PROSPECTUS
FRANKLIN
INVESTORS SECURITIES TRUST
INVESTMENT STRATEGY
INCOME
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
FRANKLIN BOND FUND - CLASS A
MARCH 1, 1999
as amended September 13, 1999
[Insert Franklin Templeton Ben Head]
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 FUNDS
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Information about each fund you should know before investing
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2 Franklin Adjustable U.S. Government
Securities Fund
11 Franklin Bond Fund
22 Distribution and tax information
for each fund; Year 2000 problem
YOUR ACCOUNT
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Information about sales charges,
account transactions and services
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24 Sales Charges
28 Buying Shares
30 Investor Services
33 Selling Shares
35 Account Policies
38 Questions
FOR MORE INFORMATION
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Where to learn more about each fund
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Back Cover
FRANKLIN ADJUSTABLE U.S.
GOVERNMENT SECURITIES FUND
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
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GOAL The fund's investment goal is to seek a high level of current income,
consistent with lower volatility of principal than a fund that invests in
fixed-rate securities.
PRINCIPAL INVESTMENTS. The fund will normally invest at least 65% of total
assets in adjustable rate mortgage securities (ARMS) and other mortgage
securities with interest rates that adjust periodically to reflect prevailing
market interest rates. The fund will only invest in mortgage securities issued
or guaranteed by the U.S. government, its agencies or instrumentalities.
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The fund will normally invest at least 65% of total assets in
ARMS and other adjustable rate mortgage securities issued or
guaranteed by the U.S. government, its agencies or
instrumentalities.
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The fund may invest up to 35% of total assets in bonds and notes issued by the
Federal Home Loan Banks, Federal National Mortgage Association (FNMA),
Government National Mortgage Association (GNMA), Federal Home Loan Mortgage
Corporation (FHLMC) and Small Business Administration, as well as in direct
obligations of the U.S. government, such as Treasury bonds, bills and notes, and
securities issued or guaranteed by U.S. government agencies. The fund may also
invest in collateralized mortgage obligations (CMOs) and repurchase agreements
collateralized by U.S.
government obligations.
Government agency or instrumentality issues have different levels of credit
support. GNMA securities are supported by the full faith and credit of the U.S.
government; FNMA securities are supported by its right to borrow from the U.S.
Treasury under certain circumstances; and FHLMC securities are supported only by
the credit of that instrumentality. Investors should remember that guarantees of
timely repayment of principal and interest do not apply to the market prices and
yields of the securities or to the net asset value or performance of the fund,
which will vary with changes in interest rates and other market conditions.
Mortgage securities represent an ownership interest in mortgage loans made by
banks and other financial institutions to finance purchases of homes. The
individual loans are packaged or "pooled" together for sale to investors. As the
underlying mortgage loans are paid off, investors receive principal and interest
payments.
Interest rates on adjustable rate securities generally are reset at intervals of
one year or less so that their rates gradually align themselves with market
interest rates. These periodic adjustments help keep the prices of these
securities relatively stable when compared with the prices of fixed rate
securities, which generally fall when interest rates rise. As a result, the fund
may participate in increases in interest rates resulting in higher current
yields, but with less fluctuation in net asset value than a fund invested in
comparable fixed rate securities. Adjustable rate securities, however,
frequently limit the maximum amount by which the loan rate may change up or
down. The fund, therefore, may not benefit from increases in interest rates if
interest rates exceed a security's maximum allowable periodic or lifetime
limits. During periods of falling interest rates, the interest rates on these
securities may reset downward, resulting in a lower yield for the fund.
The fund may buy securities on a "when-issued" or "delayed delivery" basis. This
means that the securities will be paid for and delivered to the fund at a future
date, generally in 30 to 45 days.
TEMPORARY INVESTMENTS The manager may take a temporary defensive position when
it believes the securities trading markets or the economy are experiencing
excessive volatility or a prolonged general decline, or other adverse conditions
exist. Under these circumstances, the fund may be unable to pursue its
investment goal, because it will not invest substantially or will invest less in
ARMS and other adjustable rate securities.
[Insert graphic of chart with line going up and down] MAIN RISKS
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INTEREST RATE Because changes in interest rates on ARMS and other adjustable
rate securities lag behind changes in market rates, the net asset value of the
fund may decline during periods of rising interest rates until the interest
rates on these securities reset to market rates. You could lose money if you
sell your shares of the fund before these rates reset.
If market interest rates increase substantially and the fund's adjustable rate
securities are not able to reset to market interest rates during any one
adjustment period, the value of the fund's holdings and its net asset value may
decline until the rates are able to reset to market rates. In the event of a
dramatic increase in interest rates, the lifetime limit on a security's interest
rate may prevent the rate from adjusting to prevailing market rates and the
market value of the security could decline substantially and affect the fund's
net asset value.
To the extent the fund invests in fixed income debt securities, it will be
subject to additional interest rate risks. When interest rates rise, fixed
income debt security prices fall. When interest rates fall, fixed income debt
security prices rise. Generally, interest rates rise during times of inflation
or a growing economy, and will fall during an economic slowdown or recession.
