oFIST1 *P
SUPPLEMENT DATED APRIL 15, 1999
TO THE PROSPECTUS OF
FRANKLIN INVESTORS SECURITIES TRUST
(FIST1 - FRANKLIN GLOBAL GOVERNMENT INCOME FUND,
FRANKLIN SHORT-INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND,
FRANKLIN CONVERTIBLE SECURITIES FUND AND FRANKLIN EQUITY INCOME FUND)
DATED MARCH 1, 1999
The prospectus is amended to replace the fourth paragraph under "Franklin
Convertible Securities Fund - Goal and Strategies - Principal Investments"
with the following:
The fund may invest up to 100% of its total assets in securities that
are below investment grade. Investment grade securities are rated in
one of the top four ratings categories by independent rating
organizations such as Standard & Poor's Corporation (S&P) and Moody's
Investors Service, Inc. (Moody's). The fund will not invest more than
10% of its total assets in securities rated below B by Moody's or S&P
or unrated securities of comparable quality. Generally, lower rated
securities pay higher yields than more highly rated securities to
compensate investors for the higher risk.
Please keep this supplement for future reference.
PROSPECTUS
FRANKLIN
INVESTORS SECURITIES TRUST
INVESTMENT STRATEGY
GROWTH & INCOME Franklin Convertible Securities Fund - Class A & C
Franklin Equity Income Fund - Class A, B & C
GLOBAL INCOME Franklin Global Government Income Fund - Class A & C
INCOME Franklin Short-Intermediate U.S. Government
Securities Fund - Class A
MARCH 1, 1999
[Insert Franklin Templeton Ben Head]
LIKE ALL MUTUAL FUND SHARES, THE SEC HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
CONTENTS
THE FUND
[BEGIN CALLOUT]
Information about each fund you should know before investing
[End callout]
2 Franklin Convertible Securities Fund
13 Franklin Equity Income Fund
24 Franklin Global Government Income Fund
35 Franklin Short-Intermediate U.S. Government Securities Fund
43 Distribution and tax information for each fund; Year 2000 problem
YOUR ACCOUNT
[Begin callout]
Information about sales charges, account transactions and services
[End callout]
46 Choosing a Share Class
54 Buying Shares
56 Investor Services
59 Selling Shares
61 Account Policies
64 Questions
FOR MORE INFORMATION
[BEGIN CALLOUT]
Where to learn more about each fund
[End callout]
Back Cover
FRANKLIN CONVERTIBLE
SECURITIES FUND
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is to maximize total return, consistent with
reasonable risk, by seeking to optimize capital appreciation and high current
income under varying market conditions.
PRINCIPAL INVESTMENTS The fund normally invests at least 65% of its net
assets in convertible securities (and common stock received upon conversion
or exchange of convertible securities). A convertible security is generally a
debt obligation or preferred stock that may be converted within a specified
period of time into a certain amount of common stock of the same or a
different issuer. The fund generally invests up to 10% of its assets in
foreign securities.
[Begin callout]
The fund invests primarily
in convertible securities.
[End callout]
A convertible security shares features of both equity and debt securities.
Like a debt security, a convertible security provides a fixed income stream.
A convertible security also tends to increase in market value when interest
rates decline and decrease in value when interest rates rise. Like an equity
security, a convertible security offers the potential for capital
appreciation resulting from an increase in the price of the underlying stock.
The value of a convertible security also tends to increase as the market
value of the underlying stock rises, and to decrease as the market value of
the underlying stock declines. Because both interest rates and market
movements can influence its value, a convertible security is not as sensitive
to interest rates as a similar fixed-income security, nor is it as sensitive
to changes in share price as its underlying stock.
The fund may also invest in convertible securities that have been structured
to provide enhanced characteristics such as yield enhancement, increased
equity exposure, or enhanced downside protection. These securities typically
include a conversion premium at issuance or some other benefit to the issuer
in exchange for the enhanced features.
The fund may invest up to 100% of total assets in securities that are below
investment grade. Investment grade securities are rated in one of the top
four ratings categories by independent rating organizations such as Standard
& Poor's Corporation (S&P) and Moody's Investors Service, Inc. (Moody's). The
fund generally invests in securities rated at least B by Moody's or S&P or
unrated securities the fund's manager determines are comparable. Generally,
lower rated securities pay higher yields than more highly rated securities to
compensate investors for the higher risk.
TEMPORARY INVESTMENTS The manager may take a temporary defensive position
when the securities trading markets or the economies of countries where the
fund invests 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 may not invest
or may invest substantially less in convertible securities.
[INSERT GRAPHIC OF CHART WITH LINE GOING UP AND DOWN] MAIN RISKS
LIQUIDITY The fund may have difficulty disposing of some convertible
securities because there may be a thin trading market for a particular
security at any given time. Reduced liquidity may have an adverse impact on
market price and the fund's ability to dispose of particular securities when
necessary to meet the fund's liquidity needs or in response to a specific
economic event, such as a deterioration in the creditworthiness of an issuer.
Reduced liquidity in the secondary market for certain securities may also
make it more difficult for the fund to obtain market quotations based on
actual trades for purposes of valuing the fund's portfolio.
INTEREST RATE When interest rates rise, fixed income securities prices fall.
The opposite is also true: fixed income securities prices go up when interest
rates fall. 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.
CREDIT There is the possibility that an issuer will 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 and fund performance.
Securities rated below investment grade, sometimes called "junk bonds,"
generally have more risk than higher-rated securities. The principal risks of
investing in these securities include:
o SUBSTANTIAL CREDIT RISK. Companies issuing high yield fixed-income
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.
o DEFAULTED DEBT RISK. If an issuer is not paying or stops paying interest
and/or principal on its securities, payments on the securities may never
resume. These securities may be worthless and the fund could lose its
entire investment.
o VOLATILITY RISK. The prices of high yield fixed-income securities
fluctuate more than higher-quality securities. Prices are especially
sensitive to developments affecting the company's business and to changes
in the ratings assigned by ratings organizations. Prices are often closely
linked with the company's stock prices and typically rise and fall in
response to factors that affect stock prices. In addition, the entire high
yield securities market can experience sudden and sharp price swings due
to changes in economic conditions, stock market activity, large sustained
sales by major investors, a high-profile default, or other factors. High
yield securities are also generally less liquid than higher-quality bonds.
Many of these securities do not trade frequently, and when they do trade
their prices may be significantly higher or lower than expected. At times,
it may be difficult to sell these securities promptly at an acceptable
price, which may limit the fund's ability to sell securities in response
to specific economic events or to meet redemption requests.
[Begin callout]
Because the stocks the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money
over short or even extended periods. Fund performance will also be impacted.
[End callout]
STOCKS While stocks have historically outperformed other asset classes over
the long term, they tend to go up and down more dramatically over the shorter
term. These price movements may result from factors affecting individual
companies, industries or the securities market as a whole.
FOREIGN SECURITIES Securities of companies and governments located outside
the U.S. may involve risks that can increase the potential for losses in the
fund.
COUNTRY. General securities market movements in any country where the fund
has investments are likely to affect the value of the securities the fund
owns which trade in that country.
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
markets and their participants generally have less government supervision and
regulation than in the U.S.
CURRENCY. To the extent the fund's investments are 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 a currency by a country's government or banking authority also
will have a significant impact on the value of any securities denominated in
that currency. Currency markets generally are 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 will also 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 44 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).
[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 BULL AND BEAR] PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns from year to year over the past 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.
CLASS A ANNUAL TOTAL RETURNS1
[Insert bar graph]
89 90 91 92 93 94 95 96 97 98
12.16% -5.76% 33.62% 16.24% 20.54% -1.63% 24.19% 16.33% 20.27% -6.98%
[Begin callout]
Best
Quarter:
Q1 '91
14.43%
Worst
Quarter:
Q3 '90
- -12.56%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
1 YEAR 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------
Franklin Convertible Securities Fund -
Class A2 -12.36% 8.43% 11.49%
Goldman Sachs Convertible 100 Index3 7.73% 12.18% 11.66%
SINCE
INCEPTION
1 YEAR (10/2/95)
- ----------------------------------------------------------------------------
Franklin Convertible Securities Fund -
Class C2 -9.46% 8.13%
Goldman Sachs Convertible 100 Index3 7.73% 13.23%
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. May
1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard and Poor's(R) Micropal. The unmanaged Goldman Sachs
Convertible 100 Index is comprised of a target of 100 securities, including
convertible bonds, preferreds, and mandatory convertible securities. It
includes reinvested dividends. One cannot invest directly in an index, nor is
an index representative of the fund's portfolio.
[Insert graphic of percentage sign] FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A1 CLASS C1
Maximum sales charge (load)
as a percentage of offering price 5.75% 1.99%
Load imposed on purchases 5.75% 1.00%
Maximum deferred sales charge (load) None2 0.99%3
Exchange fee4 $5.00 $5.00
Please see "Choosing a Share Class" on page 46 for an explanation of how and
when these sales charges apply.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
CLASS A1 CLASS C1
Management fees 0.55% 0.55%
Distribution and service (12b-1) fees5 0.25% 1.00%
Other expenses 0.18% 0.18%
------------------
Total annual fund operating expenses 0.98% 1.73%
==================
1. Before January 1, 1999, Class A shares were designated Class I and Class C
shares were designated Class II.
