paying front-end or contingent deferred sales charges. An
investor may also purchase Class II shares without paying front-end or
contingent deferred sales charges if the source of the investor's investment
proceeds is included in paragraph (i) below:

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

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

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

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

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

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

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

A redemption is a taxable transaction, but reinvestment without a sales charge
may affect the amount of gain or loss recognized and the tax basis of the shares
reinvested. If the investor has a loss on the redemption, the loss may be
disallowed if the investor reinvests in the same fund within a 30-day period.
More information regarding the possible tax consequences of such a reinvestment
is included in the tax section of this Prospectus and the SAI.

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

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

(ii) accounts managed by the Franklin Templeton Group;

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

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

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

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

(vii) any state, county, or city, or any instrumentality, department, authority
or agency thereof which has determined that the Fund is a legally permissible
investment and which is prohibited by applicable investment laws from paying a
sales charge or commission in connection with the purchase of shares of any
registered management investment company ("an eligible governmental authority").
SUCH INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER AND
TO WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS. Municipal
investors considering investment of proceeds of bond offerings into the Fund
should consult with expert counsel to determine the effect, if any, of various
payments made by the Fund or its Manager on arbitrage rebate calculations. If an
investment by an eligible governmental authority at net asset value is made
through a securities dealer who has executed a dealer agreement with
Distributors, Distributors or one of its affiliates may make a payment, out of
its own resources, to the securities dealer in an amount not to exceed 0.25% of
the amount invested. Please contact the Franklin Templeton Institutional
Services Department for additional information;

(viii) officers, trustees, directors and full-time employees of the Franklin
Templeton Funds, or of the Franklin Templeton Group, and their family members.
Although such individuals may pay sales charges on investments in accounts
opened after the association with either Franklin Templeton Funds or Franklin
Templeton Group has ended, investments may continue in accounts opened while the
association was in place without paying a sales charge;

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

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

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

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

Investors who qualify to buy shares at net asset value as discussed in this
section should specify in writing that the privilege applies to the purchase and
include that written statement with the purchase order. The Fund will not be
responsible for purchases that are not made at net asset value if this written
statement is not included with the investor's order.

For more information, please see the SAI.

How To Buy Shares in Connection with  Tax-Deferred Retirement Plans

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

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

Please see "How To Sell Shares of the Fund" for information regarding
redemptions from retirement plan accounts. Specific forms must be completed in
order to receive distributions from Trust Company retirement plans.

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

General

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

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

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

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

For Class II purchases, either Distributors or one of its affiliates may pay
securities dealers, out of its own resources, up to 1% of the purchase price. To
partially recoup these payments, Distributors will keep part of the Rule 12b-1
fees assessed to the shares during the first year following their purchase.

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

For additional information about shares of the Fund, please see the SAI. The SAI
also includes a listing of the officers and trustees of the Fund who are
affiliated with Distributors. See "Officers and Trustees."

OTHER PROGRAMS AND PRIVILEGES AVAILABLE TO FUND SHAREHOLDERS

CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION MAY NOT BE
AVAILABLE DIRECTLY FROM THE FUND TO SHAREHOLDERS WHOSE SHARES ARE HELD, OF
RECORD, BY A FINANCIAL INSTITUTION OR IN A "STREET NAME" ACCOUNT OR NETWORKED
ACCOUNT THROUGH THE NATIONAL SECURITIES CLEARING CORPORATION ("NSCC") (SEE THE
SECTION CAPTIONED "ACCOUNT REGISTRATIONS" IN THIS PROSPECTUS).

SHARE CERTIFICATES

Shares from an initial investment, as well as subsequent investments, including
the reinvestment of dividends and capital gain distributions, are generally
credited to an account in the name of the investor on the books of the Fund,
without the issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss or
theft of a share certificate. A lost, stolen or destroyed certificate cannot be
replaced without obtaining a sufficient indemnity bond. The cost of such a bond,
which is generally borne by the shareholder, can be 2% or more of the value of
the lost, stolen or destroyed certificate. A certificate will be issued if
requested by the shareholder or by the securities dealer.

CONFIRMATIONS

A confirmation statement will be sent to each shareholder annually to reflect
the dividends reinvested during that period and after each other transaction
which affects the shareholder's account. This statement will also show the total
number of shares owned by the shareholder, including the number of shares in
"plan balance" for the account of the shareholder.