Securities with longer maturities usually are more sensitive to interest rate
changes than securities with shorter maturities.
Because the interest rates on adjustable rate securities generally reset
downward when interest rates fall, their market value is unlikely to rise to the
same extent as the value of comparable fixed rate securities during periods of
declining interest rates.
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If interest rates rise, the net asset value of the fund may fall until the
interest rates on the fund's adjustable rate securities reset to market rates.
If rates fall, mortgage holders may refinance their mortgage loans at lower
interest rates. This means you could lose money. [End callout]
MORTGAGE SECURITIES Mortgage securities differ from conventional debt securities
because principal is paid back over the life of the security rather than at
maturity. The fund may receive unscheduled prepayments of principal before the
security's maturity date due to voluntary prepayments, refinancing or
foreclosure on the underlying mortgage loans. To the fund this means a loss of
anticipated interest, and a portion of its principal investment represented by
any premium the fund may have paid. Mortgage prepayments generally increase when
interest rates fall.
Mortgage securities also are subject to extension risk. An unexpected rise in
interest rates could reduce the rate of prepayments on mortgage securities and
extend their life. This could cause the price of the mortgage securities and the
fund's share price to fall and would make the mortgage securities more sensitive
to interest rate changes. This is called "extension risk."
INCOME Since the fund can only distribute what it earns, the fund's
distributions to shareholders may decline when interest rates fall.
DERIVATIVE SECURITIES CMOs are considered derivative investments, one whose
value depends on (or is derived from) the value of an underlying asset. These
instruments are subject to credit risk and prepayment risk associated with the
underlying mortgage assets.
YEAR 2000 When evaluating current and potential portfolio positions, Year 2000
is one of the factors the fund's manager considers.
The manager will rely upon public filings and other statements made by issuers
about their Year 2000 readiness. The manager, of course, cannot audit each
issuer and its major suppliers to verify their Year 2000 readiness.
If an issuer in which the fund is invested is adversely affected by Year 2000
problems, it is likely that the price of its securities also will be adversely
affected. A decrease in the value of one or more of the fund's portfolio
holdings will have a similar impact on the fund's performance. Please see page
23 for more information.
More detailed information about the fund, its policies, including temporary
investments, and risks can be found in the fund's Statement of Additional
Information (SAI).
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Mutual fund shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
government. Mutual fund shares involve investment risks, including the possible
loss of principal. [End callout]
MASTER/FEEDER STRUCTURE The fund seeks to achieve its investment goal by
investing all of its assets in shares of the U.S. Government Adjustable Rate
Mortgage Portfolio (Portfolio). The Portfolio has the same investment goal and
substantially similar investment policies as the fund. The fund buys shares of
Mortgage Portfolio at net asset value. An investment in the fund is an indirect
investment in the Portfolio.
It is possible that the fund may have to withdraw its investment in the
Portfolio if the Portfolio changes its investment goal or if the fund's Board of
Trustees, at any time, considers it to be in the fund's best interest.
IF YOU ARE AN INVESTOR WHOSE INVESTMENT AUTHORITY IS RESTRICTED BY APPLICABLE
LAW OR REGULATION YOU SHOULD CONSULT YOUR LEGAL ADVISOR TO DETERMINE WHETHER AND
TO WHAT EXTENT SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR YOU. If you
are a municipal investor considering investment of proceeds of bond offerings
into the fund, you should consult with expert counsel to determine the effect,
if any, of various payments made by the fund, its manager or its principal
underwriter on arbitrage rebate calculations.
[Insert graphic of bull and bear] PERFORMANCE
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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 10 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.
ANNUAL TOTAL RETURNS1
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BEST
QUARTER:
Q4 '89
3.21%
WORST
QUARTER:
Q4 '94
- -1.40%
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[Insert bar graph]
10.34% 9.53% 8.67% 4.01% 1.35% -1.96% 9.17% 6.25% 6.97% 3.87%
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89 90 91 92 93 94 95 96 97 98
YEAR
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
1 YEAR 5 YEARS 10 YEARS
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Franklin Adjustable U.S. Government
Securities Fund 2 1.51% 4.32% 5.51%
Lehman Bros. Short U.S. Government 1-2
Years Index 3 6.60% 5.84% 7.02%
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers Short
U.S. Government 1-2 Year Index invests in U.S. Government securities and
Treasuries with maturities from one to two years. 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
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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)
Maximum sales charge (load) as a percentage of offering price 2.25%
Load imposed on purchases 2.25%
Maximum deferred sales charge (load) None 1
Exchange fee 2 $5.00
Please see "Sales Charges" on page 24 for an explanation of how and when these
sales charges apply.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
Management and administration fees 3 0.50%
Distribution and service (12b-1) fees 4 0.25%
Other expenses 0.18%
Total annual fund operating expenses 3 0.93%
1. Except for investments of $1 million or more (see page 24) and purchases by
certain retirement plans without an initial sales charge.
2. This fee is only for market timers (see page 36).
3. For the fiscal year ended October 31, 1998, the manager had agreed in advance
to limit its management fees. With this reduction, management fees of the
Portfolio were 0.23%, administration fees of the fund were 0.10% and total
annual fund operating expenses were 0.76%. The manager may end this arrangement
at any time upon notice to the fund's Board of Trustees.
