FRANKLIN REAL ESTATE SECURITIES TRUST, 485BPOS, 2000-08-31

FRANKLIN REAL ESTATE SECURITIES TRUST
485BPOS, 2000-08-31

Previous: IAI RETIREMENT FUNDS INC, N-30D, 2000-08-31

Next: FRANKLIN REAL ESTATE SECURITIES TRUST, 485BPOS, EX-99.(G)(V), 2000-08-31

As filed with the Securities and Exchange Commission on August 31, 2000.

File Nos.
33-69048
811-8034

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No.

Post-Effective Amendment No. 11 (X)
----

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 13 (X)
--

FRANKLIN REAL ESTATE SECURITIES TRUST
-------------------------------------
(Exact Name of Registrant as Specified in Charter)

777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
----------------------------------------------
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code (650) 312-2000
--------------

MURRAY L. SIMPSON, 777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
-----------------------------------------------------------------
(Name and Address of Agent for Service of Process)

Approximate Date of Proposed Public offering:

It is proposed that this filing will become effective (check
appropriate box)

[ ] immediately upon filing pursuant to paragraph (b)
[x] on September 1, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485

If appropriate, check the following box:

[ ] This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.

FRANKLIN
REAL ESTATE SECURITIES FUND

FRANKLIN REAL ESTATE
SECURITIES TRUST

CLASS A, B & C

INVESTMENT STRATEGY
GROWTH & INCOME

SEPTEMBER 1, 2000

[Insert Franklin Templeton Ben Head]
FRANKLIN TEMPLETON INVESTMENTS

The SEC has not approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.

CONTENTS

THE FUND

Information about
the Fund you should
know before investing

2 Goal and Strategies
4 Main Risks
6 Performance
8 Fees and Expenses
10 Management
11 Distributions and Taxes
12 Financial Highlights

YOUR ACCOUNT

Information about sales
charges, account
transactions and services

14 Choosing a Share Class
18 Buying Shares
21 Investor Services
24 Selling Shares
26 Account Policies
29 Questions

FOR MORE INFORMATION

Where to learn more about the Fund

Back Cover

THE FUND

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
-------------------

GOAL The Fund's investment goal is to maximize total return.

MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund will
invest at least 65% of its total assets in equity securities of companies
operating in the real estate industry, including:

o companies qualifying under federal tax law as real estate investment trusts
(REITs); and

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

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

REITS. REITs are real estate companies, usually with publicly traded stock,
that manage a portfolio of income-producing real estate properties such as
apartments, hotels, office buildings or shopping centers. The Fund primarily
invests in "equity" REITs, which also take ownership positions in real
estate. Shareholders of equity REITs generally receive income from rents
received and receive capital gains when properties are sold at a profit.
REITs are generally operated by experienced property management teams and
typically concentrate on a specific geographic region or property type.

The Fund generally invests in medium-capitalization (less than $5 billion) to
small-capitalization (less than $1.5 billion) REITs because that is
reflective of the industry itself. Market capitalization is defined as share
price multiplied by the number of common stock shares outstanding.

When choosing equity investments for this Fund, the manager applies a
"bottom-up," value-oriented, long-term approach, focusing on the market price
of a company's securities relative to the manager's evaluation of the
company's long-term earnings, asset value and cash flow potential. Using both
qualitative and quantitative analysis and onsite visits, the manager
evaluates security characteristics, the strength and quality of the
management team, and underlying properties. In addition, the manager may
consider other factors, such as the supply and demand outlook for various
property types and regional markets.

The Fund may invest up to 35% of the remainder of its total assets in equity
or debt securities of issuers engaged in businesses whose products and
services are closely related to the real estate industry. These include
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 which have significant real estate holdings (at
least 50% of their assets).

An equity security, or stock, represents a proportionate share of the
ownership of a company; its value is based on the success of the company's
business, any income paid to stockholders, the value of its assets, and
general market conditions. Common stocks and preferred stocks are examples of
equity securities.

The Fund may invest up to 10% of its total assets in securities of issuers in
any foreign country, developed or developing, and in American, European and
Global Depositary Receipts, which are certificates typically issued by a bank
or trust company that give their holders the right to receive securities
issued by a foreign or domestic corporation.

TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, the manager may invest up to 100%
of the Fund's assets in a temporary defensive manner or hold a substantial
portion of its assets in cash, cash equivalents or other high quality
short-term investments. Temporary defensive investments generally may include
money market securities or short-term debt securities. The manager also may
invest in these types of securities or hold cash while looking for suitable
investment opportunities or to maintain liquidity. In these circumstances,
the Fund may be unable to achieve its investment goal.

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

REAL ESTATE SECURITIES By concentrating in a single sector, the Fund carries
much greater risk of adverse developments in that sector than a fund that
invests in a wide variety of industries. Real estate values rise and fall in
response to a variety of factors, including local, regional and national
economic conditions, interest rates and tax considerations. When economic
growth is slow, demand for property decreases and prices may decline.
Property values may decrease because of overbuilding, increases in property
taxes and operating expenses, changes in zoning laws, environmental
regulations or hazards, uninsured casualty or condemnation losses, or a
general decline in neighborhood values.

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

REITS Equity REITs may be affected by any changes in the value of the
properties owned and other factors, and their prices tend to go up and down.
A REIT's performance depends on the types and locations of the properties it
owns and on how well it manages those properties. A decline in rental income
may occur because of extended vacancies, increased competition from other
properties, tenants' failure to pay rent or poor management. A REIT's
performance also depends on the company's ability to finance property
purchases and renovations and manage its cash flows. Because REITs typically
are invested in a limited number of projects or in a particular market
segment, they are more susceptible to adverse developments affecting a single
project or market segment than more broadly diversified investments.

INTEREST RATE Rate changes can be sudden and unpredictable. Rising interest
rates are likely to have an adverse impact on the securities that the Fund
owns, as increasing rates drive up mortgage and financing costs, can restrain
construction and buying and selling activity in the real estate market and
make other investments more attractive.

SMALL AND MID-SIZE COMPANIES Historically, smaller and mid-sized company
securities have been more volatile in price than larger company securities,
especially over the short term. Among the reasons for the greater price
volatility are the less certain growth prospects of smaller companies, the
lower degree of liquidity in the markets for such securities, and the greater
sensitivity of smaller companies to changing economic conditions.

Smaller companies also may lack depth of management, be unable to generate funds
necessary for growth or development, or be developing or marketing new products
or services for which markets are not yet established and may never become
established. Smaller companies, and to some extent mid-sized companies, may
offer greater opportunities for capital growth, but they also involve
substantial risk and should be considered speculative.

DIVERSIFICATION The Fund is a non-diversified fund. It may invest a greater
portion of its assets in the securities of one issuer than a diversified fund.
The Fund may be more sensitive to economic, business, political or other changes
affecting similar issuers or securities, which may result in greater fluctuation
in the value of the Fund's shares. The Fund, however, intends to meet certain
tax diversification requirements.

FOREIGN SECURITIES Investing in foreign securities typically involves more risks
than investing in U.S. securities. These risks can increase the potential for
losses in the Fund and may include, among others, currency risks (fluctuations
in currency exchange rates and the new euro currency), country risks (political,
social and economic instability, currency devaluations and policies that have
the effect of limiting or restricting foreign investment or the movement of
assets), different trading practices, less government supervision, less publicly
available information, limited trading markets and greater volatility.

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

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

[Insert graphic of bull and bear] PERFORMANCE
-----------

This bar chart and table show the volatility of the Fund's returns, which is
one indicator of the risks of investing in the Fund. The bar chart shows
changes in the Fund's returns from year to year over the past 6 calendar
years. The table shows how the Fund's average annual total returns compare to
those of a broad-based securities market index. Of course, past performance
cannot predict or guarantee future results.

CLASS A ANNUAL TOTAL RETURNS/1

[Begin callout]
BEST
QUARTER:

Q4 '96
14.53%

WORST
QUARTER:

Q3 '98
-11.32%
[End callout]

[Insert bar graph]

94 95 96 97 98 99
-----------------------------------------------
9.60% 18.04% 32.50% 19.90% -15.36% -5.63%

AVERAGE ANNUAL TOTAL RETURNS

For the periods ended December 31, 1999

SINCE
INCEPTION
1 YEAR 5 YEARS (1/3/94)
---------------------------------------------------------------------
Franklin Real Estate
Securities Fund - Class A/2 -11.04% 7.14% 7.55%
S&P 500 Index/3 21.04% 28.56% 23.55%
Wilshire Real Estate
Securities Index/4 -3.20% 8.30% 7.16%

SINCE
INCEPTION
1 YEAR (1/1/99)
---------------------------------------------------------------------
Franklin Real Estate
Securities Fund - Class B/2 -9.81% -9.81%
S&P 500 Index/3 21.04% 21.04%
Wilshire Real Estate Securities Index/4 -3.20% -3.20%

SINCE
INCEPTION
1 YEAR (5/1/95)
---------------------------------------------------------------------
Franklin Real Estate
Securities Fund - Class C/2 -8.12% 8.16%
S&P 500 Index/3 21.04% 27.51%
Wilshire Real Estate
Securities Index/4 -3.20% 9.00%

1. Figures do not reflect sales charges. If they did, returns would be lower.
As of June 30, 2000, the Fund's year-to-date return was 17.04% for Class A.
2. Figures reflect sales charges.
All Fund performance assumes reinvestment of dividends and capital gains.
3. Source: Standard & Poor's Micropal. The S&P 500(R)Index is an unmanaged
group of widely held common stocks covering a variety of industries. It
includes reinvested dividends. One cannot invest directly in an index, nor is
an index representative of the Fund's portfolio.
4. Source: Standard & Poor's Micropal. The unmanaged Wilshire Real Estate
Securities Index is a broad measure of the performance of more than 100
publicly traded real estate securities, such as real estate investment trusts
(REITs) and real estate operating companies (REOCs). It is
capitalization-weighted. The index is rebalanced monthly and returns are
calculated on a buy and hold basis. It includes reinvested dividends. One
cannot invest directly in an index, nor is an index representative of the
Fund's portfolio.

[Insert graphic of percentage sign] FEES AND EXPENSES

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

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

CLASS A CLASS B CLASS C
------------------------------------------------------------------
Maximum sales charge (load)
as a percentage of
offering price 5.75% 4.00% 1.99%
Load imposed on purchases 5.75% None 1.00%
Maximum deferred sales
charge (load) None/1 4.00%/2 0.99%/3

Please see "Choosing a Share Class" on page 14 for an explanation of how and
when these sales charges apply.

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

CLASS A CLASS B CLASS C
------------------------------------------------------------------
Management fees 0.51% 0.51% 0.51%
Distribution and service
(12b-1) fees 0.25% 1.00% 1.00%
Other expenses 0.27% 0.27% 0.27%
-------------------------------
Total annual Fund
operating expenses 1.03% 1.78% 1.78%
-------------------------------
Management fee waiver/4 (0.01)% (0.01)% (0.01)%
Net annual Fund
operating expenses/4 1.02% 1.77% 1.77%
===============================

1. Except for investments of $1 million or more (see page 14) and purchases
by certain retirement plans without an initial sales charge.
2. Declines to zero after six years.
3. This is equivalent to a charge of 1% based on net asset value.
4. The manager had agreed in advance to reduce its fee to reflect reduced
services resulting from the Fund's investment in a Franklin Templeton money
fund. This reduction is required by the Fund's Board of Trustees and an order
by the Securities and Exchange Commission.

EXAMPLE

This example can help you compare the cost of investing in the Fund with the
cost of investing in other mutual funds. It assumes:

o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year; and
o The Fund's operating expenses remain the same.

Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------------------------------------------
If you sell your shares at the end of the period:

CLASS A $673/1 $881 $1,106 $1,751
CLASS B $580 $857 $1,159 $1,886/2
CLASS C $377 $652 $1,050 $2,163

If you do not sell your shares:

CLASS B $180 $557 $959 $1,886/2
CLASS C $278 $652 $1,050 $2,163

1. Assumes a contingent deferred sales charge (CDSC) will not apply.
2. Assumes conversion of Class B shares to Class A shares after eight years,
lowering your annual expenses from that time on.

[Insert graphic of briefcase] MANAGEMENT
----------

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404 is the Fund's investment manager. Together, Advisers and its affiliates
manage over $229 billion in assets.

The team responsible for the Fund's management is:

DOUGLAS BARTON CFA, VICE PRESIDENT OF ADVISERS
Mr. Barton has been a manager of the Fund since 1998. He joined Franklin
Templeton Investments in 1987.

SAM KERNER, PORTFOLIO MANAGER OF ADVISERS
Mr. Kerner has been a manager of the Fund since April 2000. He joined
Franklin Templeton Investments in 1996.

The Fund pays Advisers a fee for managing the Fund's assets. For the fiscal
year ended April 30, 2000, management fees, before any advance waiver, were
0.51% of the Fund's average net assets. Under an agreement by the manager to
reduce its fees to reflect reduced services resulting from the Fund's
investment in a Franklin Templeton money fund, the Fund paid 0.50% of its
average net assets to the manager for its services. This reduction is
required by the Fund's Board of Trustees and an order by the Securities and
Exchange Commission. The manager, however, is required by the Fund's Board of
Trustees and an order by the Securities and Exchange Commission to reduce its
fee if the Fund invests in a Franklin Templeton money fund.

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

INCOME AND CAPITAL GAIN DISTRIBUTIONS The Fund intends to pay a dividend at
least quarterly representing its net investment income. Capital gains, if
any, may be distributed annually. The amount of these distributions will vary
and there is no guarantee the Fund will pay dividends.

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

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

[Begin callout]
Backup Withholding

By law, the Fund must withhold 31% of your taxable distributions and
redemption proceeds if you do not provide your correct social security or
taxpayer identification number and certify that you are not subject to backup
withholding, or if the IRS instructs the Fund to do so.
[End callout]

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

When you sell your shares of the Fund, you may have a capital gain or loss.
For tax purposes, an exchange of your Fund shares for shares of a different
Franklin Templeton Fund is the same as a sale.

Fund distributions and gains from the sale or exchange of your shares
generally will be subject to state and local taxes. Non-U.S. investors may be
subject to U.S. withholding and estate tax. You should consult your tax
advisor about the federal, state, local or foreign tax consequences of your
investment in the Fund.

[Insert graphic of dollar bill] FINANCIAL HIGHLIGHTS
--------------------

This table presents the Fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.

CLASS A YEAR ENDED APRIL 30,
---------------------------------------------------------------------------------------------
2000 1999/3 1998 1997 1996
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA ($)
Net asset value, beginning of year 15.18 17.66 15.44 12.64 10.58
-----------------------------------------------
Net investment income/1 .67 .81 .63 .49 .43
Net realized and unrealized
gains (losses) (1.23) (2.31) 2.14 2.77 2.10
-----------------------------------------------
Total from investment operations (.56) (1.50) 2.77 3.26 2.53
-----------------------------------------------
Distributions from net
investment income (.68) (.75) (.48) (.36) (.47)
Distributions from net realized gains (.07) (.23) (.07) (.10) -
-----------------------------------------------
Total distributions (.75) (.98) (.55) (.46) (.47)
-----------------------------------------------
Net asset value, end of year 13.87 15.18 17.66 15.44 12.64
===============================================
Total return (%)/2 (2.77) (8.09) 17.96 25.97 24.25
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
year ($ x 1,000) 332,562 278,301 330,030 153,520 33,634
Ratios to average net assets: (%)
Expenses 1.02 .96 1.00 .98 .67
Expenses excluding waiver and
payments by affiliate 1.02 .96 1.03 1.09 1.24
Net investment income 4.93 5.15 3.50 3.88 4.38
Portfolio turnover rate (%) 25.44 25.97 6.10 6.80 14.40

CLASS B
PER SHARE DATA ($)
Net asset value, beginning of year 15.16 14.32
----------------
Net investment income1 .56 .10
Net realized and unrealized
gains (loss) (1.21) .74
----------------
Total from investment operations (.65) .84
----------------
Distributions from net
investment income (.63) -
Distributions from net realized gains (.07) -
----------------
Total distribution (.70) -
----------------
Net asset value, end of year 13.81 15.16
================
Total return (%)2 (3.43) 5.87
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 4,889 1,119
Ratios to average net assets: (%)
Expenses 1.77 1.57/4
Net investment income 4.25 4.54/4
Portfolio turnover rate (%) 25.44 25.97

CLASS C YEAR ENDED APRIL 30,
--------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data ($)
Net asset value, beginning of year 14.97 17.40 15.26 12.56 10.58
Net investment income/1 .55 .68 .45 .43 .44
Net realized and unrealized
gains (losses) (1.18) (2.25) 2.15 2.68 2.00
Total from investment operations (.63) (1.57) 2.60 3.11 2.44
Distributions from net
investment income (.54) (.63) (.39) (.31) (.46)
Distributions from net realized gains (.07) (.23) (.07) (.10) -
Total distributions (.61) (.86) (.46) (.41) (.46)
Net asset value, end of year 13.73 14.97 17.40 15.26 12.56
Total return (%)/2 (3.46) (8.69) 17.07 24.94 23.21
Ratios/supplemental data
Net assets, end of year ($ x 1,000) 77,635 105,861 137,048 58,540 6,282
Ratios to average net assets: (%)
Expenses 1.77 1.71 1.75 1.75 1.41
Expenses excluding waiver and
payments by affiliate 1.77 1.71 1.78 1.86 1.98
Net investment income 4.08 4.40 2.77 2.92 3.65

Portfolio turnover rate (%) 25.44 25.97 6.10 6.80 14.40

</TABLE>

1. Based on average shares outstanding for year ended April 30, 1997 and
effective April 30, 2000.
2. Total return does not include sales charges and is not annualized for
periods less than one year.
3. For the period January 1, 1999 (effective date) to April 30, 1999 for
Class B.
4. Annualized

Your Account

[Insert graphic of pencil marking an X] CHOOSING A SHARE CLASS

Each class has its own sales charge and expense structure, allowing you to
choose the class that best meets your situation. Your investment
representative can help you decide.

Class A Class B Class C
------------------------------------------------------------------------
o Initial sales o No initial o Initial sales
charge of 5.75% or sales charge charge of 1%
less

o Deferred sales o Deferred sales o Deferred sales
charge of 1% on charge of 4% on charge of 1% on
purchases of $1 shares you sell shares you sell
million or more within the first within 18 months
sold within 12 year, declining to
months 1% within six
years and
eliminated after
that

o Lower annual o Higher annual o Higher annual
expenses than Class expenses than expenses than
B or C due to lower Class A (same as Class A (same as
distribution fees Class C) due to Class B) due to
higher higher
distribution fees. distribution fees.
Automatic No conversion to
conversion to Class A shares, so
Class A shares annual expenses do
after eight years, not decrease.
reducing future
annual expenses.

SALES CHARGES - CLASS A

THE SALES CHARGE
MAKES UP THIS % WHICH EQUALS THIS %
WHEN YOU INVEST THIS AMOUNT OF THE OFFERING PRICE OF YOUR NET INVESTMENT
----------------------------------------------------------------------------
Under $50,000 5.75 6.10
$50,000 but under $100,000 4.50 4.71
$100,000 but under $250,000 3.50 3.63
$250,000 but under $500,000 2.50 2.56
$500,000 but under $1 million 2.00 2.04

INVESTMENTS OF $1 MILLION OR MORE If you invest $1 million or more, either
as a lump sum or through our cumulative quantity discount or letter of intent
programs (see page 17), you can buy Class A shares without an initial sales
charge. However, there is a 1% contingent deferred sales charge (CDSC) on any
shares you sell within 12 months of purchase. The way we calculate the CDSC
is the same for each class (please see page 16).

DISTRIBUTION AND SERVICE (12B-1) FEES Class A has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the Fund to pay
distribution fees of up to 0.25% per year to those who sell and distribute
Class A shares and provide other services to shareholders. Because these fees
are paid out of Class A's assets on an on-going basis, over time these fees
will increase the cost of your investment and may cost you more than paying
other types of sales charges.

SALES CHARGES - CLASS B

IF YOU SELL YOUR SHARES WITHIN THIS % IS DEDUCTED FROM
THIS MANY YEARS AFTER BUYING THEM YOUR PROCEEDS AS A CDSC
--------------------------------------------------------------------
1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0

With Class B shares, there is no initial sales charge. However, there is a
CDSC if you sell your shares within six years, as described in the table
above. The way we calculate the CDSC is the same for each class (please see
page 16). After 8 years, your Class B shares automatically convert to Class A
shares, lowering your annual expenses from that time on.

MAXIMUM PURCHASE AMOUNT The maximum amount you may invest in Class B shares
at one time is $249,999. We place any investment of $250,000 or more in Class
A shares, since a reduced initial sales charge is available and Class A's
annual expenses are lower.

RETIREMENT PLANS Class B shares are available to certain retirement plans,
including IRAs (of any type), Franklin Templeton Bank & Trust 403(b) plans,
and Franklin Templeton Bank & Trust qualified plans with participant or
earmarked accounts.

DISTRIBUTION AND SERVICE (12B-1) FEES Class B has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the Fund to pay
distribution and other fees of up to 1.00% per year for the sale of Class B
shares and for services provided to shareholders. Because these fees are paid
out of Class B's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.

SALES CHARGES - CLASS C

We place any investment of $1 million or more in Class A shares, since there
is no initial sales charge and Class A's annual expenses are lower.

CDSC There is a 1% contingent deferred sales charge (CDSC) on any Class C
shares you sell within 18 months of purchase. The way we calculate the CDSC
is the same for each class (please see below).

DISTRIBUTION AND SERVICE (12B-1) FEES Class C has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the Fund to pay
distribution and other fees of up to 1.00% per year for the sale of Class C
shares and for services provided to shareholders. Because these fees are paid
out of Class C's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.

CONTINGENT DEFERRED SALES CHARGE (CDSC) - CLASS A, B & C

The CDSC for each class is based on the current value of the shares being
sold or their net asset value when purchased, whichever is less. There is no
CDSC on shares you acquire by reinvesting your dividends or capital gains
distributions.

[Begin callout]
The HOLDING PERIOD FOR THE CDSC begins on the day you buy your shares. Your
shares will age one month on that same date the next month and each following
month.

For example, if you buy shares on the 18th of the month, they will age one
month on the 18th day of the next month and each following month.
[End callout]

To keep your CDSC as low as possible, each time you place a request to sell
shares we will first sell any shares in your account that are not subject to
a CDSC. If there are not enough of these to meet your request, we will sell
the shares in the order they were purchased. We will use this same method if
you exchange your shares into another Franklin Templeton fund (please see
page 22 for exchange information).

SALES CHARGE REDUCTIONS AND WAIVERS

If you qualify for any of the sales charge reductions or waivers below,
please let us know at the time you make your investment to help ensure you
receive the lower sales charge.

QUANTITY DISCOUNTS We offer several ways for you to combine your purchases
in Franklin Templeton funds to take advantage of the lower sales charges for
large purchases of Class A shares.

[Begin callout]
FRANKLIN TEMPLETON FUNDS include all of the U.S. registered mutual funds of
Franklin Templeton Investments, except Franklin Templeton Variable Insurance
Products Trust and Templeton Capital Accumulator Fund, Inc.
[End callout]

o CUMULATIVE QUANTITY DISCOUNT - lets you combine all of your shares in
Franklin Templeton funds for purposes of calculating the sales charge. You
also may combine the shares of your spouse, and your children or
grandchildren, if they are under the age of 21. Certain company and
retirement plan accounts also may be included.

o LETTER OF INTENT (LOI) - expresses your intent to buy a stated dollar
amount of shares over a 13-month period and lets you receive the same sales
charge as if all shares had been purchased at one time. We will reserve a
portion of your shares to cover any additional sales charge that may apply
if you do not buy the amount stated in your LOI.

TO SIGN UP FOR THESE PROGRAMS, COMPLETE THE APPROPRIATE
SECTION OF YOUR ACCOUNT APPLICATION.

REINSTATEMENT PRIVILEGE If you sell shares of a Franklin Templeton fund, you
may reinvest some or all of the proceeds within 365 days without an initial
sales charge. The proceeds must be reinvested within the same share class,
except proceeds from the sale of Class B shares will be reinvested in Class A
shares.

If you paid a CDSC when you sold your Class A or C shares, we will credit
your account with the amount of the CDSC paid but a new CDSC will apply. For
Class B shares reinvested in Class A, a new CDSC will not apply, although
your account will not be credited with the amount of any CDSC paid when you
sold your Class B shares.

Proceeds immediately placed in a Franklin Bank Certificate of Deposit (CD)
also may be reinvested without an initial sales charge if you reinvest them
within 365 days from the date the CD matures, including any rollover.

This privilege does not apply to shares you buy and sell under our exchange
program. Shares purchased with the proceeds from a money fund may be subject
to a sales charge.