Automatic Investment Plan

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

Systematic Withdrawal Plan

The Systematic Withdrawal Plan allows shareholders to receive regular payments
from their accounts on a monthly, quarterly, semiannual or annual basis. To
establish a Systematic Withdrawal Plan, the value of the shareholder's account
must be at least $5,000 and the minimum payment amount for each withdrawal must
be at least $50. Please keep in mind that $50 is merely the minimum amount and
is not a recommended amount. For retirement plans subject to mandatory
distribution requirements, the $50 minimum will not apply. Investors who would
like to establish a Systematic Withdrawal Plan should complete the Systematic
Withdrawal Plan section of the Shareholder Application included with this
Prospectus and indicate how they would like to receive their payments. Payments
may be received in any of the following ways:

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

2. Receive payments in cash - Shareholders may choose to receive payments in
cash. Shareholders may have the money sent directly to them, to another person,
or to a checking account. Shareholders who choose to have the money sent to a
checking account should see "Electronic Fund Transfers" below.

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

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

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

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

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

Electronic Fund Transfers

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

Institutional Accounts

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

EXCHANGE PRIVILEGE

The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives and policies. The shares of most of these mutual funds are
offered to the public with a sales charge. If a shareholder's investment
objective or outlook for the securities markets changes, the Fund shares may be
exchanged for the same class of shares of another Franklin Templeton Fund
eligible for sale in the shareholder's state of residence and in conformity with
such fund's stated eligibility requirements and investment minimums. Some funds,
however, may not offer Class II shares. Class I shares may be exchanged for
Class I shares of any of the other Franklin Templeton Funds. Class II shares may
be exchanged for Class II shares of any of the other Franklin Templeton Funds.
No exchanges between different classes of shares will be allowed. A contingent
deferred sales charge will not be imposed on exchanges. If, however, the
exchanged shares were subject to a contingent deferred sales charge in the
original fund purchased and shares are subsequently redeemed within the
contingency period, a contingent deferred sales charge will be imposed. Before
making an exchange, investors should review the prospectus of the fund they wish
to exchange from and the fund they wish to exchange into for all specific
requirements or limitations on exercising the exchange privilege, for example,
limitations on a fund's sale of its shares, minimum holding periods for
exchanges at net asset value, or applicable sales charges.

Exchanges may be made in any of the following ways:

BY MAIL

Send written instructions signed by all account owners and accompanied by any
outstanding share certificates properly endorsed. The transaction will be
effective upon receipt of the written instructions together with any outstanding
share certificates.

BY TELEPHONE

SHAREHOLDERS, OR THEIR INVESTMENT REPRESENTATIVE OF RECORD, IF ANY, MAY EXCHANGE
SHARES OF THE FUND BY CALLING INVESTOR SERVICES AT 1-800/632-2301 OR THE
AUTOMATED FRANKLIN TELEFACTS(R) SYSTEM (DAY OR NIGHT) AT 1-800/247-1753. IF THE
SHAREHOLDER DOES NOT WISH THIS PRIVILEGE EXTENDED TO A PARTICULAR ACCOUNT, THE
FUND OR INVESTOR SERVICES SHOULD BE NOTIFIED.

The telephone exchange privilege allows a shareholder to effect exchanges from
the Fund into an identically registered account of the same class of shares in
one of the other available Franklin Templeton Funds. The Telephone Exchange
Privilege is available only for uncertificated shares or those which have
previously been deposited in the shareholder's account. The Fund and Investor
Services will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Please see "Telephone Transactions -
Verification Procedures."

During periods of drastic economic or market changes, it is possible that the
Telephone Exchange Privilege may be difficult to implement and the TeleFACTS
option may not be available. In this event, shareholders should follow the other
exchange procedures discussed in this section, including the procedures for
processing exchanges through securities dealers.

THROUGH SECURITIES DEALERS

As is the case with all purchases and redemptions of the Fund's shares, Investor
Services will accept exchange orders from securities dealers who execute a
dealer or similar agreement with Distributors. See also "By Telephone" above.
Such a dealer-ordered exchange will be effective only for uncertificated shares
on deposit in the shareholder's account or for which certificates have
previously been deposited. A securities dealer may charge a fee for handling an
exchange.