4. Because of the distribution and service (12b-1) fees, over the long term you
may indirectly pay more than the equivalent of the maximum permitted initial
sales charge.
EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
The example assumes you invest $10,000 for the periods shown and then sell all
of your shares at the end of those periods. The example also assumes your
investment has a 5% return each year and 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
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$318 1 $515 $728 $1,342
1. Assumes a contingent deferred sales charge (CDSC) will not apply.
[Insert graphic of briefcase]MANAGEMENT
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Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the Portfolio's investment manager and the fund's administrator.
Together, Advisers and its affiliates manage over $227 billion in assets.
The team responsible for the Portfolio's management is:
T. ANTHONY COFFEY CFA, VICE PRESIDENT OF ADVISERS
Mr. Coffey has been a manager on the fund since 1991. He joined the Franklin
Templeton Group in 1989.
ROGER BAYSTON CFA, SENIOR VICE PRESIDENT OF ADVISERS
Mr. Bayston has been a manager on the fund since 1991. He joined the Franklin
Templeton Group in 1991.
JACK LEMEIN, EXECUTIVE VICE PRESIDENT OF ADVISERS
Mr. Lemein has been a manager of the fund since 1991 and has more than 30 years
experience in the securities industry.
The fund pays Advisers a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended October 31, 1998, the fund's
share of the Portfolio's management fees, before any advance waiver, was 0.40%
of the fund's average daily net assets. Under an agreement by the manager to
limit its fees, the fund paid 0.23% of its average daily net assets as its share
of the Portfolio's management fees. The manager may end this arrangement at any
time upon notice to the fund's Board of Trustees.
[Insert graphic of dollar bill] FINANCIAL HIGHLIGHTS
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This table presents the fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.
YEAR ENDED OCTOBER 31,
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1998 1997 1996 1995 1994
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PER SHARE DATA ($)
Net asset value, beginning
of year 9.48 9.37 9.34 9.20 9.77
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Net investment income .51 .55 .56 .54 .35
Net realized and unrealized
gains (losses) (.12) .10 .03 .14 (.61)
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Total from investment
operations .39 .65 .59 .68 (.26)
Less distributions from net
investment income (.51) (.54) (.56) (.54) (.31)
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Net asset value, end of year 9.36 9.48 9.37 9.34 9.20
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Total return (%) 1 4.26 7.18 6.54 7.57 (2.65)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x
1,000) 298,298 334,990 397,078 509,371 700,617
Ratios to average net
assets: (%)
Expenses 2 .76 .75 .69 .61 .42
Expenses excluding waiver
and payments by affiliate 2 .93 .93 .86 .86 .82
Net investment income 5.38 5.81 5.87 5.76 3.67
Portfolio turnover rates (%) 38.92 43.68 23.52 17.81 5.99
1. Total return does not include sales charges, and is not annualized.
2. Includes the fund's share of the Portfolio's allocated expenses.
FRANKLIN BOND FUND
[Insert graphic of bullseye and arrows] GOALS AND STRATEGIES
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GOALS The fund's principal investment goal is to provide a high level of current
income consistent with the preservation of capital. Its secondary goal is
capital appreciation over the long term.
PRINCIPAL INVESTMENTS The fund normally invests at least 65% of its total assets
in investment grade fixed-income securities. The fund focuses on government and
corporate debt securities and mortgage and asset-backed 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. Mortgage securities represent an ownership interest in
mortgage loans made by banks and other financial institutions to finance
purchases of homes, commercial buildings and other real estate. These mortgage
loans may have either fixed or adjustable interest rates. The individual
mortgage loans are packaged or "pooled" together for sale to investors. As the
underlying mortgage loans are paid off, investors receive principal and interest
payments. Mortgage securities are sponsored by U.S. government agencies, foreign
government agencies and private institutions.
Asset-backed securities are securities backed by credit card receivables,
automobile, mobile home and recreational vehicle loans and leases, and other
receivables.
The payment of interest and principal on securities issued by U.S. government
agencies generally is guaranteed either by the full faith and credit of the U.S.
government or by the credit of the agency. The guarantee applies only to the
timely repayment of principal and interest and not to the market prices and
yields of the securities or to the net asset value or performance of the fund,
which will vary with changes in interest rates and other market conditions.
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The fund invests primarily in investment grade fixed-income securities from
various market sectors that include government and corporate debt securities and
mortgage and asset-backed securities.
[End callout]
The fund focuses on "investment grade" securities which are issues rated in the
top four rating categories by independent rating agencies such as Standard &
Poor's Corporation (S&P) or Moody's Investors Services, Inc. (Moody's) or, if
unrated, determined by the fund's manager to be comparable. The fund may invest
up to 35% of its total assets in non-investment grade fixed-income securities,
but will not invest in securities rated lower than B by S&P or Moody's.