SALES CHARGE WAIVERS Class A shares may be purchased without an initial
sales charge or CDSC by various individuals, institutions and retirement
plans or by investors who reinvest certain distributions and proceeds within
365 days. Certain investors also may buy Class C shares without an initial
sales charge. The CDSC for each class may be waived for certain redemptions
and distributions. If you would like information about available sales charge
waivers, call your investment representative or call Shareholder Services at
1-800/632-2301. For information about retirement plans, you may call
Retirement Services at 1-800/527-2020. A list of available sales charge
waivers also may be found in the Statement of Additional Information (SAI).

GROUP INVESTMENT PROGRAM Allows established groups of 11 or more investors
to invest as a group. For sales charge purposes, the group's investments are
added together. There are certain other requirements and the group must have
a purpose other than buying Fund shares at a discount.

[Insert graphic of paper with lines and someone writing] BUYING SHARES

Minimum investments
--------------------------------------------------------------------------------
Initial Additional
--------------------------------------------------------------------------------
Regular accounts $1,000 $50
Automatic investment plans $50 ($25 for an $50 ($25 for an
Education IRA) Education IRA)
UGMA/UTMA accounts $100 $50
Retirement accounts
(other than IRAs, IRA no minimum no minimum
rollovers, Education IRAs or
Roth IRAs)
IRAs, IRA rollovers, Education $250 $50
IRAs or Roth IRAs
Broker-dealer sponsored wrap $250 $50
account programs
Full-time employees, officers,
trustees and directors of
Franklin Templeton entities, $100 $50
and their immediate family
members

Please note that you may only buy shares of a fund eligible
for sale in your state or jurisdiction.

ACCOUNT APPLICATION If you are opening a new account, please complete and
sign the enclosed account application. Make sure you indicate the share class
you have chosen. If you do not indicate a class, we will place your purchase
in Class A shares. To save time, you can sign up now for services you may
want on your account by completing the appropriate sections of the
application (see "Investor Services" on page 21). For example, if you would
like to link one of your bank accounts to your Fund account so that you may
use electronic fund transfers to and from your bank account to buy and sell
shares, please complete the bank information section of the application. We
will keep your bank information on file for future purchases and redemptions.

Buying shares
-------------------------------------------------------------------
Opening an account Adding to an account
-------------------------------------------------------------------
[Insert graphic of Contact your Contact your
hands shaking] Through investment investment
your investment representative representative
representative
-------------------------------------------------------------------
[Insert graphic of If you have another Before requesting a
phone] Franklin Templeton telephone purchase,
By Phone fund account with please make sure we
(Up to $100,000 your bank account have your bank
per day) information on file, account information
1-800/632-2301 you may open a new on file. If we do not
account by phone. have this
information, you will
To make a same day need to send written
investment, please instructions with
call us by 1:00 p.m. your bank's name and
Pacific time or the address, a voided
close of the New York check or savings
Stock Exchange, account deposit slip,
whichever is earlier. and a signature
guarantee if the bank
and Fund accounts do
not have at least one
common owner.

To make a same day
investment, please
call us by 1:00 p.m.
Pacific time or the
close of the New York
Stock Exchange,
whichever is earlier.
---------------------------------------------------------------------
Make your check Make your check
[Insert graphic of payable to Franklin payable to Franklin
envelope] Real Estate Real Estate
By Mail Securities Fund. Securities Fund.
Include your account
Mail the check and number on the check.
your signed
application to Fill out the deposit
Investor Services. slip from your
account statement. If
you do not have a
slip, include a note
with your name, the
Fund name, and your
account number.

Mail the check and
deposit slip or note
to Investor Services.
---------------------------------------------------------------------
[Insert graphic of Call to receive a Call to receive a
three lightning bolts] wire control number wire control number
By Wire and wire instructions. and wire instructions.

1-800/632-2301 Wire the funds and To make a same day
(or 1-650/312-2000 mail your signed wire investment,
collect) application to please call us by
Investor Services. 1:00 p.m. Pacific
Please include the time and make sure
wire control number your wire arrives by
or your new account 3:00 p.m.
number on the
application.

To make a same day
wire investment,
please call us by
1:00 p.m. Pacific
time and make sure
your wire arrives by
3:00 p.m.
----------------------------------------------------------------------
[Insert graphic of two Call Shareholder Call Shareholder
arrows pointing in Services at the Services at the
opposite directions] number below, or send number below or our
By Exchange signed written automated TeleFACTS
instructions. The system, or send
TeleFACTS(R) TeleFACTS system signed written
1-800/247-1753 cannot be used to instructions.
(around-the-clock open a new account.
access) (Please see page 22
(Please see page 22 for information on
for information on exchanges.)
exchanges.)
------------------------------------------------------------------------

Franklin Templeton Investor Services P.O. Box 997151,
Sacramento, CA 95899-9983
Call toll-free: 1-800/632-2301
(Monday through Friday 5:30 a.m. to 5:00 p.m., Pacific time
Saturday 6:30 a.m. to 2:30 p.m., Pacific time)

[Insert graphic of person with headset] INVESTOR SERVICES

AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to
invest in the Fund by automatically transferring money from your checking or
savings account each month to buy shares. To sign up, complete the
appropriate section of your account application and mail it to Investor
Services. If you are opening a new account, please include the minimum
initial investment of $50 ($25 for an Education IRA) with your application.

AUTOMATIC PAYROLL DEDUCTION You may invest in the Fund automatically by
transferring money from your paycheck to the Fund by electronic funds
transfer. If you are interested, indicate on your application that you would
like to receive an Automatic Payroll Deduction Program kit.

DISTRIBUTION OPTIONS You may reinvest distributions you receive from the
Fund in an existing account in the same share class* of the Fund or another
Franklin Templeton fund. Initial sales charges and CDSCs will not apply if
you reinvest your distributions within 365 days. You can also have your
distributions deposited in a bank account, or mailed by check. Deposits to a
bank account may be made by electronic funds transfer.

[Begin callout]
For Franklin Templeton Bank & Trust retirement plans, special forms may be
needed to receive distributions in cash. Please call 1-800/527-2020 for
information.
[End callout]

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

*Class B and C shareholders may reinvest their distributions in Class A
shares of any Franklin Templeton money fund.

RETIREMENT PLANS Franklin Templeton Investments offers a variety of
retirement plans for individuals and businesses. These plans require separate
applications and their policies and procedures may be different than those
described in this prospectus. For more information, including a free
retirement plan brochure or application, please call Retirement Services at
1-800/527-2020.

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

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

For accounts with more than one registered owner, telephone privileges also
allow the Fund to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For
all other transactions and changes, all registered owners must sign the
instructions. In addition, our telephone exchange privilege allows you to
exchange shares by phone from a fund account requiring two or more signatures
into an identically registered money fund account requiring only one
signature for all transactions. This type of telephone exchange is available
as long as you have telephone exchange privileges on your account.

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

EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton
funds within the same class*, generally without paying any additional sales
charges. If you exchange shares held for less than six months, however, you
may be charged the difference between the initial sales charge of the two
funds if the difference is more than 0.25%. If you exchange shares from a
money fund, a sales charge may apply no matter how long you have held the
shares.

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

*Class Z shareholders of Franklin Mutual Series Fund Inc. may exchange into
Class A without any sales charge.

Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee. Any CDSC will
continue to be calculated from the date of your initial investment and will not
be charged at the time of the exchange. The purchase price for determining a
CDSC on exchanged shares will be the price you paid for the original shares. If
you exchange shares subject to a CDSC into a Class A money fund, the time your
shares are held in the money fund will not count towards the CDSC holding
period.

If you exchange your Class B shares for the same class of shares of another
Franklin Templeton fund, the time your shares are held in that fund will
count towards the eight year period for automatic conversion to Class A
shares.

Because excessive trading can hurt fund performance, operations and
shareholders, the Fund effective November 1, 2000 reserves the right to
revise or terminate the exchange privilege, limit the amount or number of
exchanges, reject any exchange, or restrict or refuse purchases if (i) the
Fund or its manager believes the Fund would be harmed or unable to invest
effectively, or (ii) the Fund receives or anticipates simultaneous orders
that may significantly affect the Fund (please see "Market Timers" on page
27).

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

[Insert graphic of certificate] SELLING SHARES

You can sell your shares at any time. Please keep in mind that a contingent
deferred sales charge (CDSC) may apply.

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

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

A notary public CANNOT provide a signature guarantee.
[End callout]

o you are selling more than $100,000 worth of shares

o you want your proceeds paid to someone who is not a registered owner

o you want to send your proceeds somewhere other than the address of record,
or preauthorized bank or brokerage firm account

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

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

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

RETIREMENT PLANS You may need to complete additional forms to sell shares in
a Franklin Templeton Bank & Trust retirement plan. For participants under age
591/2, tax penalties may apply. Call Retirement Services at 1-800/527-2020
for details.

Selling shares
------------------------------------------------------------------------
To sell some or all of your shares
------------------------------------------------------------------------
[Insert graphic of hands shaking] Contact your investment
Through your investment representative
representative
------------------------------------------------------------------------
[Insert graphic of envelope] Send written instructions and
By Mail endorsed share certificates (if
you hold share certificates) to
Investor Services. Corporate,
partnership or trust accounts
may need to send additional
documents.

Specify the Fund, the account
number and the dollar value or
number of shares you wish to
sell. If you own both Class A
and B shares, also specify the
class of shares, otherwise we
will sell your Class A shares
first. Be sure to include all
necessary signatures and any
additional documents, as well as
signature guarantees if required.

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

A check will be mailed to the
name(s) and address on the
account. Written instructions,
with a signature guarantee, are
required to send the check to
another address or to make it
payable to another person.
-------------------------------------------------------------------------
[Insert graphic of three lightning You can call or write to have
bolts] redemption proceeds sent to a
By Electronic Funds Transfer (ACH) bank account. See the policies
above for selling shares by mail
or phone.

Before requesting to have
redemption proceeds sent to a
bank account, please make sure
we have your bank account
information on file. If we do
not have this information, you
will need to send written
instructions with your bank's
name and address, a voided check
or savings account deposit slip,
and a signature guarantee if the
bank and Fund accounts do not
have at least one common owner.

If we receive your request in
proper form by 1:00 p.m. Pacific
time, proceeds sent by ACH
generally will be available
within two to three business
days.
--------------------------------------------------------------------------
[Insert graphic of two arrows Obtain a current prospectus for
pointing in opposite directions] the fund you are considering.
By Exchange
Call Shareholder Services at the
TeleFACTS(R) number below or our automated
1-800/247-1753 TeleFACTS system, or send signed
(around-the-clock written instructions. See the
access) policies above for selling
shares by mail or phone.

If you hold share certificates,
you will need to return them to
the Fund before your exchange
can be processed.
---------------------------------------------------------------------------

[Insert graphic of paper and pen] ACCOUNT POLICIES

CALCULATING SHARE PRICE The Fund calculates the net asset value per share
(NAV) each business day at the close of trading on the New York Stock
Exchange (normally 1:00 p.m. Pacific time). Each class's NAV is calculated by
dividing its net assets by the number of its shares outstanding.

[Begin callout]
When you buy shares, you pay the offering price. The offering price is the
NAV plus any applicable sales charge.

When you sell shares, you receive the NAV minus any applicable contingent
deferred sales charge (CDSC).
[End callout]

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

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

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

STATEMENTS AND REPORTS You will receive quarterly account statements that
show all your account transactions during the quarter. You also will receive
written notification after each transaction affecting your account (except
for distributions and transactions made through automatic investment or
withdrawal programs, which will be reported on your quarterly statement). You
also will receive the Fund's financial reports every six months. To reduce
Fund expenses, we try to identify related shareholders in a household and
send only one copy of the financial reports. If you need additional copies,
please call 1-800/DIAL BEN.

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

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

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

MARKET TIMERS The Fund may restrict or refuse purchases or exchanges by
Market Timers. You may be considered a Market Timer if you have (i) requested
an exchange out of any of the Franklin Templeton funds within two weeks of an
earlier exchange request out of any fund, or (ii) exchanged shares out of any
of the Franklin Templeton funds more than twice within a rolling 90 day
period, or (iii) otherwise seem to follow a market timing pattern that may
adversely affect the Fund. Accounts under common ownership or control with an
account that is covered by (i), (ii), or (iii) are also subject to these
limits.

Anyone, including the shareholder or the shareholder's agent, who is
considered to be a Market Timer by the Fund, its manager or shareholder
services agent, will be issued a written notice of their status and the
Fund's policies. Identified Market Timers will be required to register with
the market timing desk of Franklin Templeton Investor Services, Inc., and to
place all purchase and exchange trade requests through the desk. Some funds
do not allow investments by Market Timers.

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

o The Fund may restrict or refuse any order to buy shares, including any
purchase under the exchange privilege.

o At any time, the Fund may change its investment minimums or waive or lower
its minimums for certain purchases.

o The Fund may modify or discontinue the exchange privilege on 60 days'
notice.

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

o For redemptions over a certain amount, the Fund reserves the right, in the
case of an emergency, to make payments in securities or other assets of the
Fund, if the payment of cash proceeds by check, wire or electronic funds
transfer would be harmful to existing shareholders.

o To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to the Fund promptly.

DEALER COMPENSATION Qualifying dealers who sell Fund shares may receive
sales commissions and other payments. These are paid by Franklin Templeton
Distributors, Inc. (Distributors) from sales charges, distribution and
service (12b-1) fees and its other resources.

Class A Class B Class C
--------------------------------------------------------------------
Commission (%) - 4.00 2.00
Investment under $50,000 5.00 - -
$50,000 but under $100,000 3.75 - -
$100,000 but under $250,000 2.80 - -
$250,000 but under $500,000 2.00 - -
$500,000 but under $1 million 1.60 - -
$1 million or more up to 1.00/1 - -
12b-1 fee to dealer 0.25 0.25 /2 1.00 /3

A dealer commission of up to 1% may be paid on Class A NAV purchases by
certain retirement plans1 and on Class C NAV purchases. A dealer commission
of up to 0.25% may be paid on Class A NAV purchases by certain trust
companies and bank trust departments, eligible governmental authorities, and
broker-dealers or others on behalf of clients participating in comprehensive
fee programs.

1. During the first year after purchase, dealers may not be eligible to
receive the 12b-1 fee.
2. Dealers may be eligible to receive up to 0.25% from the date of purchase.
After 8 years, Class B shares convert to Class A shares and dealers may then
receive the 12b-1 fee applicable to Class A.
3. Dealers may be eligible to receive up to 0.25% during the first year after
purchase and may be eligible to receive the full 12b-1 fee starting in the
13th month.

MARKET TIMERS. Please note that for Class A NAV purchases by market timers,
including purchases of $1 million or more, dealers are not eligible to
receive the dealer commission. Dealers, however, may be eligible to receive
the 12b-1 fee from the date of purchase.

[Insert graphic of question mark] QUESTIONS

If you have any questions about the Fund or your account, you can write to us
at P.O. Box 997151, Sacramento, CA 95899-9983. You also can call us at one of
the following numbers. For your protection and to help ensure we provide you
with quality service, all calls may be monitored or recorded.

Hours (Pacific time,
Department Name Telephone Number Monday through Friday)
-------------------------------------------------------------------------------
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
6:30 a.m. to 2:30 p.m. (Saturday)
Fund Information 1-800/DIAL BEN 5:30 a.m. to 5:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)
Retirement Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Advisor Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.

FOR MORE INFORMATION

You can learn more about the Fund in the following documents:

ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS

Includes a discussion of recent market conditions and Fund strategies,
financial statements, detailed performance information, portfolio holdings
and the auditor's report.

STATEMENT OF ADDITIONAL INFORMATION (SAI)

Contains more information about the Fund, its investments and policies. It is
incorporated by reference (is legally a part of this prospectus).

For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.

Franklin(R)Templeton(R)
1-800/DIAL BEN(R)(1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
franklintempleton.com

You also can obtain information about the Fund by visiting the SEC's Public
Reference Room in Washington, D.C. (phone 1-202/942-8090) or the EDGAR
Database on the SEC's Internet site at http://www.sec.gov. You can obtain
copies of this information, after paying a duplicating fee, by writing to the
SEC's Public Reference Section, Washington, D.C. 20549-0102 or by electronic
request at the following E-mail address: publicinfo(R)sec.gov.

Investment Company Act file #811-8034 192 P 09/00

Franklin
Real Estate Securities Fund

Franklin Real Estate
Securities Trust

Advisor Class

Investment Strategy

GROWTH & INCOME

September 1, 2000

The SEC has not approved or disapproved these securities or passed upon
the adequacy of this prospectus. Any representation to the contrary is a
criminal offense.

Contents

The Fund

Information about
the Fund you should know before investing

2 Goal and Strategies
4 Main Risks
6 Performance
7 Fees and Expenses
8 Management
9 Distributions and Taxes
10 Financial Highlights

Your Account

Information about qualified investors, account transactions and services

11 Qualified Investors
13 Buying Shares
15 Investor Services
18 Selling Shares
20 Account Policies
22 Questions

For More Information

Where to learn more about the Fund

Back Cover

The Fund

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES

GOAL The Fund's investment goal is to maximize total return.

MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund will
invest at least 65% of its total assets in equity securities of companies
operating in the real estate industry, including:

o companies qualifying under federal tax law as real estate investment trusts
(REITs); and

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

REITs. REITs are real estate companies, usually with publicly traded stock,
that manage a portfolio of income-producing real estate properties such as
apartments, hotels, office buildings or shopping centers. The Fund primarily
invests in "equity" REITs, which also take ownership positions in real
estate. Shareholders of equity REITs generally receive income from rents
received and receive capital gains when properties are sold at a profit.
REITs are generally operated by experienced property management teams and
typically concentrate on a specific geographic region or property type.

TEMPORARY INVESTMENTS When the manager believes market or economic conditions
are unfavorable for investors, the manager may invest up to 100% of the
Fund's assets in a temporary defensive manner or hold a substantial portion of
its assets in cash, cash equivalents or other high quality short-term
investments. Temporary defensive investments generally may include money
market securities or short-term debt securities. The manager also may invest
in these types of securities or hold cash while looking for suitable
investment opportunities or to maintain liquidity. In these circumstances,
the Fund may be unable to achieve its investment goal.

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

Smaller companies also may lack depth of management, be unable to generate
funds necessary for growth or development, or be developing or marketing new
products or services for which markets are not yet established and may never
become established. Smaller companies, and to some extent mid-sized
companies, may offer greater opportunities for capital growth, but they also
involve substantial risk and should be considered speculative.

DIVERSIFICATION The Fund is a non-diversified fund. It may invest a greater
portion of its assets in the securities of one issuer than a diversified
fund. The Fund may be more sensitive to economic, business, political or
other changes affecting similar issuers or securities, which may result in
greater fluctuation in the value of the Fund's shares. The Fund, however,
intends to meet certain tax diversification requirements.

FOREIGN SECURITIES Investing in foreign securities typically involves more
risks than investing in U.S. securities. These risks can increase the
potential for losses in the Fund and may include, among others, currency
risks (fluctuations in currency exchange rates and the new euro currency),
country risks (political, social and economic instability, currency
devaluations and policies that have the effect of limiting or restricting
foreign investment or the movement of assets), different trading practices,
less government supervision, less publicly available information, limited
trading markets and greater volatility.

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

[Insert graphic of bull and bear] PERFORMANCE

ADVISOR CLASS ANNUAL TOTAL RETURNS/1,2

[Insert bar graph]

94 95 96 97 98 99
---------------------------------------------------------
9.60% 18.04% 32.50% 20.24% -15.11% -5.38%

[Begin callout]
Best
Quarter:

Q4 '96 14.53%

Worst Quarter:

Q3 '98
-11.18%
[End callout]

AVERAGE ANNUAL TOTAL RETURNS

For the periods ended December 31, 1999

Since
Inception
1 Year 5 Years (1/3/94)
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Franklin Real Estate Securities Fund - Advisor Class/2 -5.38% 8.96% 9.07%
S&P 500 Index/3 21.04% 28.56% 23.55%
Wilshire Real Estate Securities Index/4 -3.20% 8.30% 7.16%

</TABLE>

1. As of June 30, 2000, the Fund's year-to-date return was 17.21%.
2. Performance figures reflect a "blended" figure combining the following
methods of calculation: (a) For periods before January 1, 1997, a restated
figure is used based on the Fund's Class A performance, excluding the effect
of Class A's maximum initial sales charge and including the effect of the
Class A distribution and service (12b-1) fees; and (b) for periods after
January 1, 1997, an actual Advisor Class figure is used reflecting a
deduction of all applicable charges and fees for that class. This blended figure
assumes reinvestment of dividends and capital gains.
3. Source: Standard & Poor's Micropal. The S&P 500(R) Index is an unmanaged
group of widely held common stocks covering a variety of industries. It
includes reinvested dividends. One cannot invest directly in an index, nor is
an index representative of the Fund's portfolio.
4. Source: Standard & Poor's Micropal. The unmanaged Wilshire Real Estate
Securities Index is a broad measure of the performance of more than 100
publicly traded real estate securities, such as real estate investment trusts
(REITs) and real estate operating companies (REOCs). It is
capitalization-weighted. The index is rebalanced monthly and returns are
calculated on a buy and hold basis. It includes reinvested dividends. One
cannot invest directly in an index, nor is an index representative of the
Fund's portfolio.

[Insert graphic of percentage sign] FEES AND EXPENSES

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

SHAREHOLDER FEES (fees paid directly from your investment)

Advisor Class
--------------------
Maximum sales charge (load) imposed on purchases None

ANNUAL FUND OPERATING EXPENSES
(expenses deducted from Fund assets)

Advisor Class
---------------------
Management fees 0.51
Distribution and service (12b-1) fees None
Other expenses 0.27
----------------
Total annual Fund operating expenses 0.78
----------------
Management fee waiver/1 (0.01)
Net annual Fund operating expenses/1 0.77
================

1. The manager had agreed in advance to reduce its fee to reflect reduced
services resulting from the Fund's investment in a Franklin Templeton money
fund. This reduction is required by the Fund's Board of Trustees and an order
by the Securities and Exchange Commission.

EXAMPLE

This example can help you compare the cost of investing in the Fund with the
cost of investing in other mutual funds. It assumes:

o You invest $10,000 for the periods shown;

o Your investment has a 5% return each year;

o The Fund's operating expenses remain the same; and

o You sell your shares at the end of the periods shown.

Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------------------
$79 $246 $428 $954

[Insert graphic of briefcase] MANAGEMENT

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd, San Mateo, CA
94404, is the Fund's investment manager. Together, Advisers and its
affiliates manage over $229 billion in assets.

The team responsible for the Fund's management is:

Douglas Barton CFA, VICE PRESIDENT OF ADVISERS

Mr. Barton has been a manager of the Fund since 1998. He joined Franklin
Templeton Investments in 1988.

Sam Kerner, PORTFOLIO MANAGER OF ADVISERS

Mr. Kerner has been a manager of the Fund since April 2000. He joined
Franklin Templeton Investments in 1996.

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

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

[Begin callout]
Backup Withholding

When you sell your shares of the Fund, you may have a capital gain or loss.
For tax purposes, an exchange of your Fund shares for shares of a different
Franklin Templeton Fund is the same as a sale.

FINANCIAL HIGHLIGHTS

This table presents the financial performance for Advisor Class since its
inception. This information has been audited by PricewaterhouseCoopers LLP.

2000 1999 1998 1997/1
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE DATA ($)
Net asset value, beginning of year 15.21 17.70 15.45 15.30
-----------------------------------------------------
Net investment income/2 .73 1.44 .52 .18
Net realized and unrealized gains (losses) (1.25) (2.91) 2.31 (.03)
-----------------------------------------------------
Total from investment operations (.52) (1.47) 2.83 .15
-----------------------------------------------------
Distributions from net investment income (.72) (.79) (.51) --
Distributions from net realized gains (.07) (.23) (.07) --
-----------------------------------------------------
Total distributions (.79) (1.02) (.58) --
-----------------------------------------------------
Net asset value, end of year 13.90 15.21 17.70 15.45
Total return (%)/3 (2.47) (7.87) 18.35 .98
Ratios/supplemental data
Net assets, end of year ($ x 1,000) 3,915 2,576 8,929 625
====================================================
RATIOS TO AVERAGE NET ASSETS: (%)
Expenses .77 .71 .75 .75/4
Expenses excluding waiver and payments
by affiliate .77 .71 .78 .86/4
Net investment income 5.27 5.40 3.97 3.44/4
Portfolio turnover rate (%) 25.44 25.97 6.10 6.80
</TABLE>

1. For the period January 2, 1997 (effective date) to April 30, 1997.
2. Based on average shares outstanding for year ended April 30, 1997 and
effective April 30, 2000.
3. Total return is not annualized for periods less than one year.
4. Annualized

Your Account

[Insert graphic of pencil marking an X]
QUALIFIED INVESTORS

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

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

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

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

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

o Governments, municipalities, and tax-exempt entities that meet the
requirements for qualification under section 501 of the Internal Revenue
Code. Minimum investments: $1 million initial investment in Advisor Class
or Class Z shares of any Franklin Templeton fund and $50 additional.

o Accounts managed by Franklin Templeton Investments. Minimum investments: No
initial minimum and $50 additional.