2. Except for investments of $1 million or more (see page 47) and purchases
by certain retirement plans without an initial sales charge.
3. This is equivalent to a charge of 1% based on net asset value.
4. This fee is only for market timers (see page 62).
5. 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
- ----------------------------------------------------------------------
CLASS A $669 1 $869 $1,086 $1,707
CLASS C $372 2 $639 $1,029 $2,121
1. Assumes a contingent deferred sales charge (CDSC) will not apply.
2. For the same Class C investment, your costs would be $274 if you did not
sell your shares at the end of the first year. Your costs for the remaining
periods would be the same.
[INSERT GRAPHIC OF BRIEFCASE] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the fund's investment manager. Together, Advisers and its
affiliates manage over $220 billion in assets.
The team responsible for the fund's management is:
EDWARD B. JAMIESON, EXECUTIVE VICE PRESIDENT OF ADVISERS
Mr. Jamieson has been a manager of the fund since 1987. He joined the
Franklin Templeton Group in 1987.
EDWARD D. PERKS CFA, VICE PRESIDENT OF ADVISERS
Mr. Perks has been a manager of the fund since 1998. He joined the Franklin
Templeton Group in 1992.
RAYMOND CHAN, PORTFOLIO MANAGER OF ADVISERS
Mr. Chan has been a manager of the fund since 1998. He joined the Franklin
Templeton Group in 1996.
The fund pays the manager a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended October 31, 1998, the fund
paid 0.55% of its average monthly net assets to the manager.
[INSERT GRAPHIC OF DOLLAR BILL] FINANCIAL HIGHLIGHTS
This table presents the fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.
CLASS A YEAR ENDED OCTOBER 31,
- -----------------------------------------------------------------------------
1998 1997 1996 1995 1 1994
- -----------------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of year 14.74 13.45 12.73 12.34 12.79
--------------------------------------
Net investment income .62 .64 .61 .58 .59
Net realized and unrealized
gains (losses) (1.92) 2.15 1.39 1.10 (.33)
---------------------------------------
Total from investment operations (1.30) 2.79 2.00 1.68 .26
--------------------------------------
Dividends from net investment income (.65) (.60) (.60) (.59) (.59)
Distributions from net realized gains (1.04) (.90) (.68) (.70) (.12)
---------------------------------------
Total distributions (1.69) (1.50) (1.28) (1.29) (.71)
---------------------------------------
Net asset value, end of year 11.75 14.74 13.45 12.73 12.34
======================================
Total return (%)2 (9.93) 22.47 16.71 15.18 2.07
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 170,569 212,631 130,951 83,523 66,869
Ratios to average net assets: (%)
Expenses .98 1.01 1.02 1.03 .84
Expenses excluding waiver and
payments by affiliate - - - - .92%
Net investment income 4.63 4.81 4.79 4.82 4.84
Portfolio turnover rate (%) 79.17 141.49 129.83 108.64 68.39
CLASS C
PER SHARE DATA ($)
Net asset value, beginning of year 14.68 13.41 12.71 13.06
--------------------------------
Net investment income .51 .54 .51 .07
Net realized and unrealized
gains (losses) (1.91) 2.13 1.40 (.37)
--------------------------------
Total from investment operations (1.40) 2.67 1.91 (.30)
--------------------------------
Dividends from net investment income (.54) (.50) (.53) (.05)
Distributions from net realized gains (1.04) (.90) (.68) -
--------------------------------
Total distributions (1.58) (1.40) (1.21) (.05)
--------------------------------
Net asset value, end of year 11.70 14.68 13.41 12.71
================================
Total return (%)2 (10.61) 21.54 15.92 (2.33)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 41,533 35,282 10,861 209
Ratios to average net assets: (%)
Expenses 1.73 1.74 1.79 1.60 3
Net investment income 3.93 4.04 4.00 3.64 3
Portfolio turnover rate (%) 79.17 141.49 129.83 108.64
1. For the period October 1, 1995 (effective date) to October 31, 1995 for
Class C.
2. Total return does not include sales charges, and is not annualized.
3. Annualized.
FRANKLIN EQUITY INCOME FUND
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is to maximize total return through emphasis
on high current income and long-term capital appreciation, consistent with
reasonable risk.
PRINCIPAL INVESTMENTS The fund normally invests at least 65% of its net
assets in common stocks offering current dividend yields above the average of
the market, as defined by the Standard & Poor's 500 Index.
[Begin callout]
The fund's principal investments are in dividend yielding common stocks.
[End callout]
The fund may invest up to 35% of its net assets in other securities, such as
convertible securities, fixed-income securities, real estate investment
trusts (REITs), and foreign securities, including depositary receipts. A
convertible security is a security, such as a fixed-income security or a
preferred stock, that is convertible into common stock. The fund does not
intend to invest more than 15% of its assets in convertible securities or
REITs.
The fund's manager evaluates the common stock dividend yields of many
financially strong companies as compared to the average dividend yield of the
Standard & Poor's 500 Index. This results in a unique relative yield range
for each company that in turn provides a discipline for determining whether a
stock is attractive for purchase or sale. The manager believes that high
relative dividend yield is frequently accompanied by a lower stock price.
Therefore, the fund seeks to buy a stock when its relative dividend yield is
high and seeks to sell a stock when its dividend yield is low relative to its
history, which may be caused by an increase in the price of the stock.
The manager emphasizes dividend yield in selecting stocks for the fund
because the manager believes that, over time, dividend income can be a
significant contributor to total return. The manager also believes that
dividend income is often more consistent than capital appreciation as a
source of investment return. Moreover, stocks with relatively higher dividend
yields tend to have less price volatility than stocks that pay out little
dividend income.
TEMPORARY INVESTMENTS The manager may take a temporary defensive position
when the securities trading markets or the economies of countries where the
fund invests 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 may not invest
or may invest substantially less in common stocks.
[INSERT GRAPHIC OF CHART WITH LINE GOING UP AND DOWN] MAIN RISKS
STOCKS While stocks have historically outperformed other asset classes over
the long term, they tend to go up and down more dramatically over the shorter
term. These price movements may result from factors affecting individual
companies, industries or the securities market as a whole.
[Begin callout]
Because the stocks the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money
over short or even extended periods.
[End callout]
INTEREST RATE When interest rates rise, debt securities prices fall. The
opposite is also true: debt securities prices go up when interest rates fall.
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.
CREDIT This is the possibility that an issuer will be unable to make interest
payments or repay principal. Changes in an issuer's financial strength or in
a security's credit rating may affect its value and, thus, impact the value
of fund shares.
REITS Changes in the market value of the fund's investments in REIT
securities will affect its performance. A REIT's performance depends on the
types and locations of the properties it owns and on how well it manages
those properties. The value of a REIT may also be affected by factors that
affect the underlying properties, the real estate industry, or local or
general economic conditions.
FINANCIAL SERVICES COMPANIES Because the fund invests in stocks of companies
in the financial services industry, the fund's investments and performance
will be affected by general market and economic conditions as well as other
risk factors particular to the financial services industry. Financial
services companies are subject to extensive government regulation. This
regulation may affect a financial company's profitability by limiting the
amount and types of loans and commitments it can make and the interest rates
and fees it can charge. A financial services company's profitability, and
therefore its stock price, is especially sensitive to interest rate changes,
as well as to the ability of borrowers to repay their loans.
FOREIGN SECURITIES Securities of 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. Investments in
depositary receipts also involve some or all of the following risks.
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 and fund performance.
The political, economic and social structures of some countries the fund
invests in may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of the
imposition of exchange controls, currency devaluations, foreign ownership
limitations, expropriation, restrictions on removal of currency or other
assets, nationalization of assets, punitive taxes and certain custody and
settlement risks.
The fund's investments in developing or emerging markets are subject to all
of the risks of foreign investing generally, and have additional heightened
risks due to a lack of established legal, business and social frameworks to
support securities markets. Foreign securities markets, including emerging
markets, may have substantially lower trading volumes than U.S. markets,
resulting in less liquidity and more volatility than experienced in the U.S.
While short-term volatility in these markets can be disconcerting, declines
in excess of 50% are not unusual.
COMPANY. Foreign companies are not subject to the same disclosure,
accounting, auditing and financial reporting standards and practices as U.S.
companies and their securities may not be as liquid as securities of similar
U.S. companies. Foreign stock exchanges, trading systems, brokers and
companies generally have less government supervision and regulation than in
the U.S. The fund may have greater difficulty voting proxies, exercising
shareholder rights, pursuing legal remedies and obtaining judgments with
respect to foreign investments in foreign courts than with respect to U.S.
companies in U.S. courts.
CURRENCY. To the extent the fund's investments are 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 a currency by a country's government or banking authority also
will have a significant impact on the value of any securities denominated in
that currency. Currency markets generally are 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 will also 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 44 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).
[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 BULL AND BEAR] PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns from year to year over the past 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.