The fund does not expect that it will invest more than 10% of total assets in
futures contracts on U.S. Treasury securities and related options; however,
during the fund's initial period of operations it is anticipated that the fund's
investment in these contracts will not exceed 25% of total assets. A futures
contract is an agreement to buy or sell a specific security or commodity at a
specified future date and price. The fund may invest up to 15% of assets in
foreign securities.
In choosing investments, the fund's manager selects securities in various market
sectors based on the manager's assessment of changing economic, market, industry
and issuer conditions. The manager uses a "top-down" analysis of macroeconomic
trends, combined with a "bottom-up" fundamental analysis of market sectors,
industries and issuers to try to take advantage of varying sector reactions to
economic events. The manager evaluates business cycles, changes in yield curves
and apparent imbalances in values between and within markets.
TEMPORARY INVESTMENTS The manager may take a temporary defensive position when
the securities trading markets or the economy are experiencing excessive
volatility or a prolonged general decline, or other adverse conditions exist.
Under these circumstances, the fund may be unable to pursue its investment
goals, because it may not invest or may invest less in investment grade
fixed-income securities.
[Insert graphic of chart with line going up and down] MAIN RISKS
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INTEREST RATE When interest rates rise, fixed-income security prices fall. When
interest rates fall, fixed-income security prices rise. Generally, interest
rates rise during times of inflation or a growing economy, and will fall during
an economic slowdown or recession. Securities with longer maturities usually are
more sensitive to interest rate changes than securities with shorter maturities.
INCOME Since the fund can only distribute what it earns, the fund's
distributions to its shareholders may decline when interest rates fall.
[Begin callout]
Changes in interest rates affect the prices of the fund's debt
securities. If rates rise, the value of all the fund's debt
securities will fall and so too will the fund's share price. This
means you could lose money.
[End callout]
CREDIT This is the possibility that an issuer of a debt security or the borrower
on the underlying mortgage or debt obligation may be unable to make interest
payments or repay principal. Changes in an issuer's financial strength or in a
security's credit rating may affect its value and, thus, impact the value of
fund shares.
Debt securities rated below investment grade, sometimes called "junk bonds,"
generally have more credit risk than higher-rated securities. Companies issuing
lower-rated securities are not as strong financially as those with higher credit
ratings. These companies are more likely to encounter financial difficulties and
are more vulnerable to changes in the economy, such as a recession or a
sustained period of rising interest rates, that could prevent them from making
interest and principal payments. The market price of lower-rated securities may
fluctuate more than higher-rated securities and may decline significantly in
periods of general or regional economic difficulty. Lower-rated securities may
also be less liquid than higher-rated securities.
MORTGAGE SECURITIES AND ASSET-BACKED SECURITIES Mortgage securities differ from
conventional debt securities because principal is paid back over the life of the
security rather than at maturity. The fund may receive unscheduled prepayments
of principal before the security's maturity date due to voluntary prepayments,
refinancing or foreclosure on the underlying mortgage loans. To the fund this
means a loss of anticipated interest, and a portion of its principal investment
represented by any premium the fund may have paid. Mortgage prepayments
generally increase when interest rates fall.
Mortgage securities also are subject to extension risk. An unexpected rise in
interest rates could reduce the rate of prepayments on mortgage securities and
extend their life. This could cause the price of the mortgage securities and the
fund's share price to fall and would make the mortgage securities more sensitive
to interest rate changes. This is called "extension risk."
Issuers of asset-backed securities may have limited ability to enforce the
security interest in the underlying assets, and credit enhancements provided to
support the securities, if any, may be inadequate to protect investors in the
event of default. Like mortgage securities, asset-backed securities are subject
to prepayment and extension risks.
DERIVATIVE SECURITIES Derivative investments are those whose values are
dependent upon the performance of one or more other securities or investments or
indices. Futures and options contracts are considered derivative investments.
The fund's investment in derivatives may involve a small investment relative to
the amount of risk assumed. Some derivatives are particularly sensitive to
changes in interest rates.
FOREIGN SECURITIES Securities of governments and companies located outside the
U.S. may offer significant opportunities for gain, but they also involve
additional risks that can increase the potential for losses in the fund.
COUNTRY. General securities market movements in any country where
the fund has investments are likely to affect the value of the
securities the fund owns which trade in that country. These
movements will affect the fund's share price.
The political, economic and social structures of some countries the fund may
invest in may be less stable and more volatile than those in the U.S. The risks
of investing in these countries include the possibility of the imposition of
exchange controls, expropriation, restrictions on removal of currency or other
assets, nationalization of assets and punitive taxes.
COMPANY. Foreign companies are not subject to the same accounting, auditing and
financial reporting standards and practices as U.S. companies and their stocks
may not be as liquid as stocks of similar U.S. companies. Foreign stock
exchanges, brokers and companies generally have less government supervision and
regulation than in the U.S. The fund may have greater difficulty voting proxies,
exercising shareholder rights, pursuing legal remedies and obtaining judgments
with respect to foreign investments in foreign courts than with respect to U.S.
companies in U.S. courts.