ADDITIONAL INFORMATION REGARDING EXCHANGES

Exchanges of the same class of shares are made on the basis of the net asset
value of the class involved, except as set forth below. Exchanges of shares of a
class which were originally purchased without a sales charge will be charged a
sales charge in accordance with the terms of the prospectus of the fund and the
class of shares being purchased, unless the original investment in the Franklin
Templeton Funds was made pursuant to the privilege permitting purchases at net
asset value, as discussed under "How to Buy Shares of the Fund." Exchanges of
Class I shares of the Fund which were purchased with a lower sales charge into a
fund which has a higher sales charge will be charged the difference unless the
shares were held in the Fund for at least six months prior to executing the
exchange.

When an investor requests the exchange of the total value of the Fund account,
declared but unpaid income dividends and capital gain distributions will be
transferred to the fund being exchanged into and will be invested at net asset
value. Because the exchange is considered a redemption and purchase of shares,
the shareholder may realize a gain or loss for federal income tax purposes.
Backup withholding and information reporting may also apply. Information
regarding the possible tax consequences of such an exchange is included in the
tax section in this Prospectus and in the SAI.

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

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

EXCHANGES OF CLASS I SHARES

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

EXCHANGES OF CLASS II SHARES

When an account is composed of Class II shares subject to the contingent
deferred sales charge, and Class II shares that are not, the shares will be
transferred proportionately into the new fund. Shares received from reinvestment
of dividends and capital gains are referred to as "free shares," shares which
were originally subject to a contingent deferred sales charge but to which the
contingent deferred sales charge no longer applies are called "matured shares,"
and shares still subject to the contingent deferred sales charge are referred to
as "CDSC liable shares." CDSC liable shares held for different periods of time
are considered different types of CDSC liable shares. For instance, if a
shareholder has $1,000 in free shares, $2,000 in matured shares, and $3,000 in
CDSC liable shares, and the shareholder exchanges $3,000 into a new fund, $500
will be exchanged from free shares, $1,000 from matured shares, and $1,500 from
CDSC liable shares. Similarly, if CDSC liable shares have been purchased at
different periods, a proportionate amount will be taken from shares held for
each period. If, for example, a shareholder holds $1,000 in shares bought 3
months ago, $1,000 bought 6 months ago, and $1,000 bought 9 months ago, and the
shareholder exchanges $1,500 into the new fund, $500 from each of these shares
will be deemed exchanged into the new fund.

The only money market fund exchange option available to Class II shareholders is
the Franklin Templeton Money Fund II ("Money Fund II"), a series of the Franklin
Templeton Money Fund Trust. No drafts (checks) may be written on Money Fund II
accounts, nor may Class II shareholders purchase shares of Money Fund II
directly. Class II shares exchanged for shares of Money Fund II will continue to
age for purposes of calculating the contingent deferred sales charge, because
they continue to be subject to Rule 12b-1 fees. The contingent deferred sales
charge will be assessed if CDSC liable shares are redeemed. Class I shares may
be exchanged for shares of any of the money market funds in the Franklin
Templeton Funds except Money Fund II. Draft writing privileges and direct
purchases are allowed on these other money market funds as described in their
respective prospectuses.

To the extent shares are exchanged proportionately, as opposed to another
method, such as first-in first-out, or free-shares followed by CDSC liable
shares, the exchanged shares may, in some instances, be CDSC liable even though
a redemption of such shares, as discussed elsewhere herein, may no longer be
subject to a contingent deferred sales charge. The proportional method is
believed by management to more closely meet and reflect the expectations of
Class II shareholders in the event shares are redeemed during the contingency
period. For federal income tax purposes, the cost basis of shares redeemed or
exchanged is determined under the Code without regard to the method of
transferring shares chosen by the Fund.

RETIREMENT PLAN ACCOUNTS

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

Market Timers

Market Timers generally include market timing or allocation services, accounts
administered so as to buy, sell or exchange shares based on predetermined market
indicators, or any person or group whose transactions seem to follow a timing
pattern. Market Timers will be charged a $5.00 administrative service fee for
each exchange. All other exchanges are without charge.

RESTRICTIONS ON EXCHANGES

In accordance with the terms of their respective prospectuses, certain funds do
not accept or may place differing limitations than those below on exchanges by
Market Timers.

The Fund reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Market Timer group or
any person whose transactions seem to follow a timing pattern who: (i) makes an
exchange request out of the Fund within two weeks of an earlier exchange request
out of the Fund, or (ii) makes more than two exchanges out of the Fund per
calendar quarter, or (iii) exchanges shares equal in value to at least $5
million, or more than 1% of the Fund's net assets. Accounts under common
ownership or control, including accounts administered by Market Timers, will be
aggregated for purposes of the exchange limits.

