Franklin Real Estate Securities Fund. Advisor Class. Product Details 1. Fund Description. Performance Data 3,4. Portfolio Manager Insight 6

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1 Franklin Real Estate Securities Fund Advisor Class Listed Securities Alternatives Product Profile Product Details 1 Fund Assets $343,921, Fund Inception Date 01/03/1994 Number of Issuers 51 NASDAQ Symbol FRLAX Maximum Sales Charge 0.00 Investment Style Benchmark Lipper Classification Morningstar Category Dividend Frequency Asset Allocation 2 Percent of Total Listed Securities S&P US Property Index Real Estate Funds Real Estate Quarterly in March, June, September and December Fund Description The fund seeks to maximize total return. Under normal market conditions, the fund invests at least 80% of its net assets in equity securities of companies operating in the real estate industry, including: companies qualifying under federal tax law as real estate investment trusts (REITs); and companies that derive at least half of their assets or revenues from the ownership, construction, management, development or sale of residential or commercial real estate (such as real estate operating or service companies, homebuilders, lodging providers, and developers). Performance Data 3,4 Average Annual Total Returns 5 (%) Since Inception 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs (01/03/1994) Advisor Class S&P US Property Index 20% EQUITY % 0% CASH & CASH EQUIVALENTS % 50% 100% 150% -10% Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs Since Inception Advisor Class S&P US Property Index Total Annual Operating Expenses: 0.75% Performance data represents past performance, which does not guarantee future results. Current performance may differ from figures shown. The fund s investment return and principal value will change with market conditions, and you may have a gain or a loss when you sell your shares. Please call Franklin Templeton Investments at (800) DIAL BEN/ or visit franklintempleton.com for the most recent month-end performance. Advisor Class shares are offered only to certain eligible investors as stated in the prospectus. They are offered without sales charges or Rule 12b-1 fees. The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details. Calendar Year Returns (%) Advisor Class S&P US Property Index Portfolio Manager Insight 6 Market Review Global equities delivered their worst annual start since 2009 in the first quarter as fears of tighter monetary policy and escalating trade wars revived long-dormant volatility. The year began constructively, with global stocks extending their longest-ever winning streak during January. 1. All holdings are subject to change. Holdings of the same issuers have been combined. 2. Information is historical and may not reflect current or future portfolio characteristics. Percentage may not equal 100% due to rounding. All holdings are subject to change. 4. Source for Index: FactSet. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. 5. Periods shorter than one year are shown as cumulative total returns. Not FDIC Insured May Lose Value No Bank Guarantee

2 However, positive US economic news at the beginning of February unleashed pent-up inflationary fears, igniting the largest ever spike in the VIX volatility index. Elsewhere, the FTSE 100 fell the most since the Brexit referendum, while Asian and emerging markets generally paced the sharp decline of western bourses. The yield on 10-year US Treasury notes surged to a four-year high, approaching the psychologically important 3% threshold before retreating at period-end. Conditions stabilized somewhat during the middle of the quarter, with stocks and bonds both partially recovering, though volatility remained elevated and the market again edged lower in final weeks of March. In the United States, President Donald Trump s tax reform bill went into effect, boosting corporate earnings estimates during the first quarter. The fiscal stimulus was counterbalanced by continued monetary tightening, as the US Federal Reserve under new Chair Jerome Powell hiked interest rates in March, as widely expected. US REITs sold off as long-term interest rates continued to surge, making REITs less attractive, especially among generalist investors. REIT earnings for 2017 were in line with market expectations, while managements 2018 outlooks (guidance) overall came in below expectations. Core results, while remaining positive, showed some deceleration in 2017, as expected. Despite attractive current valuations versus private market real estate values and broader equities, REITs may remain under pressure in the near term, in our view, largely due to expectations for a higher interest-rate environment. Performance Review In the first quarter of 2018, we sought what we believed were favorably valued stocks with potential to generate growing dividends we judged could be well covered by operating cash flows. Stock selection in the diversified sector contributed to relative performance during the first quarter of 2018, with much of the positive effects coming from a lack of exposure to stocks that performed poorly over the reporting period. Also within the diversified sector, shares of Howard Hughes Corporation, a major Texas-based land developer (non-reit) of master planned communities and mixed use properties, advanced over the period after the company announced encouraging earnings results due, in part, to rising land prices