CURRENCY From time to time some of the fund's investments may be denominated in
foreign currencies. Changes in foreign currency exchange rates will affect the
value of what the fund owns and the fund's share price. Generally, when the U.S.
dollar rises in value against a foreign currency, an investment in that country
loses value because that currency is worth fewer U.S. dollars. Devaluation of
currency by a country's government or banking authority also has a significant
impact on the value of any securities denominated in the trust currency.
Currency markets are generally not as regulated as securities markets.
EURO. On January 1, 1999, the European Monetary Union (EMU) introduced a new
single currency, the euro, which will replace the national currency for
participating member countries. If the fund holds investments in countries with
currencies replaced by the euro, the investment process, including trading,
foreign exchange, payments, settlements, cash accounts, custody and accounting
will be impacted.
Because this change to a single currency is new and untested, the establishment
of the euro may result in market volatility. For the same reason, it is not
possible to predict the impact of the euro on the business or financial
condition of European issuers which the fund may hold in its portfolio, and
their impact on fund performance. To the extent the fund holds non-U.S. dollar
(euro or other) denominated securities, it will still be exposed to currency
risk due to fluctuations in those currencies versus the U.S. dollar.
YEAR 2000 When evaluating current and potential portfolio positions, Year 2000
is one of the factors the fund's manager considers.
The manager will rely upon public filings and other statements made by companies
about their Year 2000 readiness. Issuers in countries outside the U.S.,
particularly in emerging markets, may not be required to make the same level of
disclosure about Year 2000 readiness as is required in the U.S. The manager, of
course, cannot audit each company and its major suppliers to verify their Year
2000 readiness.
If a company in which the fund is invested is adversely affected by Year 2000
problems, it is likely that the price of its securities also will be adversely
affected. A decrease in the value of one or more of the fund's portfolio
holdings will have a similar impact on the fund's performance. Please see page
23 for more information.
More detailed information about the fund, its policies, including temporary
investments, risks and the ratings of debt securities 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 federally 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 percentage sign] FEES AND EXPENSES
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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 1
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Maximum sales charge (load) as a percentage of offering price 4.25%
Load imposed on purchases 4.25%
Maximum deferred sales charge (load) None 2
Exchange fee 3 $5.00
Please see "Sales Charges" on page 24 for an explanation of how and when these
sales charges apply.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
Class A 1, 4
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Management fees 5 0.43%
Distribution and service (12b-1) fees 6 0.25%
Other expenses 0.61%
Total annual fund operating expenses 5 1.29%
1. Before January 1, 1999, Class A shares were designated Class I.
2. Except for investments of $1 million or more (see page 24) and purchases by
certain retirement plans without an initial sales charge.
3. This fee is only for market timers (see page 36).
4. The fund began offering Class A shares on August 3, 1998. Total annual fund
operating expenses are annualized.
5. For the fiscal year ended October 31, 1998, the manager and administrator had
agreed in advance to limit their respective management and administration fees
and to assume as their own expense certain expenses otherwise payable by the
fund. With this reduction, management fees were 0% and total annual fund
operating expenses were 0.50%. After October 31, 1999, the manager and
administrator may end this arrangement at any time.
6. Because of the distribution and service (12b-1) fees, over the long term you
may indirectly pay more than the equivalent of the maximum permitted initial
sales charge.
EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
The example assumes you invest $10,000 for the periods shown and then sell all
of your shares at the end of those periods. The example also assumes your
investment has a 5% return each year and 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
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Class A $551 1 $817 $1,102 $1,915
1. Assumes a contingent deferred sales charge (CDSC) will not apply.
[Insert graphic of briefcase] MANAGEMENT
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Franklin Templeton Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San
Mateo, CA 94404, is the fund's investment manager. Together, Advisers and its
affiliates manage over $227 billion in assets.
Under an agreement with Advisers, Templeton Investment Counsel,
Inc. (Investment Counsel), 500 East Broward Blvd., Ft.
Lauderdale, FL 33394, is the fund's sub-advisor. Investment
Counsel provides Advisers with investment management advice and
assistance.
The team responsible for the fund's management is:
ROGER BAYSTON CFA, SENIOR VICE PRESIDENT OF ADVISERS
Mr. Bayston has been a manager of the fund since 1998. He joined the Franklin
Templeton Group in 1991.
JACK LEMEIN, EXECUTIVE VICE PRESIDENT OF ADVISERS
Mr. Lemein has been a manager of the fund since 1998 and has more than 30 years
experience in the securities industry.
THOMAS J. DICKSON, VICE PRESIDENT OF INVESTMENT COUNSEL
Mr. Dickson has been a manager of the fund since 1998. He joined
the Franklin Templeton Group in 1994.
The fund pays Advisers a fee for managing the fund's assets and making its
investment decisions. The fee is equal to an annual rate of:
o 0.425% of the value of net assets up to and including $500
million; and
o 0.325% of the value of net assets over $500 million and not
over $1 billion; and
o 0.280% of the value of net assets over $1 billion and not over
$1.5 billion; and
o 0.235% of the value of net assets over $1.5 billion and not
over $6.5 billion; and
o 0.215% of the value of net assets over $6.5 billion and not
over $11.5 billion; and
o 0.200% of the value of net assets over $11.5 billion and not
over $16.5 billion; and
o 0.190% of the value of net assets over $16.5 billion and not
over $19 billion; and
o 0.180% of the value of net assets over $19 billion and not over
$21.5 billion; and
o 0.170% of the value of net assets in excess of $21.5 billion.