The Fund also reserves the right to refuse the purchase side of an exchange
request by any Market Timers, person, or group if, in the Manager's judgment,
the Fund would be unable to invest effectively in accordance with its investment
objectives and policies, or would otherwise potentially be adversely affected.
The purchase side of an exchange may be restricted or refused if the Fund
receives or anticipates simultaneous orders affecting significant portions of
the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to the Fund and therefore may be
refused.

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

TRANSFERS

Transfers between identically registered accounts in the same fund and class are
treated as non-monetary and non-taxable events, and are not subject to a
contingent deferred sales charge. The transferred shares will continue to age
from the date of original purchase. Shares of each class will be transferred on
the same basis as described above for exchanges.

CONVERSION RIGHTS

It is not presently anticipated that Class II shares will be convertible to
Class I shares. A shareholder may, however, sell the Class II shares and use the
proceeds to purchase Class I shares, subject to all applicable sales charges.

HOW TO SELL SHARES OF THE FUND

A shareholder may at any time sell (redeem) shares owned and receive from the
Fund the value of the shares. Shares may be redeemed in any of the following
ways:

BY MAIL

Send a written request, signed by all registered owners, to Investor Services,
at the address shown on the back cover of this Prospectus, and any share
certificates which have been issued for the shares being redeemed, properly
endorsed and in order for transfer. The shareholder will then receive from the
Fund the value of the class of shares redeemed based upon the net asset value
per share (less a contingent deferred sales charge, if applicable) next computed
after the written request in proper form is received by Investor Services.
Redemption requests received after the time at which the net asset value is
calculated will receive the price calculated on the following business day. The
net asset value per share of each class is determined as of the scheduled close
of the New York Stock Exchange ("Exchange") (generally 1:00 p.m. Pacific time),
each day that the Exchange is open for trading. Shareholders are requested to
provide a telephone number(s) where they may be reached during business hours,
or in the evening if preferred. Investor Services' ability to contact a
shareholder promptly when necessary will speed the processing of the redemption.

TO BE CONSIDERED IN PROPER FORM, SIGNATURE(S) MUST BE GUARANTEED IF THE
REDEMPTION REQUEST INVOLVES ANY OF THE FOLLOWING:

(1)  the proceeds of the redemption are over $50,000;

(2)  the proceeds (in any amount) are to be paid to someone other than the
     registered owner(s) of the account;

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

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

(5)  the Fund or Investor Services believes that a signature guarantee would
     protect against potential claims based on the transfer instructions,
     including, for example, when (a) the current address of one or more joint
     owners of an account cannot be confirmed, (b) multiple owners have a
     dispute or give inconsistent instructions to the Fund, (c) the Fund has
     been notified of an adverse claim, (d) the instructions received by the
     Fund are given by an agent, not the actual registered owner, (e) the Fund
     determines that joint owners who are married to each other are separated or
     may be the subject of divorce proceedings, or (f) the authority of a
     representative of a corporation, partnership, association, or other entity
     has not been established to the satisfaction of the Fund.

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

When shares to be redeemed are represented by share certificates, the request
for redemption must be accompanied by the share certificate and a share
assignment form signed by the registered owners exactly as the account is
registered, with the signatures guaranteed as referenced above. Shareholders are
advised, for their own protection, to send the share certificate and assignment
form in separate envelopes if they are being mailed in for redemption.

Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction require the following
documentation to be in proper form:

Corporation - (1) Signature guaranteed letter of instruction from the authorized
officers of the corporation, and (2) a corporate resolution.

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

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

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

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

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

BY TELEPHONE

Shareholders who complete the Franklin Templeton Telephone Redemption
Authorization Agreement (the "Agreement"), included with this Prospectus, may
redeem shares of the Fund by telephone, subject to the Restricted Account
exception noted under "Telephone Transactions - Restricted Accounts."
Information may also be obtained by writing to the Fund or Investor Services at
the address shown on the cover or by calling 1-800/632-2301. The Fund and
Investor Services will employ reasonable procedures to confirm that instructions
given by telephone are genuine. Shareholders, however, bear the risk of loss in
certain cases as described under "Telephone Transactions - Verification
Procedures."