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

o Defined contribution plans such as employer stock, bonus, pension or profit
sharing plans that meet the requirements for qualification under section
401 of the Internal Revenue Code, including salary reduction plans
qualified under section 401(k) of the Internal Revenue Code, and that are
sponsored by an employer (i) with at least 10,000 employees, or (ii) with
retirement plan assets of $100 million or more. Minimum investments: No
initial or additional minimums.

o Trust companies and bank trust departments initially investing in Franklin
Templeton funds at least $1 million of assets held in a fiduciary, agency,
advisory, custodial or similar capacity and over which the trust companies
and bank trust departments or other plan fiduciaries or participants, in
the case of certain retirement plans, have full or shared investment
discretion. Minimum investments: No initial or additional minimums.

o Individual investors. Minimum investments: $5 million initial and $50
additional. You may combine all of your shares in Franklin Templeton funds
for purposes of determining whether you meet the $5 million minimum, as
long as $1 million is in Advisor Class or Class Z shares of any Franklin
Templeton fund.

o Any other investor, including a private investment vehicle such as a family
trust or foundation, who is a member of an established group of 11 or more
investors. Minimum investments: $5 million initial and $50 additional. For
minimum investment purposes, the group's investments are added together.
The group may combine all of its shares in Franklin Templeton funds for
purposes of determining whether it meets the $5 million minimum, as long as
$1 million is in Advisor Class or Class Z shares of any Franklin Templeton
fund. There are certain other requirements and the group must have a
purpose other than buying Fund shares without a sales charge.

Please note that Advisor Class shares of the Fund generally are not available
to retirement plans through Franklin Templeton's ValuSelect(R) program.
Retirement plans in the ValuSelect program before January 1, 1998, however,
may invest in the Fund's Advisor Class shares.

[Insert graphic of paper with lines and someone writing]
BUYING SHARES

ACCOUNT APPLICATION If you are opening a new account, please complete and
sign the enclosed account application. To save time, you can sign up now for
services you may want on your account by completing the appropriate sections
of the application (see "Investor Services" on page 15). For example, if you
would like to link one of your bank accounts to your Fund account so that you
may use electronic fund transfers to and from your bank account to buy and
sell shares, please complete the bank information section of the application.
We will keep your bank information on file for future purchases and
redemptions.

Buying shares
----------------------------------------------------------------------------
Opening an Adding to an account
----------------------------------------------------------------------------
account
[Insert graphic of hands Contact your Contact your investment
shaking] investment representative
Through your investment representative
representative
----------------------------------------------------------------------------
[Insert graphic of phone] If you have Before requesting a
By Phone another Franklin telephone purchase,
Templeton fund please make sure we
(Up to $100,000 account with have your bank account
per day) your bank information on file. If
account we do not have this
1-800/632-2301 information on information, you will
file, you may need to send written
open a new instructions with your
account bank's name and
by phone. address, a voided check
or savings account
To make a same deposit slip, and a
day investment, signature guarantee if
please call us the bank and Fund
by 1:00 p.m. accounts do not have at
Pacific time or least one common owner.
the close of the
New York Stock To make a same day
Exchange, investment, please call
whichever is us by 1:00 p.m. Pacific
earlier. time or the close of
the New York Stock
Exchange, whichever is
earlier.
-----------------------------------------------------------------------------
[Insert graphic of envelope] Make your check Make your check payable
By Mail payable to to Franklin Real Estate
Franklin Real Securities Fund.
Estate Include your account
Securities Fund. number on the check.

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

Mail the check and
deposit slip or note to
Investor Services.
-----------------------------------------------------------------------------
[Insert graphic of three Call to receive Call to receive a wire
lightning bolts] a wire control control number and wire
By Wire number and wire instructions.
instructions.
1-800/632-2301 To make a same day wire
(or 1-650/312-2000 collect) Wire the funds investment, please call
and mail your us by 1:00 p.m. Pacific
signed time and make sure your
application to wire arrives by
Investor 3:00 p.m.
Services. Please
include the wire
control number
or your new
account number
on the
application.

To make a same
day wire
investment,
please call us
by 1:00 p.m.
Pacific time and
make sure your
wire arrives by
3:00 p.m.
------------------------------------------------------------------------------
[Insert graphic of two arrows Call Shareholder Call Shareholder
pointing in opposite Services at the Services at the number
directions] number below, or below, or send signed
By Exchange send signed written instructions.
written (Please see page 16 for
instructions. information on
(Please see page exchanges.)
16 for
information on
exchanges.)
------------------------------------------------------------------------------

[Insert graphic of person with headset]
INVESTOR SERVICES

AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to invest
in the Fund by automatically transferring money from your checking or savings
account each month to buy shares. To sign up, complete the appropriate
section of your account application and mail it to Investor Services. If you
are opening a new account, please include your minimum initial investment
with your application.

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

[Begin callout]
For Franklin Templeton Bank & Trust retirement plans, special forms may be
needed to receive distributions in cash. Please call 1-800/527-2020 for
information.
[End callout]

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

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

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

If you do not qualify to buy Advisor Class shares of Templeton Developing
Markets Trust or Templeton Foreign Fund, you also may exchange your shares
for Class A shares of those funds (without any sales charge)* or for shares
of Templeton Institutional Funds, Inc.

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

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

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

[Insert graphic of certificate]

SELLING SHARES

You can sell your shares at any time.

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

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

A notary public CANNOT provide a signature guarantee.

o you are selling more than $100,000 worth of shares

o you want your proceeds paid to someone who is not a registered owner

o you want to send your proceeds somewhere otherthan the address of
record, or preauthorized bank or brokerage firm account

Selling shares
------------------------------------------------------------------------
To sell some or all of
your shares
------------------------------------------------------------------------
[Insert graphic of hands shaking] Contact your investment
Through your investment representative representative
------------------------------------------------------------------------
[Insert graphic of envelope] Send written instructions
By Mail and endorsed share
certificates (if you hold
share certificates) to
Investor Services.
Corporate, partnership or
trust accounts may need to
send additional documents.

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

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

A check will be mailed to
the name(s) and address on
the account. Written
instructions, with a
signature guarantee, are
required to send the check
to another address or to
make it payable to another
person.
---------------------------------------------------------------------------
[Insert graphic of three lightning bolts] You can call or write to
By Electronic Funds Transfer (ACH) have redemption proceeds
sent to a bank account.
See the policies above for
selling shares by mail or
phone.

Before requesting to have
redemption proceeds sent
to a bank account, please
make sure we have your
bank account information
on file. If we do not have
this information, you will
need to send written
instructions with your
bank's name and address, a
voided check or savings
account deposit slip, and
a signature guarantee if
the bank and Fund accounts
do not have at least one
common owner.

Call Shareholder Services
at the number below, or
send signed written
instructions. See the
policies above for selling
shares by mail or phone.

If you hold share
certificates, you will
need to return them to the
Fund before your exchange
can be processed.
----------------------------------------------------------------------------
Franklin Templeton Investor Services P.O. Box 997151,
Sacramento, CA 95899-9983
Call toll-free: 1-800/632-2301
(Monday through Friday 5:30 a.m. to 5:00 p.m., Pacific time
Saturday 6:30 a.m. to 2:30 p.m., Pacific time)

[Insert graphic of paper and pen]
ACCOUNT POLICIES

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

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

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

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

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

o The Fund may restrict or refuse any order to buy shares, including any
purchase under the exchange privilege.

o At any time, the Fund may change its investment minimums or waive or lower
its minimums for certain purchases.

o The Fund may modify or discontinue the exchange privilege on 60 days'
notice.

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

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

o To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to the Fund promptly.

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

[Insert graphic of question mark]
QUESTIONS

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

For More Information

You can learn more about the Fund in the following documents:

ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS

Includes a discussion of recent market conditions and Fund strategies,
financial statements, detailed performance information, portfolio holdings
and the auditor's report.

STATEMENT OF ADDITIONAL INFORMATION (SAI)

Contains more information about the Fund, its investments and policies. It is
incorporated by reference (is legally a part of this prospectus).

For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.

Franklin(R)Templeton(R)
1-800/DIAL BEN(R)(1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
franklintempleton.com

Investment Company Act file #811-8034 192 PA 09/00

FRANKLIN
REAL ESTATE
SECURITIES FUND

Franklin Real Estate Securities Trust - Class A, B & C

STATEMENT OF ADDITIONAL INFORMATION

P.O. Box 997151, Sacramento, CA 95899-9983

September 1, 2000 1-800/DIAL BEN(R)

This Statement of Additional Information (SAI) is not a prospectus. It contains
information in addition to the information in the Fund's prospectus. The Fund's
prospectus, dated September 1, 2000, which we may amend from time to time,
contains the basic information you should know before investing in the Fund. You
should read this SAI together with the Fund's prospectus.

The audited financial statements and auditor's report in the Fund's Annual
Report to Shareholders, for the fiscal year ended April 30, 2000, are
incorporated by reference (are legally a part of this SAI).

For a free copy of the current prospectus or annual report, contact your
investment representative or call 1-800/DIAL BEN (1-800/342-5236).

CONTENTS

Goal, Strategies and Risks .. 2
Officers and Trustees ....... 12
Management and Other Services 15
Portfolio Transactions ...... 16
Distributions and Taxes ..... 17
Organization, Voting Rights
and Principal Holders ...... 19
Buying and Selling Shares ... 19
Pricing Shares .............. 26
The Underwriter ............. 26
Performance ................. 28
Miscellaneous Information ... 30
Description of Ratings ...... 31

Mutual funds, annuities, and other investment products:

o are not insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other agency of the U.S. government;

o are not deposits or obligations of, or guaranteed or endorsed by, any bank;

o are subject to investment risks, including the possible loss of principal.

Goal, Strategies and Risks

The Fund's investment goal is to maximize total return. This goal is
fundamental, which means it may not be changed without shareholder approval.
In addition to the investment strategies and risks described in the
prospectus, the following policies should be considered.

Equity securities The purchaser of an equity security typically receives an
ownership interest in the company as well as certain voting rights. The owner
of an equity security may participate in a company's success through the
receipt of dividends which are distributions of earnings by the company to
its owners. Equity security owners may also participate in a company's
success or lack of success through increases or decreases in the value of the
company's shares as traded in the public trading market for such shares.
Equity securities generally take the form of common stock or preferred stock.
Preferred stockholders typically receive greater dividends but may receive
less appreciation than common stockholders and may have greater voting rights
as well. Equity securities may also include warrants or rights. Warrants or
rights give the holder the right to purchase a common stock at a given time
for a specified price.

REITs In order to qualify as a real estate investment trust (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.

By investing in REITs indirectly through the Fund, you will bear not only
your proportionate share of the expenses of the Fund, but also, indirectly,
similar expenses of the REITs.

Real estate Because the Fund invests primarily in the real estate industry,
it could own real estate directly as a result of a default on debt securities
it may own. Receipt of rental income or income from the disposition of real
property by the Fund may adversely affect its ability to retain its tax
status as a regulated investment company.

Debt securities Debt securities represent an obligation of the issuer to
repay a loan of money to it, and generally, provide for the payment of
interest. These include bonds, notes and debentures; commercial paper;
convertible securities; and bankers' acceptances. A company typically meets
its payment obligations associated with its outstanding debt securities
before it declares and pays any dividend to holders of its equity securities.
Bonds, notes, debentures and commercial paper differ in the length of the
issuer's payment schedule, with bonds carrying the longest repayment schedule
and commercial paper the shortest.

The Fund may buy both rated and unrated debt securities. Independent rating
organizations rate debt securities based upon their assessment of the
financial soundness of the issuer. Generally, a lower rating indicates higher
risk. The Fund may buy debt securities which are rated B or better by Moody's
Investors Services (Moody's) or Standard & Poor's Corporation (S&P) or
unrated debt which it determines to be of comparable quality. At present, the
Fund does not intend to invest more than 5% of its total assets in
non-investment grade securities (rated lower than BBB by S&P or Baa by
Moody's). The Fund's investments in debt securities involve credit risk. This
is the risk that the issuer of a debt security will be unable to make
principal and interest payments in a timely manner and the debt security will
go into default.

The market value of debt securities generally varies in response to changes
in interest rates and the financial condition of each issuer. During periods
of declining interest rates, the value of debt securities generally
increases. Conversely, during periods of rising interest rates, the value of
such securities generally declines. These changes in market value will be
reflected in the Fund's net asset value.

Depositary receipts Many securities of foreign issuers are represented by
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
and Global Depositary Receipts ("GDRs") (collectively "Depositary Receipts").
ADRs evidence ownership of, and represent the right to receive, securities of
foreign issuers deposited in a domestic bank or trust company or a foreign
correspondent bank. EDRs and GDRs are typically issued by foreign banks or
trust companies, although they also may be issued by U.S. banks or trust
companies, and evidence ownership of underlying securities issued by either a
foreign or a U.S. corporation. Generally, Depositary Receipts in registered
form are designed for use in the U.S. securities market and Depositary
Receipts in bearer form are designed for use in securities markets outside
the U.S.

Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the U.S. on
exchanges or over-the-counter. While ADRs do not eliminate all the risk
associated with foreign investments, by investing in ADRs rather than
directly in the stock of foreign issuers, the Fund will avoid currency risks
during the settlement period for either purchases or sales. In general, there
is a large, liquid market in the U.S. for ADRs quoted on a national
securities exchange or on Nasdaq. The information available for ADRs is
subject to the accounting, auditing and financial reporting standards of the
U.S. market or exchange on which they are traded, which standards are more
uniform and more exacting than those to which many foreign issuers may be
subject. EDRs and GDRs may not necessarily be denominated in the same
currency as the underlying securities into which they may be converted.

Depositary Receipts may be issued under sponsored or unsponsored programs. In
sponsored programs, an issuer has made arrangements to have its securities
traded in the form of Depositary Receipts. In unsponsored programs, the
issuer may not be directly involved in the creation of the program. Although
regulatory requirements with respect to sponsored and unsponsored programs
are generally similar, in some cases it may be easier to obtain financial
information from an issuer that has participated in the creation of a
sponsored program. Accordingly, there may be less information available
regarding issuers of securities underlying unsponsored programs and there may
not be a correlation between this information and the market value of the
Depositary Receipts.

Risks of foreign securities Investors should consider carefully the
substantial risks involved in foreign securities, which are in addition to
the usual risks associated with investing in U.S. issuers. These risks can be
significantly greater for investments in emerging or developing markets.
There is generally less government supervision and regulation of securities
exchanges, brokers, dealers and listed companies than in the U.S. The
settlement practices of some of the countries in which the Fund invests may
be cumbersome and result in delays that may affect portfolio liquidity. The
Fund may have greater difficulty voting proxies, exercising shareholder
rights, pursuing legal remedies and obtaining judgments with respect to
foreign investments in foreign courts than with respect to domestic issuers
in U.S. courts. Individual foreign economies may differ favorably or
unfavorably from the U.S. economy with respect to growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency
and balance of payments position.

Securities that are acquired by the Fund outside the U.S. and that are
publicly traded in the U.S. or on a foreign securities exchange or in a
foreign securities market are not considered by the Fund to be illiquid
assets so long as the Fund acquires and holds the securities with the
intention of reselling the securities in the foreign trading market, the Fund
reasonably believes it can readily dispose of the securities for cash in the
U.S. or foreign market, and current market quotations are readily available.
Investments may be in securities of foreign issuers, whether located in
developed or undeveloped countries.

Investments in foreign securities where delivery takes place outside the U.S.
will be made in compliance with any applicable U.S. and foreign currency
restrictions and tax laws (including laws imposing withholding taxes on any
dividend or interest income) and laws limiting the amount and types of
foreign investments. Changes in governmental administrations or economic or
monetary policies, in the U.S. or abroad, or changes in circumstances in
dealings between nations or currency convertibility or exchange rates could
result in investment losses for the Fund. Investments in foreign securities
may also subject the Fund to losses due to nationalization, expropriation,
holding and transferring assets through foreign subcustodians, depositories
and broker-dealers, or differing accounting practices and treatment.

Foreign companies are not generally subject to uniform accounting, auditing
and financial reporting standards, and auditing practices and requirements
may not be comparable to those applicable to U.S. companies. The Fund,
therefore, may encounter difficulty in obtaining market quotations for
purposes of valuing its portfolio and calculating its Net Asset Value.
Moreover, investors should recognize that foreign securities are often traded
with less frequency and volume and, therefore, may have greater price
volatility than is the case with many U.S. securities. Notwithstanding the
fact that the Fund generally intends to acquire the securities of foreign
issuers where there are public trading markets, investments by the Fund in
the securities of foreign issuers may tend to increase the risks with respect
to the liquidity of the Fund's portfolio and the Fund's ability to meet a
large number of shareholder redemption requests should there be economic or
political turmoil in a country in which the Fund has a substantial portion of
its assets invested or should relations between the U.S. and foreign
countries deteriorate markedly. Furthermore, the reporting and disclosure
requirements applicable to foreign issuers may differ from those applicable
to domestic issuers, and there may be difficulties in obtaining or enforcing
judgments against foreign issuers.

The Fund may be affected either unfavorably or favorably by fluctuations in
the relative rates of exchange between the currencies of different nations,
by exchange control regulations and by indigenous economic and political
developments. Some countries in which the Fund may invest may also have fixed
or managed currencies that are not free-floating against the U.S. dollar.
Further, certain currencies may not be internationally traded. Certain of
these currencies have experienced a steady devaluation relative to the U.S.
dollar. Any devaluations in the currencies in which the Fund's portfolio
securities are denominated may have a detrimental impact on the Fund. The
manager endeavors to avoid unfavorable consequences and to take advantage of
favorable developments in particular nations where from time to time the
Fund's investments are placed. The exercise of this policy may include
decisions to buy securities with substantial risk characteristics and other
decisions such as changing the emphasis on investments from one nation to
another and from one type of security to another. No assurance can be given
that profits, if any, will exceed losses.

Some of the countries in which the Fund may invest are considered developing
or emerging markets. Investments in these markets are subject to all of the
risks of foreign investing generally, and have additional and heightened
risks due to a lack of legal, business and social frameworks to support
securities markets.

Emerging markets involve additional significant risks, including political
and social uncertainty (for example, regional conflicts and risk of war),
currency exchange rate volatility, pervasiveness of corruption and crime,
delays in settling portfolio transactions and risk of loss arising out of the
system of share registration and custody. All of these factors make
developing market equity securities' prices generally more volatile than
securities issued in developed markets.

On January 1, 1999, the European Economic and Monetary Union (EMU) introduced
a new single currency called the euro. By July 1, 2002, the euro, which will
be implemented in stages, will have replaced the national currencies of the
following member countries: Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

Currently, the exchange rate of the currencies of each of these countries is
fixed to the euro. The euro trades on currency exchanges and is available for
non-cash transactions. The participating countries currently issue sovereign
debt exclusively in euro. By July 1, 2002, euro-denominated bills and coins
will replace the bills and coins of the above countries.

The new European Central Bank has control over each country's monetary
policies. Therefore, the participating countries no longer control their own
monetary policies by directing independent interest rates for their
currencies. The national governments of the participating countries, however,
have retained the authority to set tax and spending policies and public debt
levels.

The change to the euro as a single currency is new and untested. It is not
possible to predict the impact of the euro on currency values or on the
business or financial condition of European countries and issuers, and
issuers in other regions, whose securities the Fund may hold, or the impact,
if any, on Fund performance. In the first six months of the euro's existence,
the exchange rates of the euro versus many of the world's major currencies
steadily declined. In this environment, U.S. and other foreign investors
experienced erosion of their investment returns on their euro-denominated
securities. The transition and the elimination of currency risk among EMU
countries may change the economic environment and behavior of investors,
particularly in European markets, but the impact of those changes cannot be
assessed at this time.

Convertible securities The Fund may invest in convertible securities. A
convertible security is generally a preferred stock or debt security that may
be converted within a specified period of time into a certain amount of
common stock or other equity securities of the same or a different issuer.
Convertible securities include non-convertible debt securities with warrants
or stock or stock index options attached ("synthetic convertible
securities"). A convertible security entitles the holder to receive interest
paid or accrued on debt securities or dividends paid or accrued on preferred
stock until the security matures or is redeemed, converted or exchanged.
Convertible securities generally offer income yields that are higher than the
dividend yield, if any, of the underlying common stock, but lower than the
yield of similar non-convertible debt securities. While the Fund uses the
same criteria to rate a convertible debt security that it uses to rate a more
conventional debt security, a convertible preferred stock is treated like a
preferred stock for the Fund's financial reporting, credit rating, and
investment limitation purposes.

When a convertible security's conversion price is significantly above the
price of the underlying stock, the convertible security takes on the risk
characteristics of a debt security. At such times, the price of a convertible
security will vary with changes in the credit quality of the issuer and
inversely with changes in interest rates. When a convertible security's
conversion price is at or below the price of the underlying stock, a
convertible security will behave like a common stock. At such times, the
price of the convertible security will be influenced by the fluctuations in
the price of the underlying security and will vary based on the activities of
the issuing company and changes in general market and economic conditions.
Because of the hybrid nature of convertible securities, investors should
recognize that convertible securities are likely to perform quite differently
than broadly-based measures of the stock and bond markets.

The Fund's investment in convertible securities, particularly securities
convertible into securities of an issuer other than the issuer of the
convertible security, may be illiquid. The prices of these securities may be
volatile and the Fund may not be able to sell particular securities in a
timely fashion or at fair prices, which could result in losses to the Fund.
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. Although the Fund
intends to acquire liquid securities, there can be no assurances that this
will be achieved.

The holder of a convertible security generally may choose at any time to
exchange the convertible security for a specified number of shares of the
underlying stock. The Fund may at times, however, invest in securities that
are convertible other than at the Fund's option. Such securities may, for
example, have a mandatory conversion feature whereby the securities convert
automatically into common stock or other equity securities at a specified
date and a specified conversion ratio, or they may be convertible at the
option of the issuer. Because the conversion is not at the Fund's option, the
Fund may be required to convert the security into the underlying common stock
or other equity security at a time when the value of the underlying common
stock or other security has declined substantially. When a convertible
security is "converted," i.e., exchanged for shares of the underlying
security, the issuer often issues new stock to the holder of the convertible
security, but, in certain cases, the holder may receive cash instead of
common stock.

Convertible securities are usually issued either by an operating company or
by an investment bank. If a convertible security is issued by an investment
bank, the security is an obligation of and is convertible through the issuing
investment bank. Convertible securities rank senior to common stock in the
company's capital structure, but are generally subordinate to other types of
fixed-income securities issued by the company. Consequently, convertible
securities are subordinated to all debt obligations in the event of
insolvency and the credit rating of a company's convertible issue is
generally lower than the rating of the company's conventional debt issues
since the convertible is normally a "junior" security. A preferred stock
generally has no maturity date, so that its market value is dependent on the
issuer's business prospects for an indefinite period of time. An issuer's
failure to make a dividend payment is generally not an event of default
entitling the preferred shareholder to take action. The market for
convertible securities includes a larger proportion of small-to-medium size
companies than the broad stock market (as measured by such indices as the
Standard & Poor's 500 Composite Stock Index). Companies which issue
convertible securities are often lower in credit quality.

The Fund may invest in convertible preferred stocks that offer enhanced yield
features, such as Preferred Equity Redemption Cumulative Stocks ("PERCS").
PERCS are preferred stocks that generally feature 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, after three years PERCS convert into one share of the issuer's
common stock if the issuer's common stock is trading at a price below that
set by the capital appreciation limit, and into less than one full share if
the issuer's common stock is trading at a price above that set by the capital
appreciation limit. The amount of that fractional share of common stock is
determined by dividing the price set by the capital appreciation limit 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. If called early,
however, 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.

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 issued by the company, the common stock of which
will be received in the event the convertible preferred stock is converted;
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; and, upon maturity, they will automatically convert to
either cash or a specified number of shares of common stock.

Similarly, there may be enhanced convertible debt obligations issued by the
operating company, whose common stock is to be acquired in the event the
security is converted, or by a different issuer, such as an investment bank.
These securities may be identified by names such as ELKS (Equity Linked
Securities) or similar names. Typically they share most of the salient
characteristics of an enhanced convertible preferred stock but will be ranked
as senior or subordinated debt in the issuer's corporate structure according
to the terms of the debt indenture.