[Insert graphic of dollar bill] FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------
This table presents the fund's financial performance since its inception. This
information has been audited by PricewaterhouseCoopers LLP.
YEAR ENDED
OCTOBER 31, 1998 3
- ----------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of year 10.00
----------------
Net investment income .12
Net realized and unrealized gains .30
----------------
Total from investment operations .42
----------------
Less distributions from net investment income (.05)
----------------
Net asset value, end of year 10.37
----------------
Total return (%) 1 4.05
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 4,232
Ratios to average net assets: (%)
Expenses .50 2
Expenses excluding waiver and payments by affiliate 1.29 2
Net investment income 5.21 2
Portfolio turnover rate (%) 23.19
1. Total return does not include sales charges, and is not annualized.
2. Annualized
3. For the period August 3, 1998 (effective date) to October 31, 1998. Based on
average weighted shares outstanding.
[Insert graphic of dollar signs and stacks of coins]
DISTRIBUTIONS AND TAXES;
YEAR 2000 PROBLEM
- -------------------------------------------------------------------
INCOME AND CAPITAL GAINS DISTRIBUTIONS Franklin Adjustable U.S. Government
Securities Fund intends to pay a dividend at least monthly, on or about the last
day of the month, 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 date 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).
The Franklin Bond Fund declares dividends daily from the fund's net investment
income and pay them monthly on or about the last day of the month. Your account
may begin to receive dividends on the day after we receive your investment and
will continue to receive dividends through the day we receive a request to sell
your shares. Capital gains, if any, may be distributed annually. The amount of
these distributions will vary and there is no guarantee the funds will pay
dividends.
Please keep in mind that if you invest in a fund shortly before the fund deducts
a capital gain distribution from its net asset value, you will receive some of
your investment back in the form of a taxable distribution.
TAX CONSIDERATIONS In general, fund 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 a 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 proceeds if
you do not provide your correct social security or taxpayer identification
number, 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. The individual tax rate on any gain from
the sale or exchange of your shares depends on how long you have held your
shares.
Fund distributions and gains from the sale or exchange of your fund shares
generally will be subject to state and local income tax. 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.
YEAR 2000 PROBLEM Each fund's business operations depend on a worldwide network
of computer systems that contain date fields, including securities trading
systems, securities transfer agent operations and stock market links. Many of
the systems currently use a two digit date field to represent the date, and
unless these systems are changed or modified, they may not be able to
distinguish the Year 1900 from the Year 2000 (commonly referred to as the Year
2000 problem). In addition, the fact that the Year 2000 is a leap year may
create difficulties for some systems.
When the Year 2000 arrives, a fund's operations could be adversely affected if
the computer systems used by the manager, its service providers and other third
parties it does business with are not Year 2000 ready. For example, a fund's
portfolio and operational areas could be impacted, including securities trade
processing, interest and dividend payments, securities pricing, shareholder
account services, reporting, custody functions and others. A fund could
experience difficulties in effecting transactions if any of its foreign
subcustodians, or if foreign broker-dealers or foreign markets are not ready for
Year 2000.
Each fund's manager and its affiliated service providers are making a concerted
effort to take steps they believe are reasonably designed to address their Year
2000 problems. Of course, a fund's ability to reduce the effects of the Year
2000 problem is also very much dependent upon the efforts of third parties over
which the fund and its manager may have no control.
YOUR ACCOUNT
[Insert graphic of percentage sign] SALES CHARGES
- -------------------------------------------------------------------
SALES CHARGES -
ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
THE SALES
CHARGE MAKES
UP THIS % OF WHICH EQUALS THIS
THE OFFERING % OF YOUR NET
WHEN YOU INVEST THIS AMOUNT PRICE INVESTMENT
- ----------------------------------------------------------------------
Under $100,000 2.25 2.30
$100,000 but under $250,000 1.75 1.78
$250,000 but under $500,000 1.25 1.26
$500,000 but under $1 million 1.00 1.01
SALES CHARGES - BOND FUND - CLASS A
THE SALES
CHARGE MAKES
UP THIS % OF WHICH EQUALS THIS
THE OFFERING % OF YOUR NET
WHEN YOU INVEST THIS AMOUNT PRICE INVESTMENT
- ----------------------------------------------------------------------
Under $100,000 4.25 4.44
$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 25), you can buy 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 CDSC 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 31
for exchange information).
DISTRIBUTION AND SERVICE (12B-1) FEES The funds have a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows each fund to pay distribution
fees of up to 0.25% per year to those who sell and distribute the fund's shares
and provide other services to shareholders. Because these fees are paid out of
the fund'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 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
the Franklin Templeton Funds to take advantage of the lower sales charges for
large purchases of Class A or fund shares.