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

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

THROUGH SECURITIES DEALERS

The Fund will accept redemption orders from securities dealers who have entered
into an agreement with Distributors. This is known as a repurchase. The only
difference between a normal redemption and a repurchase is that if the
shareholder redeems shares through a dealer, the redemption price will be the
net asset value next calculated after the shareholder's dealer receives the
order which is promptly transmitted to the Fund, rather than on the day the Fund
receives the shareholder's written request in proper form. The documents
described under "By Mail" above, as well as a signed letter of instruction, are
required regardless of whether the shareholder redeems shares directly or
submits such shares to a securities dealer for repurchase. A shareholder's
letter should reference the Fund and the class, the account number, the fact
that the repurchase was ordered by a dealer and the dealer's name. Details of
the dealer-ordered trade, such as trade date, confirmation number, and the
amount of shares or dollars, will help speed processing of the redemption. The
seven-day period within which the proceeds of the shareholder's redemption will
be sent will begin when the Fund receives all documents required to complete
("settle") the repurchase in proper form. The redemption proceeds will not earn
dividends or interest during the time between receipt of the dealer's repurchase
order and the date the redemption is processed upon receipt of all documents
necessary to settle the repurchase. Thus, it is in a shareholder's best interest
to have the required documentation completed and forwarded to the Fund as soon
as possible. The shareholder's dealer may charge a fee for handling the order.
The SAI contains more information on the redemption of shares.

Contingent Deferred Sales Charge

In order to recover commissions paid to securities dealers, all or a portion of
Class I investments of $1 million or more and any Class II investments redeemed
within the contingency period (12 months for Class I and 18 months for Class II)
will be assessed a contingent deferred sales charge, unless one of the
exceptions described below applies. The charge is 1% of the lesser of the value
of the shares redeemed (exclusive of reinvested dividends and capital gain
distributions) or the net asset value at the time of purchase of such shares,
and is retained by Distributors. The contingent deferred sales charge is waived
in certain instances.

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

The contingent deferred sales charge on each class of shares is waived, as
applicable, for: specified net asset value purchases discussed under "How to Buy
Shares of the Fund - Purchases at Net Asset Value"; exchanges; any account fees;
distributions from an individual retirement plan account due to death or
disability or upon periodic distributions based on life expectancy; tax-free
returns of excess contributions from employee benefit plans; distributions from
employee benefit plans, including those due to termination or plan transfer;
redemptions initiated by the Fund due to an account falling below the minimum
specified account size; redemptions following the death of the shareholder or
beneficial owner; and redemptions through a Systematic Withdrawal Plan set up
for shares prior to February 1, 1995, and for Systematic Withdrawal Plans set up
thereafter, redemptions of up to 1% monthly of an account's net asset value (3%
quarterly, 6% semiannually or 12% annually). For example, if a Class I account
maintained an annual balance of $1,000,000, only $120,000 could be withdrawn
through a once-yearly Systematic Withdrawal Plan free of charge. Any amount over
that $120,000 would be assessed a 1% contingent deferred sales charge. Likewise,
if a Class II account maintained an annual balance of $10,000, only $1,200 could
be withdrawn through a once-yearly Systematic Withdrawal Plan free of charge.

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

Unless otherwise specified, requests for redemptions of a specified dollar
amount will result in additional shares being redeemed to cover any applicable
contingent deferred sales charge, while requests for redemption of a specific
number of shares will result in the applicable contingent deferred sales charge
being deducted from the total dollar amount redeemed.

Additional Information Regarding Redemptions

The Fund may delay the mailing of the redemption check, or a portion thereof,
until the clearance of the check used to purchase Fund shares, which may take up
to 15 days or more. Although the use of a certified or cashier's check will
generally reduce this delay, shares purchased with these checks will also be
held pending clearance. Shares purchased by federal funds wire are available for
immediate redemption.

The right of redemption may be suspended or the date of payment postponed if the
Exchange is closed (other than customary closing) or upon the determination of
the SEC that trading on the Exchange is restricted or an emergency exists, or if
the SEC permits it, by order, for the protection of shareholders. Of course, the
amount received may be more or less than the amount invested by the shareholder,
depending on fluctuations in the market value of securities owned by the Fund.

OTHER INFORMATION

Distribution or redemption checks sent to shareholders do not earn interest or
any other income during the time such checks remain uncashed and neither the
Fund nor its affiliates will be liable for any loss to the shareholder caused by
the shareholder's failure to cash such check(s).

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

For any information required about a proposed liquidation, a shareholder may
call Franklin's Shareholder Services Department or the securities dealer may
call Franklin's Dealer Services Department.

RETIREMENT PLAN ACCOUNTS

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

Tax penalties will generally apply to any distribution from such plans to a
participant under age 59 1/2, unless the distribution meets one of the
exceptions set forth in the Code.