Synthetic convertible securities. The Fund may invest a portion of its assets
in "synthetic" convertible securities. A synthetic convertible security is
created by combining separate securities which together possess the two
principal characteristics of a convertible security, i.e., fixed income and
the right to acquire the underlying equity security. This combination is
achieved, for example, by investing in non-convertible debt securities and in
warrants or stock or stock index call options which grant the holder the
right to purchase a specified quantity of securities within a specified
period of time at a specified price or to receive cash in the case of stock
index options. Although the manager typically expects to create synthetic
convertible securities whose components represent one issuer, the Fund may
combine components representing distinct issuers, or combine a fixed income
security with a call option on a stock index when the manager determines that
such a combination would better promote the Fund's investment goal. The
component parts of a synthetic convertible security may be purchased
simultaneously or separately.

Synthetic convertible securities differ from other convertible securities in
several respects. The value of a synthetic convertible security is the sum of
the values of its fixed-income component and its convertible component. Thus,
the market price of a synthetic convertible security may react differently
when compared to other convertible securities to changes in the financial
condition of the issuer or market or general economic conditions. For
example, the holder of a synthetic convertible security faces the risk that
the price of the stock, or the level of the market index underlying the
convertible component may decline even though the price of a convertible
security has not changed.

Illiquid investments The Fund's policy is not to invest more than 10% of its
net assets in illiquid securities. Illiquid securities are generally
securities that cannot be sold within seven days in the normal course of
business at approximately the amount at which the Fund has valued them. The
Fund's board of trustees has authorized the Fund to invest in restricted
securities (which might otherwise be considered illiquid) where the
investment is consistent with the Fund's investment goal and has authorized
the securities to be considered liquid (and thus not subject to the foregoing
10% limitation), to the extent the manager determines on a daily basis that
there is a liquid institutional or other market for the securities - for
example, restricted securities that may be freely transferred among qualified
institutional buyers pursuant to Rule 144A under the Securities Act of 1933,
as amended, and for which a liquid institutional market has developed. The
board will review any determination by the manager to treat a restricted
security as a liquid security on an ongoing basis, including the manager's
assessment of current trading activity and the availability of reliable price
information. In determining whether a restricted security is properly
considered a liquid security, the manager and the board will take into
account the following factors: (i) the frequency of trades and quotes for the
security; (ii) the number of dealers willing to buy or sell the security and
the number of other potential buyers; (iii) dealer undertakings to make a
market in the security; and (iv) the nature of the security and the nature of
the marketplace trades (e.g., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of transfer). 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 buying these securities or the market for
these securities contracts.

When-issued and delayed delivery transactions The Fund may buy and sell debt
securities on a "when-issued" or "delayed delivery" basis. These are trading
practices where payment and delivery of the securities take place at a future
date. During the period between purchase and settlement, no payment is made
by the buyer to the issuer and no interest accrues to the buyer. These
transactions are subject to market fluctuations and the risk that the value
of a security at delivery may be more or less than its purchase price.
Although the Fund will generally buy debt securities on a when-issued basis
with the intention of acquiring the securities, it may sell the securities
before the settlement date if it is deemed advisable. When the Fund is the
buyer, it will maintain cash or high-grade marketable securities with an
aggregate value equal to the amount of its purchase commitments, in a
segregated account with its custodian bank until payment is made. The Fund
will not engage in when-issued and delayed delivery transactions for
investment leverage purposes.

Short-term investments Based upon the terms of an U.S. Securities and
Exchange Commission (SEC) order that granted exemptive relief from certain
provisions of the Investment Company Act of 1940, as amended (the 1940 Act),
the Fund may invest its short-term cash in shares of one or more money market
funds managed by the manager or its affiliates.

Repurchase agreements The Fund generally will have a portion of its assets in
cash or cash equivalents for a variety of reasons, including waiting for a
suitable investment opportunity or taking a defensive position. To earn
income on this portion of its assets, the Fund may enter into repurchase
agreements. Under a repurchase agreement, the Fund agrees to buy securities
guaranteed as to payment of principal and interest by the U.S. government or
its agencies from a qualified bank or broker-dealer and then to sell the
securities back to the bank or broker-dealer after a short period of time
(generally, less than seven days) at a higher price. The bank or
broker-dealer must transfer to the Fund's custodian securities with an
initial market value of at least 102% of the dollar amount invested by the
Fund in each repurchase agreement. The manager will monitor the value of such
securities daily to determine that the value equals or exceeds the repurchase
price.

Repurchase agreements may involve risks in the event of default or insolvency of
the bank or broker-dealer, including possible delays or restrictions upon the
Fund's ability to sell the underlying securities. The Fund will enter into
repurchase agreements only with parties who meet certain creditworthiness
standards, i.e., banks or broker-dealers that the manager has determined present
no serious risk of becoming involved in bankruptcy proceedings within the time
frame contemplated by the repurchase transaction.

Loans of portfolio securities To generate additional income, the Fund may
lend certain of its portfolio securities to qualified banks and
broker-dealers. These loans may not exceed 10% of the value of the Fund's
total assets, measured at the time of the most recent loan. For each loan,
the borrower must maintain with the Fund's custodian collateral (consisting
of any combination of cash, securities issued by the U.S. government and its
agencies and instrumentalities, or irrevocable letters of credit) with a
value at least equal to 100% of the current market value of the loaned
securities. The Fund retains all or a portion of the interest received on
investment of the cash collateral or receives a fee from the borrower. The
Fund also continues to receive any distributions paid on the loaned
securities. The Fund may terminate the loan at any time and obtain the return
of the securities loaned within the normal settlement period for the security
involved. Where voting rights with respect to the loaned securities pass with
the lending of the securities, the manager intends to call the loaned
securities to vote proxies, or to use other practicable and legally
enforceable means to obtain voting rights, when the manager has knowledge
that, in its opinion, a material event affecting the loaned securities will
occur or the manager otherwise believes it necessary to vote. As with other
extensions of credit, there are risks of delay in recovery or even loss of
rights in collateral in the event of default or insolvency of the borrower.
The Fund will loan its securities only to parties who meet creditworthiness
standards approved by the Fund's board of trustees, i.e., banks or
broker-dealers that the manager has determined present no serious risk of
becoming involved in bankruptcy proceedings within the time frame
contemplated by the loan.

Options, futures and options on financial futures The Fund may write
(sell) covered put and call options and buy put and call options that trade on
securities exchanges and in the OTC market in order to hedge against the risk
of market or industry-wide stock price fluctuations or to increase income to
the Fund. The Fund may buy and sell futures and options on futures with
respect to securities and securities indices and buy 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 its 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 its total assets. Options, futures and options on futures are
generally considered "derivative securities."

The Fund's options and futures investments involve certain risks. These 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 that would result in a
loss on both the securities and the option or future.

Successful use by the Fund of options on securities, stock indexes, stock
index futures, financial futures and related options will be subject to the
manager's ability to predict correctly movements in the direction of the
securities markets generally or of a particular segment. This requires
different skills and techniques than predicting changes in the price of
individual stocks.

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.

Writing call and put options. Call options written by the Fund give the
holder the right to buy the underlying securities from the Fund at a stated
exercise price; put options written by the Fund give the holder the right to
sell the underlying security to the Fund at a stated exercise price. A call
option written by the Fund is "covered" if the Fund owns the underlying
security that is subject to the call or has an absolute and immediate right
to acquire that security without additional cash consideration (or for
additional cash consideration held in a segregated account by its custodian
bank) upon conversion or exchange of other securities held in its portfolio.
A call option is also covered if the Fund holds a call on the same security
and in the same principal amount as the call written where the exercise price
of the call held (a) is equal to or less than the exercise price of the call
written or (b) is greater than the exercise price of the call written if the
difference is maintained by the Fund in cash and high grade debt securities
in a segregated account with its custodian bank. A put option written by the
Fund is "covered" if the Fund maintains cash and high grade debt securities
with a value equal to the exercise price in a segregated account with its
custodian bank, or else holds a put on the same security and in the same
principal amount as the put written where the exercise price of the put held
is equal to or greater than the exercise price of the put written. The
premium paid by the buyer of an option will reflect, among other things, the
relationship of the exercise price to the market price and volatility of the
underlying security, the remaining term of the option, supply and demand and
interest rates.

The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or purchased, in the
case of a put option, since with regard to certain options the writer may be
assigned an exercise notice at any time prior to the termination of the
obligation. Whether or not an option expires unexercised, the writer retains
the amount of the premium. This amount may, in the case of a covered call
option, be offset by a decline in the market value of the underlying security
during the option period. If a call option is exercised, the writer
experiences a profit or loss from the sale of the underlying security. If a
put option is exercised, the writer must fulfill the obligation to buy the
underlying security at the exercise price, which will usually exceed the then
current market value of the underlying security.

The writer of an option that wants to terminate its obligation may effect a
"closing purchase transaction." This is accomplished by buying an option of
the same series as the option previously written. The effect of the purchase
is that the writer's position will be canceled by the clearing corporation. A
writer, however, may not effect a closing purchase transaction after being
notified of the exercise of an option. Likewise, an investor who is the
holder of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously purchased. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.

Effecting a closing transaction in the case of a written call option will
permit the Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both. In the case of
a written put option, a closing transaction will permit the Fund to write
another put option to the extent that the exercise price thereof is secured
by deposited cash or short-term securities. Also, effecting a closing
transaction will permit the cash or proceeds from the concurrent sale of any
securities subject to the option to be used for other Fund investments. If
the Fund desires to sell a particular security from its portfolio on which it
has written a call option, it will effect a closing before or at the same
time as the sale of the security.

The Fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the option or is
more than the premium paid to buy the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
buy the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security,
any loss resulting from the repurchase of a call option is likely to be
offset in whole or in part by appreciation of the underlying security owned
by the Fund.

The writing of covered put options involves certain risks. For example, if
the market price of the underlying security rises or otherwise is above the
exercise price, the put option will expire worthless and the Fund's gain will
be limited to the premium received. If the market price of the underlying
security declines or otherwise is below the exercise price, the Fund may
elect to close the position or take delivery of the security at the exercise
price, and the Fund's return will be the premium received from the put
options minus the amount by which the market price of the security is below
the exercise price.

Positions in options, futures and related options on futures may be closed
out only on an exchange which provides a secondary market. There can be no
assurance that a liquid secondary market will exist for any particular option
or futures contract at any specific time. Thus, it may not be possible to
close an option or futures position. The inability to close options or
futures positions could also have an adverse impact on the Fund's ability to
effectively hedge its securities. The Fund will enter into an option or
futures position only if there appears to be a liquid secondary market for
these options or futures.

Buying call and put options. The Fund may buy call options on securities it
intends to buy in order to limit the risk of a substantial increase in the
market price of the security. The Fund may also buy call options on
securities held in its portfolio and on which it has written call options. A
call option gives the option holder the right to buy the underlying
securities from the option writer at a stated exercise price. Before its
expiration, a call option may be sold in a closing sale transaction. Profit
or loss from the sale will depend on whether the amount received is more or
less than the premium paid for the call option plus the related transaction
costs.

The Fund may buy put options on particular securities in order to protect
against a decline in the market value of the underlying security below the
exercise price less the premium paid for the option. A put option gives the
option holder the right to sell the underlying security at the option
exercise price at any time during the option period. The ability to buy put
options will allow the Fund to protect the unrealized gain in an appreciated
security in its portfolio without actually selling the security. In addition,
the Fund will continue to receive interest or dividend income on the
security. The Fund may sell a put option it has previously purchased before
the sale of the securities underlying the option. These sales will result in
a net gain or loss depending on whether the amount received on the sale is
more or less than the premium and other transaction costs paid for the put
option that is sold. The gain or loss may be wholly or partially offset by a
change in the value of the underlying security which the Fund owns or has the
right to acquire.

Over-the-counter ("OTC") options. The Fund may write covered put and call
options and buy put and call options that trade in the OTC market to the same
extent that it will engage in exchange traded options. Just as with exchange
traded options, OTC call options give the option holder the right to buy an
underlying security from an option writer at a stated exercise price; OTC put
options give the holder the right to sell an underlying security to an option
writer at a stated exercise price. OTC options, however, differ from exchange
traded options in certain material respects.

OTC options are arranged directly with dealers and not, as is the case with
exchange traded options, with a clearing corporation. Thus, there is a risk
of non-performance by the dealer. Because there is no exchange, pricing is
typically done by reference to information from market makers. OTC options,
however, are available for a greater variety of securities, and in a wider
range of expiration dates and exercise prices, than exchange traded options;
and the writer of an OTC option is paid the premium in advance by the dealer.
The Fund will purchase OTC options only from dealers and institutions that
the manager believes present a minimal credit risk.

There can be no assurance that a continuous liquid secondary market will
exist for any particular option at any specific time. Consequently, the Fund
may be able to realize the value of an OTC option it has purchased only by
exercising it or entering into a closing sale transaction with the dealer
that issued it. Similarly, when the Fund writes an OTC option, it generally
can close out that option before its expiration only by entering into a
closing purchase transaction with the dealer to which the Fund originally
wrote it.

The Fund understands the current position of the SEC staff to be that
purchased 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.

Options on stock indices. The Fund may also buy and sell call options on
stock indices in order to hedge against the risk of market or industry-wide
stock price fluctuations. Call and put options on stock indices are similar
to options on securities except that, rather than the right to buy or sell
stock at a specified price, options on a stock index give the holder the
right to receive, upon exercise of the option, an amount of cash if the
closing level of the underlying stock index is greater than (or less than, in
the case of puts) the exercise price of the option. This amount of cash is
equal to the difference between the closing price of the index and the
exercise price of the option expressed in dollars multiplied by a specified
number. Thus, unlike stock options, all settlements are in cash, and gain or
loss depends on price movements in the stock market generally (or in a
particular industry or segment of the market) rather than price movements in
individual stocks.

When the Fund writes an option on a stock index, the Fund will establish a
segregated account containing cash or high quality fixed-income securities
with its custodian bank in an amount at least equal to the market value of
the underlying stock index and will maintain the account while the option is
open or it will otherwise cover the transaction.

Futures contracts. The Fund may enter into contracts for the purchase or sale
of futures contracts based upon securities or financial indices ("financial
futures"). Financial futures contracts are commodity contracts that obligate
the long or short holder to take or make delivery of a specified quantity of
a financial instrument, such as a security, or the cash value of a securities
index during a specified future period at a specified price. A "sale" of a
futures contract means the acquisition of a contractual obligation to deliver
the security or cash value called for by the contract on a specified date. A
"purchase" of a futures contract means the acquisition of a contractual
obligation to take delivery of the security or cash value called for by the
contract at a specified date. Futures contracts have been designed by
exchanges that have been designated "contracts markets" by the Commodity
Futures Trading Commission ("CFTC") and must be executed through a futures
commission merchant, or brokerage firm, which is a member of the relevant
contract market.

The purpose of the acquisition or sale of a futures contract is to attempt to
protect the Fund from fluctuations in price of portfolio securities without
actually buying or selling the underlying security.

At the same time a futures contract is purchased or sold, the Fund must
allocate cash or securities as a deposit payment ("initial deposit"). Daily
thereafter, the futures contract is valued and the payment of "variation
margin" may be required since each day the Fund would provide or receive cash
that reflects any decline or increase in the contract's value.

Although futures contracts by their terms call for the actual delivery or
acquisition of securities, or the cash value of the index, in most cases the
contractual obligation is fulfilled before the date of the contract without
having to make or take delivery of the securities or cash. The offsetting of
a contractual obligation is accomplished by buying (or selling, as the case
may be) on a commodities exchange an identical futures contract calling for
delivery in the same month. This transaction, which is effected through a
member of an exchange, cancels the obligation to make or take delivery of the
securities or cash. Since all transactions in the futures market are made,
offset or fulfilled through a clearinghouse associated with the exchange on
which the contracts are traded, the Fund will incur brokerage fees when it
buys or sells futures contracts.

The Fund will not engage in transactions in futures contracts or related
options for speculation but only as a hedge against changes resulting from
market conditions in the values of its securities or securities which it
intends to buy and, to the extent consistent therewith, to accommodate cash
flows. The Fund will not enter into any stock index or financial futures
contract or related option if, immediately thereafter, more than one-third of
the Fund's net assets would be represented by futures contracts or related
options. In addition, the Fund may not buy or sell futures contracts or buy
or sell related options if, immediately thereafter, the sum of the amount of
margin deposits on its existing futures and related options positions and
premiums paid for related options would exceed 5% of the market value of the
Fund's total assets. In instances involving the purchase of futures contracts
or related call options, money market instruments equal to the market value
of the futures contract or related option will be deposited in a segregated
account with the Fund's custodian bank to collateralize these long positions.

To the extent the Fund enters into a futures contract, it will maintain with
its custodian bank, to the extent required by the rules of the SEC, assets in
a segregated account to cover its obligations with respect to the contract.
These assets will consist of cash, cash equivalents or high quality debt
securities from its portfolio in an amount equal to the difference between
the fluctuating market value of the futures contract and the aggregate value
of the initial and variation margin payments made by the Fund with respect to
these futures contracts.

Futures contracts entail other risks as well. Although the Fund believes that
the use of these contracts will be beneficial, if the manager's investment
judgment about the general direction of interest rates is incorrect, the
Fund's overall performance would be poorer than if it had not entered into any
futures contract. For example, if the Fund has hedged against the possibility
of an increase in interest rates which would adversely affect the price of
bonds held in its portfolio and interest rates decrease instead, the Fund
will lose part or all of the benefit of the increased value of its bonds
which it has hedged because it will have offsetting losses in its futures
positions. In addition, in these situations, if the Fund has insufficient
cash, it may have to sell securities from its portfolio to meet daily
variation margin requirements. These sales may be, but will not necessarily
be, at increased prices which reflect the rising market. The Fund may have to
sell securities at a time when it may be disadvantageous to do so.

Stock index futures. As noted above, stock index futures contracts obligate
the seller to deliver (and the buyer to take) an amount of cash equal to a
specific dollar amount times the difference between the value of a specific
stock index at the close of the last trading day of the contract and the
price at which the agreement is made. No physical delivery of the underlying
stocks in the index is made.

The Fund may sell stock index futures contracts in anticipation of or during
a market decline to attempt to offset the decrease in market value of its
equity securities that might otherwise result. When the Fund is not fully
invested in stocks and anticipates a significant market advance, it may buy
stock index futures in order to gain rapid market exposure that may in part
or entirely offset increases in the cost of common stocks that it intends
to buy.

Options on stock index futures. The Fund may buy and sell call and put
options on stock index futures to hedge against risks of marketside price
movements. The need to hedge against these risks will depend on the extent of
diversification of the Fund's common stock portfolio and the sensitivity of
these investments to factors influencing the stock market as a whole.

Call and put options on stock index futures are similar to options on
securities except that, rather than the right to buy or sell stock at a
specified price, options on a stock index futures contract give the holder
the right to receive cash. Upon exercise of the option, the delivery of the
futures position by the writer of the option to the holder of the option will
be accompanied by delivery of the accumulated balance in the writer's futures
margin account which represents the amount by which the market price of the
futures contract, at exercise, exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on the futures
contract. If an option is exercised on the last trading day before the
expiration date of the option, the settlement will be made entirely in cash
equal to the difference between the exercise price of the option and the
closing price of the futures contract on the expiration date.

The CFTC and the various exchanges have established limits referred to as
"speculative position limits" on the maximum net long or net short position
which any person may hold or control in a particular futures contract.
Trading limits are also imposed on the maximum number of contracts that any
person may trade on a particular trading day. An exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose other sanctions or restrictions. The Fund does not believe that these
trading and positions limits will have an adverse impact on the Fund's
strategies for hedging its securities.

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 you. These securities also require the
application of complex and special tax rules and elections.

Future developments. The Fund may take advantage of opportunities in the area
of options and futures contracts and options on futures contracts and any
other derivative investments which are not presently contemplated for use by
the Fund or which are not currently available but which may be developed, to
the extent these opportunities are both consistent with the Fund's investment
goal and legally permissible for the Fund.

Derivative securities Derivative investments are those whose values are
dependent upon the performance of one or more other securities or investments
or indices; in contrast to common stock, for example, whose value is
dependent upon the operations of the issuer. Option transactions, foreign
currency exchange transactions and futures contracts are considered
derivative investments. To the extent the Fund enters into these
transactions, their success will depend upon the manager's ability to predict
pertinent market movements.

Temporary investments When the manager believes market or economic conditions
are unfavorable for investors, the manager may invest up to 100% of the
Fund's assets in a temporary defensive manner or hold a substantial portion of
its assets in cash, cash equivalents or other high quality short-term
investments. Unfavorable market or economic conditions may include excessive
volatility or a prolonged general decline in the securities markets, the
securities in which the Fund normally invests, or the economy.

Temporary defensive investments generally may include short-term debt
instruments, including U.S. government securities, high grade commercial
paper, repurchase agreements and other money market equivalents. To the
extent allowed by exemptions granted under the Investment Company Act of
1940, as amended, and the Fund's other investment policies and restrictions,
the manager also may invest the Fund's assets in shares of one or more money
market funds managed by the manager or its affiliates. The manager also may
invest in these types of securities or hold cash while looking for suitable
investment opportunities or to maintain liquidity.

Investment restrictions The Fund has adopted the following restrictions as
fundamental policies. This means they may only be changed if the change is
approved by (i) more than 50% of the Fund's outstanding shares or (ii) 67% or
more of the Fund's shares present at a shareholder meeting if more than 50%
of the Fund's outstanding shares are represented at the meeting in person or
by proxy, whichever is less.

The Fund may not:

1. Invest directly in real estate, except that the Fund could own real estate
directly as a result of a default on debt securities it owns.

2. Make loans to other persons, except by the purchase of bonds, debentures
or similar obligations which are publicly distributed or of a character
usually acquired by institutional investors or through loans of the Fund's
portfolio securities, or to the extent the entry into a repurchase agreement
may be deemed a loan.

3. Borrow money, except from banks in order to meet redemption requests that
might otherwise require the untimely disposition of portfolio securities or
for other temporary or emergency (but not investment) purposes, in an amount
up to 10% of the value of the Fund's total assets (including the amount
borrowed) based on the lesser of cost or market, less liabilities (not
including the amount borrowed) at the time the borrowing is made. While
borrowings exceed 5% of the Fund's total assets, the Fund will not make any
additional investments.

4. Invest more than 25% of the Fund's assets (at the time of the most recent
investment) in any single industry, except that the Fund will concentrate its
investments in real estate securities, and except that, to the extent this
restriction is applicable, all or substantially all of the assets of the Fund
may be invested in another registered investment company having the same
investment goal and policies as the Fund.

5. Underwrite securities of other issuers (does not preclude the Fund from
obtaining such short-term credit as may be necessary for the clearance of
purchases and sales of its portfolio securities), except that all or
substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment goal and policies as
the Fund.

6. Invest more than 10% of the value of its total assets in illiquid
securities with legal or contractual restrictions on resale (although the
Fund may invest in such securities to the extent permitted under the federal
securities laws) or which are not readily marketable, except that all or
substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment goal and policies as
the Fund.

7. Invest in securities which have a record of less than three years
continuous operation, including the operations of any predecessor companies,
if more than 5% of the Fund's total assets would be invested in such
companies except that all or substantially all of the assets of the Fund may
be invested in another registered investment company having the same
investment goal and policies as the Fund. (This limitation does not apply to
issuers of real estate investment trusts.)

8. Invest in securities for the purpose of exercising management or control
of the issuer, except that, to the extent this restriction is applicable, all
or substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment goal and policies as
the Fund.

9. Maintain a margin account with a securities dealer or invest in
commodities and commodity contracts, except that the Fund may invest in
financial futures and related options on futures with respect to securities
and securities indices.

10. Lease or acquire any interests, including interests issued by limited
partnerships (other than publicly traded equity securities) in oil, gas, or
other mineral exploration or development programs.

11. Invest in excess of 5% of its total assets in options unrelated to any
Fund transactions in futures, including puts, calls, straddles, spreads, or
any combination thereof.

12. Effect short sales, unless at the time the Fund owns securities
equivalent in kind and amount to those sold (which will normally be for
deferring recognition of gains or losses for tax purposes). (Although the
Fund may engage in short sales if it owns securities equivalent in kind and
amount to the securities sold short, the Fund does not currently intend to
employ this investment technique.)

13. Invest in the securities of other investment companies, except to the
extent permitted by the 1940 Act or other applicable state law, and except in
connection with a merger, consolidation, acquisition or reorganization. To
the extent permitted by exemptions granted under the 1940 Act, the Fund may
invest in shares of one or more money market funds managed by the manager or
its affiliates.

14. Purchase from or sell to its officers and trustees, or any firm of which
any officer or trustee is a member, as principal, any securities, but may
deal with such persons or firms as brokers and pay a customary brokerage
commission; or purchase or retain securities of any issuer if, to the
knowledge of the Fund, one or more of the officers or trustees of the Fund,
or its investment adviser, own beneficially more than 0.5 of 1% of the
securities of such issuer and all such officers and trustees together own
beneficially more than 5% of such securities, except that, to the extent this
restriction is applicable, all or substantially all of the assets of the Fund
may be invested in another registered investment company having the same
investment goal and policies as the Fund, or except as permitted under
investment restriction Number 13 regarding the purchase of shares of money
market funds managed by the manager or its affiliates.