[Begin callout]
The FRANKLIN TEMPLETON FUNDS include all of the Franklin Templeton U.S.
registered mutual funds, except Franklin Templeton Variable Insurance Products
Trust, Templeton Capital Accumulator Fund, Inc., and Templeton Variable Products
Series Fund.
[End callout]
o Cumulative Quantity Discount - lets you combine all of your shares in the
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.
Certain Franklin Templeton Funds offer multiple share classes not offered by
Franklin Adjustable U.S. Government Securities Fund. For purposes of this
privilege, this fund's shares are considered Class A shares.
If you paid a CDSC when you sold your Class A 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.
WAIVERS FOR INVESTMENTS FROM CERTAIN PAYMENTS Shares of the fund may be
purchased without an initial sales charge or CDSC by investors who reinvest
within 365 days:
o certain payments received under an annuity contract that offers a Franklin
Templeton insurance fund option
o distributions from an existing retirement plan invested in the
Franklin Templeton Funds
o dividend or capital gain distributions from a real estate investment trust
sponsored or advised by Franklin Properties, Inc.
o redemption proceeds from a repurchase of Franklin Floating Rate Trust shares
held continuously for at least 12 months
o redemption proceeds from Class A of any Templeton Global Strategy Fund, if you
are a qualified investor. If you paid a CDSC when you sold your shares, we
will credit your account with the amount of the CDSC paid but a new CDSC will
apply.
WAIVERS FOR CERTAIN INVESTORS Shares of the fund also may be purchased without
an initial sales charge or CDSC by various individuals and institutions,
including:
o certain trust companies and bank trust departments investing $1 million or
more in assets over which they have full or shared investment discretion
o government entities that are prohibited from paying mutual fund
sales charges
o certain unit investment trusts and their holders reinvesting
trust distributions
o group annuity separate accounts offered to retirement plans
o employees and other associated persons or entities of Franklin
Templeton or of certain dealers
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 Chilean retirement plans that meet the requirements for retirement plans
described below.
IF YOU THINK YOU MAY BE ELIGIBLE FOR A SALES CHARGE WAIVER, CALL YOUR
INVESTMENT REPRESENTATIVE OR CALL SHAREHOLDER SERVICES
AT 1-800/632-2301 FOR MORE INFORMATION.
CDSC WAIVERS The CDSC generally will be waived:
o to pay account fees
o to make payments through systematic withdrawal plans, up to 1% monthly, 3%
quarterly, 6% semiannually or 12% annually depending on the frequency of your
plan
o for redemptions by investors who purchased $1 million or more
without an initial sales charge if Franklin Templeton
Distributors, Inc. did not make any payment to the securities
dealer of record in connection with the purchase
o for redemptions by Franklin Templeton Trust Company employee benefit plans or
employee benefit plans serviced by ValuSelect(R)
o for IRA distributions due to death or disability or upon
periodic distributions based on life expectancy
o to return excess contributions (and earnings, if applicable)
from retirement plan accounts
o for redemptions following the death of the shareholder or
beneficial owner
o for participant initiated distributions from employee benefit
plans or participant initiated exchanges among investment choices in
employee benefit plans
RETIREMENT PLANS Certain retirement plans may buy shares of the fund without an
initial sales charge. To qualify, the plan must be sponsored by an employer:
o with at least 100 employees, or
o with retirement plan assets of $1 million or more, or
o that agrees to invest at least $500,000 in the Franklin
Templeton Funds over a 13-month period
A CDSC may apply. Retirement plans other than SIMPLEs, SEPs, or plans that
qualify under section 401 of the Internal Revenue Code also must qualify under
our group investment program to buy shares without an initial sales charge.
FOR MORE INFORMATION, CALL YOUR INVESTMENT REPRESENTATIVE OR RETIREMENT
PLAN SERVICES AT 1-800/527-2020.
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
- ----------------------------------------------------------------------
UGMA/UTMA accounts $100 $50
- ----------------------------------------------------------------------
Retirement accounts no minimum no minimum
(other than IRAs, IRA rollovers, Education
IRAs or Roth IRAs)
- ----------------------------------------------------------------------
IRAs, IRA rollovers, Education IRAs or Roth $250 $50
IRAs
- ----------------------------------------------------------------------
Broker-dealer sponsored wrap account programs $250 $50
- ----------------------------------------------------------------------
Full-time employees, officers, trustees and
directors of Franklin Templeton entities, and
their immediate family members $100 $50
- ----------------------------------------------------------------------
Certain Franklin Templeton Funds offer multiple share classes not offered by the
Franklin Adjustable U.S. Government Securities Fund. Please note that for
selling or exchanging your shares, or for other purposes, this fund's shares are
considered Class A shares. Before January 1, 1999, the funds' shares were
considered Class I 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 the next page).
BUYING SHARES
- ----------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ----------------------------------------------------------------------
[Insert graphic of Contact your Contact your
hands shaking] investment investment
THROUGH YOUR representative representative
INVESTMENT
REPRESENTATIVE
- ----------------------------------------------------------------------
[Insert graphic of Make your check Make your check
envelope] BY MAIL payable to the fund. payable to the 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 wire Call to receive a
three lightning control number and wire control number
bolts] BY WIRE 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 or your wire arrives by
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 Call Shareholder Call Shareholder
two arrows pointing Services at the number Services at the
in opposite below, or send signed number below or our
directions] BY written instructions. automated TeleFACTS
EXCHANGE The TeleFACTS system system, or send
cannot be used to open signed written
TeleFACTS(R) a new account. instructions.