CLASS A ANNUAL TOTAL RETURNS1
[Insert bar graph]
89 90 91 92 93 94 95 96 97 98
23.96% -8.84% 28.21% 13.25% 17.83% 0.33% 25.73% 12.73% 27.21% 6.69%
[Begin callout]
Best
Quarter:
Q1 '91
11.47%
Worst
Quarter:
Q3 '90
- -13.69%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
1 YEAR 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------
Franklin Equity Income Fund - Class A2 0.54% 12.56% 13.32%
S&P 500(R)Index3 28.58% 24.06% 19.21%
SINCE
INCEPTION
1 YEAR (10/2/95)
- ----------------------------------------------------------------------------
Franklin Equity Income Fund - Class C2 3.84% 15.10%
S&P 500(R)Index3 28.58% 28.08%
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. May
1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's(R) Micropal. The S&P 500(R) Index is an unmanaged
group of widely held common stocks covering a variety of industries. It
includes reinvested dividends. One cannot invest directly in an index, nor is
an index representative of the fund's portfolio.
[INSERT GRAPHIC OF PERCENTAGE SIGN] FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A 1 CLASS B 2 CLASS C 1
Maximum sales charge (load)
as a percentage of offering price 5.75% 4.00% 1.99%
Load imposed on purchases 5.75% None 1.00%
Maximum deferred sales charge (load) None3 4.00% 0.99% 4
Exchange fee5 $5.00 $5.00 $5.00
Please see "Choosing a Share Class" on page 46 for an explanation of how and
when these sales charges apply.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
CLASS A 1 CLASS B 2 CLASS C1
Management fees 0.50% 0.50% 0.50%
Distribution and service (12b-1) fees6 0.25% 1.00% 1.00%
Other expenses 0.19% 0.19% 0.19%
-----------------------------
Total annual fund operating expenses 0.94% 1.69% 1.69%
=============================
1. Before January 1, 1999, Class A shares were designated Class I and Class C
shares were designated Class II.
2. The fund began offering Class B shares on January 1, 1999. Annual fund
operating expenses are based on the expenses for Class A and C for the fiscal
year ended October 31, 1998. The distribution and service (12b-1) fees are
based on the maximum fees allowed under Class B's Rule 12b-1 plan.
3. Except for investments of $1 million or more (see page 47) and purchases
by certain retirement plans without an initial sales charge.
4. This is equivalent to a charge of 1% based on net asset value.
5. This fee is only for market timers (see page 62).
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
- ----------------------------------------------------------------------------
CLASS A $665 1 $857 $1,065 $1,663
CLASS B
Assuming you sold your shares
at the end of the period $572 $833 $1,118 $1,799 2
Assuming you stayed in the fund $172 $533 $ 918 $1,799 2
CLASS C $368 3 $627 $1,009 $2,078
1. Assumes a contingent deferred sales charge (CDSC) will not apply.
2. Assumes conversion of Class B shares to Class A shares after eight years,
lowering your annual expenses from that time on.
3. For the same Class C investment, your costs would be $270 if you did not
sell your shares at the end of the first year. Your costs for the remaining
periods would be the same.
[INSERT GRAPHIC OF BRIEFCASE] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the fund's investment manager. Together, Advisers and its
affiliates manage over $220 billion in assets.
The team responsible for the fund's management is:
FRANK FELICELLI CFA, SENIOR VICE PRESIDENT OF ADVISERS
Mr. Felicelli has been a manager of the fund since 1988. He joined the
Franklin Templeton Group in 1986.
KENT P. SHEPHERD CFA, VICE PRESIDENT OF ADVISERS
Mr. Shepherd has been a manager of the fund since 1998. He joined the
Franklin Templeton Group in 1991.
HOWARD M. MCELDOWNEY, PORTFOLIO MANAGER OF ADVISERS
Mr. McEldowney has been generally involved with the investment strategy of
the fund's portfolio since the fund's inception and has more than 30 years'
experience in the securities industry.
The fund pays the manager a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended October 31, 1998, the fund
paid 0.50% of its average monthly net assets to the manager.
[INSERT GRAPHIC OF DOLLAR BILL] FINANCIAL HIGHLIGHTS
This table presents the fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.
CLASS A YEAR ENDED OCTOBER 31,
1998 1997 1996 1995 1 1994
--------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of year 19.31 16.41 15.19 14.14 14.91
--------------------------------------
Net investment income .64 .64 .64 .63 .62
Net realized and unrealized
gains (losses) 1.42 3.23 1.63 1.27 (.36)
--------------------------------------
Total from investment operations 2.06 3.87 2.27 1.90 .26
--------------------------------------
Dividends from net investment income (.65) (.64) (.65) (.61) (.72)
Distributions from net realized gains (.79) (.33) (.40) (.24) (.31)
--------------------------------------
Total distributions (1.44) (.97) (1.05) (.85) (1.03)
--------------------------------------
Net asset value, end of year 19.93 19.31 16.41 15.19 14.14
======================================
Total return (%)2 10.96 24.40 15.39 14.10 1.83
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 428,228 352,555 246,952 168,897 92,763
Ratios to average net assets: (%)
Expenses .94 .97 .98 1.00 .77
Expenses excluding waiver and
payments by affiliate - - - 1.02% .95%
Net investment income 3.20 3.62 4.11 4.44 4.53
Portfolio turnover rate (%) 30.65 29.04 24.15 27.86 39.51
CLASS C
PER SHARE DATA ($)
Net asset value, beginning of year 19.26 16.38 15.19 15.38
-------------------------------
Net investment income .50 .50 .52 .05
Net realized and unrealized
gains (losses) 1.41 3.22 1.63 (.19)
--------------------------------
Total from investment operations 1.91 3.72 2.15 (.14)
--------------------------------
Dividends from net investment income (.50) (.51) (.56) (.05)
Distributions from net realized gains (.79) (.33) (.40) -
--------------------------------
Total distributions (1.29) (.84) (.96) (.05)
--------------------------------
Net asset value, end of year 19.88 19.26 16.38 15.19
================================
Total return (%)2 10.16 23.40 14.53 (.93)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 81,078 45,277 18,227 386
Ratios to average net assets: (%)
Expenses 1.69 1.72 1.73 1.99 3
Net investment income 2.45 2.78 3.33 3.57 3
Portfolio turnover rate (%) 30.65 29.04 24.15 27.86
1. For the period October 1, 1995 (effective date) to October 31, 1995 for
Class C.
2. Total return does not include sales charges, and is not annualized.
3. Annualized.
FRANKLIN GLOBAL GOVERNMENT INCOME FUND
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is to provide high current income, consistent
with preservation of capital, with capital appreciation as a secondary
consideration.
PRINCIPAL INVESTMENTS The fund normally invests at least 65% of its total
assets in government securities of at least 3 different countries, one of
which may be the United States. Government securities include securities
issued or guaranteed by domestic and foreign governments and their political
subdivisions. The fund normally invests at least 65% of its total assets in
fixed-income securities, such as bonds, notes, and debentures.
[Begin callout]
The fund invests primarily in U.S. and foreign government debt obligations.
[End callout]
The remaining 35% may be invested in equity securities, foreign or domestic
currency deposits or equivalents such as short-term U.S. Treasury notes or
repurchase agreements.
The fund normally invests its assets principally within Australia, Canada,
Japan, New Zealand, the U.S., and Western Europe. The fund also invests in
debt securities of supranational entities, and in semi-governmental
securities, which are securities that are not backed by the full faith and
credit and general taxing powers of the government, or that have only its
implied backing. The fund may invest up to 30% of its net assets in
securities of less developed and developing countries.
As a global fund, the fund may buy securities denominated in any currency, or
in multinational currency units such as the European Currency Unit (ECU), and
the fund may hold foreign currency. The fund also uses forward currency
exchange contracts to seek to protect or enhance income or to protect the
fund from adverse changes in the relationship between currencies. A forward
currency exchange contract is an obligation to buy or sell a specific
currency for an agreed price at a future date that is individually negotiated
and privately traded by currency traders and their customers.
The fund may invest up to 35% of total assets in debt securities that are
below investment grade. Investment grade securities are rated in one of the
top four ratings categories by independent rating organizations such as
Standard & Poor's Corporation (S&P) and Moody's Investors Service, Inc.
(Moody's). The fund generally invests in securities rated at least B by
Moody's or S&P or unrated securities the fund's manager determines are
comparable. Generally, lower rated securities pay higher yields than more
highly rated securities to compensate investors for the higher risk.
TEMPORARY INVESTMENTS The manager may take a temporary defensive position
when the securities trading markets or the economies of countries where the
fund invests 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 may not invest
or may invest substantially less in U.S. and foreign government securities.
[INSERT GRAPHIC OF CHART WITH LINE GOING UP AND DOWN] MAIN RISKS
LIQUIDITY The fund may have difficulty disposing of some securities because
there may be a thin trading market for a particular security at any given
time. Reduced liquidity may have an adverse impact on market price and the
fund's ability to dispose of particular securities when necessary to meet the
fund's liquidity needs or in response to a specific economic event, such as a
deterioration in the creditworthiness of an issuer. Reduced liquidity in the
secondary market for certain securities may also make it more difficult for
the fund to obtain market quotations based on actual trades for purposes of
valuing the fund's portfolio.
INTEREST RATE When interest rates rise, fixed-income securities prices fall.
The opposite is also true: fixed-income securities prices rise when interest
rates fall. 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.