In addition to these fundamental policies, it is the present policy of the
Fund (which may be changed without shareholder approval) not to pledge,
mortgage or hypothecate the Fund's assets as security for loans, nor to
engage in joint or joint and several trading accounts in securities, except
that it may participate in joint repurchase arrangements, lend its portfolio
securities, invest its short-term cash in shares of one or more investment
companies, of the type generally referred to as money market funds, managed
by the manager or its affiliates, (pursuant to the terms of any order, and
any conditions therein, issued by the SEC permitting such investments), or
combine orders to buy or sell with orders from other persons to obtain lower
brokerage commissions. The Fund may not invest in excess of 5% of its net
assets, valued at the lower of cost or market, in warrants, nor more than 2%
of its net assets in warrants not listed on either the New York Stock
Exchange or American Stock Exchange. It is also the policy of the Fund that
it may, consistent with its goal, invest a portion of its assets, as
permitted by the 1940 Act and the rules adopted thereunder, in securities or
other obligations issued by companies engaged in securities related
businesses, including companies that are securities brokers, dealers,
underwriters or investment advisors.

If a bankruptcy or other extraordinary event occurs concerning a particular
security the Fund owns, the Fund may receive stock, real estate, or other
investments that the Fund would not, or could not, buy. If this happens, the
Fund intends to sell such investments as soon as practicable while trying to
maximize the return to shareholders.

Generally, the policies and restrictions discussed in this SAI and in the
prospectus apply when the Fund makes an investment. In most cases, the Fund
is not required to sell a security because circumstances change and the
security no longer meets one or more of the Fund's policies or restrictions.
If a percentage restriction or limitation is met at the time of investment, a
later increase or decrease in the percentage due to a change in the value or
liquidity of portfolio securities will not be considered a violation of the
restriction or limitation.

Officers and Trustees

Franklin Real Estate Securities Trust (the Trust) has a board of trustees.
The board is responsible for the overall management of the Trust, including
general supervision and review of the Fund's investment activities. The
board, in turn, elects the officers of the Trust who are responsible for
administering the Trust's day-to-day operations. The board also monitors the
Fund to ensure no material conflicts exist among share classes. While none is
expected, the board will act appropriately to resolve any material conflict
that may arise.

The name, age and address of the officers and board members, as well as their
affiliations, positions held with the Trust, and principal occupations during
the past five years are shown below.

Frank H. Abbott, III (79)
1045 Sansome Street, San Francisco, CA 94111
Trustee

President and Director, Abbott Corporation (an investment company); director
or trustee, as the case may be, of 28 of the investment companies in Franklin
Templeton Investments; and formerly, Director, MotherLode Gold Mines
Consolidated (gold mining) (until 1996) and Vacu-Dry Co. (food processing)
(until 1996).

Harris J. Ashton (68)
191 Clapboard Ridge Road, Greenwich, CT 06830
Trustee

Director, RBC Holdings, Inc. (bank holding company) and Bar-S Foods (meat
packing company); director or trustee, as the case may be, of 47 of the
investment companies in Franklin Templeton Investments; and formerly,
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers) (until 1998).

*Harmon E. Burns (55)
777 Mariners Island Blvd., San Mateo, CA 94404
Vice President and Trustee

Vice Chairman, Member - Office of the Chairman and Director, Franklin
Resources, Inc.; Executive Vice President and Director, Franklin Templeton
Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.;
Director, Franklin Investment Advisory Services, Inc., Franklin/Templeton
Investor Services, Inc. and Franklin Templeton Services, Inc.; and officer
and/or director or trustee, as the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and of 51 of the investment
companies in Franklin Templeton Investments.

Robert F. Carlson (72)
2120 Lambeth Way, Carmichael, CA 95608
Trustee

Vice President and past President, Board of Administration, California Public
Employees Retirement Systems (CALPERS); director or trustee, as the case may
be, of 11 of the investment companies in Franklin Templeton Investments; and
formerly, member and Chairman of the Board, Sutter Community Hospitals,
member, Corporate Board, Blue Shield of California, and Chief Counsel,
California Department of Transportation.

S. Joseph Fortunato (68)
Park Avenue at Morris County, P.O. Box 1945
Morristown, NJ 07962-1945
Trustee

Member of the law firm of Pitney, Hardin, Kipp & Szuch; and director or
trustee, as the case may be, of 49 of the investment companies in Franklin
Templeton Investments.

*Charles B. Johnson (67)
777 Mariners Island Blvd., San Mateo, CA 94404
Chairman of the Board and Trustee

Chairman of the Board, Chief Executive Officer, Member - Office of the
Chairman and Director, Franklin Resources, Inc.; Chairman of the Board and
Director, Franklin Investment Advisory Services, Inc.; Vice President,
Franklin Templeton Distributors, Inc.; Director, Franklin/Templeton Investor
Services, Inc. and Franklin Templeton Services, Inc.; officer and/or director
or trustee, as the case may be, of most of the other subsidiaries of Franklin
Resources, Inc. and of 48 of the investment companies in Franklin Templeton
Investments.

*Rupert H. Johnson, Jr. (60)
777 Mariners Island Blvd., San Mateo, CA 94404
President and Trustee

Vice Chairman, Member - Office of the Chairman and Director, Franklin
Resources, Inc.; Executive Vice President and Director, Franklin Templeton
Distributors, Inc.; Director, Franklin Advisers, Inc., Franklin Investment
Advisory Services, Inc. and Franklin/Templeton Investor Services, Inc.;
Senior Vice President, Franklin Advisory Services, LLC; and officer and/or
director or trustee, as the case may be, of most of the other subsidiaries of
Franklin Resources, Inc. and of 51 of the investment companies in Franklin
Templeton Investments.

Frank W.T. LaHaye (71)
20833 Stevens Creek Blvd., Suite 102, Cupertino, CA 95014
Trustee

Chairman, Peregrine Venture Management Company (venture capital); Director,
The California Center for Land Recycling (redevelopment); director or
trustee, as the case may be, of 28 of the investment companies in Franklin
Templeton Investments; and formerly, General Partner, Miller & LaHaye and
Peregrine Associates, the general partners of Peregrine Venture funds.

Gordon S. Macklin (72)
8212 Burning Tree Road, Bethesda, MD 20817
Trustee

Director, Martek Biosciences Corporation, WorldCom, Inc. (communications
services), MedImmune, Inc. (biotechnology), Overstock.com (internet
services), White Mountains Insurance Group, Ltd. (holding company) and
Spacehab, Inc. (aerospace services); director or trustee, as the case may be,
of 47 of the investment companies in Franklin Templeton Investments; and
formerly, Chairman, White River Corporation (financial services) (until 1998)
and Hambrecht & Quist Group (investment banking) (until 1992), and President,
National Association of Securities Dealers, Inc. (until 1987).

Martin L. Flanagan (40)
777 Mariners Island Blvd., San Mateo, CA 94404
Vice President and Chief Financial Officer

President, Member - Office of the President, Chief Financial Officer and
Chief Operating Officer, Franklin Resources, Inc.; Executive Vice President
and Director, Franklin/Templeton Investor Services, Inc.; President and Chief
Financial Officer, Franklin Mutual Advisers, LLC; Executive Vice President,
Chief Financial Officer and Director, Templeton Worldwide, Inc.; Executive
Vice President, Chief Operating Officer and Director, Templeton Investment
Counsel, Inc.; Executive Vice President, Franklin Advisers, Inc. and Franklin
Investment Advisory Services, Inc.; Chief Financial Officer, Franklin
Advisory Services, LLC; Chairman and Director, Franklin Templeton Services,
Inc.; officer and/or director of some of the other subsidiaries of Franklin
Resources, Inc.; and officer and/or director or trustee, as the case may be,
of 51 of the investment companies in Franklin Templeton Investments.

David P. Goss (53)
777 Mariners Island Blvd., San Mateo, CA 94404
Vice President

Counsel, Franklin Resources, Inc.; President, Chief Executive Officer and
Director, Franklin Select Realty Trust, Property Resources, Inc., Property
Resources Equity Trust, Franklin Real Estate Management, Inc. and Franklin
Properties, Inc.; officer and director of some of the other subsidiaries of
Franklin Resources, Inc.; officer of 52 of the investment companies in
Franklin Templeton Investments; and formerly, President, Chief Executive
Officer and Director, Franklin Real Estate Income Fund and Franklin Advantage
Real Estate Income Fund (until 1996).

Barbara J. Green (52)
777 Mariners Island Blvd., San Mateo, CA 94404
Vice President

Vice President and Deputy General Counsel, Franklin Resources, Inc.; Senior
Vice President, Templeton Worldwide, Inc. and Templeton Global Investors,
Inc.; officer of 52 of the investment companies in Franklin Templeton
Investments; and formerly, Deputy Director, Division of Investment
Management, Executive Assistant and Senior Advisor to the Chairman, Counselor
to the Chairman, Special Counsel and Attorney Fellow, U.S. Securities and
Exchange Commission (1986-1995), Attorney, Rogers & Wells (until 1986), and
Judicial Clerk, U.S. District Court (District of Massachusetts) (until 1979).

Charles E. Johnson (44)
777 Mariners Island Blvd., San Mateo, CA 94404
Vice President

President, Member - Office of the President and Director, Franklin Resources,
Inc.; Senior Vice President, Franklin Templeton Distributors, Inc.; President
and Director, Templeton Worldwide, Inc. and Franklin Advisers, Inc.;
Director, Templeton Investment Counsel, Inc.; President, Franklin Investment
Advisory Services, Inc.; officer and/or director of some of the other
subsidiaries of Franklin Resources, Inc.; and officer and/or director or
trustee, as the case may be, of 32 of the investment companies in Franklin
Templeton Investments.

Edward V. McVey (63)
777 Mariners Island Blvd., San Mateo, CA 94404
Vice President

Senior Vice President, Franklin Templeton Distributors, Inc.; officer of one
of the other subsidiaries of Franklin Resources, Inc. and of 29 of the
investment companies in Franklin Templeton Investments.

Kimberley H. Monasterio (36)
777 Mariners Island Blvd., San Mateo, CA 94404
Treasurer and Principal Accounting Officer

Senior Vice President, Franklin Templeton Services, Inc.; and officer of 33
of the investment companies in Franklin Templeton Investments.

Murray L. Simpson (63)
777 Mariners Island Blvd., San Mateo, CA 94404
Vice President and Secretary

Executive Vice President and General Counsel, Franklin Resources, Inc.;
officer and/or director of some of the subsidiaries of Franklin Resources,
Inc.; officer of 52 of the investment companies in Franklin Templeton
Investments; and formerly, Chief Executive Officer and Managing Director,
Templeton Franklin Investment Services (Asia) Limited (until January 2000)
and Director, Templeton Asset Management Ltd. (until 1999).

*This board member is considered an "interested person" under federal
securities laws.

Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Charles E. Johnson.

The Trust pays noninterested board members $600 per month plus $200 per
meeting attended. Board members who serve on the audit committee of the Trust
and other funds in Franklin Templeton Investments receive a flat fee of
$2,000 per committee meeting attended, a portion of which is allocated to the
Trust. Members of a committee are not compensated for any committee meeting
held on the day of a board meeting. Noninterested board members also may
serve as directors or trustees of other funds in Franklin Templeton
Investments and may receive fees from these funds for their services. The
fees payable to noninterested board members by the Trust are subject to
reductions resulting from fee caps limiting the amount of fees payable to
board members who serve on other boards within Franklin Templeton
Investments. The following table provides the total fees paid to
noninterested board members by the Trust and by Franklin Templeton
Investments.

Number of
Total Fees Boards in
Total Fees Received from Franklin
Received Franklin Templeton
from the Templeton Investments
Trust/1 Investments/2 on which
Name ($) ($) Each Serves/3
------------------------------------------------------------------------------
Frank H. Abbott, III 2,866 156,060 28
Harris J. Ashton 2,948 363,165 47
Robert F. Carlson 3,667 89,690 11
S. Joseph Fortunato 2,773 363,238 49
Frank W. T. LaHaye 2,866 156,060 28
Gordon S. Macklin 2,948 363,165 47

1. For the fiscal year ended April 30, 2000.
2. For the calendar year ended December 31, 1999.
3. We base the number of boards on the number of registered investment
companies in Franklin Templeton Investments. This number does not include the
total number of series or funds within each investment company for which the
board members are responsible. Franklin Templeton Investments currently
includes 52 registered investment companies, with approximately 157 U.S.
based funds or series.

Noninterested board members are reimbursed for expenses incurred in
connection with attending board meetings, paid pro rata by each fund in
Franklin Templeton Investments for which they serve as director or trustee.
No officer or board member received any other compensation, including pension
or retirement benefits, directly or indirectly from the Fund or other funds
in Franklin Templeton Investments. Certain officers or board members who are
shareholders of Franklin Resources, Inc. may be deemed to receive indirect
remuneration by virtue of their participation, if any, in the fees paid to
its subsidiaries.

Board members historically have followed a policy of having substantial
investments in one or more of the funds in Franklin Templeton Investments, as
is consistent with their individual financial goals. In February 1998, this
policy was formalized through adoption of a requirement that each board
member invest one-third of fees received for serving as a director or trustee
of a Templeton fund in shares of one or more Templeton funds and one-third of
fees received for serving as a director or trustee of a Franklin fund in
shares of one or more Franklin funds until the value of such investments
equals or exceeds five times the annual fees paid such board member.
Investments in the name of family members or entities controlled by a board
member constitute fund holdings of such board member for purposes of this
policy, and a three year phase-in period applies to such investment
requirements for newly elected board members. In implementing such policy, a
board member's fund holdings existing on February 27, 1998, are valued as of
such date with subsequent investments valued at cost.

MANAGEMENT AND OTHER SERVICES

Manager and services provided The Fund's manager is Franklin Advisers, Inc.
The manager is a wholly owned subsidiary of Franklin Resources, Inc.
(Resources), a publicly owned company engaged in the financial services
industry through its subsidiaries. Charles B. Johnson and Rupert H.
Johnson, Jr. are the principal shareholders of Resources.

The manager provides investment research and portfolio management services,
and selects the securities for the Fund to buy, hold or sell. The manager
also selects the brokers who execute the Fund's portfolio transactions. The
manager provides periodic reports to the board, which reviews and supervises
the manager's investment activities. To protect the Fund, the manager and its
officers, directors and employees are covered by fidelity insurance.

The manager and its affiliates manage numerous other investment companies and
accounts. The manager may give advice and take action with respect to any of
the other funds it manages, or for its own account, that may differ from
action taken by the manager on behalf of the Fund. Similarly, with respect to
the Fund, the manager is not obligated to recommend, buy or sell, or to
refrain from recommending, buying or selling any security that the manager
and access persons, as defined by applicable federal securities laws, may buy
or sell for its or their own account or for the accounts of any other fund.
The manager is not obligated to refrain from investing in securities held by
the Fund or other funds it manages.

The Fund, its manager and principal underwriter have each adopted a code of
ethics, as required by federal securities laws. Under the code of ethics,
employees who are designated as access persons may engage in personal
securities transactions, including transactions involving securities that are
being considered for the Fund or that are currently held by the Fund, subject
to certain general restrictions and procedures. The personal securities
transactions of access persons of the Fund, its manager and principal
underwriter will be governed by the code of ethics. The code of ethics is on
file with, and available from, the U.S. Securities and Exchange Commission
(SEC).

Management fees The Fund pays the manager a fee equal to an annual rate of:

o 0.625 of 1% of the value of average daily net assets up to and including
$100 million; and

o 0.50 of 1% of the value of average daily net assets over $100 million up to
and including $250 million; and

o 0.45 of 1% of the value of average daily new assets over $250 million up to
an including $10 billion; and

o 0.44 of 1% of the value of average daily net assets over $10 billion up to
an including $12.5 billion; and

o 0.42 of 1% of the value of average daily net assets over $12.5 billion up
to and including $15 billion; and

o 0.40 of 1% of the value of net assets in excess of $15 billion.

The fee is computed at the close of business on the last business day of each
month according to the terms of the management agreement. Each class of the
Fund's shares pays its proportionate share of the fee.

For the last three fiscal years ended April 30, the Fund paid the following
management fees:

Management
Fees Paid ($)/1
-----------------------------------
2000 1,972,915
1999 2,138,145
1998 1,774,540

1. For the fiscal years ended April 30, 2000 and 1998, management fees,
before any advance waiver, totaled $2,017,002 and $1,896,157, respectively.
Under an agreement by the manager to reduce its fees to reflect reduced
services resulting from the Fund's investment in a Franklin Templeton money
fund, the Fund paid the management fees shown.

Administrator and services provided Franklin Templeton Services, Inc. (FT
Services) has an agreement with the manager to provide certain administrative
services and facilities for the Fund. FT Services is wholly owned by
Resources and is an affiliate of the Fund's manager and principal underwriter.

The administrative services FT Services provides include preparing and
maintaining books, records, and tax and financial reports, and monitoring
compliance with regulatory requirements.

Administration fees The manager pays FT Services a monthly fee equal to an
annual rate of:

o 0.15% of the Fund's average daily net assets up to $200 million;

o 0.135% of average daily net assets over $200 million up to $700 million;

o 0.10% of average daily net assets over $700 million up to $1.2 billion; and

o 0.075% of average daily net assets over $1.2 billion.

During the last three fiscal years ended April 30, the manager paid FT
Services the following administration fees:

Administration
Fees Paid ($)
----------------------------------
2000 558,345
1999 595,938
1998 525,070

Shareholder servicing and transfer agent Franklin/Templeton Investor
Services, Inc. (Investor Services) is the Fund's shareholder servicing agent
and acts as the Fund's transfer agent and dividend-paying agent. Investor
Services is located at 777 Mariners Island Blvd., San Mateo, CA 94404. Please
send all correspondence to Investor Services to P.O. Box 997151, Sacramento,
CA 95899-9983.

For its services, Investor Services receives a fixed fee per account. The
Fund also will reimburse Investor Services for certain out-of-pocket
expenses, which may include payments by Investor Services to entities,
including affiliated entities, that provide sub-shareholder services,
recordkeeping and/or transfer agency services to beneficial owners of the
Fund. The amount of reimbursements for these services per benefit plan
participant Fund account per year will not exceed the per account fee payable
by the Fund to Investor Services in connection with maintaining shareholder
accounts.

Custodian Bank of New York, Mutual Funds Division, 90 Washington Street, New
York, NY 10286, acts as custodian of the Fund's securities and other assets.

Auditor PricewaterhouseCoopers LLP, 333 Market Street, San Francisco, CA
94105, is the Fund's independent auditor. The auditor gives an opinion on the
financial statements included in the Trust's Annual Report to Shareholders
and reviews the Trust's registration statement filed with the SEC.

PORTFOLIO TRANSACTIONS

The manager selects brokers and dealers to execute the Fund's portfolio
transactions in accordance with criteria set forth in the management
agreement and any directions that the board may give.

When placing a portfolio transaction, the manager seeks to obtain prompt
execution of orders at the most favorable net price. For portfolio
transactions on a securities exchange, the amount of commission paid is
negotiated between the manager and the broker executing the transaction. The
determination and evaluation of the reasonableness of the brokerage
commissions paid are based to a large degree on the professional opinions of
the persons responsible for placement and review of the transactions. These
opinions are based on the experience of these individuals in the securities
industry and information available to them about the level of commissions
being paid by other institutional investors of comparable size. The manager
will ordinarily place orders to buy and sell over-the-counter securities on a
principal rather than agency basis with a principal market maker unless, in
the opinion of the manager, a better price and execution can otherwise be
obtained. Purchases of portfolio securities from underwriters will include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers will include a spread between the bid and ask price.

The manager may pay certain brokers commissions that are higher than those
another broker may charge, if the manager determines in good faith that the
amount paid is reasonable in relation to the value of the brokerage and
research services it receives. This may be viewed in terms of either the
particular transaction or the manager's overall responsibilities to client
accounts over which it exercises investment discretion. The services that
brokers may provide to the manager include, among others, supplying
information about particular companies, markets, countries, or local,
regional, national or transnational economies, statistical data, quotations
and other securities pricing information, and other information that provides
lawful and appropriate assistance to the manager in carrying out its
investment advisory responsibilities. These services may not always directly
benefit the Fund. They must, however, be of value to the manager in carrying
out its overall responsibilities to its clients.

It is not possible to place a dollar value on the special executions or on
the research services the manager receives from dealers effecting
transactions in portfolio securities. The allocation of transactions to
obtain additional research services allows the manager to supplement its own
research and analysis activities and to receive the views and information of
individuals and research staffs of other securities firms. As long as it is
lawful and appropriate to do so, the manager and its affiliates may use this
research and data in their investment advisory capacities with other clients.
If the Fund's officers are satisfied that the best execution is obtained, the
sale of Fund shares, as well as shares of other funds in Franklin Templeton
Investments, also may be considered a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions.

Because Franklin Templeton Distributors, Inc. (Distributors) is a member of
the National Association of Securities Dealers, Inc., it may sometimes
receive certain fees when the Fund tenders portfolio securities pursuant to a
tender-offer solicitation. To recapture brokerage for the benefit of the
Fund, any portfolio securities tendered by the Fund will be tendered through
Distributors if it is legally permissible to do so. In turn, the next
management fee payable to the manager will be reduced by the amount of any
fees received by Distributors in cash, less any costs and expenses incurred
in connection with the tender.

If purchases or sales of securities of the Fund and one or more other
investment companies or clients supervised by the manager are considered at
or about the same time, transactions in these securities will be allocated
among the several investment companies and clients in a manner deemed
equitable to all by the manager, taking into account the respective sizes of
the funds and the amount of securities to be purchased or sold. In some cases
this procedure could have a detrimental effect on the price or volume of the
security so far as the Fund is concerned. In other cases it is possible that
the ability to participate in volume transactions may improve execution and
reduce transaction costs to the Fund.

During the last three fiscal years ended April 30, the Fund paid the
following brokerage commissions:

Brokerage
Commissions ($)
-----------------------------------
2000 558,748
1999 491,465
1998 385,342

For the fiscal year ended April 30, 2000, the Fund did not pay brokerage
commissions to brokers who provided research services.

As of April 30, 2000, the Fund did not own securities of its regular
broker-dealers.

DISTRIBUTIONS AND TAXES

The Fund calculates dividends and capital gains the same way for each class.
The amount of any income dividends per share will differ, however, generally
due to the difference in the distribution and service (Rule 12b-1) fees of
each class. Distributions are subject to approval by the board. The Fund does
not pay "interest" or guarantee any fixed rate of return on an investment in
its shares.

Distributions of net investment income The Fund receives income generally in
the form of dividends and interest on its investments. This income, less
expenses incurred in the operation of the Fund, constitutes the Fund's net
investment income from which dividends may be paid to you. Any distributions
by the Fund from such income will be taxable to you as ordinary income,
whether you receive them in cash or in additional shares.

Distributions of capital gains The Fund may derive capital gains and losses
in connection with sales or other dispositions of its portfolio securities.
Distributions from net short-term capital gains will be taxable to you as
ordinary income. Distributions from net long-term capital gains will be
taxable to you as long-term capital gain, regardless of how long you have
held your shares in the Fund. Any net capital gains realized by the Fund
generally will be distributed once each year, and may be distributed more
frequently, if necessary, to reduce or eliminate excise or income taxes on
the Fund.

Beginning in the year 2001 for shareholders in the 15% federal income tax
bracket (or in the year 2006 for shareholders in the 28% or higher bracket),
capital gain distributions from the Fund's sale of securities held for more
than five years may be subject to a reduced tax rate.

Effect of foreign investments on distributions The Fund may invest up to 10%
of its total assets in foreign securities. Most foreign exchange gains
realized on the sale of debt securities are treated as ordinary income by the
Fund. Similarly, foreign exchange losses realized on the sale of debt
securities generally are treated as ordinary losses. These gains when
distributed will be taxable to you as ordinary income, and any losses will
reduce the Fund's ordinary income otherwise available for distribution to
you. This treatment could increase or decrease the Fund's ordinary income
distributions to you, and may cause some or all of the Fund's previously
distributed income to be classified as a return of capital. The Fund may also
be subject to foreign withholding taxes on income from its foreign securities
that, in turn, could reduce ordinary income distributions to you.

Information on the tax character of distributions The Fund will inform you of
the amount of your ordinary income dividends and capital gain distributions
at the time they are paid, and will advise you of their tax status for
federal income tax purposes shortly after the close of each calendar year. If
you have not held Fund shares for a full year, the Fund may designate and
distribute to you, as ordinary income or capital gain, a percentage of income
that is not equal to the actual amount of such income earned during the
period of your investment in the Fund.