1-800/247-1753
(around-the-clock (Please see page 31 (Please see page 31
access) 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 handset] 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. The minimum investment to open an account with
an automatic investment plan is $50 ($25 for an Education IRA). To sign up,
complete the appropriate section of your account application.
AUTOMATIC PAYROLL DEDUCTION You may be able to invest automatically in shares of
Franklin Adjustable U.S. Government Fund 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 Trust Company 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 fund.
RETIREMENT PLANS Franklin Templeton 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 Plan 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 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.
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 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]
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.
*Certain Class Z shareholders of Franklin Mutual Series Fund Inc. may exchange
into the fund without any sales charge. Advisor Class shareholders of another
Franklin Templeton Fund also may exchange into the Franklin Adjustable U.S.
Government Securities Fund without any sales charge. Advisor Class shareholders
who exchange their shares for shares of the fund and later decide they would
like to exchange into another fund that offers Advisor Class may do so.
Frequent exchanges can interfere with fund management or operations and drive up
costs for all shareholders. To protect shareholders, there are limits on the
number and amount of exchanges you may make (please see "Market Timers" on page
36).
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.
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 Trust Company retirement plan. For participants under age
591/2, tax penalties may apply. Call Retirement Plan Services at 1-800/527-2020
for details.
- ----------------------------------------------------------------------
Selling shares
- ----------------------------------------------------------------------
To sell some or all of your shares
- ----------------------------------------------------------------------
[Insert graphic of Contact your investment representative
hands shaking]
THROUGH YOUR
INVESTMENT
REPRESENTATIVE
- ----------------------------------------------------------------------
[Insert graphic of Send written instructions and endorsed share
envelope] BY MAIL 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 As long as your transaction is for $100,000
phone] BY PHONE or less, you do not hold share certificates
and you have not changed your address by
1-800/632-2301 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 You can call or write to have redemption
three lightning proceeds of $1,000 or more wired to a bank or
bolts] BY WIRE escrow account. See the policies above for
selling shares by mail or phone.
Before requesting a bank wire, 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, your bank
account number, the ABA routing number, and a signature
guarantee.
Requests received in proper form by 1:00 p.m.
pacific time will be wired the next business
day.
- ----------------------------------------------------------------------
[Insert graphic of Obtain a current prospectus for the fund you
two arrows pointing are considering.
in opposite
directions] BY Call Shareholder Services at the number below
EXCHANGE or our automated TeleFACTS system, or send
signed written instructions. See the policies
TeleFACTS(R) above for selling shares by mail or phone.
1-800/247-1753
around-the-clock If you hold share certificates, you will need
access) 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 Each 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 fund'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
Franklin Bond 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 statements that show your account
transactions. 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 confirmations, account 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 exchanges by market timers. If
accepted, each exchange by a market timer will be charged $5 by
Franklin/Templeton Investor Services, Inc., the fund's transfer agent. You will
be considered a market timer if you have (i) requested an exchange out of the
fund within two weeks of an earlier exchange request, or (ii) exchanged shares
out of the fund more than twice in a calendar quarter, or (iii) exchanged shares
equal to at least $5 million, or more than 1% of the fund's net assets, or (iv)
otherwise seem to follow a timing pattern. Shares under common ownership or
control are combined for these limits.
ADDITIONAL POLICIES Please note that the fund maintains additional policies and
reserves certain rights, including:
o The fund may 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 For redemptions over a certain amount, the fund reserves the right to make
payments in securities or other assets of the fund, in the case of an
emergency or if the payment by check or wire 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.
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
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COMMISSION (%) -
Investment under $100,000 2.00
$100,000 but under $250,000 1.50
$250,000 but under $500,000 1.00
$500,000 but under $1 million 0.85
$1 million or more up to 0.75 1
12B-1 FEE TO DEALER 0.25
FRANKLIN BOND FUND CLASS A
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COMMISSION (%) -
Investment under $100,000 4.00
$100,000 but under $250,000 3.25
$250,000 but under $500,000 2.25
$500,000 but under $1 million 1.85
$1 million or more up to 0.75 1
12B-1 FEE TO DEALER 0.25
A dealer commission of up to 1% may be paid on NAV purchases by certain
retirement plans1 and up to 0.25% on 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.
[Insert graphic of question mark] QUESTIONS
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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 can also 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)
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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 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m.
(Saturday)
Retirement Plan Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Dealer 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 each 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 each 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
www.franklintempleton.com
You can also obtain information about each fund by visiting the SEC's Public
Reference Room in Washington, D.C. (phone 1-800/SEC-0330) or by sending your
request and a duplicating fee to the SEC's Public Reference Section, Washington,
D.C. 20549-6009. You can also visit the SEC's Internet site at
http://www.sec.gov.
Investment Company Act file #811-4986 FIST2 P 09/99