Changes in global 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 and fund performance. This means
you could lose money.
INCOME Since the fund can only distribute what it earns, the fund's
distributions to its shareholders may decline when interest rates fall.
CREDIT There is the possibility that an issuer will 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 and fund performance.
Securities rated below investment grade, sometimes called "junk bonds,"
generally have more risk than higher-rated securities. The principal risks of
investing in these securities include:
o SUBSTANTIAL CREDIT RISK. Issuers of high yield debt securities are not as
strong financially as those with higher credit ratings. These issuers 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.
o DEFAULTED DEBT RISK. If an issuer is not paying or stops paying interest
and/or principal on its securities, payments on the securities may never
resume. These securities may be worthless and the fund could lose its
entire investment.
o VOLATILITY RISK. The prices of high yield debt securities fluctuate more
than higher-quality securities. Prices are especially sensitive to changes
in the ratings assigned by ratings organizations. In addition, the entire
high yield securities market can experience sudden and sharp price swings
due to changes in economic conditions, stock market activity, large
sustained sales by major investors, a high-profile default, or other
factors. High yield securities are also generally less liquid than
higher-quality bonds. Many of these securities do not trade frequently,
and when they do trade their prices may be significantly higher or lower
than expected. At times, it may be difficult to sell these securities
promptly at an acceptable price, which may limit the fund's ability to
sell securities in response to specific economic events or to meet
redemption requests.
FOREIGN SECURITIES Securities of issuers 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 that trade in that country. These movements will affect the fund's share
price and fund performance.
The political, economic and social structures of some countries the fund
invests in may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of the
imposition of exchange controls, currency devaluations, foreign ownership
limitations, expropriation, restrictions on removal of currency or other
assets, nationalization of assets, punitive taxes and certain custody and
settlement risks.
The fund's investments in developing or emerging markets are subject to all
of the risks of foreign investing generally, and have additional heightened
risks due to a lack of legal, business and social frameworks to support
securities markets. Foreign securities markets, including emerging markets,
may have substantially lower trading volumes than U.S. markets, resulting in
less liquidity and more volatility than experienced in the U.S. Short-term
volatility in these markets can be disconcerting, and declines of 40% to 50%
are not unusual.
CURRENCY. Many of the fund's investments are 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 a currency by a country's government or banking authority also
will have a significant impact on the value of any securities denominated in
that currency. Currency markets generally are 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.
DIVERSIFICATION The fund is non-diversified under federal securities laws. It
may invest a greater portion of its assets in the securities of one issuer,
and therefore in a smaller number of individual issuers, than diversified
funds. Therefore, it may be more sensitive to economic, business, political
or other changes affecting similar issuers or securities. The fund intends,
however, to meet certain tax diversification requirements.
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. 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 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 will also 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 44 for more information.
More detailed information about the fund, its policies (including temporary
investments), risks and bond ratings 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 BULL AND BEAR] PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns from year to year over the past 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.
CLASS A ANNUAL TOTAL RETURNS1
[Insert bar graph]
89 90 91 92 93 94 95 96 97 98
5.60% 7.59% 14.23% -0.25% 18.63% -7.76% 18.07% 10.76% 2.81% 5.84%
[Begin callout]
Best
Quarter:
Q1 '93
7.13%
Worst
Quarter:
Q1 '94
- -5.24%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1998
1 YEAR 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------
Franklin Global Government Income Fund -
Class A2 1.37% 4.68% 6.80%
JP Morgan Global Government Bond
Total Return Index3 15.31% 8.09% 9.09%
SINCE
INCEPTION
1 YEAR (5/1/95)
- ----------------------------------------------------------------------------
Franklin Global Government
Income Fund - Class C2 3.30% 7.71%
JP Morgan Global Government Bond
Total Return Index3 15.31% 7.50%
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. May
1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's(R) Micropal. The unmanaged JP Morgan Global
Government Bond Total Return Index includes only actively traded fixed-rate
bonds with a remaining maturity of one year or longer. It includes reinvested
dividends. One cannot invest directly in an index, nor is an index
representative of the fund's portfolio.
[Insert graphic of percentage sign] FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A 1 CLASS C 1
Maximum sales charge (load)
as a percentage of offering price 4.25% 1.99%
Load imposed on purchases 4.25% 1.00%
Maximum deferred sales charge (load) None 2 0.99% 3
Exchange fee4 $5.00 $5.00
Please see "Choosing a Share Class" on page 46 for an explanation of how and
when these sales charges apply.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
CLASS A 1 CLASS C 1
Management fees 0.60% 0.60%
Distribution and service (12b-1) fees5 0.11% 0.65%
Other expenses 0.25% 0.25%
-------------------
Total annual fund operating expenses 0.96% 1.50%
===================
1. Before January 1, 1999, Class A shares were designated Class I and Class C
shares were designated Class II.
2. Except for investments of $1 million or more (see page 47) and purchases
by certain retirement plans without an initial sales charge.
3. This is equivalent to a charge of 1% based on net asset value.
4. This fee is only for market timers (see page 62).
5. 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
- ----------------------------------------------------------------------------
CLASS A $5191 $718 $933 $1,553
CLASS C $3492 $569 $910 $1,873
1. Assumes a contingent deferred sales charge (CDSC) will not apply.
2. For the same Class C investment, your costs would be $251 if you did not
sell your shares at the end of the first year. Your costs for the remaining
periods would be the same.
[INSERT GRAPHIC OF BRIEFCASE] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the fund's investment manager. Together, Advisers and its
affiliates manage over $220 billion in assets.
Under an agreement with Advisers, Templeton Investment Counsel, Inc.
(Investment Counsel), 500 East Broward Blvd., Ft. Lauderdale, FL 33394,
through its Templeton Global Bond Managers division (Global Bond Managers),
is the fund's sub-advisor. A team from Global Bond Managers provides Advisers
with investment management advice and assistance and is responsible for the
day-to-day management of the fund.
The team responsible for the fund's management is:
THOMAS J. DICKSON, VICE PRESIDENT OF GLOBAL BOND MANAGERS
Mr. Dickson has been a manager of the fund since 1993. He joined the Franklin
Templeton Group in 1992.
DR. UMRAN DEMIRORS, EXECUTIVE VICE PRESIDENT AND
CHIEF INVESTMENT OFFICER OF GLOBAL BOND MANAGERS
Dr. Demirors has been a manager of the fund since January 1999. He joined the
Franklin Templeton Group in 1996. Previously, he was a principal and
portfolio manager for Socimer Advisory Inc. and the head of research and
strategy at Vestcor Partners Group.
ALEXANDER C. CALVO, VICE PRESIDENT OF GLOBAL BOND MANAGERS
Mr. Calvo has been a manager of the fund since January 1999. He joined the
Franklin Templeton Group in 1995. Previously, he was an account executive
with Fleishman-Hillard, where he served as a consultant to firms investing in
Latin America.
The fund pays the manager a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended October 31, 1998, the fund
paid 0.60% of its average monthly net assets to the manager.
[INSERT GRAPHIC OF DOLLAR BILL] FINANCIAL HIGHLIGHTS
This table presents the fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.
CLASS A YEAR ENDED OCTOBER 31,
1998 1 1997 1996 1995 2 1994
--------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of year 8.41 8.65 8.31 8.06 9.33
--------------------------------------
Net investment income .62 .60 .61 .67 1.30
Net realized and unrealized
gains (losses) (.17) (.22) .33 .29 (1.81)
--------------------------------------
Total from investment operations .45 .38 .94 .96 (.51)
--------------------------------------
Dividends from net investment income (.57) (.61) (.60) (.64) (.08)
In excess of net investment income (.04) (.01) - - -
Tax return of capital - - - (.07) (.60)
Distributions from net realized gains - - - - (.08)
Total distributions (.61) (.62) (.60) (.71) (.76)
--------------------------------------
Net asset value, end of year 8.25 8.41 8.65 8.31 8.06
======================================
Total return (%)3 5.57 4.31 11.80 12.65 (5.72)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 110,876 118,348 137,626 164,970 187,204
Ratios to average net assets: (%)
Expenses .96 .90 .85 .96 .89
Net investment income 7.49 6.97 7.68 8.29 8.54
Portfolio turnover rate (%) 49.93 193.30 139.71 103.49 80.69
CLASS C
PER SHARE DATA ($)
Net asset value, beginning of year 8.41 8.65 8.31 8.03
Net investment income .58 .55 .56 .31
Net realized and unrealized
gains (losses) (.17) (.22) .33 .30
Total from investment operations .41 .33 .89 .61
Dividends from net investment income (.52) (.56) (.55) (.30)
In excess of net investment income (.04) (.01) - -
Tax return of capital - - - (.03)
Total distributions (.56) (.57) (.55) (.33)
Net asset value, end of year 8.26 8.41 8.65 8.31
Total return (%)3 5.12 3.74 11.19 7.09
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 5,710 4,473 3,700 1,193
Ratios to average net assets: (%)
Expenses 1.49 1.46 1.40 1.54 4
Net investment income 6.96 6.43 7.17 7.41 4
Portfolio turnover rate (%) 49.93 193.30 139.71 103.49
1. Based on average weighted shares outstanding for Class C.
2. For the period May 1, 1995 (effective date) to October 31, 1995 for Class C.
3. Total return does not include sales charges, and is not annualized.
4. Annualized.
FRANKLIN SHORT-INTERMEDIATE
U.S. GOVERNMENT SECURITIES FUND
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is to provide as high a level of current
income as is consistent with prudent investing while seeking preservation of
shareholder's capital.