Election to be taxed as a regulated investment company The Fund has elected
to be treated as a regulated investment company under Subchapter M of the
Internal Revenue Code (the "Code"). The Fund has qualified as a regulated
investment company for its most recent fiscal year, and intends to continue
to qualify during the current fiscal year. As a regulated investment company,
the Fund generally pays no federal income tax on the income and gains it
distributes to you. The board reserves the right not to maintain the
qualification of the Fund as a regulated investment company if it determines
such course of action to be beneficial to shareholders. In such case, the
Fund will be subject to federal, and possibly state, corporate taxes on its
taxable income and gains, and distributions to you will be taxed as ordinary
dividend income to the extent of the Fund's earnings and profits.

Excise tax distribution requirements To avoid federal excise taxes, the Code
requires the Fund to distribute to you by December 31 of each year, at a
minimum, the following amounts: 98% of its taxable ordinary income earned
during the calendar year; 98% of its capital gain net income earned during
the twelve month period ending October 31; and 100% of any undistributed
amounts from the prior year. The Fund intends to declare and pay these
distributions in December (or to pay them in January, in which case you must
treat them as received in December) but can give no assurances that its
distributions will be sufficient to eliminate all taxes.

Redemption of Fund shares Redemptions (including redemptions in kind) and
exchanges of Fund shares are taxable transactions for federal and state
income tax purposes. If you redeem your Fund shares, or exchange your Fund
shares for shares of a different Franklin Templeton fund, the IRS will
require that you report any gain or loss on your redemption or exchange. If
you hold your shares as a capital asset, the gain or loss that you realize
will be capital gain or loss and will be long-term or short-term, generally
depending on how long you hold your shares.

Beginning in the year 2001 for shareholders in the 15% federal income tax
bracket (or in the year 2006 for shareholders in the 28% or higher bracket),
gains from the sale of Fund shares held for more than five years may be
subject to a reduced tax rate.

Any loss incurred on the redemption or exchange of shares held for six months
or less will be treated as a long-term capital loss to the extent of any
long-term capital gains distributed to you by the Fund on those shares. All
or a portion of any loss that you realize upon the redemption of your Fund
shares will be disallowed to the extent that you buy other shares in the Fund
(through reinvestment of dividends or otherwise) within 30 days before or
after your share redemption. Any loss disallowed under these rules will be
added to your tax basis in the new shares you buy.

Deferral of basis If you redeem some or all of your shares in the Fund, and
then reinvest the sales proceeds in the Fund or in another Franklin Templeton
fund within 90 days of buying the original shares, the sales charge that
would otherwise apply to your reinvestment may be reduced or eliminated. The
IRS will require you to report any gain or loss on the redemption of your
original shares in the Fund. In doing so, all or a portion of the sales
charge that you paid for your original shares in the Fund will be excluded
from your tax basis in the shares sold (for the purpose of determining gain
or loss upon the sale of such shares). The portion of the sales charge
excluded will equal the amount that the sales charge is reduced on your
reinvestment. Any portion of the sales charge excluded from your tax basis in
the shares sold will be added to the tax basis of the shares you acquire from
your reinvestment.

U.S. government securities States grant tax-free status to dividends paid to
you from interest earned on certain U.S. government securities, subject in
some states to minimum investment or reporting requirements that must be met
by the Fund. Investments in Government National Mortgage Association or
Federal National Mortgage Association securities, bankers' acceptances,
commercial paper and repurchase agreements collateralized by U.S. government
securities generally do not qualify for tax-free treatment. The rules on
exclusion of this income are different for corporations.

Dividends-received deduction for corporations If you are a corporate
shareholder, you should note that only a small percentage of the dividends
paid by the Fund for the most recent fiscal year qualified for the
dividends-received deduction. You may be allowed to deduct these qualified
dividends, thereby reducing the tax that you would otherwise be required to
pay on these dividends. The dividends-received deduction will be available
only with respect to dividends designated by the Fund as eligible for such
treatment. All dividends (including the deducted portion) must be included in
your alternative minimum taxable income calculation.

Investment in complex securities The Fund may invest in complex securities.
These investments may be subject to numerous special and complex tax rules.
These rules could affect whether gains and losses recognized by the Fund are
treated as ordinary income or capital gain, accelerate the recognition of
income to the Fund (possibly causing the Fund to sell securities to raise the
cash for necessary distributions) and/or defer the Fund's ability to
recognize losses. These rules may affect the amount, timing or character of
the income distributed to you by the Fund.

ORGANIZATION, VOTING RIGHTS AND PRINCIPAL HOLDERS

The Fund is a non-diversified series of Franklin Real Estate Securities Trust
an open-end management investment company, commonly called a mutual fund. The
Trust was organized as a Delaware business trust on September 22, 1993, and
is registered with the SEC.

The Fund currently offers four classes of shares, Class A, Class B, Class C
and Advisor Class. The Fund began offering Class B shares on January 1, 1999.
The Fund may offer additional classes of shares in the future. The full title
of each class is:

o Franklin Real Estate Securities Fund - Class A
o Franklin Real Estate Securities Fund - Class B
o Franklin Real Estate Securities Fund - Class C
o Franklin Real Estate Securities Fund - Advisor Class

Shares of each class represent proportionate interests in the Fund's assets.
On matters that affect the Fund as a whole, each class has the same voting
and other rights and preferences as any other class. On matters that affect
only one class, only shareholders of that class may vote. Each class votes
separately on matters affecting only that class, or expressly required to be
voted on separately by state or federal law. Shares of each class of a series
have the same voting and other rights and preferences as the other classes
and series of the Trust for matters that affect the Trust as a whole.
Additional series may be offered in the future.

The Trust has noncumulative voting rights. For board member elections, this
gives holders of more than 50% of the shares voting the ability to elect all
of the members of the board. If this happens, holders of the remaining shares
voting will not be able to elect anyone to the board.

The Trust does not intend to hold annual shareholder meetings. The Trust or a
series of the Trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may be called by the board to consider the
removal of a board member if requested in writing by shareholders holding at
least 10% of the outstanding shares. In certain circumstances, we are
required to help you communicate with other shareholders about the removal of
a board member. A special meeting also may be called by the board in its
discretion.

As of August 3, 2000, the principal shareholders of the Fund, beneficial or
of record, were:

Name and Address Share Class Percentage (%)
-----------------------------------------------------------
FTB&T Trust Services
FBO Thomas Cutter
69011578314
PO Box 5086
San Mateo, CA 94402-0086 Advisor 21

FTB&T Trust Services
FBO Thomas Cutter I/R 2
69011578312
PO Box 5086
San Mateo, CA 94402-0086 Advisor 13

LPL Financial Services
A/C 6621-0873
785 Towne Centre Drive
San Diego, CA 92121-1968 Advisor 7

Matthew F. Avery
2530 Fillmore St
San Francisco, CA 94402-0086 Advisor 6

From time to time, the number of Fund shares held in the "street name"
accounts of various securities dealers for the benefit of their clients or in
centralized securities depositories may exceed 5% of the total shares
outstanding.

As of August 3, 2000 the officers and board members, as a group, owned of
record and beneficially less than 1% of the outstanding shares of each class.
The board members may own shares in other funds in Franklin Templeton
Investments.

BUYING AND SELLING SHARES

The Fund continuously offers its shares through securities dealers who have
an agreement with Franklin Templeton Distributors, Inc. (Distributors). A
securities dealer includes any financial institution that, either directly or
through affiliates, has an agreement with Distributors to handle customer
orders and accounts with the Fund. This reference is for convenience only and
does not indicate a legal conclusion of capacity. Banks and financial
institutions that sell shares of the Fund may be required by state law to
register as securities dealers.

For investors outside the U.S., the offering of Fund shares may be limited in
many jurisdictions. An investor who wishes to buy shares of the Fund should
determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to
obtain information on the rules applicable to these transactions.

All checks, drafts, wires and other payment mediums used to buy or sell
shares of the Fund must be denominated in U.S. dollars. We may, in our sole
discretion, either (a) reject any order to buy or sell shares denominated in
any other currency or (b) honor the transaction or make adjustments to your
account for the transaction as of a date and with a foreign currency exchange
factor determined by the drawee bank. We may deduct any applicable banking
charges imposed by the bank from your account.

When you buy shares, if you submit a check or a draft that is returned unpaid
to the Fund we may impose a $10 charge against your account for each
returned item.

If you buy shares through the reinvestment of dividends, the shares will be
purchased at the net asset value determined on the business day following the
dividend record date (sometimes known as the "ex-dividend date"). The
processing date for the reinvestment of dividends may vary and does not
affect the amount or value of the shares acquired.

Initial sales charges The maximum initial sales charge is 5.75% for Class A
and 1% for Class C. There is no initial sales charge for Class B.

The initial sales charge for Class A shares may be reduced for certain large
purchases, as described in the prospectus. We offer several ways for you to
combine your purchases in Franklin Templeton funds to take advantage of the
lower sales charges for large purchases. Franklin Templeton funds include the
U.S. registered mutual funds in Franklin Templeton Investments except
Franklin Templeton Variable Insurance Products Trust and Templeton Capital
Accumulator Fund, Inc.

Cumulative quantity discount. For purposes of calculating the sales charge on
Class A shares, you may combine the amount of your current purchase with the
cost or current value, whichever is higher, of your existing shares in
Franklin Templeton funds. You also may combine the shares of your spouse,
children under the age of 21 or grandchildren under the age of 21. If you are
the sole owner of a company, you also may add any company accounts, including
retirement plan accounts. Companies with one or more retirement plans may add
together the total plan assets invested in Franklin Templeton funds to
determine the sales charge that applies.

Letter of intent (LOI). You may buy Class A shares at a reduced sales charge
by completing the letter of intent section of your account application. A
letter of intent is a commitment by you to invest a specified dollar amount
during a 13 month period. The amount you agree to invest determines the sales
charge you pay. By completing the letter of intent section of the
application, you acknowledge and agree to the following:

o You authorize Distributors to reserve 5% of your total intended purchase in
Class A shares registered in your name until you fulfill your LOI. Your
periodic statements will include the reserved shares in the total shares you
own, and we will pay or reinvest dividend and capital gain distributions on
the reserved shares according to the distribution option you have chosen.

o You give Distributors a security interest in the reserved shares and
appoint Distributors as attorney-in-fact.

o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the LOI.

o Although you may exchange your shares, you may not sell reserved shares
until you complete the LOI or pay the higher sales charge.

After you file your LOI with the Fund, you may buy Class A shares at the
sales charge applicable to the amount specified in your LOI. Sales charge
reductions based on purchases in more than one Franklin Templeton fund will
be effective only after notification to Distributors that the investment
qualifies for a discount. Any Class A purchases you made within 90 days
before you filed your LOI also may qualify for a retroactive reduction in the
sales charge. If you file your LOI with the Fund before a change in the
Fund's sales charge, you may complete the LOI at the lower of the new sales
charge or the sales charge in effect when the LOI was filed.

Your holdings in Franklin Templeton funds acquired more than 90 days before
you filed your LOI will be counted towards the completion of the LOI, but
they will not be entitled to a retroactive reduction in the sales charge. Any
redemptions you make during the 13 month period, except in the case of
certain retirement plans, will be subtracted from the amount of the purchases
for purposes of determining whether the terms of the LOI have been completed.

If the terms of your LOI are met, the reserved shares will be deposited to an
account in your name or delivered to you or as you direct. If the amount of
your total purchases, less redemptions, is more than the amount specified in
your LOI and is an amount that would qualify for a further sales charge
reduction, a retroactive price adjustment will be made by Distributors and
the securities dealer through whom purchases were made. The price adjustment
will be made on purchases made within 90 days before and on those made after
you filed your LOI and will be applied towards the purchase of additional
shares at the offering price applicable to a single purchase or the dollar
amount of the total purchases.

If the amount of your total purchases, less redemptions, is less than the
amount specified in your LOI, the sales charge will be adjusted upward,
depending on the actual amount purchased (less redemptions) during the
period. You will need to send Distributors an amount equal to the difference
in the actual dollar amount of sales charge paid and the amount of sales
charge that would have applied to the total purchases if the total of the
purchases had been made at one time. Upon payment of this amount, the
reserved shares held for your account will be deposited to an account in your
name or delivered to you or as you direct. If within 20 days after written
request the difference in sales charge is not paid, we will redeem an
appropriate number of reserved shares to realize the difference. If you
redeem the total amount in your account before you fulfill your LOI, we will
deduct the additional sales charge due from the sale proceeds and forward the
balance to you.

For LOIs filed on behalf of certain retirement plans, the level and any
reduction in sales charge for these plans will be based on actual plan
participation and the projected investments in Franklin Templeton funds under
the LOI. These plans are not subject to the requirement to reserve 5% of the
total intended purchase or to the policy on upward adjustments in sales
charges described above, or to any penalty as a result of the early
termination of a plan, nor are these plans entitled to receive retroactive
adjustments in price for investments made before executing the LOI.

Group purchases. If you are a member of a qualified group, you may buy
Class A shares at a reduced sales charge that applies 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.

A qualified group is one that:

o Was formed at least six months ago,

o Has a purpose other than buying Fund shares at a discount,

o Has more than 10 members,

o Can arrange for meetings between our representatives and group members,

o Agrees to include Franklin Templeton fund sales and other materials in
publications and mailings to its members at reduced or no cost to
Distributors,

o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the Fund, and

o Meets other uniform criteria that allow Distributors to achieve cost
savings in distributing shares.

A qualified group generally does not include a 403(b) plan that only allows
salary deferral contributions, although any such plan that purchased the
Fund's Class A shares at a reduced sales charge under the group purchase
privilege before February 1, 1998, may continue to do so.

Waivers for investments from certain payments. Class A shares may be
purchased without an initial sales charge or contingent deferred sales charge
(CDSC) by investors who reinvest within 365 days:

o Dividend and capital gain distributions from any Franklin Templeton fund.
The distributions generally must be reinvested in the same share class.
Certain exceptions apply, however, to Class C shareholders who chose to
reinvest their distributions in Class A shares of the Fund before
November 17, 1997, and to Advisor Class or Class Z shareholders of a Franklin
Templeton fund who may reinvest their distributions in the Fund's Class A
shares. This waiver category also applies to Class B and C shares.

o Annuity payments received under either an annuity option or from death
benefit proceeds, if the annuity contract offers as an investment option the
Franklin Templeton Variable Insurance Products Trust. You should contact your
tax advisor for information on any tax consequences that may apply.

o Redemption proceeds from a repurchase of shares of Franklin Floating Rate
Trust, if the shares were continuously held for at least 12 months.

If you immediately placed your redemption proceeds in a Franklin Bank CD or
a Franklin Templeton money fund, you may reinvest them as described above.
The proceeds must be reinvested within 365 days from the date the CD matures,
including any rollover, or the date you redeem your money fund shares.

o Redemption proceeds from the sale of Class A shares of any of the Templeton
Global Strategy Funds if you are a qualified investor.

If you paid a CDSC when you redeemed your Class A shares from a Templeton
Global Strategy Fund, a new CDSC will apply to your purchase of Fund shares
and the CDSC holding period will begin again. We will, however, credit your
Fund account with additional shares based on the CDSC you previously paid and
the amount of the redemption proceeds that you reinvest.

If you immediately placed your redemption proceeds in a Franklin Templeton
money fund, you may reinvest them as described above. The proceeds must be
reinvested within 365 days from the date they are redeemed from the
money fund.

o Distributions from an existing retirement plan invested in Franklin
Templeton funds

Waivers for certain investors. Class A shares also may be purchased without
an initial sales charge or CDSC by various individuals and institutions due
to anticipated economies in sales efforts and expenses, including:

o Trust companies and bank trust departments investing assets held in a
fiduciary, agency, advisory, custodial or similar capacity and over which the
trust companies and bank trust departments or other plan fiduciaries or
participants, in the case of certain retirement plans, have full or shared
investment discretion. We may accept orders for these accounts 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 the order.

o Any state or local government or any instrumentality, department, authority
or agency thereof that has determined the Fund is a legally permissible
investment and that can only buy Fund shares without paying sales charges.
Please consult your legal and investment advisors to determine if an
investment in the Fund is permissible and suitable for you and the effect, if
any, of payments by the Fund on arbitrage rebate calculations.

o Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for clients
participating in comprehensive fee programs

o Qualified registered investment advisors who buy through a broker-dealer or
service agent who has entered into an agreement with Distributors

o Registered securities dealers and their affiliates, for their investment
accounts only

o Current employees of securities dealers and their affiliates and their
family members, as allowed by the internal policies of their employer

o Officers, trustees, directors and full-time employees of Franklin Templeton
Investments, and their family members, consistent with our then-current
policies

o Any investor who is currently a Class Z shareholder of Franklin Mutual
Series Fund Inc. (Mutual Series), or who is a former Mutual Series Class Z
shareholder who had an account in any Mutual Series fund on October 31, 1996,
or who sold his or her shares of Mutual Series Class Z within the past
365 days

o Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer

o Accounts managed by Franklin Templeton Investments

o Certain unit investment trusts and their holders reinvesting distributions
from the trusts

o Group annuity separate accounts offered to retirement plans

o Chilean retirement plans that meet the requirements described under
"Retirement plans" below

In addition, Class C shares may be purchased without an initial sales charge
by any investor who buys Class C shares through an omnibus account with
Merrill Lynch Pierce Fenner & Smith, Inc. A CDSC may apply, however, if the
shares are sold within 18 months of purchase.

RETIREMENT PLANS. Retirement plans sponsored by an employer (i) with at least
100 employees, or (ii) with retirement plan assets of $1 million or more, or
(iii) that agrees to invest at least $500,000 in Franklin Templeton funds
over a 13 month period may buy Class A shares without an initial sales
charge. Retirement plans that are not qualified retirement plans (employer
sponsored pension or profit-sharing plans that qualify under section 401 of
the Internal Revenue Code, including 401(k), money purchase pension, profit
sharing and defined benefit plans), SIMPLEs (savings incentive match plans
for employees) or SEPs (employer sponsored simplified employee pension plans
established under section 408(k) of the Internal Revenue Code) must also meet
the group purchase requirements described above to be able to buy Class A
shares without an initial sales charge. We may enter into a special
arrangement with a securities dealer, based on criteria established by the
Fund, to add together certain small qualified retirement plan accounts for
the purpose of meeting these requirements.

For retirement plan accounts opened on or after May 1, 1997, a CDSC may apply
if the retirement plan is transferred out of Franklin Templeton funds or
terminated within 365 days of the retirement plan account's initial purchase
in Franklin Templeton funds.

SALES IN TAIWAN. Under agreements with certain banks in Taiwan, Republic of
China, the Fund's shares are available to these banks' trust accounts without
a sales charge. The banks may charge service fees to their customers who
participate in the trusts. A portion of these service fees may be paid to
Distributors or one of its affiliates to help defray expenses of maintaining
a service office in Taiwan, including expenses related to local literature
fulfillment and communication facilities.

The Fund's Class A shares may be offered to investors in Taiwan through
securities advisory firms known locally as Securities Investment Consulting
Enterprises. In conformity with local business practices in Taiwan, Class A
shares may be offered with the following schedule of sales charges:

Size of Purchase - U.S. Dollars Sales Charge (%)
-------------------------------------------------------------
Under $30,000 3.0
$30,000 but less than $50,000 2.5
$50,000 but less than $100,000 2.0
$100,000 but less than $200,000 1.5
$200,000 but less than $400,000 1.0
$400,000 or more 0

Dealer compensation Securities dealers may at times receive the entire sales
charge. A securities dealer who receives 90% or more of the sales charge may
be deemed an underwriter under the Securities Act of 1933, as amended.
Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages indicated in the dealer compensation table
in the Fund's prospectus.

Distributors may pay the following commissions, out of its own resources, to
securities dealers who initiate and are responsible for purchases of Class A
shares of $1 million or more: 1% on sales of $1 million to $2 million, plus
0.80% on sales over $2 million to $3 million, plus 0.50% on sales over $3
million to $50 million, plus 0.25% on sales over $50 million to $100 million,
plus 0.15% on sales over $100 million.

These breakpoints are reset every 12 months for purposes of additional
purchases.

Distributors or one of its affiliates may pay up to 1%, out of its own
resources, to securities dealers who initiate and are responsible for
purchases of Class A shares by certain retirement plans without an initial
sales charge. These payments may be made in the form of contingent advance
payments, which may be recovered from the securities dealer or set off
against other payments due to the dealer if shares are sold within 12 months
of the calendar month of purchase. Other conditions may apply. All terms and
conditions may be imposed by an agreement between Distributors, or one of its
affiliates, and the securities dealer.

In addition to the payments above, Distributors and/or its affiliates may
provide financial support to securities dealers that sell shares of Franklin
Templeton Investments. This support is based primarily on the amount of sales
of fund shares and/or total assets with Franklin Templeton Investments. The
amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a securities dealer's sales and marketing
efforts in Franklin Templeton Investments; a securities dealer's support of,
and participation in, Distributors' marketing programs; a securities dealer's
compensation programs for its registered representatives; and the extent of a
securities dealer's marketing programs relating to Franklin Templeton
Investments. Financial support to securities dealers may be made by payments
from Distributors' resources, from Distributors' retention of underwriting
concessions and, in the case of funds that have Rule 12b-1 plans, from
payments to Distributors under such plans. In addition, certain securities
dealers may receive brokerage commissions generated by fund portfolio
transactions in accordance with the rules of the National Association of
Securities Dealers, Inc.

Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin
Templeton funds and are afforded the opportunity to speak with portfolio
managers. Invitation to these meetings is not conditioned on selling a
specific number of shares. Those who have shown an interest in Franklin
Templeton funds, however, are more likely to be considered. To the extent
permitted by their firm's policies and procedures, registered
representatives' expenses in attending these meetings may be covered by
Distributors.

Contingent deferred sales charge (CDSC) If you invest $1 million or more in
Class A shares, either as a lump sum or through our cumulative quantity
discount or letter of intent programs, a CDSC may apply on any shares you
sell within 12 months of purchase. For Class C shares, a CDSC may apply if
you sell your shares within 18 months of purchase. The CDSC is 1% of the
value of the shares sold or the net asset value at the time of purchase,
whichever is less.

Certain retirement plan accounts opened on or after May 1, 1997, and that
qualify to buy Class A shares without an initial sales charge also may be
subject to a CDSC if the retirement plan is transferred out of Franklin
Templeton funds or terminated within 365 days of the account's initial
purchase in Franklin Templeton funds.

For Class B shares, there is a CDSC if you sell your shares within six years,
as described in the table below. The charge is based on the value of the
shares sold or the net asset value at the time of purchase, whichever is less.

IF YOU SELL YOUR CLASS B SHARES WITHIN THIS % IS DEDUCTED FROM
THIS MANY YEARS AFTER BUYING THEM YOUR PROCEEDS AS A CDSC
--------------------------------------------------------------------
1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0

CDSC WAIVERS. The CDSC for any share class generally will be waived for:

o Account fees

o Sales of Class A shares purchased without an initial sales charge by
certain retirement plan accounts if (i) the account was opened before May 1,
1997, or (ii) the securities dealer of record received a payment from
Distributors of 0.25% or less, or (iii) Distributors did not make any payment
in connection with the purchase, or (iv) the securities dealer of record has
entered into a supplemental agreement with Distributors

o Redemptions of Class A shares by investors who purchased $1 million or more
without an initial sales charge if the securities dealer of record waived its
commission in connection with the purchase

o Redemptions by the Fund when an account falls below the minimum required
account size

o Redemptions following the death of the shareholder or beneficial owner

o Redemptions through a systematic withdrawal plan set up before
February 1, 1995

o Redemptions through a systematic withdrawal plan set up on or after
February 1, 1995, up to 1% monthly, 3% quarterly, 6% semiannually or 12%
annually of your account's net asset value depending on the frequency of
your plan

o Redemptions by an employee benefit plan: (i) that is a customer of Franklin
Templeton Defined Contribution Services; and/or (ii) whose assets are held by
Franklin Templeton Bank & Trust as trustee or custodian (not applicable to
Class B)

o Distributions from individual retirement accounts (IRAs) due to death or
disability or upon periodic distributions based on life expectancy (for
Class B, this applies to all retirement plan accounts, not only IRAs)

o Returns of excess contributions (and earnings, if applicable) from
retirement plan accounts

o Participant initiated distributions from employee benefit plans or
participant initiated exchanges among investment choices in employee benefit
plans (not applicable to Class B)

Exchange privilege If you request the exchange of the total value of your
account, declared but unpaid income dividends and capital gain distributions
will be reinvested in the Fund and exchanged into the new fund at net asset
value when paid. Backup withholding and information reporting may apply.

If a substantial number of shareholders should, within a short period, sell
their Fund shares under the exchange privilege, the Fund might have to sell
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
occurs, it is the Fund's general policy to initially invest this money in
short-term, interest-bearing money market instruments, unless it is believed
that attractive investment opportunities consistent with the Fund's
investment goal exist immediately. This money will then be withdrawn from the
short-term, interest-bearing money market instruments and invested in
portfolio securities in as orderly a manner as is possible when attractive
investment opportunities arise.