in various regions such as Houston and Las Vegas. We believe the company s land development business has the potential to benefit from the recovery in the housing market given the steady demand from homebuilders. We also like the company s growing operating business segment, which includes nearly 50 properties in the retail, office, multifamily and hospitality segments that have been generating a meaningful portion of company s revenues in recent years. The company has some other major development projects in Hawaii and New York City, which we believe could be major growth drivers over the next two years. Howard Hughes has maintained what we view as a strong balance sheet, with ample cash available to fund the remainder of its development projects. Security selection in the specialty sector also boosted results, due primarily to an off-benchmark investment in American Tower Corporation. Shares advanced modestly but outperformed the benchmark index due, in part, to investor optimism regarding the company s plan to expand its tower portfolio in Europe. Other individual contributors included the fund s investment in Equity LifeStyle Properties, a manufactured homes REIT that focuses on owning and operating manufactured housing and resort communities in the United States. Its shares performed better than the global and regional real estate markets, reflecting continued strength in manufactured housing fundamentals amid steady demand and no signs of any near-term supply pressures. The company has continued to generate strong core results with predictable and stable cash flow growth. Besides steady organic growth, we also believe that the company, backed by a strong balance sheet and high-quality management, remains well positioned to take advantage of any consolidation opportunities within the highly fragmented manufactured housing industry. Conversely, security selection in the health care property sector hampered relative performance. Shares of healthcare REIT CareTrust declined after the company reported disappointing fourth-quarter and fiscal-year 2017 operating results. An underweighting to the storage property sector also weighed on results. Because shares of Extra Space Storage and Public Storage performed better than the overall benchmark index following better-than-expected full-year 2017 results and 2018 guidance, our underweighting in the stocks dampened relative results. Despite what we view as peaked fundamentals and near-term supply pressures, Extra Space Storage has managed to consistently deliver sector-leading operating metrics for the past few years. We also felt more encouraged about the company s prospects after its most recent results, which were healthier than those of its peers, with continued positive and sector-leading revenue growth and better-than-expected full-year guidance. We believe the company remains well positioned to continue to generate above-average earnings growth. Although the diversified sector was a strong contributor at the sector level, the fund s investment in Washington REIT, a diversified REIT with a portfolio of office, retail and multifamily assets in the greater Washington, DC, metropolitan area, weighed on results. Despite the company s above-average operating results for the past few quarters, the stock s recent underperformance largely reflected increased uncertainty about the potential impact on net earnings following the firm s recent portfolio transactions. However, we continue to believe the company remains well-positioned to benefit from recovering fundamentals in the Washington, DC, metro area given its unique strategy of focusing on Class B multifamily assets and redeveloped/renovated office investments with mostly small- to mid-sized tenants and minimum government exposure. Other notable detractors over the reporting period included Weingarten Realty Investors, a REIT that invests in grocery store-anchored shopping centers situated primarily in the southern United States. Investors sold shares on concerns about rising interest rates. Portfolio Positioning During the quarter, our investment strategy continued to emphasize higher-quality stocks that tend to generate strong cash flows to comfortably cover their dividends. We marginally shifted to higher growth names to position the fund to potentially benefit from positive movements in the market. Outlook & Strategy Due to positive fundamental trends, we see opportunities in a number of real estate markets and property sectors. We believe specialty real estate is one segment with particularly strong growth trends due to continuing technological innovation and resulting demand. Specialty real estate includes data centers, biotechnology laboratory facilities and telecommunication towers. Easily the most challenging area for property fundamentals is retail property, in our view. While growth has remained moderately positive, online retailing is rapidly changing the way people shop, and investors have reacted negatively to uncertainties related to the growing share garnered by e-commerce. Valuations for retail property companies generally appeared cheap but in some cases warranted, in our view. Retail property challenges, however, are leading to opportunities for modern logistics facilities that can accommodate increasing demand for the distribution needs of online retailers. franklintempleton.com 2