PRINCIPAL INVESTMENTS The fund normally invests in U.S. government
securities, which include obligations either issued or guaranteed by the U.S.
government and its agencies or instrumentalities. In addition to direct
obligations of the U.S. Treasury (and repurchase obligations collateralized
by U.S. Treasury obligations), the fund invests in U.S. government agency
securities, including mortgage-backed securities. The fund may invest in
callable agency securities, which give the issuer (the U.S. government
agency) the right to redeem the security prior to maturity.
[Begin callout]
The fund invests in U.S. government obligations.
[End callout]
The fund may invest in mortgage-backed securities representing interests in
"pools" of mortgage loans issued by U.S. government agencies. 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 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.
The fund normally maintains the average dollar-weighted maturity of its
portfolio in a range of two to five years. Within this range, the fund
emphasizes an average dollar-weighted maturity of 31/2 years or less. In
determining a security's maturity for purposes of calculating the fund's
average maturity, an estimate of the average time for its principal to be
paid may be used. This can be substantially shorter than its stated final
maturity.
The fund may invest in zero-coupon bonds issued or guaranteed by the U.S.
government. Zero-coupon bonds are debt obligations that are issued at a
significant discount from face value. A zero coupon security pays no interest
to its holder during its life, and its value (above its cost to the fund)
consists of the difference between its face value at maturity and
its cost.
The fund will only purchase securities and engage in trading practices that
are permitted, without limitation, to national banks, federal savings and
loan associations, and federal credit unions.
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
goal.
[INSERT GRAPHIC OF CHART WITH LINE GOING UP AND DOWN] MAIN RISKS
INTEREST RATE When interest rates rise, debt securities prices fall. The
opposite is also true: debt securities prices go up when interest rates fall.
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. Zero coupon bonds are also more
sensitive to interest rate changes than debt obligations that provide for
regular payments of interest.
INCOME Since the fund can only distribute what it earns, the fund's
distributions to its shareholders may decline when interest rates fall.
Because the fund only invests in U.S. government securities and repurchase
agreements, the level of income the fund may achieve may not be as high as
that of other funds that invest in lower-quality, longer-term securities.
CREDIT This is the possibility that an issuer will be unable to make interest
payments or repay principal. Changes in an issuer's financial strength or in
a security's credit rating may affect its value and thus impact the value of
fund shares and fund performance.
PREPAYMENT 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 prior to
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 with falling interest rates and decrease with rising
interest rates.
REINVESTMENT During periods of declining interest rates, mortgage prepayments
generally increase, and issuers of callable securities typically exercise
call options. When this happens, the fund may be forced to reinvest assets at
lower interest rates.
EXTENSION During periods of rising interest rates, mortgage prepayments
generally occur at a slower than expected rate, and issuers of callable
securities may be less likely to exercise call options. As a result, rising
interest rates can effectively extend the maturity of mortgage-backed and
callable agency securities and thus the fund's average maturity. Securities
with longer maturities generally fluctuate more widely in response to changes
in interest rates than short- or intermediate-term securities.
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 will also 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 44 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).
[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 BULL AND BEAR] PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns from year to year over the past 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.
CLASS A ANNUAL TOTAL RETURNS1
[Insert bar graph]
89 90 91 92 93 94 95 96 97 98
9.64% 9.65% 12.06% 6.64% 7.75% -2.15% 11.09% 3.99% 6.09% 6.55%
[Begin callout]
Best
Quarter:
Q3 '92
4.97%
Worst
Quarter:
Q1 '94
- -1.86%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
1 YEAR 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------
Franklin Short-Intermediate U.S. Government
Securities Fund - Class A2 4.12% 4.56% 6.82%
Lehman Brothers Short
U.S. Treasury 1-5 Year Index3 7.75% 6.17% 7.86%
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. May
1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. The unmanaged Lehman Brothers Short U.S. Treasury 1-5 Year Index includes
U.S. government securities and treasuries with maturities from one to five
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
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 A1
Maximum sales charge (load) as a
percentage of offering price 2.25%
Load imposed on purchases 2.25%
Maximum deferred sales charge (load) None2
Exchange fee3 $5.00
Please see "Choosing a Share Class" on page 46 for an explanation of how and
when these sales charges apply.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
CLASS A1
Management fees 0.56%
Distribution and service (12b-1) fees4 0.09%
Other expenses 0.13%
Total annual fund operating expenses 0.78%
1. Before January 1, 1999, Class A shares were designated Class I.
2. Except for investments of $1 million or more (see page 47) and purchases
by certain retirement plans without an initial sales charge.
3. This fee is only for market timers (see page 62).
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
- ----------------------------------------------------------------------------
CLASS A $3031 $469 $649 $1,169
1. Assumes a contingent deferred sales charge (CDSC) will not apply.
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the fund's investment manager. Together, Advisers and its
affiliates manage over $220 billion in assets.
The team responsible for the fund's management is:
JACK LEMEIN, EXECUTIVE VICE PRESIDENT OF ADVISERS
Mr. Lemein has been a manager of the fund since 1987 and has more than 30
years' experience in the securities industry.
DAVID CAPURRO, SENIOR VICE PRESIDENT OF ADVISERS
Mr. Capurro has been a manager of the fund since 1987. He joined the Franklin
Templeton Group in 1983.
TOM RUNKEL CFA, SENIOR VICE PRESIDENT OF ADVISERS
Mr. Runkel has been a manager of the fund since 1987. He joined the Franklin
Templeton Group in 1985.
The fund pays the manager a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended October 31, 1998, the fund
paid 0.56% of its average monthly net assets to the manager.
FINANCIAL HIGHLIGHTS
This table presents the fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.
CLASS A YEAR ENDED OCTOBER 31,
1998 1997 1996 1995 1994
---------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of year 10.29 10.28 10.35 10.03 10.80
---------------------------------------
Net investment income .54 .57 .58 .56 .49
Net realized and unrealized
gains (losses) .19 .02 (.08) .31 (.70)
---------------------------------------
Total from investment operations .73 .59 .50 .87 (.21)
---------------------------------------
Dividends from net investment income (.56) (.58) (.57) (.55) (.47)
Distributions from net realized gains - - - - (.09)
---------------------------------------
Total distributions (.56) (.58) (.57) (.55) (.56)
---------------------------------------
Net asset value, end of year 10.46 10.29 10.28 10.35 10.03
=======================================
Total return (%)1 7.38 5.88 4.97 8.90 (1.99)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 224,132 192,051 196,042 208,057 225,352
Ratios to average net assets: (%)
Expenses .78 .78 .74 .73 .65
Expenses excluding waiver and
payments by affiliate - - - - .68
Net investment income 5.24 5.51 5.64 5.42 4.75
Portfolio turnover rate (%) 37.70 40.56 72.62 56.34 99.09
1. Total return does not include sales charges, and is not annualized.
[INSERT GRAPHIC OF DOLLAR SIGNS AND STACKS OF COINS] DISTRIBUTIONS AND TAXES;
YEAR 2000 PROBLEM
INCOME AND CAPITAL GAINS DISTRIBUTIONS Franklin Global Government Income
Fund, Franklin Convertible Securities Fund and Franklin Equity Fund intend to
pay a dividend at least monthly representing their net investment income.
Capital gains, if any, may be distributed annually. The amount of these
distributions will vary and there is no guarantee a fund will pay dividends.
To receive a distribution, you must be a shareholder on the record date. The
record dates for the funds' distributions will vary. Please keep in mind that
if you invest in a fund shortly before the record date of a distribution, any
distribution will lower the value of a 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 a fund's distributions, please call 1-800/DIAL BEN.
Franklin Short-Intermediate U.S. Government Securities Fund declares
dividends daily from its net investment income and pays 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 fund will
pay dividends.
Please keep in mind that if you invest in the 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 shares of the fund or receive them in cash.
Any capital gains the fund distributes are taxable to you as long-term
capital gains no matter how long you have owned your shares.
[Begin callout]
BACKUP WITHHOLDING
By law, the fund must withhold 31% of your taxable distributions and proceeds
if you do not provide your correct taxpayer identification number (TIN) or
certify that your TIN is correct, 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 shares will
generally 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 The 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, the 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, the
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.
The 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, the 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 pencil marking an X] CHOOSING A SHARE CLASS
Each class has its own sales charge and expense structure, allowing you to
choose the class that best meets your situation. Your investment
representative can help you decide.
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
o Initial sales charge o No initial sales o Initial sales charge
of 5.75% (Convertible charge of 1%
Fund and Equity Fund),
4.25% (Global Fund),
2.25%
(Short-Intermediate
Fund) or less
o Deferred sales charge o Deferred sales charge o Deferred sales
of 1% on purchases of of 4% or less on charge of 1% on
$1 million or more shares you sell within shares you sell
sold within 12 months six years within 18 months
o Lower annual expenses o Higher annual o Higher annual
than Class B or C due expenses than Class A expenses than Class A
to lower distribution (same as Class C) due (same as Class B) due
fees to higher distribution to higher
fees. Automatic distribution fees. No
conversion to Class A conversion to Class A
shares after eight shares, so annual
years, reducing future expenses do not
annual expenses. decrease.