The proceeds from the sale of shares of an investment company generally are
not available until the seventh day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange
until that seventh day. The sale of Fund shares to complete an exchange will
be effected at net asset value at the close of business on the day the
request for exchange is received in proper form.

Systematic withdrawal plan Our systematic withdrawal plan allows you to sell
your shares and receive regular payments from your account on a monthly,
quarterly, semiannual or annual basis. The value of your account must be at
least $5,000 and the minimum payment amount for each withdrawal must be at
least $50. For retirement plans subject to mandatory distribution
requirements, the $50 minimum will not apply. There are no service charges
for establishing or maintaining a systematic withdrawal plan.

Each month in which a payment is scheduled, we will redeem an equivalent
amount of shares in your account on the day of the month you have indicated
on your account application or, if no day is indicated, on the 20th day of
the month. If that day falls on a weekend or holiday, we will process the
redemption on the next business day. For plans set up before June 1, 2000, we
will continue to process redemptions on the 25th day of the month (or the
next business day) unless you instruct us to change the processing date.
Available processing dates currently are the 1st, 5th, 10th, 15th, 20th and
25th days of the month. When you sell your shares under a systematic
withdrawal plan, it is a taxable transaction.

To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if
you plan to buy shares on a regular basis. Shares sold under the plan also
may be subject to a CDSC.

Redeeming shares through a systematic withdrawal plan may reduce or exhaust
the shares in your 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 your account, your account will be
closed and the remaining balance in your account will be sent to you. Because
the amount withdrawn under the plan may be more than your actual yield or
income, part of the payment may be a return of your investment.

To discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment, we must receive instructions
from you at least three business days before a scheduled payment. The Fund
may discontinue a systematic withdrawal plan by notifying you in writing and
will discontinue a systematic withdrawal plan automatically if all shares in
your account are withdrawn or if the Fund receives notification of the
shareholder's death or incapacity.

REDEMPTIONS IN KIND The Fund has committed itself to pay in cash (by check)
all requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the
value of the Fund's net assets at the beginning of the 90-day period. This
commitment is irrevocable without the prior approval of the U.S. Securities
and Exchange Commission (SEC). In the case of redemption requests in excess
of these amounts, the board reserves the right to make payments in whole or
in part in securities or other assets of the Fund, in case of an emergency,
or if the payment of such a redemption in cash would be detrimental to the
existing shareholders of the Fund. In these circumstances, the securities
distributed would be valued at the price used to compute the Fund's net
assets and you may incur brokerage fees in converting the securities to cash.
The Fund does not intend to redeem illiquid securities in kind. If this
happens, however, you may not be able to recover your investment in a timely
manner.

SHARE CERTIFICATES We will credit your shares to your Fund account. We do not
issue share certificates unless you specifically request them. This
eliminates the costly problem of replacing lost, stolen or destroyed
certificates. If a certificate is lost, stolen or destroyed, you may have to
pay an insurance premium of up to 2% of the value of the certificate to
replace it.

Any outstanding share certificates must be returned to the Fund if you want
to sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do
this either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.

GENERAL INFORMATION If dividend checks are returned to the Fund marked
"unable to forward" by the postal service, we will consider this a request by
you to change your dividend option to reinvest all distributions. The
proceeds will be reinvested in additional shares at net asset value until we
receive new instructions.

Distribution or redemption checks sent to you do not earn interest or any
other income during the time the checks remain uncashed. Neither the Fund nor
its affiliates will be liable for any loss caused by your failure to cash
such checks. The Fund is not responsible for tracking down uncashed checks,
unless a check is returned as undeliverable.

In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional efforts to
find you from your account. These costs may include a percentage of the
account when a search company charges a percentage fee in exchange for its
location services.

Sending redemption proceeds by wire or electronic funds transfer (ACH) is a
special service that we make available whenever possible. By offering this
service to you, the Fund is not bound to meet any redemption request in less
than the seven day period prescribed by law. Neither the Fund nor its agents
shall be liable to you or any other person if, for any reason, a redemption
request by wire or ACH is not processed as described in the prospectus.

Franklin Templeton Investor Services, Inc. (Investor Services) may pay
certain financial institutions that maintain omnibus accounts with the Fund
on behalf of numerous beneficial owners for recordkeeping operations
performed with respect to such owners. For each beneficial owner in the
omnibus account, the Fund may reimburse Investor Services an amount not to
exceed the per account fee that the Fund normally pays Investor Services.
These financial institutions also may charge a fee for their services
directly to their clients.

There are special procedures for banks and other institutions that wish to
open multiple accounts. An institution may open a single master account by
filing one application form with the Fund, signed by personnel authorized to
act for the institution. Individual sub-accounts may be opened when the
master account is opened by listing them on the application, or by providing
instructions to the Fund at a later date. These sub-accounts may be
registered either by name or number. The Fund's investment minimums apply to
each sub-account. The Fund will send confirmation and account statements for
the sub-accounts to the institution.

If you buy or sell shares through your securities dealer, we use the net
asset value next calculated after your securities dealer receives your
request, which is promptly transmitted to the Fund. If you sell shares
through your securities dealer, it is your dealer's responsibility to
transmit the order to the Fund in a timely fashion. Your redemption proceeds
will not earn interest between the time we receive the order from your dealer
and the time we receive any required documents. Any loss to you resulting
from your dealer's failure to transmit your redemption order to the Fund in a
timely fashion must be settled between you and your securities dealer.

Certain shareholder servicing agents may be authorized to accept your
transaction request.

For institutional accounts, there may be additional methods of buying or
selling Fund shares than those described in this SAI or in the prospectus.

In the event of disputes involving multiple claims of ownership or authority
to control your account, the Fund has the right (but has no obligation) to:
(a) freeze the account and require the written agreement of all persons
deemed by the Fund to have a potential property interest in the account,
before executing instructions regarding the account; (b) interplead disputed
funds or accounts with a court of competent jurisdiction; or (c) surrender
ownership of all or a portion of the account to the IRS in response to a
notice of levy.

PRICING SHARES

When you buy shares, you pay the offering price. The offering price is the
net asset value (NAV) per share plus any applicable sales charge, calculated
to two decimal places using standard rounding criteria. When you sell shares,
you receive the NAV minus any applicable CDSC.

The value of a mutual fund is determined by deducting the fund's liabilities
from the total assets of the portfolio. The net asset value per share is
determined by dividing the net asset value of the fund by the number of
shares outstanding.

The Fund calculates the NAV per share of each class each business day at the
close of trading on the New York Stock Exchange (normally 1:00 p.m. Pacific
time). The Fund does not calculate the NAV on days the New York Stock
Exchange (NYSE) is closed for trading, which include New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.

When determining its NAV, the Fund values cash and receivables at their
realizable amounts, and records interest as accrued and dividends on the
ex-dividend date. If market quotations are readily available for portfolio
securities listed on a securities exchange or on the Nasdaq National Market
System, the Fund values those securities at the last quoted sale price of the
day or, if there is no reported sale, within the range of the most recent
quoted bid and ask prices. The Fund values over-the-counter portfolio
securities within the range of the most recent quoted bid and ask prices. If
portfolio securities trade both in the over-the-counter market and on a stock
exchange, the Fund values them according to the broadest and most
representative market as determined by the manager.

The Fund values portfolio securities underlying actively traded call options
at their market price as determined above. The current market value of any
option the Fund holds is its last sale price on the relevant exchange before
the Fund values its assets. If there are no sales that day or if the last
sale price is outside the bid and ask prices, the Fund values options within
the range of the current closing bid and ask prices if the Fund believes the
valuation fairly reflects the contract's market value.

The Fund determines the value of a foreign security as of the close of
trading on the foreign exchange on which the security is traded or as of the
close of trading on the NYSE, if that is earlier. The value is then converted
into its U.S. dollar equivalent at the foreign exchange rate in effect at
noon, New York time, on the day the value of the foreign security is
determined. If no sale is reported at that time, the foreign security is
valued within the range of the most recent quoted bid and ask prices.
Occasionally events that affect the values of foreign securities and foreign
exchange rates may occur between the times at which they are determined and
the close of the exchange and will, therefore, not be reflected in the
computation of the NAV. If events materially affecting the values of these
foreign securities occur during this period, the securities will be valued in
accordance with procedures established by the board.

Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times
before the close of the NYSE. The value of these securities used in computing
the NAV is determined as of such times. Occasionally, events affecting the
values of these securities may occur between the times at which they are
determined and the close of the NYSE that will not be reflected in the
computation of the NAV. If events materially affecting the values of these
securities occur during this period, the securities will be valued at their
fair value as determined in good faith by the board.

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. With the approval of
the board, the Fund may use a pricing service, bank or securities dealer to
perform any of the above described functions.

THE UNDERWRITER

Franklin Templeton Distributors, Inc. (Distributors) acts as the principal
underwriter in the continuous public offering of the Fund's shares.
Distributors is located at 777 Mariners Island Blvd., San Mateo, CA 94404.

Distributors pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and
prospectuses used to offer shares to the public. The Fund pays the expenses
of preparing and printing amendments to its registration statements and
prospectuses (other than those necessitated by the activities of
Distributors) and of sending prospectuses to existing shareholders.

The table below shows the aggregate underwriting commissions Distributors
received in connection with the offering of the Fund's shares, the net
underwriting discounts and commissions Distributors retained after allowances
to dealers, and the amounts Distributors received in connection with
redemptions or repurchases of shares for the last three fiscal years ended
April 30:

Amount
Received in
Connection
with
Total Amount Redemptions
Commissions Retained by and
Received Distributors Repurchases
($) ($) ($)
--------------------------------------------------------------
2000 759,463 91,878 65,533
1999 1,687,849 172,938 121,488
1998 4,195,843 390,184 14,796

Distributors may be entitled to payments from the Fund under the Rule 12b-1
plans, as discussed below. Except as noted, Distributors received no other
compensation from the Fund for acting as underwriter.

DISTRIBUTION AND SERVICE (12B-1) FEES The board has adopted a separate plan
pursuant to Rule 12b-1 for each class. Although the plans differ in some ways
for each class, each plan is designed to benefit the Fund and its
shareholders. The plans are expected to, among other things, increase
advertising of the Fund, encourage sales of the Fund and service to its
shareholders, and increase or maintain assets of the Fund so that certain
fixed expenses may be spread over a broader asset base, resulting in lower
per share expense ratios. In addition, a positive cash flow into the Fund is
useful in managing the Fund because the manager has more flexibility in
taking advantage of new investment opportunities and handling shareholder
redemptions.

Under each plan, the Fund pays Distributors or others for the expenses of
activities that are primarily intended to sell shares of the class. These
expenses also may include service fees paid to securities dealers or others
who have executed a servicing agreement with the Fund, Distributors or its
affiliates and who provide service or account maintenance to shareholders
(service fees); the expenses of printing prospectuses and reports used for
sales purposes, and of preparing and distributing sales literature and
advertisements; and a prorated portion of Distributors' overhead expenses
related to these activities. Together, these expenses, including the service
fees, are "eligible expenses." The 12b-1 fees charged to each class are based
only on the fees attributable to that particular class.

THE CLASS A PLAN. The Fund may pay up to 0.25% per year of Class A's average
daily net assets. The Class A plan is a reimbursement plan. It allows the
Fund to reimburse Distributors for eligible expenses that Distributors has
shown it has incurred. The Fund will not reimburse more than the maximum
amount allowed under the plan.

For the fiscal year ended April 30, 2000, the amounts paid by the Fund
pursuant to the plan were:

($)
--------------------------------------------------
Advertising 13,752
Printing and mailing prospectuses
other than to current shareholders 13,330
Payments to underwriters 11,785
Payments to broker-dealers 624,159
Other 50,314
-----------
Total 713,340
===========

THE CLASS B AND C PLANS. The Fund pays Distributors up to 1% per year of the
class's average daily net assets, out of which 0.25% may be paid for services
to the shareholders (service fees). The Class B and C plans also may be used
to pay Distributors for advancing commissions to securities dealers with
respect to the initial sale of Class B and C shares. Class B plan fees
payable to Distributors are used by Distributors to pay third party financing
entities that have provided financing to Distributors in connection with
advancing commissions to securities dealers. Franklin Resources owns a
minority interest in one of the third party financing entities.

THE CLASS B AND C PLANS ARE COMPENSATION PLANS. They allow the Fund to pay a
fee to Distributors that may be more than the eligible expenses Distributors
has incurred at the time of the payment. Distributors must, however,
demonstrate to the board that it has spent or has near term plans to spend
the amount received on eligible expenses. The Fund will not pay more than the
maximum amount allowed under the plans.

Under the Class B plan, the amounts paid by the Fund pursuant to the plan for
the fiscal year ended April 30, 2000, were:

($)
-----------------------------------------------------
Advertising 444
Printing and mailing prospectuses
other than to current shareholders 69
Payments to underwriters 317
Payments to broker-dealers 28,935
Other 535
---------
Total 30,300
=========

Under the Class C plan, the amounts paid by the Fund pursuant to the plan for
the fiscal year ended April 30, 2000, were:

($)
-------------------------------------------------------
Advertising 11,422
Printing and mailing prospectuses
other than to current shareholders 12,250
Payments to underwriters 6,218
Payments to broker-dealers 829,357
Other 24,926
-----------
Total 884,173
===========

THE CLASS A, B AND C PLANS. In addition to the payments that Distributors or
others are entitled to under each plan, each plan also provides that to the
extent the Fund, the manager or Distributors or other parties on behalf of
the Fund, the manager or Distributors make payments that are deemed to be for
the financing of any activity primarily intended to result in the sale of
Fund shares within the context of Rule 12b-1 under the Investment Company Act
of 1940, as amended, then such payments shall be deemed to have been made
pursuant to the plan.

To the extent fees are for distribution or marketing functions, as
distinguished from administrative servicing or agency transactions, certain
banks may not participate in the plans because of applicable federal law
prohibiting certain banks from engaging in the distribution of mutual fund
shares. These banks, however, are allowed to receive fees under the plans for
administrative servicing or for agency transactions.

Distributors must provide written reports to the board at least quarterly on
the amounts and purpose of any payment made under the plans and any related
agreements, and furnish the board with such other information as the board
may reasonably request to enable it to make an informed determination of
whether the plans should be continued.

Each plan has been approved according to the provisions of Rule 12b-1. The
terms and provisions of each plan also are consistent with Rule 12b-1.

PERFORMANCE

Performance quotations are subject to SEC rules. These rules require the use
of standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Fund be accompanied
by certain standardized performance information computed as required by the
SEC. Average annual total return and current yield quotations used by the
Fund are based on the standardized methods of computing performance mandated
by the SEC. Performance figures reflect Rule 12b-1 fees from the date of the
plan's implementation. An explanation of these and other methods used by the
Fund to compute or express performance follows. Regardless of the method
used, past performance does not guarantee future results, and is an
indication of the return to shareholders only for the limited historical
period used.

Average annual total return Average annual total return is determined by
finding the average annual rates of return over the periods indicated below
that would equate an initial hypothetical $1,000 investment to its ending
redeemable value. The calculation assumes the maximum initial sales charge is
deducted from the initial $1,000 purchase, and income dividends and capital
gain distributions are reinvested at net asset value. The quotation assumes
the account was completely redeemed at the end of each period and the
deduction of all applicable charges and fees. If a change is made to the
sales charge structure, historical performance information will be restated
to reflect the maximum initial sales charge currently in effect.

When considering the average annual total return quotations for Class A and C
shares, you should keep in mind that the maximum initial sales charge
reflected in each quotation is a one time fee charged on all direct
purchases, which will have its greatest impact during the early stages of your
investment. This charge will affect actual performance less the longer you
retain your investment in the Fund. The average annual total returns for the
indicated periods ended April 30, 2000, were:

Since
1 Year 5 Years Inception
(%) (%) (1/3/94) (%)
---------------------------------------------------------
Class A -8.38 9.22 8.65

Since
1 Year Inception
(%) (1/1/99) (%)
----------------------------------------------------------
Class B -7.07 -1.22

Since
1 Year 5 Years Inception
(%) (%) (5/1/95) (%)
----------------------------------------------------------
Class C -5.33 9.47 9.47

The following SEC formula was used to calculate these figures:

n
P(1+T) = ERV

where:

P = a hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of each period at the end of each period

Cumulative total return Like average annual total return, cumulative total
return assumes the maximum initial sales charge is deducted from the initial
$1,000 purchase, income dividends and capital gain distributions are
reinvested at net asset value, the account was completely redeemed at the end
of each period and the deduction of all applicable charges and fees.
Cumulative total return, however, is based on the actual return for a
specified period rather than on the average return over the periods indicated
above. The cumulative total returns for the indicated periods ended April 30,
2000, were:

Since
1 Year 5 Years Inception
(%) (%) (1/3/94) (%)
--------------------------------------------------------
Class A -8.38 55.45 69.01

Since
1 Year Inception
(%) (1/1/99) (%)
--------------------------------------------
Class B -7.07 -1.62

Since
1 Year 5 Years Inception
(%) (%) (5/1/95) (%)
--------------------------------------------------------
Class C -5.33 57.23 57.23

CURRENT YIELD Current yield shows the income per share earned by the Fund. It
is calculated by dividing the net investment income per share earned during a
30-day base period by the applicable maximum offering price per share on the
last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders of the class during the
base period. The yields for the 30-day period ended April 30, 2000 were:

Class A Class B Class C
(%) (%) (%)
--------------------------------------------------------
5.24 4.84 4.79

The following SEC formula was used to calculate these figures:

6
Yield = 2 [(a-b + 1) - 1]
---
cd

where:

a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the last day of the period

Current distribution rate Current yield, which is calculated according to a
formula prescribed by the SEC, is not indicative of the amounts that were or
will be paid to shareholders. Amounts paid to shareholders are reflected in
the quoted current distribution rate. The current distribution rate is
usually computed by annualizing the dividends paid per share by a class
during a certain period and dividing that amount by the current maximum
offering price. 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 gains, and is calculated over a different period of
time. The current distribution rates for the 30-day period ended April 30,
2000, were:

Class A Class B Class C
(%) (%) (%)
--------------------------------------

4.62 4.56 3.89

VOLATILITY Occasionally statistics may be used to show the Fund's volatility
or risk. Measures of volatility or risk are generally used to compare the
Fund's net asset value or performance to a market index. One measure of
volatility is beta. Beta is the volatility of a fund relative to the total
market, as represented by an index considered representative of the types of
securities in which the fund invests. A beta of more than 1.00 indicates
volatility greater than the market and a beta of less than 1.00 indicates
volatility less than the market. Another measure of volatility or risk is
standard deviation. Standard deviation is used to measure variability of net
asset value or total return around an average over a specified period of
time. The idea is that greater volatility means greater risk undertaken in
achieving performance.

OTHER PERFORMANCE QUOTATIONS The Fund also may quote the performance of
shares without a sales charge. Sales literature and advertising may quote a
cumulative total return, average annual total return and other measures of
performance with the substitution of net asset value for the public offering
price.

Sales literature referring to the use of the Fund as a potential investment
for IRAs, business retirement plans, and other tax-advantaged retirement
plans may quote a total return based upon compounding of dividends on which
it is presumed no federal income tax applies.

The Fund may include in its advertising or sales material information
relating to investment goals and performance results of funds belonging to
Franklin Templeton Investments. Franklin Resources, Inc. is the parent
company of the advisors and underwriter of Franklin Templeton funds.

COMPARISONS To help you better evaluate how an investment in the Fund may
satisfy your investment goal, advertisements and other materials about the
Fund may discuss certain measures of Fund performance as reported by various
financial publications. Materials also may compare performance (as calculated
above) to performance as reported by other investments, indices, and
averages. These comparisons may include, but are not limited to, the
following examples:

o Dow Jones(R) Composite Average and its component averages - a price-weighted
average of 65 stocks that trade on the New York Stock Exchange. The average
is a combination of the Dow Jones Industrial Average (30 blue-chip stocks
that are generally leaders in their industry), the Dow Jones Transportation
Average (20 transportation stocks), and the Dow Jones Utilities Average
(15 utility stocks involved in the production of electrical energy).

o Standard & Poor's(R) 500 Stock Index or its component indices - a
capitalization-weighted index designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500 stocks
representing all major industries.

o The New York Stock Exchange composite or component indices - an unmanaged
index of all industrial, utilities, transportation, and finance stocks listed
on the NYSE.

o Wilshire 5000 Equity Index - represents the return on the market value of
all common equity securities for which daily pricing is available.
Comparisons of performance assume reinvestment of dividends.

o Lipper - Mutual Fund Performance Analysis and Lipper - Equity Fund
Performance Analysis - measure total return and average current yield for the
mutual fund industry and rank individual mutual fund performance over
specified time periods, assuming reinvestment of all distributions, exclusive
of any applicable sales charges.

o CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. -
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.

o Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk, and total return for mutual funds.

o Financial publications: The Wall Street Journal, and Business Week,
Changing Times, Financial World, Forbes, Fortune, and Money magazines -
provide performance statistics over specified time periods.

o Consumer Price Index (or Cost of Living Index), published by the U.S.
Bureau of Labor Statistics - a statistical measure of change, over time, in
the price of goods and services in major expenditure groups.

o Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates -
historical measure of yield, price, and total return for common and small
company stock, long-term government bonds, Treasury bills, and inflation.

o Savings and Loan Historical Interest Rates - as published in the U.S.
Savings & Loan League Fact Book.

o Historical data supplied by the research departments of CS First Boston
Corporation, the J.P. Morgan(R)companies, Salomon Smith Barney Inc., Merrill
Lynch, Lehman Brothers(R)and Bloomberg(R) L.P.

o Morningstar - information published by Morningstar, Inc., including
Morningstar proprietary mutual fund ratings. The ratings reflect
Morningstar's assessment of the historical risk-adjusted performance of a fund
over specified time periods relative to other funds within its category.

From time to time, advertisements or information for the Fund may include a
discussion of certain attributes or benefits to be derived from an investment
in the Fund. The advertisements or information may include symbols,
headlines, or other material that highlights or summarizes the information
discussed in more detail in the communication.

Advertisements or information also may compare the Fund's performance to the
return on certificates of deposit (CDs) or other investments. You should be
aware, however, that an investment in the Fund involves the risk of
fluctuation of principal value, a risk generally not present in an investment
in a CD issued by a bank. CDs are frequently insured by an agency of the U.S.
government. An investment in the Fund is not insured by any federal, state or
private entity.

In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not
be identical to the formula used by the Fund to calculate its figures. In
addition, there can be no assurance that the Fund will continue its
performance as compared to these other averages.

MISCELLANEOUS INFORMATION

The Fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis to have a
projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by
the College Board.) The Franklin Retirement Planning Guide leads you through
the steps to start a retirement savings program. Of course, an investment in
the Fund cannot guarantee that these goals will be met.

The Fund is a member of Franklin Templeton Investments, one of the largest
mutual fund organizations in the U.S., and may be considered in a program for
diversification of assets. Founded in 1947, Franklin is one of the oldest
mutual fund organizations and now services approximately 3 million
shareholder accounts. In 1992, Franklin, a leader in managing fixed-income
mutual funds and an innovator in creating domestic equity funds, joined
forces with Templeton, a pioneer in international investing. The Mutual
Series team, known for its value-driven approach to domestic equity
investing, became part of the organization four years later. Together,
Franklin Templeton Investments has over $229 billion in assets under
management for more than 5 million U.S. based mutual fund shareholder and
other accounts. Franklin Templeton Investments offers 108 U.S. based open-end
investment companies to the public. The Fund may identify itself by its
Nasdaq symbol or CUSIP number.

Currently, there are more mutual funds than there are stocks listed on the
New York Stock Exchange. While many of them have similar investment goals, no
two are exactly alike. Shares of the Fund are generally sold through
securities dealers, whose investment representatives are experienced
professionals who can offer advice on the type of investments suitable to
your unique goals and needs, as well as the risks associated with such
investments.

DESCRIPTION OF RATINGS

Corporate Bond Ratings

Moody's Investors Service, Inc. (Moody's)

INVESTMENT GRADE

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 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 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, fluctuation of protective elements may be of greater
amplitude, or there may be other elements present that make the long-term
risks appear somewhat larger.

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

Baa: Bonds rated Baa are considered medium-grade obligations. 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. These bonds lack outstanding investment characteristics and, in fact,
have speculative characteristics as well.

BELOW INVESTMENT GRADE

Ba: Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of
interest and principal payments is very moderate and, thereby, not well
safeguarded during both good and bad times over 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. These 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 that are speculative to a high
degree. These issues are often in default or have other marked shortcomings.

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

Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier
1 indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.

Standard & Poor's Ratings Group (S&P(R))

INVESTMENT GRADE

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,
differ from AAA issues only in a 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.