3 One area of significant potential opportunity for us is related to the valuation of property stocks relative to stocks more broadly and bonds. Due to positive earnings and dividend growth, US REITs generally were priced at levels we regarded as attractive at period-end, relative to both 10-year US Treasury notes and credit. 6. The information provided is not a complete analysis of every material fact regarding any country, market, industry, security or fund. Because market and economic conditions are subject to change, comments, opinions and analyses are rendered as of the date of this material and may change without notice. A portfolio manager s assessment of a particular security, investment or strategy is not intended as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy; it is intended only to provide insight into the fund s portfolio selection process. Holdings are subject to change. Portfolio Characteristics 7,8,9 Portfolio S&P U.S. Property Index Price to Earnings (12 Month Trailing) 34.25x 29.47x Price to Book Value 2.31x 2.00x Price to Cash Flow 15.06x 14.55x Market Capitalization (Millions in USD) 17,434 13,993 Portfolio Diversification Top Ten Holdings 10 Percent of Total Top Holdings % SIMON PROPERTY GROUP INC 7.34 PROLOGIS INC 6.14 EQUITY RESIDENTIAL 4.35 AVALONBAY COMMUNITIES INC 3.82 DIGITAL REALTY TRUST INC 3.44 ALEXANDRIA REAL ESTATE 3.44 EQUITIES INC WELLTOWER INC 3.31 BOSTON PROPERTIES INC 3.14 HOST HOTELS & RESORTS INC 3.02 EQUITY LIFESTYLE PROPERTIES 2.85 INC Sector Weightings vs. S&P U.S. Property Index 11,12 Percent of Total Residential Specialty Office Space Industrial Property Regional Malls Health Care Property Storage Property Triple Net Hotels, Resorts & Cruise Lines Shopping Centers Manufactured Homes Diversified Homebuilders/Land Student Housing Cash & Cash Equivalents % 5% 10% 15% 20% Franklin Real Estate Securities Fund S&P US Property Index 7. The portfolio characteristics listed are based on the fund s underlying holdings, and do not necessarily reflect the fund s characteristics. Due to data limitations all equity holdings are assumed to be the primary equity issue (usually the ordinary or common shares) of each security s issuing company. This methodology may cause small differences between the portfolio s reported characteristics and the portfolio s actual characteristics. In practice, Franklin Templeton s portfolio managers invest in the class or type of security which they believe is most appropriate at the time of purchase. The market capitalization figures for both the portfolio and the benchmark are at the security level, not aggregated up to the main issuer. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. 8. Source: FactSet. 9,12. Source for Index: FactSet. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. 10. Holdings of the same issuers have been combined, unless otherwise noted. Top ten holdings information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. The information provided is not a recommendation to purchase, sell, or hold any particular security. The information provided is not a recommendation to purchase, sell, or hold any particular security. The securities identified do not represent the fund s entire holdings and in the aggregate may represent only a small percentage of such holdings. There is no assurance that securities purchased will remain in the fund or that the securities sold will not be purchased. In addition, it should not be assumed that any securities transactions discusses were or will prove to be profitable. The portfolio manager for the fund reserves the right to withhold release of information with respect to holdings that would otherwise be included. 11. Information is historical and may not reflect current or future portfolio characteristics. Percentage may not equal 100% due to rounding. All holdings are subject to change. franklintempleton.com 3

4 Largest Sector Contributors vs. S&P US Property Index 13 Total Sector Effect (%) Diversified 0.53 Specialty 0.25 Industrial Property 0.12 Office Space 0.11 Shopping Centers 0.08 Contributors/detractors data shown is for the period from 01/01/2018 to 03/31/2018. Smallest Sector Contributors vs. S&P US Property Index 14 Total Sector Effect (%) Healthcare Property Storage Property Hotel/Resort Student Housing Residential Supplemental Performance Statistics 3 Yrs 5 Yrs 10 Yrs Standard Deviation (%) Tracking Error (%) Information Ratio Beta Sharpe Ratio Performance data represents past performance, which does not guarantee future results. Current performance may differ from figures shown. The fund s investment return and principal value will change with market conditions, and you may have a gain or a loss when you sell your shares. Please call Franklin Templeton Investments at (800) DIAL BEN/ or visit franklintempleton.com for the most recent month-end performance. Investment Philosophy When it comes to our approach to investing in listed real estate, the managers believe: Opportunities exist in property companies with compelling risk/reward potential, as identified by our fundamental analysis Pricing inefficiencies can occur in listed property and can be exploited Strong performance can come from a disciplined investment process Investment Process Quantitative Analysis Fundamental Analysis Fundamental Analysis Stock Selection and Portfolio Construction COMPANY INSIGHT MARKET TRENDS Momentum Models Factor Models Market Exposure Asset Evaluation Company Valuation Debt Characteristics Cash Flow Coverage Management Capability Position Sizing Position Limits Diversification Portfolio Monitoring and Risk Management Themes Governance Identify Best Opportunities Identify Company Thesis Identify Investment Risks Exercise Judgment 13,14. Past performance is not an indicator or a guarantee of future performance. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. Source: FactSet. Important data provider notices and terms available at Total Effect represents the excess return by sector as compared to the index. Performance attribution is calculated in the base currency of the fund. 15. Beta, Information Ratio and Tracking Error information are measured against the S&P US Property Index. 16. Information Ratio is a way to evaluate a manager s ability to outperform a benchmark in relation to the risk that manager is assuming, with risk defined as deviation from the benchmark. This measure is calculated by dividing the portfolio s excess return (portfolio return less the benchmark return) by the tracking error (derived by taking the standard deviation of the monthly differences between the portfolio return and the benchmark return over time). franklintempleton.com 4

5 Investment Team Portfolio Manager Years with Firm Years Experience Wilson Magee, Director of Global Real Estate and Infrastructure 7 36 Securities Daniel Scher, Research Analyst/Portfolio Manager Murat Sensoy, CFA, Research Analyst/Portfolio Manager 5 15 Glossary Beta: A measure of the magnitude of a portfolio s past share-price fluctuations in relation to the ups and downs of the overall market (or appropriate market index). The market (or index) is assigned a beta of 1.00, so a portfolio with a beta of 1.20 would have seen its share price rise or fall by 12% when the overall market rose or fell by 10%. Information Ratio: In investing terminology, the ratio of expected return to risk. Usually, this statistical technique is used to measure a manager s performance against a benchmark. This measure explicitly relates the degree by which an investment has beaten the benchmark to the consistency by which the investment has beaten the benchmark. Market Capitalization: A determination of a company s value, calculated by multiplying the total number of company stock shares outstanding by the price per share. Market capitalization is expressed in millions of USD. Price to Book Value: The price per share of a stock divided by its book value (i.e., net worth) per share. For a portfolio, the value represents a weighted average of the stocks it holds. Price to Cash Flow: Supplements price/earnings ratio as a measure of relative value for a stock. For a portfolio, the value represents a weighted average of the stocks it holds. Price to Earnings (12-mo Trailing): The share price of a stock, divided by its per-share earnings over the past year. For a portfolio, the value represents a weighted average of the stocks it holds. Sharpe Ratio: To calculate a Sharpe ratio, an asset s excess returns (its return in excess of the return generated by risk-free assets such as Treasury bills) are divided by the asset s standard deviation. Standard Deviation: A measure of the degree to which returns vary from the average of its previous returns. The larger the standard deviation, the greater the likelihood (and risk) that performance will fluctuate from the average return. Tracking Error: Measure of the deviation of the return of a product compared to the return of a benchmark over a fixed period of time. Expressed as a percentage. The more passively the investment is managed, the smaller the tracking error. franklintempleton.com 5

6 What Are The Risks? All investments involve risks, including possible loss of principal. Franklin Real Estate Securities Fund s concentration in real estate securities involves special risks, such as declines in the value of real estate and increased susceptibility to adverse economic or regulatory developments affecting the sector. The fund s investments in REITs involves additional risks, since 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. These and other risks are described more fully in the fund s prospectus. Important Legal Information Investors should carefully consider a fund s investment goals, risks, charges and expenses before investing. To obtain a summary prospectus and/or prospectus, which contains this and other information, talk to your financial advisor, call us at (800) DIAL BEN/ or visit franklintempleton.com. Please carefully read a prospectus before you invest or send money. CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. Standard & Poor s, S&P and S&P 500 are registered trademarks of Standard & Poor s Financial Services LLC. S&P does not sponsor, endorse, sell or promote and S&P index-based product. Important data provider notices and terms available at: 3. Effective 12/31/1996, the fund began offering Advisor Class Shares. For periods prior to the fund s Advisor Class inception date, a restated figure is used based on the fund s oldest share class, Class A performance, excluding the effect of Class A s maximum initial sales charge but reflecting the effect of the Class A Rule 12b-1 fees; and b) for periods after the fund s Advisor Class inception date, actual Advisor Class performance is used, reflecting all charges and fees applicable to that class. Franklin Templeton Distributors, Inc. One Franklin Parkway San Mateo, CA (800) DIAL BEN/ franklintempleton.com 2018 Franklin Templeton Investments. All rights reserved. 692 PP 03/18