BEFORE JANUARY 1, 1999, CLASS A SHARES WERE DESIGNATED CLASS I AND
CLASS C SHARES WERE DESIGNATED CLASS II. THE EQUITY FUND BEGAN OFFERING
CLASS B SHARES ON JANUARY 1, 1999.
SALES CHARGES - CLASS A -
CONVERTIBLE FUND AND EQUITY FUND
THE SALES CHARGE WHICH EQUALS
MAKES UP THIS % OF THIS % OF YOUR
WHEN YOU INVEST THIS AMOUNT THE OFFERING PRICE NET INVESTMENT
Under $50,000 5.75 6.10
$50,000 but under $100,000 4.50 4.71
$100,000 but under $250,000 3.50 3.63
$250,000 but under $500,000 2.50 2.56
$500,000 but under $1 million 2.00 2.04
SALES CHARGES - CLASS A - GLOBAL FUND
THE SALES CHARGE WHICH EQUALS
MAKES UP THIS % OF THIS % OF YOUR
WHEN YOU INVEST THIS AMOUNT THE OFFERING PRICE NET 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
SALES CHARGES - CLASS A - SHORT-INTERMEDIATE FUND
THE SALES CHARGE WHICH EQUALS
MAKES UP THIS % OF THIS % OF YOUR
WHEN YOU INVEST THIS AMOUNT THE OFFERING PRICE NET 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
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 50), you can buy Class A shares without an initial sales
charge. However, there is a 1% contingent deferred sales charge (CDSC) on any
shares you sell within 12 months of purchase. The way we calculate the CDSC
is the same for each class (please see page 50).
DISTRIBUTION AND SERVICE (12B-1) FEES Class A has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the Convertible Fund and
Equity Fund to pay distribution fees of up to 0.25% per year, the Global Fund
to pay distribution fees of up to 0.15% per year, and the Short-Intermediate
Fund to pay distribution fees of up to 0.10% per year to those who sell and
distribute Class A shares and provide other services to shareholders. Because
these fees are paid out of Class A's assets on an on-going basis, over time
these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
SALES CHARGES - CLASS B - EQUITY FUND
IF YOU SELL YOUR SHARES WITHIN THIS % IS DEDUCTED FROM
THIS MANY YEARS AFTER BUYING THEM YOUR PROCEEDS AS A CDSC
1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0
With Class B shares, there is no initial sales charge. However, there is a
CDSC if you sell your shares within six years, as described in the table
above. The way we calculate the CDSC is the same for each class (please see
page 50). After 8 years, your Class B shares automatically convert to Class A
shares, lowering your annual expenses from that time on.
MAXIMUM PURCHASE AMOUNT The maximum amount you may invest in Class B shares
at one time is $249,999. We invest any investment of $250,000 or more in
Class A shares, since a reduced initial sales charge is available and Class
A's annual expenses are lower.
RETIREMENT PLANS Class B shares are not available to all retirement plans.
Class B shares are only available to IRAs (of any type), Franklin Templeton
Trust Company 403(b) plans, and Franklin Templeton Trust Company qualified
plans with participant or earmarked accounts.
DISTRIBUTION AND SERVICE (12B-1) FEES Class B has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the Equity Fund to pay
distribution and other fees of up to 1% per year for the sale of Class B
shares and for services provided to shareholders. Because these fees are paid
out of Class B's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
SALES CHARGES - CLASS C
THE SALES CHARGE WHICH EQUALS
MAKES UP THIS % OF THIS % OF YOUR
WHEN YOU INVEST THIS AMOUNT THE OFFERING PRICE NET INVESTMENT
Under $1 million 1.00 1.01
WE INVEST ANY INVESTMENT OF $1 MILLION OR MORE IN CLASS A SHARES, SINCE THERE
IS NO INITIAL SALES CHARGE AND CLASS A'S ANNUAL EXPENSES ARE LOWER.
CDSC There is a 1% contingent deferred sales charge (CDSC) on any Class C
shares you sell within 18 months of purchase. The way we calculate the CDSC
is the same for each class (please page 50).
DISTRIBUTION AND SERVICE (12B-1) FEES Class C has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the Convertible Fund and
the Equity Fund to pay distribution and other fees of up to 1% and the Global
Fund to pay distribution and other fees of up to 0.65% per year for the sale
of Class C shares and for services provided to shareholders. Because these
fees are paid out of Class C's assets on an on-going basis, over time these
fees will increase the cost of your investment and may cost you more than
paying other types of sales charges.
CONTINGENT DEFERRED SALES CHARGE (CDSC) - CLASS A, B & C
The CDSC for each class is based on the current value of the shares being
sold or their net asset value when purchased, whichever is less. There is no
CDSC on shares you acquire by reinvesting your dividends.
[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 57 for exchange information).
SALES CHARGE REDUCTIONS AND WAIVERS
If you qualify for any of the sales charge reductions or waivers below,
please let us know at the time you make your investment to help ensure you
receive the lower sales charge.
QUANTITY DISCOUNTS We offer several ways for you to combine your purchases in
the Franklin Templeton Funds to take advantage of the lower sales charges for
large purchases of Class A shares.
[Begin callout]
The Franklin Templeton Funds include all of the Franklin Templeton U.S.
registered mutual funds, except Franklin Valuemark Funds, 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
may also 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 may also be included.
o LETTER OF INTENT (LOI) - expresses your intent to buy a stated dollar
amount of shares over a 13-month period and lets you receive the same
sales charge as if all shares had been purchased at one time. We will
reserve a portion of your shares to cover any additional sales charge that
may apply if you do not buy the amount stated in your LOI.
TO SIGN UP FOR THESE PROGRAMS, COMPLETE THE APPROPRIATE SECTION
OF YOUR ACCOUNT APPLICATION.
REINSTATEMENT PRIVILEGE If you sell shares of a Franklin Templeton Fund, you
may reinvest some or all of the proceeds within 365 days without an initial
sales charge. The proceeds must be reinvested within the same share class,
except proceeds from the sale of Class B shares will be reinvested in Class A
shares.
If you paid a CDSC when you sold your Class A or C shares, we will credit
your account with the amount of the CDSC paid but a new CDSC will apply. For
Class B shares reinvested in Class A, a new CDSC will not apply, although
your account will not be credited with the amount of any CDSC paid when you
sold your Class B shares.
Proceeds immediately placed in a Franklin Bank Certificate of Deposit (CD)
also may be reinvested without an initial sales charge if you reinvest them
within 365 days from the date the CD matures, including any rollover.
This privilege does not apply to shares you buy and sell under our exchange
program. Shares purchased with the proceeds from a money fund may be subject
to a sales charge.
WAIVERS FOR INVESTMENTS FROM CERTAIN PAYMENTS Class A shares 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 Class A shares 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 A 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 for each class 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 of Class A shares 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) (not applicable to
Class B)
o for IRA distributions due to death or disability or upon periodic
distributions based on life expectancy (for Class B, this applies to all
retirement plan accounts, not only IRAs)
o 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 (not applicable to Class B)
RETIREMENT PLANS Certain retirement plans may buy Class A shares 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 Class A 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 IRAS $250 $50
- -------------------------------------------------------------------------
BROKER-DEALER SPONSORED WRAP ACCOUNT PROGRAMS $250 $50
- -------------------------------------------------------------------------
FULL-TIME EMPLOYEES, OFFICERS, TRUSTEES AND DIRECTORS OF $100 $50
- -------------------------------------------------------------------------
FRANKLIN TEMPLETON ENTITIES, AND THEIR IMMEDIATE FAMILY MEMBERS
- -------------------------------------------------------------------------
ACCOUNT APPLICATION If you are opening a new account, please complete and
sign the enclosed account application. Make sure you indicate the share class
you have chosen. If you do not indicate a class, we will invest your purchase
in Class A shares. To save time, you can sign up now for services you may
want on your account by completing the appropriate sections of the
application (see the next page).
BUYING SHARES
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
[Insert graphic of Contact your investment Contact your investment
hands shaking] THROUGH representative representative
YOUR INVESTMENT
REPRESENTATIVE
- --------------------------------------------------------------------------------
[Insert graphic of Make your check payable to Make your check payable
envelope] BY MAIL the fund in which you are to the fund in which you
investing. are investing. Include
your account number on
Mail the check and your the check.
signed application to
Investor Services. Fill out the deposit
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 wire
three lightning bolts] control number and wire control number and wire
BY WIRE instructions. instructions.
1-800/632-2301
(or 1-650/312-2000 Wire the funds and mail your To make a same day wire
collect) signed application to investment, please call
Investor Services. Please us by 1:00 p.m. pacific
include the wire control time and make sure your
number or your new account wire arrives by 3:00 p.m.
number on the application.
To make a same day wire
investment, please call us
by 1:00 p.m. pacific time
and make sure your wire
arrives by 3:00 p.m.