BELOW INVESTMENT GRADE

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 these bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties or major risk
exposures to adverse conditions.

C: Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating also may reflect the
filing of a bankruptcy petition under circumstances where debt service
payments are continuing. The C1 rating is reserved for income bonds on which
no interest is being paid.

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

Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

Commercial Paper Ratings

Moody's

Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted. Moody's commercial
paper ratings are opinions of the ability of issuers to repay punctually
their promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following designations for both short-term
debt and commercial paper, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers:

P-1 (Prime-1): Superior capacity for repayment.

P-2 (Prime-2): Strong capacity for repayment.

S&P

S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:

A-1: This designation indicates the degree of safety regarding timely payment
is very strong. A "plus" (+) designation indicates an even stronger
likelihood of timely payment.

A-2: Capacity for timely payment on issues with this designation is strong.
The relative degree of safety, however, is not as overwhelming as for issues
designated A-1.

A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.

FRANKLIN
REAL ESTATE
SECURITIES FUND

Franklin Real Estate Securities Trust

Advisor Class

STATEMENT OF ADDITIONAL INFORMATION

P.O. Box 997151, Sacramento, CA 95899-9983

September 1, 2000 1-800/DIAL BEN(R)
-------------------------------------------------------------------------------

This Statement of Additional Information (SAI) is not a prospectus. It
contains information in addition to the information in the Fund's prospectus.
The Fund's prospectus, dated September 1, 2000, which we may amend from time
to time, contains the basic information you should know before investing in
the Fund. You should read this SAI together with the Fund's prospectus.

For a free copy of the current prospectus or annual report, contact your
investment representative or call 1-800/DIAL BEN (1-800/342-5236).

CONTENTS

Goal, Strategies and Risks .. 2
Officers and Trustees ....... 12
Management and Other Services 15
Portfolio Transactions ...... 16
Distributions and Taxes ..... 17
Organization, Voting Rights
and Principal Holders ...... 19
Buying and Selling Shares ... 19
Pricing Shares .............. 22
The Underwriter ............. 23
Performance ................. 23
Miscellaneous Information ... 25
Description of Ratings ...... 25

-------------------------------------------------------------------------------
Mutual funds, annuities, and other investment products:

o are not insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other agency of the U.S. government;

o are not deposits or obligations of, or guaranteed or endorsed by, any bank;

o are subject to investment risks, including the possible loss of principal.

-------------------------------------------------------------------------------
192 SAIA 09/00

GOAL, STRATEGIES AND RISKS

EQUITY SECURITIES The purchaser of an equity security typically receives an
ownership interest in the company as well as certain voting rights. The owner
of an equity security may participate in a company's success through the
receipt of dividends which are distributions of earnings by the company to
its owners. Equity security owners may also participate in a company's
success or lack of success through increases or decreases in the value of the
company's shares as traded in the public trading market for such shares.
Equity securities generally take the form of common stock or preferred stock.
Preferred stockholders typically receive greater dividends but may receive
less appreciation than common stockholders and may have greater voting rights
as well. Equity securities may also include warrants or rights. Warrants or
rights give the holder the right to purchase a common stock at a given time
for a specified price.

REITS In order to qualify as a real estate investment trust (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.

By investing in REITs indirectly through the Fund, you will bear not only
your proportionate share of the expenses of the Fund, but also, indirectly,
similar expenses of the REITs.

REAL ESTATE Because the Fund invests primarily in the real estate industry, it
could own real estate directly as a result of a default on debt securities it
may own. Receipt of rental income or income from the disposition of real
property by the Fund may adversely affect its ability to retain its tax status
as a regulated investment company.

DEBT SECURITIES Debt securities represent an obligation of the issuer to repay a
loan of money to it, and generally, provide for the payment of interest. These
include bonds, notes and debentures; commercial paper; convertible securities;
and bankers' acceptances. A company typically meets its payment obligations
associated with its outstanding debt securities before it declares and pays any
dividend to holders of its equity securities. Bonds, notes, debentures and
commercial paper differ in the length of the issuer's payment schedule, with
bonds carrying the longest repayment schedule and commercial paper the shortest.

DEPOSITARY RECEIPTS Many securities of foreign issuers are represented by
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
and Global Depositary Receipts ("GDRs") (collectively "Depositary Receipts").
ADRs evidence ownership of, and represent the right to receive, securities of
foreign issuers deposited in a domestic bank or trust company or a foreign
correspondent bank. EDRs and GDRs are typically issued by foreign banks or
trust companies, although they also may be issued by U.S. banks or trust
companies, and evidence ownership of underlying securities issued by either a
foreign or a U.S. corporation. Generally, Depositary Receipts in registered
form are designed for use in the U.S. securities market and Depositary
Receipts in bearer form are designed for use in securities markets outside
the U.S.

Foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. The Fund, therefore, may
encounter difficulty in obtaining market quotations for purposes of valuing its
portfolio and calculating its Net Asset Value. Moreover, investors should
recognize that foreign securities are often traded with less frequency and
volume and, therefore, may have greater price volatility than is the case with
many U.S. securities. Notwithstanding the fact that the Fund generally intends
to acquire the securities of foreign issuers where there are public trading
markets, investments by the Fund in the securities of foreign issuers may tend
to increase the risks with respect to the liquidity of the Fund's portfolio and
the Fund's ability to meet a large number of shareholder redemption requests
should there be economic or political turmoil in a country in which the Fund has
a substantial portion of its assets invested or should relations between the
U.S. and foreign countries deteriorate markedly. Furthermore, the reporting and
disclosure requirements applicable to foreign issuers may differ from those
applicable to domestic issuers, and there may be difficulties in obtaining or
enforcing judgments against foreign issuers.

Emerging markets involve additional significant risks, including political and
social uncertainty (for example, regional conflicts and risk of war), currency
exchange rate volatility, pervasiveness of corruption and crime, delays in
settling portfolio transactions and risk of loss arising out of the system of
share registration and custody. All of these factors make developing market
equity securities' prices generally more volatile than securities issued in
developed markets.

CONVERTIBLE SECURITIES The Fund may invest in convertible securities. A
convertible security is generally a preferred stock or debt security that may
be converted within a specified period of time into a certain amount of
common stock or other equity securities of the same or a different issuer.
Convertible securities include non-convertible debt securities with warrants
or stock or stock index options attached ("synthetic convertible
securities"). A convertible security entitles the holder to receive interest
paid or accrued on debt securities or dividends paid or accrued on preferred
stock until the security matures or is redeemed, converted or exchanged.
Convertible securities generally offer income yields that are higher than the
dividend yield, if any, of the underlying common stock, but lower than the
yield of similar non-convertible debt securities. While the Fund uses the
same criteria to rate a convertible debt security that it uses to rate a more
conventional debt security, a convertible preferred stock is treated like a
preferred stock for the Fund's financial reporting, credit rating, and
investment limitation purposes.

The holder of a convertible security generally may choose at any time to
exchange the convertible security for a specified number of shares of the
underlying stock. The Fund may at times, however, invest in securities that are
convertible other than at the Fund's option. Such securities may, for example,
have a mandatory conversion feature whereby the securities convert automatically
into common stock or other equity securities at a specified date and a specified
conversion ratio, or they may be convertible at the option of the issuer.
Because the conversion is not at the Fund's option, the Fund may be required to
convert the security into the underlying common stock or other equity security
at a time when the value of the underlying common stock or other security has
declined substantially. When a convertible security is "converted," i.e.,
exchanged for shares of the underlying security, the issuer often issues new
stock to the holder of the convertible security, but, in certain cases, the
holder may receive cash instead of common stock.

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
issued by the company, the common stock of which will be received in the event
the convertible preferred stock is converted; 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; and, upon maturity, they will
automatically convert to either cash or a specified number of shares of common
stock.

SYNTHETIC CONVERTIBLE SECURITIES. The Fund may invest a portion of its assets
in "synthetic" convertible securities. A synthetic convertible security is
created by combining separate securities which together possess the two
principal characteristics of a convertible security, i.e., fixed income and
the right to acquire the underlying equity security. This combination is
achieved, for example, by investing in non-convertible debt securities and in
warrants or stock or stock index call options which grant the holder the
right to purchase a specified quantity of securities within a specified
period of time at a specified price or to receive cash in the case of stock
index options. Although the manager typically expects to create synthetic
convertible securities whose components represent one issuer, the Fund may
combine components representing distinct issuers, or combine a fixed income
security with a call option on a stock index when the manager determines that
such a combination would better promote the Fund's investment goal. The
component parts of a synthetic convertible security may be purchased
simultaneously or separately.

ILLIQUID INVESTMENTS The Fund's policy is not to invest more than 10% of its
net assets in illiquid securities. Illiquid securities are generally
securities that cannot be sold within seven days in the normal course of
business at approximately the amount at which the Fund has valued them. The
Fund's board of trustees has authorized the Fund to invest in restricted
securities (which might otherwise be considered illiquid) where the
investment is consistent with the Fund's investment goal and has authorized
the securities to be considered liquid (and thus not subject to the foregoing
10% limitation), to the extent the manager determines on a daily basis that
there is a liquid institutional or other market for the securities - for
example, restricted securities that may be freely transferred among qualified
institutional buyers pursuant to Rule 144A under the Securities Act of 1933,
as amended, and for which a liquid institutional market has developed. The
board will review any determination by the manager to treat a restricted
security as a liquid security on an ongoing basis, including the manager's
assessment of current trading activity and the availability of reliable price
information. In determining whether a restricted security is properly
considered a liquid security, the manager and the board will take into
account the following factors: (i) the frequency of trades and quotes for the
security; (ii) the number of dealers willing to buy or sell the security and
the number of other potential buyers; (iii) dealer undertakings to make a
market in the security; and (iv) the nature of the security and the nature of
the marketplace trades (e.g., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of transfer). 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 buying these securities or the market for
these securities contracts.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS The Fund may buy and sell debt
securities on a "when-issued" or "delayed delivery" basis. These are trading
practices where payment and delivery of the securities take place at a future
date. During the period between purchase and settlement, no payment is made
by the buyer to the issuer and no interest accrues to the buyer. These
transactions are subject to market fluctuations and the risk that the value
of a security at delivery may be more or less than its purchase price.
Although the Fund will generally buy debt securities on a when-issued basis
with the intention of acquiring the securities, it may sell the securities
before the settlement date if it is deemed advisable. When the Fund is the
buyer, it will maintain cash or high-grade marketable securities with an
aggregate value equal to the amount of its purchase commitments, in a
segregated account with its custodian bank until payment is made. The Fund
will not engage in when-issued and delayed delivery transactions for
investment leverage purposes.

SHORT-TERM INVESTMENTS Based upon the terms of an U.S. Securities and
Exchange Commission (SEC) order that granted exemptive relief from certain
provisions of the Investment Company Act of 1940, as amended (the 1940 Act),
the Fund may invest its short-term cash in shares of one or more money market
funds managed by the manager or its affiliates.

REPURCHASE AGREEMENTS The Fund generally will have a portion of its assets in
cash or cash equivalents for a variety of reasons, including waiting for a
suitable investment opportunity or taking a defensive position. To earn
income on this portion of its assets, the Fund may enter into repurchase
agreements. Under a repurchase agreement, the Fund agrees to buy securities
guaranteed as to payment of principal and interest by the U.S. government or
its agencies from a qualified bank or broker-dealer and then to sell the
securities back to the bank or broker-dealer after a short period of time
(generally, less than seven days) at a higher price. The bank or
broker-dealer must transfer to the Fund's custodian securities with an
initial market value of at least 102% of the dollar amount invested by the
Fund in each repurchase agreement. The manager will monitor the value of such
securities daily to determine that the value equals or exceeds the repurchase
price.

Repurchase agreements may involve risks in the event of default or insolvency
of the bank or broker-dealer, including possible delays or restrictions upon
the Fund's ability to sell the underlying securities. The Fund will enter
into repurchase agreements only with parties who meet certain
creditworthiness standards, i.e., banks or broker-dealers that the manager
has determined present no serious risk of becoming involved in bankruptcy
proceedings within the time frame contemplated by the repurchase transaction.

LOANS OF PORTFOLIO SECURITIES To generate additional income, the Fund may
lend certain of its portfolio securities to qualified banks and
broker-dealers. These loans may not exceed 10% of the value of the Fund's
total assets, measured at the time of the most recent loan. For each loan,
the borrower must maintain with the Fund's custodian collateral (consisting
of any combination of cash, securities issued by the U.S. government and its
agencies and instrumentalities, or irrevocable letters of credit) with a
value at least equal to 100% of the current market value of the loaned
securities. The Fund retains all or a portion of the interest received on
investment of the cash collateral or receives a fee from the borrower. The
Fund also continues to receive any distributions paid on the loaned
securities. The Fund may terminate the loan at any time and obtain the return
of the securities loaned within the normal settlement period for the security
involved. Where voting rights with respect to the loaned securities pass with
the lending of the securities, the manager intends to call the loaned
securities to vote proxies, or to use other practicable and legally
enforceable means to obtain voting rights, when the manager has knowledge
that, in its opinion, a material event affecting the loaned securities will
occur or the manager otherwise believes it necessary to vote. As with other
extensions of credit, there are risks of delay in recovery or even loss of
rights in collateral in the event of default or insolvency of the borrower.
The Fund will loan its securities only to parties who meet creditworthiness
standards approved by the Fund's board of trustees, i.e., banks or
broker-dealers that the manager has determined present no serious risk of
becoming involved in bankruptcy proceedings within the time frame
contemplated by the loan.

OPTIONS, FUTURES AND OPTIONS ON FINANCIAL FUTURES The Fund may write
(sell) covered put and call options and buy put and call options that trade on
securities exchanges and in the OTC market in order to hedge against the risk
of market or industry-wide stock price fluctuations or to increase income to
the Fund. The Fund may buy and sell futures and options on futures with
respect to securities and securities indices and buy 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 its 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 its total assets. Options, futures and options on futures are
generally considered "derivative securities."

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.

WRITING CALL AND PUT OPTIONS. Call options written by the Fund give the
holder the right to buy the underlying securities from the Fund at a stated
exercise price; put options written by the Fund give the holder the right to
sell the underlying security to the Fund at a stated exercise price. A call
option written by the Fund is "covered" if the Fund owns the underlying
security that is subject to the call or has an absolute and immediate right
to acquire that security without additional cash consideration (or for
additional cash consideration held in a segregated account by its custodian
bank) upon conversion or exchange of other securities held in its portfolio.
A call option is also covered if the Fund holds a call on the same security
and in the same principal amount as the call written where the exercise price
of the call held (a) is equal to or less than the exercise price of the call
written or (b) is greater than the exercise price of the call written if the
difference is maintained by the Fund in cash and high grade debt securities
in a segregated account with its custodian bank. A put option written by the
Fund is "covered" if the Fund maintains cash and high grade debt securities
with a value equal to the exercise price in a segregated account with its
custodian bank, or else holds a put on the same security and in the same
principal amount as the put written where the exercise price of the put held
is equal to or greater than the exercise price of the put written. The
premium paid by the buyer of an option will reflect, among other things, the
relationship of the exercise price to the market price and volatility of the
underlying security, the remaining term of the option, supply and demand and
interest rates.

The writer of an option may have no control over when the underlying securities
must be sold, in the case of a call option, or purchased, in the case of a put
option, since with regard to certain options the writer may be assigned an
exercise notice at any time prior to the termination of the obligation. Whether
or not an option expires unexercised, the writer retains the amount of the
premium. This amount may, in the case of a covered call option, be offset by a
decline in the market value of the underlying security during the option period.
If a call option is exercised, the writer experiences a profit or loss from the
sale of the underlying security. If a put option is exercised, the writer must
fulfill the obligation to buy the underlying security at the exercise price,
which will usually exceed the then current market value of the underlying
security.

The writer of an option that wants to terminate its obligation may effect a
"closing purchase transaction." This is accomplished by buying an option of the
same series as the option previously written. The effect of the purchase is that
the writer's position will be canceled by the clearing corporation. A writer,
however, may not effect a closing purchase transaction after being notified of
the exercise of an option. Likewise, an investor who is the holder of an option
may liquidate its position by effecting a "closing sale transaction." This is
accomplished by selling an option of the same series as the option previously
purchased. There is no guarantee that either a closing purchase or a closing
sale transaction can be effected.

Effecting a closing transaction in the case of a written call option will permit
the Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both. In the case of a written
put option, a closing transaction will permit the Fund to write another put
option to the extent that the exercise price thereof is secured by deposited
cash or short-term securities. Also, effecting a closing transaction will permit
the cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Fund investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing before or at the same time as the sale of the security.

BUYING CALL AND PUT OPTIONS. The Fund may buy call options on securities it
intends to buy in order to limit the risk of a substantial increase in the
market price of the security. The Fund may also buy call options on
securities held in its portfolio and on which it has written call options. A
call option gives the option holder the right to buy the underlying
securities from the option writer at a stated exercise price. Before its
expiration, a call option may be sold in a closing sale transaction. Profit
or loss from the sale will depend on whether the amount received is more or
less than the premium paid for the call option plus the related transaction
costs.

OVER-THE-COUNTER ("OTC") OPTIONS. The Fund may write covered put and call
options and buy put and call options that trade in the OTC market to the same
extent that it will engage in exchange traded options. Just as with exchange
traded options, OTC call options give the option holder the right to buy an
underlying security from an option writer at a stated exercise price; OTC put
options give the holder the right to sell an underlying security to an option
writer at a stated exercise price. OTC options, however, differ from exchange
traded options in certain material respects.

FUTURES CONTRACTS. The Fund may enter into contracts for the purchase or sale
of futures contracts based upon securities or financial indices ("financial
futures"). Financial futures contracts are commodity contracts that obligate
the long or short holder to take or make delivery of a specified quantity of
a financial instrument, such as a security, or the cash value of a securities
index during a specified future period at a specified price. A "sale" of a
futures contract means the acquisition of a contractual obligation to deliver
the security or cash value called for by the contract on a specified date. A
"purchase" of a futures contract means the acquisition of a contractual
obligation to take delivery of the security or cash value called for by the
contract at a specified date. Futures contracts have been designed by
exchanges that have been designated "contracts markets" by the Commodity
Futures Trading Commission ("CFTC") and must be executed through a futures
commission merchant, or brokerage firm, which is a member of the relevant
contract market.

Options on stock index futures. The Fund may buy and sell call and put options
on stock index futures to hedge against risks of marketside price movements. The
need to hedge against these risks will depend on the extent of diversification
of the Fund's common stock portfolio and the sensitivity of these investments to
factors influencing the stock market as a whole.

Call and put options on stock index futures are similar to options on securities
except that, rather than the right to buy or sell stock at a specified price,
options on a stock index futures contract give the holder the right to receive
cash. Upon exercise of the option, the delivery of the futures position by the
writer of the option to the holder of the option will be accompanied by delivery
of the accumulated balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. If an option is
exercised on the last trading day before the expiration date of the option, the
settlement will be made entirely in cash equal to the difference between the
exercise price of the option and the closing price of the futures contract on
the expiration date.

Derivative securities Derivative investments are those whose values are
dependent upon the performance of one or more other securities or investments or
indices; in contrast to common stock, for example, whose value is dependent upon
the operations of the issuer. Option transactions, foreign currency exchange
transactions and futures contracts are considered derivative investments. To the
extent the Fund enters into these transactions, their success will depend upon
the manager's ability to predict pertinent market movements.

The Fund may not:

1. Invest directly in real estate, except that the Fund could own real estate
directly as a result of a default on debt securities it owns.

11. Invest in excess of 5% of its total assets in options unrelated to any
Fund transactions in futures, including puts, calls, straddles, spreads, or
any combination thereof.

Generally, the policies and restrictions discussed in this SAI and in the
prospectus apply when the Fund makes an investment. In most cases, the Fund is
not required to sell a security because circumstances change and the security no
longer meets one or more of the Fund's policies or restrictions. If a percentage
restriction or limitation is met at the time of investment, a later increase or
decrease in the percentage due to a change in the value or liquidity of
portfolio securities will not be considered a violation of the restriction or
limitation.

Officers and Trustees
-------------------------------------------------------------------------------

The name, age and address of the officers and board members, as well as their
affiliations, positions held with the Trust, and principal occupations during
the past five years are shown below.

Frank H. Abbott, III (79)
1045 Sansome Street, San Francisco, CA 94111
Trustee

Harris J. Ashton (68)
191 Clapboard Ridge Road, Greenwich, CT 06830
Trustee

*Harmon E. Burns (55)
777 Mariners Island Blvd., San Mateo, CA 94404
Vice President and Trustee

Robert F. Carlson (72)
2120 Lambeth Way, Carmichael, CA 95608
Trustee

Vice President and past President, Board of Administration, California Public
Employees Retirement Systems (CALPERS); director or trustee, as the case may be,
of 11 of the investment companies in Franklin Templeton Investments; and
formerly, member and Chairman of the Board, Sutter Community Hospitals, member,
Corporate Board, Blue Shield of California, and Chief Counsel, California
Department of Transportation.

S. Joseph Fortunato (68)
Park Avenue at Morris County, P.O. Box 1945
Morristown, NJ 07962-1945
Trustee

Member of the law firm of Pitney, Hardin, Kipp & Szuch; and director or
trustee, as the case may be, of 50 of the investment companies in Franklin
Templeton Investments.

*Charles B. Johnson (67)
777 Mariners Island Blvd., San Mateo, CA 94404
Chairman of the Board and Trustee

*Rupert H. Johnson, Jr. (60)
777 Mariners Island Blvd., San Mateo, CA 94404
President and Trustee

Frank W.T. LaHaye (71)
20833 Stevens Creek Blvd., Suite 102, Cupertino, CA 95014
Trustee

Gordon S. Macklin (72)
8212 Burning Tree Road, Bethesda, MD 20817
Trustee

Director, Martek Biosciences Corporation, WorldCom, Inc. (communications
services), MedImmune, Inc. (biotechnology), Overstock.com (internet
services), White Mountains Insurance Group, Ltd. (holding company) and
Spacehab, Inc. (aerospace services); director or trustee, as the case may be,
of 48 of the investment companies in Franklin Templeton Investments; and
formerly, Chairman, White River Corporation (financial services) (until 1998)
and Hambrecht & Quist Group (investment banking) (until 1992), and President,
National Association of Securities Dealers, Inc. (until 1987).

Martin L. Flanagan (40)
777 Mariners Island Blvd., San Mateo, CA 94404
Vice President and Chief Financial Officer

David P. Goss (53)
777 Mariners Island Blvd., San Mateo, CA 94404
Vice President

Barbara J. Green (52)
777 Mariners Island Blvd., San Mateo, CA 94404
Vice President

Charles E. Johnson (44)
777 Mariners Island Blvd., San Mateo, CA 94404
Vice President

Edward V. McVey (63)
777 Mariners Island Blvd., San Mateo, CA 94404
Vice President

Senior Vice President, Franklin Templeton Distributors, Inc.; and officer of one
of the other subsidiaries of Franklin Resources, Inc. and of 29 of the
investment companies in Franklin Templeton Investments.

Kimberley H. Monasterio (36)
777 Mariners Island Blvd., San Mateo, CA 94404
Treasurer and Principal Accounting Officer

Senior Vice President, Franklin Templeton Services, Inc.; and officer of 33
of the investment companies in Franklin Templeton Investments.

Murray L. Simpson (63)
777 Mariners Island Blvd., San Mateo, CA 94404
Vice President and Secretary

*This board member is considered an "interested person" under federal
securities laws.

Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Charles E. Johnson.

Number of
Total Fees Boards in
Total Fees Received Franklin
Received from Franklin Templeton
from the Templeton Investments
Trust/1 Investments/2 on which
Name ($) ($) Each Serves/3
----------------------------------------------------------------
Frank H. Abbott, III 2,866 156,060 28
Harris J. Ashton 2,948 363,165 47
Robert F. Carlson 3,667 89,690 11
S. Joseph Fortunato 2,773 363,238 49
Frank W.T. LaHaye 2,866 156,060 28
Gordon S. Macklin 2,948 363,165 47

Board members historically have followed a policy of having substantial
investments in one or more of the funds in Franklin Templeton Investments, as is
consistent with their individual financial goals. In February 1998, this policy
was formalized through adoption of a requirement that each board member invest
one-third of fees received for serving as a director or trustee of a Templeton
fund in shares of one or more Templeton funds and one-third of fees received for
serving as a director or trustee of a Franklin fund in shares of one or more
Franklin funds until the value of such investments equals or exceeds five times
the annual fees paid such board member. Investments in the name of family
members or entities controlled by a board member constitute fund holdings of
such board member for purposes of this policy, and a three year phase-in period
applies to such investment requirements for newly elected board members. In
implementing such policy, a board member's fund holdings existing on February
27, 1998, are valued as of such date with subsequent investments valued at cost.

Management and Other Services
-------------------------------------------------------------------------------