TELEPHONE TRANSACTIONS

Shareholders of the Fund and their investment representative of record, if any,
may be able to execute various transactions by calling Investor Services at
1-800/632-2301.

All shareholders will be able to execute various telephone transactions,
including: (i) effect a change in address, (ii) change a dividend option (see
"Restricted Accounts" below), (iii) transfer Fund shares in one account to
another identically registered account in the Fund, (iv) request the issuance of
certificates (to be sent to the address of record only) and (v) exchange Fund
shares as described in this Prospectus by telephone. In addition, shareholders
who complete and file an Agreement as described under "How to Sell Shares of the
Fund - Redemptions by Telephone" will be able to redeem shares of the Fund.

VERIFICATION PROCEDURES

The Fund and Investor Services will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the purpose
of establishing the caller's identification, and by sending a confirmation
statement on redemptions to the address of record each time account activity is
initiated by telephone. So long as the Fund and Investor Services follow
instructions communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their affiliates will be
liable for any loss to the shareholder caused by an unauthorized transaction.
The Fund and Investor Services may be liable for any losses due to unauthorized
or fraudulent instructions in the event such reasonable procedures are not
followed. Shareholders are, of course, under no obligation to apply for or
accept telephone transaction privileges. In any instance where the Fund or
Investor Services is not reasonably satisfied that instructions received by
telephone are genuine, the requested transaction will not be executed, and
neither the Fund nor Investor Services will be liable for any losses which may
occur because of a delay in implementing a transaction.

RESTRICTED ACCOUNTS

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

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

GENERAL

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

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

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

VALUATION OF FUND SHARES

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

The net asset value per share of each class is determined by deducting the
aggregate gross value of all liabilities of each class from the aggregate gross
value of all assets of each class, and then dividing the difference by the
number of shares of the class outstanding. For the purpose of determining the
aggregate net assets of the Fund, cash and receivables are valued at their
realizable amounts. Interest is recorded as accrued and dividends are recorded
on the ex-dividend date. Portfolio securities listed on a securities exchange or
on the NASDAQ National Market System for which market quotations are readily
available are valued at the last quoted sale price of the day or, if there is no
such reported sale, within the range of the most recent quoted bid and ask
prices. Over-the-counter securities are valued within the range of the most
recent quoted bid and ask price. Portfolio securities which are traded both in
the over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market as determined by the Manager. Portfolio
securities underlying actively traded call options are valued at their market
price as determined above. The current market value of any option held by the
Fund is its last sales price on the relevant exchange prior to the time when
assets are valued. Lacking any sales that day or if the last sale price is
outside the bid and ask prices, the options are valued within the range of the
current closing bid and ask prices if such valuation is believed to fairly
reflect the contract's market value. Other securities for which market
quotations are readily available are valued at the current market price, which
may be obtained from a pricing service, based on a variety of factors, including
recent trades, institutional size trading in similar types of securities
(considering yield, risk and maturity) and/or developments related to specific
issues. Securities and other assets for which market prices are not readily
available are valued at fair value as determined following procedures approved
by the Board of Trustees. With the approval of the trustees, the Fund may
utilize a pricing service, bank or securities dealer to perform any of the above
described functions.

Each class will bear, pro rata, all of the common expenses of the Fund, except
that each class will bear the Rule 12b-1 fees payable under its respective plan.
The net asset value of all outstanding shares of each class of the Fund will be
computed on a pro rata basis based on the proportionate participation in the
Fund represented by the value of shares of such class. Due to the specific
distribution expenses and other costs that will be allocable to each class, the
dividends paid to each class of the Fund may vary.

HOW TO GET INFORMATION REGARDING  AN INVESTMENT IN THE FUND

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

From a touch-tone phone, Franklin and Templeton shareholders may access an
automated system (day or night) which offers the following features:

By calling TeleFACTS(R) (Franklin Templeton's automated customer servicing
system), at 1-800/247-1753, shareholders may obtain Class I and Class II account
information, current price and, if available, yield or other performance
information specific to the Fund or any Franklin Templeton Fund. In addition,
Class I shareholders may process an exchange, within the same class, into an
identically registered Franklin account and request duplicate confirmation or
year-end statements and deposit slips.

Class I and Class II share codes for the Fund, which will be needed to access
system information are 192 and 292, respectively. The system's automated
operator will prompt the caller with easy to follow step-by-step instructions
from the main menu. Other features may be added in the future.