- --------------------------------------------------------------------------------
[Insert graphic of two Call Shareholder Services at Call Shareholder
arrows pointing in the number below, or send Services at the number
opposite directions] signed written instructions. below or our automated
BY EXCHANGE The TeleFACTS system cannot TeleFACTS system, or
TeleFACTS(R) be used to open a new send signed written
1-800/247-1753 account. instructions.
(around-the-clock
access) (Please see page 57 for (Please see page 57 for
information on exchanges.) information on
exchanges.)
- --------------------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES 777 MARINERS ISLAND BLVD., P.O. BOX
7777, SAN MATEO, CA 94403-7777
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 Class
A shares of the 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 the
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.
*Class B and C shareholders may reinvest their distributions in Class A
shares of any Franklin Templeton money fund.
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.
*Certain Class Z shareholders of Franklin Mutual Series Fund Inc. may
exchange into Class A without any sales charge. Advisor Class shareholders of
another Franklin Templeton Fund also may exchange into Class A shares of the
Convertible Fund or the Equity Fund without any sales charge. Advisor Class
shareholders who exchange their shares for Convertible Fund or Equity Fund
Class A shares and later decide they would like to exchange into another fund
that offers Advisor Class may do so.
[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.
If you exchange your Class B shares for the same class of shares of another
Franklin Templeton Fund, the time your shares are held in that fund will
count towards the eight year period for automatic conversion to Class A
shares.
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 62).
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 Requests to sell $100,000 or less can generally 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 may also 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
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TO SELL SOME OR ALL OF YOUR SHARES
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[Insert graphic of hands Contact your investment representative
shaking]
Through your investment
representative
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[Insert graphic of envelope] Send written instructions and endorsed share
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. If you own both Class A and B shares of
the Equity Fund, also specify the class of
shares, otherwise we will sell your Class A
shares first. Be sure to include all necessary
signatures and any additional documents, as
well as signature guarantees if required.
A check will be mailed to the name(s) and
address on the account, or otherwise according
to your written instructions.
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[Insert graphic of phone] As long as your transaction is for $100,000 or
BY PHONE less, you do not hold share certificates and
1-800/632-2301 you have not changed your address by phone
within the last 15 days, you can sell your
shares by phone.
A check will be mailed to the name(s) and
address on the account. Written instructions,
with a signature guarantee, are required to
send the check to another address or to make it
payable to another person.
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[Insert graphic of three You can call or write to have redemption
lightning bolts] proceeds of $1,000 or more wired to a bank or
BY WIRE escrow account. See the policies above for
selling shares by mail or phone.
Before requesting a 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.
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[Insert graphic of two arrows Obtain a current prospectus for the fund you
pointing in opposite are considering.
directions]
BY EXCHANGE Call Shareholder Services at the number below
TeleFACTS(R) or our automated TeleFACTS system, or send
1-800/247-1753 signed written instructions. See the policies
(around-the-clock access) above for selling shares by mail or phone.
If you hold share certificates, you will need
to return them to the fund before your exchange
can be processed.
FRANKLIN TEMPLETON INVESTOR SERVICES 777 MARINERS ISLAND BLVD., P.O. BOX 7777,
SAN MATEO, CA 94403-7777
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of paper and pen] ACCOUNT POLICIES
CALCULATING SHARE PRICE The fund calculates the net asset value per share
(NAV) each business day at the close of trading on the New York Stock
Exchange (normally 1:00 p.m. pacific time). Each class's NAV is calculated by
dividing its net assets by the number of its shares outstanding.
[Begin callout]
When you buy shares, you pay the offering price. The offering price is the
NAV plus any applicable sales charge.
When you sell shares, you receive the NAV minus any applicable contingent
deferred sales charge (CDSC).
[End callout]
The fund's assets are generally valued at their market value. If market
prices are unavailable, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued at their fair
value. If the fund holds securities listed primarily on a foreign exchange
that trades on days when the fund is not open for business, the value of your
shares may change on days that you cannot buy or sell shares.
Requests to buy and sell shares are processed at the NAV next calculated
after we receive your request in proper form.
ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250 ($50
for employee and UGMA/UTMA accounts) because you sell some of your shares, we
may mail you a notice asking you to bring the account back up to its
applicable minimum investment amount. If you choose not to do so within 30
days, we may close your account and mail the proceeds to the address of
record. You will not be charged a CDSC if your account is closed for this
reason.
STATEMENTS AND REPORTS You will receive confirmations and account statements
that show your account transactions. You will also 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 will also 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. 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.
CONVERTIBLE FUND (CLASS A AND CLASS C ONLY) AND EQUITY FUND
CLASS A CLASS B CLASS C
Commission (%) - 4.00 2.00
Investment under $50,000 5.00 - -
$50,000 but under $100,000 3.75 - -
$100,000 but under $250,000 2.80 - -
$250,000 but under $500,000 2.00 - -
$500,000 but under $1 million 1.60 - -
$1 million or more up to 1.00 1 - -
12B-1 FEE TO DEALER 0.25 0.25 2 1.00 3
GLOBAL FUND
CLASS A CLASS C
Commission (%) - 2.00
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 0.15 0.65 3
SHORT-INTERMEDIATE FUND
CLASS A
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 0.10
A dealer commission of up to 1% may be paid on Class A NAV purchases by
certain retirement plans1 and up to 0.25% on Class A NAV purchases by certain
trust companies and bank trust departments, eligible governmental
authorities, and broker-dealers or others on behalf of clients participating
in comprehensive fee programs.
1. During the first year after purchase, dealers may not be eligible to
receive the 12b-1 fee.
2. Dealers may be eligible to receive up to 0.25% from the date of purchase.
After 8 years, Class B shares convert to Class A shares and dealers may then
receive the 12b-1 fee applicable to Class A.
3. Dealers may be eligible to receive up to 0.25% for the Convertible Fund
and the Equity Fund and 0.15% for the Global Fund during the first year after
purchase and may be eligible to receive the full 12b-1 fee starting in the
13th month.
[Insert graphic of question mark] QUESTIONS
If you have any questions about the fund or your account, you can write to us
at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, CA 94403-7777. You
can also call us at one of the following numbers. For your protection and to
help ensure we provide you with quality service, all calls may be monitored
or recorded.
HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
Shareholder Services 1-800/ 632-2301 5:30 a.m. to 5:00 p.m.
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.franklin-templeton.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, DC 20549-6009. You can also visit the SEC's Internet site at
http://www.sec.gov.
FRANKLIN
INVESTORS
SECURITIES TRUST
ADVISOR CLASS
INVESTMENT STRATEGY
GLOBAL INCOME Franklin Global Government Income Fund
INCOME Franklin Short-Intermediate
U.S. Government Securities Fund
MARCH 1, 1999
LIKE ALL MUTUAL FUND SHARES, THE SEC HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
CONTENTS
THE FUND
[BEGIN CALLOUT]
INFORMATION ABOUT EACH FUND YOU SHOULD KNOW BEFORE INVESTING
[End callout]
2 Franklin Global Government
Income Fund
12 Franklin Short-Intermediate
U.S. Government Securities Fund
20 Distribution and tax information
for each fund; Year 2000 problem
YOUR ACCOUNT
[BEGIN CALLOUT]
INFORMATION ABOUT QUALIFIED INVESTORS, ACCOUNT TRANSACTIONS AND SERVICES
[End callout]
23 Qualified Investors
25 Buying Shares
26 Investor Services
29 Selling Shares
31 Account Policies
33 Questions
FOR MORE INFORMATION
[BEGIN CALLOUT]
WHERE TO LEARN MORE ABOUT EACH FUND
[End callout]
Back Cover
FRANKLIN GLOBAL GOVERNMENT
INCOME FUND
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is to provide high current income,
consistent with preservation of capital, with capital appreciation as a
secondary consideration.
PRINCIPAL INVESTMENTS The fund normally invests at least 65% of its total
assets in government securities of at least 3 different countries, one of
which may be the United States. Government securities include securities
issued or guaranteed by domestic and foreign governments and their political
subdivisions. The fund normally invests at least 65% of its total assets in
fixed-income securities, such as bonds, notes, and debentures.
The remaining 35% may be invested in equity securities, foreign or domestic
currency deposits or equivalents such as short-term U.S. Treasury notes or
repurchase agreements.
[Begin callout]
The fund invests primarily in U.S. and foreign government debt obligations.
[End callout]
The fund normally invests its assets principally within Australia, Canada,
Japan, New Zealand, the U.S., and Western Europe. The fund also invests in
debt securities of supranational entities, and in semi-governmental
securities, which are securities that are not backed by the full faith and
credit and general taxing powers of the government, or that have only its
implied backing. The fund may invest up to 30% of its net assets in
securities of less developed and developing countries.
As a global fund, the fund may buy securities denominated in any currency, or
in multinational currency units such as the European Currency Unit (ECU), and
the fund may hold foreign currency. The fund also uses forward currency
exchange contracts to seek to protect or enhance income or to protect the
fund from adverse changes in the relationship between currencies. A forward
currency exchange contract is an obligation to buy or sell a specific
currency for an agreed price at a future date that is individually negotiated
and privately traded by currency traders and their customers.
The fund may invest up to 35% of total assets in debt securities that are
below investment grade. Investment grade securities are rated in one of the
top four ratings categories by independent rating organizations such as
Standard & Poor's Corporation (S&P) and Moody's Investors Service, Inc.