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

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

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

PERFORMANCE

Advertisements, sales literature and communications to shareholders may contain
several measures of a class' performance, including current yield, various
expressions of total return and current distribution rate. They may occasionally
cite statistics to reflect its volatility or risk.

Average annual total return figures as prescribed by the SEC represent the
average annual percentage change in value of $1,000 invested at the maximum
public offering price (offering price includes sales charge) for one-, five- and
ten-year periods, or portion thereof, to the extent applicable, through the end
of the most recent calendar quarter, assuming reinvestment of all distributions.
The Fund may also furnish total return quotations for each class for other
periods or based on investments at various sales charge levels or at net asset
value. For such purposes, total return equals the total of all income and
capital gain paid to shareholders, assuming reinvestment of all distributions,
plus (or minus) the change in the value of the original investment, expressed as
a percentage of the purchase price.

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

Current yield for each class, which is calculated according to a formula
prescribed by the SEC (see the SAI), is not indicative of the dividends or
distributions which were or will be paid to the Fund's shareholders. Dividends
or distributions paid to shareholders of a class are reflected in the current
distribution rate, which may be quoted to shareholders. The current distribution
rate is computed by dividing the total amount of dividends per share paid by a
class during the past 12 months by a current maximum offering price for that
class of shares. Under certain circumstances, such as when there has been a
change in the amount of dividend payout or a fundamental change in investment
policies, it might be appropriate to annualize the dividends paid during the
period such policies were in effect, rather than using the dividends during the
past 12 months. The current distribution rate differs from the current yield
computation because it may include distributions to shareholders from sources
other than dividends and interest, such as premium income from option writing
and short-term capital gain, and is calculated over a different period of time.

In each case, performance figures are based upon past performance, reflect all
recurring charges against a class' income and will assume the payment of the
maximum sales charge on the purchase of that class of shares. When there has
been a change in the sales charge structure, the historical performance figures
will be restated to reflect the new rate. The investment results of each class,
like all other investment companies, will fluctuate over time; thus, performance
figures should not be considered to represent what an investment may earn in the
future or what a class' performance may be in any future period.

Because Class II shares were not offered prior to May 1, 1995, no performance
data is available for these shares. After a sufficient period of time has
passed, Class II performance data will be available.

GENERAL INFORMATION

REPORTS TO SHAREHOLDERS

The Fund's fiscal year ends April 30. Annual Reports containing audited
financial statements of the Fund, including the auditors' report, and
Semi-Annual Reports containing unaudited financial statements are automatically
sent to shareholders. To reduce the volume of mail sent to each household, as
well as to reduce Fund expenses, Investor Services will attempt to identify
related shareholders within a household and send only one copy of the report.
Additional copies may be obtained, without charge, upon request to the Fund at
the telephone number or address set forth on the cover page of this Prospectus.

Additional information on Fund performance is included in the Fund's Annual
Report to Shareholders and the SAI.

ORGANIZATION AND VOTING RIGHTS

The Agreement and Declaration of Trust permits the trustees to issue an
unlimited number of full and fractional shares of beneficial interest with a par
value of $.01 per share, which may be issued in any number of series and
classes. Shares issued will be fully paid and non-assessable and will have no
preemptive, conversion, or sinking rights. Currently the Trust issues Class I
and Class II shares of the Fund, its only series. Additional series or classes
of shares may be added in the future by the Board.

Voting rights are noncumulative, so that in any election of trustees, the
holders of more than 50% of the shares voting can elect all of the trustees, if
they choose to do so, and in such event, the holders of the remaining shares
voting will not be able to elect any person or persons to the Board. The Trust
does not intend to hold annual shareholders' meetings. The Trust may, however,
hold a special shareholders' meeting of the Fund for such purposes as changing
fundamental investment restrictions, approving a new management agreement or any
other matters which are required to be acted on by shareholders under the 1940
Act. A meeting may also be called by the trustees in their discretion or by
shareholders holding at least ten percent of the outstanding shares of the
Trust. Shareholders will receive assistance in communicating with other
shareholders in connection with the election or removal of trustees such as that
provided in Section 16(c) of the 1940 Act.

Shares of each class of the Fund represent proportionate interests in the assets
of the Fund and have the same voting and other rights and preferences as the
other classes of the Trust for matters that affect the Trust as a whole. For
matters that only affect a certain class of a Fund's shares, however, only
shareholders of that class will be entitled to vote. Therefore each class of
shares of a Fund will vote separately on matters (1) affecting only that class
of such Fund, (2) expressly required to be voted on separately by class by state
business trust law, or (3) required to be voted on separately by class by the
1940 Act, or the rules adopted thereunder. For instance, if a change to the Rule
12b-1 plan relating to Class I shares of the Fund requires shareholder approval,
only Class I shareholders of the Fund may vote on the change to the Rule 12b-1
plan affecting that class. Similarly, if a change to the Rule 12b-1 plan
relating to Class II shares requires approval, only shareholders of Class II of
the Fund may vote on changes to such plan. On the other hand, if there is a
proposed change to the investment objective of the Fund, the proposal would
affect all shareholders, regardless of which class of shares they hold and,
therefore, each share has the same voting rights.

REDEMPTIONS BY THE FUND

The Fund reserves the right to redeem, at net asset value, shares of any
shareholder whose account has a value of less than $50, but only where the value
of such account has been reduced by the shareholder's prior voluntary redemption
of shares and has been inactive (except for the reinvestment of distributions)
for a period of at least six months, provided advance notice is given to the
shareholder. More information is included in the SAI.

ACCOUNT REGISTRATIONS

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

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

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

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

Except as indicated, a shareholder may transfer an account in the Fund carried
in "street" or "nominee" name by the shareholder's securities dealer to a
comparably registered Fund account maintained by another securities dealer. Both
the delivering and receiving securities dealers must have executed dealer
agreements on file with Distributors. Unless a dealer agreement has been
executed and is on file with Distributors, the Fund will not process the
transfer and will so inform the shareholder's delivering securities dealer. To
effect the transfer, a shareholder should instruct the securities dealer to
transfer the account to a receiving securities dealer and sign any documents
required by the securities dealer(s) to evidence consent to the transfer. Under
current procedures, the account transfer may be processed by the delivering
securities dealer and the Fund after the Fund receives authorization in proper
form from the shareholder's delivering securities dealer. Account transfers may
be effected electronically through the services of the NSCC.

The Fund may conclusively accept instructions from an owner or the owner's
nominee listed in publicly available nominee lists, regardless of whether the
account was initially registered in the name of or by the owner, the nominee, or
both. If a securities dealer or other representative is of record on an
investor's account, the investor will be deemed to have authorized the use of
electronic instructions on the account, including, without limitation, those
initiated through the services of the NSCC, to have adopted as instruction and
signature any such electronic instructions received by the Fund and Investor
Services, and to have authorized them to execute the instructions without
further inquiry. At the present time, such services which are available include
the NSCC's "Networking," "Fund/SERV," and "ACATS" systems.

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

IMPORTANT NOTICE REGARDING TAXPAYER IRS CERTIFICATIONS

Pursuant to the Code and U.S. Treasury regulations, the Fund may be required to
report to the IRS any taxable dividend, capital gain distribution, or other
reportable payment (including share redemption proceeds) and withhold 31% of any
such payments made to individuals and other non-exempt shareholders who have not
provided a correct taxpayer identification number ("TIN") and made certain
required certifications that appear in the Shareholder Application. A
shareholder may also be subject to backup withholding if the IRS or a securities
dealer notifies the Fund that the number furnished by the shareholder is
incorrect or that the shareholder is subject to backup withholding for previous
under-reporting of interest or dividend income.

The Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then-current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a shareholder who has
completed an "awaiting TIN" certification to provide the Fund with a certified
TIN within 60 days after opening the account.

PORTFOLIO OPERATIONS

The team responsible for the day-to-day management of the Fund's portfolio since
its inception is Matt Avery and Tom Branch.

Matt Avery
Portfolio Manager
Franklin Advisers, Inc.

Mr. Avery manages the Fund's portfolio and manages other funds for which
Advisers serves as investment manager. Mr. Avery received a Master's degree in
Business Administration from University of California, Los Angeles Graduate
School of Management and a Bachelor of Science degree in Industrial Engineering
from Stanford University. Mr. Avery joined Franklin in 1987.

Tom Branch
Portfolio Manager
Franklin Advisers, Inc.

Mr. Branch received a Bachelor of Science degree in Business Administration with
a concentration in Finance from California Polytechnic State University, San
Luis Obispo. Mr. Branch joined Franklin in July, 1993.

APPENDIX

DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:

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

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

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

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

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

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

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

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

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

DESCRIPTION OF S&P'S CORPORATE BOND RATINGS:

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

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

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

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

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

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



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