(Moody's). The fund generally invests in securities rated at least B by
Moody's or S&P or unrated securities the fund's manager determines are
comparable. Generally, lower rated securities pay higher yields than more
highly rated securities to compensate investors for the higher risk.
TEMPORARY INVESTMENTS The manager may take a temporary defensive position
when the securities trading markets or the economies of countries where the
fund invests 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 may not invest
or may invest substantially less in U.S. and foreign government securities.
[INSERT GRAPHIC OF CHART WITH LINE GOING UP AND DOWN] MAIN RISKS
LIQUIDITY The fund may have difficulty disposing of some securities because
there may be a thin trading market for a particular security at any given
time. Reduced liquidity may have an adverse impact on market price and the
fund's ability to dispose of particular securities when necessary to meet the
fund's liquidity needs or in response to a specific economic event, such as a
deterioration in the creditworthiness of an issuer. Reduced liquidity in the
secondary market for certain securities may also make it more difficult for
the fund to obtain market quotations based on actual trades for purposes of
valuing the fund's portfolio.
INTEREST RATE When interest rates rise, fixed-income securities prices fall.
The opposite is also true: fixed-income securities prices rise when interest
rates fall. 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.
[Begin callout]
Changes in global 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 and fund performance. This means
you could lose money.
[End callout]
INCOME Since the fund can only distribute what it earns, the fund's
distributions to its shareholders may decline when interest rates fall.
CREDIT There is the possibility that an issuer will 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 and fund performance.
Securities rated below investment grade, sometimes called "junk bonds,"
generally have more risk than higher-rated securities. The principal risks of
investing in these securities include:
o SUBSTANTIAL CREDIT RISK. Issuers of high yield debt securities are not as
strong financially as those with higher credit ratings. These issuers 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.
o DEFAULTED DEBT RISK. If an issuer is not paying or stops paying interest
and/or principal on its securities, payments on the securities may never
resume. These securities may be worthless and the fund could lose its
entire investment.
o VOLATILITY RISK. The prices of high yield debt securities fluctuate more
than higher-quality securities. Prices are especially sensitive to changes
in the ratings assigned by ratings organizations. In addition, the entire
high yield securities market can experience sudden and sharp price swings
due to changes in economic conditions, stock market activity, large
sustained sales by major investors, a high-profile default, or other
factors. High yield securities are also generally less liquid than
higher-quality bonds. Many of these securities do not trade frequently,
and when they do trade their prices may be significantly higher or lower
than expected. At times, it may be difficult to sell these securities
promptly at an acceptable price, which may limit the fund's ability to
sell securities in response to specific economic events or to meet
redemption requests.
FOREIGN SECURITIES Securities of issuers 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 that trade in that country. These movements will affect the fund's share
price and fund performance.
The political, economic and social structures of some countries the fund
invests in may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of the
imposition of exchange controls, currency devalutions, foreign ownership
limitations, expropriation, restrictions on removal of currency or other
assets, nationalization of assets, punitive taxes and certain custody and
settlement risks.
The fund's investments in developing or emerging markets are subject to all
of the risks of foreign investing generally, and have additional heightened
risks due to a lack of legal, business and social frameworks to support
securities markets. Foreign securities markets, including emerging markets,
may have substantially lower trading volumes than U.S. markets, resulting in
less liquidity and more volatility than experienced in the U.S. Short-term
volatility in these markets can be disconcerting, and declines of 40% to 50%
are not unusual.
CURRENCY. Many of the fund's investments are 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 a currency by a country's government or banking authority also
will have a significant impact on the value of any securities denominated in
that currency. Currency markets generally are 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.
DIVERSIFICATION The fund is non-diversified under federal securities laws.
It may invest a greater portion of its assets in the securities of one
issuer, and therefore in a smaller number of individual issuers, than
diversified funds. Therefore, it may be more sensitive to economic, business,
political or other changes affecting similar issuers or securities. The fund
intends, however, to meet certain tax diversification requirements.
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. 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 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 will also 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 21 for more information.
More detailed information about the fund, its policies and risks can be found
in the fund's Statement of Additional Information (SAI).
[Begin callout]
Mutual fund shares are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not 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 BULL AND BEAR] PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns from year to year over the past 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.
[Insert bar graph]
89 90 91 92 93 94 95 96 97 98
5.60% 7.59% 14.23% -0.25% 18.63% -7.76% 18.07% 10.76% 3.03% 5.83%
ADVISOR CLASS ANNUAL TOTAL RETURNS1
[Begin callout]
Best
Quarter:
Q1 '93
7.13%
Worst
Quarter:
Q1 '94
- -5.24%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
1 YEAR 5 YEARS 10 YEARS
- ----------------------------------------------------------------------
Franklin Global Government
Income Fund - Advisor Class1 5.83% 5.63% 7.29%
JP Morgan Global Government Bond
Total Return Index2 15.31% 8.09% 9.09%
1. Performance figures reflect a "blended" figure combining the following
methods of calculation: (a) For periods before January 1, 1997, a restated
figure is used based on the fund's Class A performance, excluding the effect
of Class A's maximum initial sales charge and including the effect of the
Class A distribution and service (12b-1) fees; and (b) for periods after
January 1, 1997, an actual Advisor Class figure is used reflecting a
deduction of all applicable charges and fees for that class. This blended
figure assumes reinvestment of dividends and capital gains.
2. Source: Standard & Poor's(R) Micropal. The unmanaged JP Morgan Global
Government Bond Total Return Index includes only actively traded fixed-rate
bonds with a remaining maturity of one year or longer. It includes reinvested
dividends. One cannot invest directly in an index, nor is an index
representative of the fund's portfolio.
[INSERT GRAPHIC OF PERCENTAGE SIGN] FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
ADVISOR CLASS
Maximum sales charge (load) imposed on purchases None
Exchange fee 1 $5.00
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
ADVISOR CLASS
Management fees 0.60%
Distribution and service (12b-1) fees None
Other expenses 0.25%
Total annual fund operating expenses 0.85%
1. This fee is only for market timers (see page 32).
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
- ----------------------------------------------------------------------------
$87 $271 $471 $1,049
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the fund's investment manager. Together, Advisers and its
affiliates manage over $220 billion in assets.
Under an agreement with Advisers, Templeton Investment Counsel, Inc.
(Investment Counsel), 500 East Broward Blvd., Ft. Lauderdale, FL 33394,
through its Templeton Global Bond Managers division (Global Bond Managers),
is the fund's sub-advisor. A team from Global Bond Managers provides Advisers
with investment management advice and assistance and is responsible for the
day-to-day management of the fund.
The team responsible for the fund's management is:
THOMAS J. DICKSON, VICE PRESIDENT OF GLOBAL BOND MANAGERS
Mr. Dickson has been a manager of the fund since 1993. He joined the Franklin
Templeton Group in 1992.
DR. UMRAN DEMIRORS, EXECUTIVE VICE PRESIDENT and
chief investment officer OF GLOBAL BOND MANAGERS
Dr. Demirors has been a manager of the fund since January 1999. He joined the
Franklin Templeton Group in 1996. Previously, he was a principal and
portfolio manager for Socimer Advisory Inc. and the head of research and
strategy at Vestcor Partners Group.
ALEXANDER C. CALVO, VICE PRESIDENT OF GLOBAL BOND MANAGERS
Mr. Calvo has been a manager of the fund since January 1999. He joined the
Franklin Templeton Group in 1995. Previously, he was an account executive
with Fleishman-Hillard, where he served as a consultant to firms investing in
Latin America.
The fund pays the manager a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended October 31, 1998, the fund
paid 0.60% of its average monthly net assets to the manager.
[INSERT GRAPHIC OF DOLLAR BILL] FINANCIAL HIGHLIGHTS
This table presents the financial performance for Advisor Class since its
inception. This information has been audited by PricewaterhouseCoopers LLP.
ADVISOR CLASS YEAR ENDED OCTOBER 31,
1998 1 1997 2
PER SHARE DATA ($)
Net asset value, beginning of year 8.41 8.71
----------------------
Net investment income .63 .49
Net realized and unrealized gains (losses) (.16) (.28)
----------------------
Total from investment operations .47 .21
----------------------
Less distributions from net investment income (.58) (.49)
Less distributions in excess
of net investment income (.04) (.02)
----------------------
Total distributions (.62) (.51)
----------------------
Net asset value, end of year 8.26 8.41
======================
Total return (%)3 5.81 2.49
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 829 741
Ratios to average net assets: (%)
Expenses .85 .82 4
Net investment income 7.62 7.08 4
Portfolio turnover rate (%) 49.93 193.30
1. Based on average weighted shares outstanding.
2. For the period January 2, 1997 (effective date) to October 31, 1997.
3. Total return is not annualized.
4. Annualized.
FRANKLIN SHORT-INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is to provide as high a level of current
income as is consistent with prudent investing while seeking preservation of
shareholder's capital.
PRINCIPAL INVESTMENTS The fund normally invests in U.S. government
securities, which include obligations either issued or guaranteed by the U.S.
government and its agencies or instrumentalities. In addition to direct
obligations of the U.S. Treasury (and repurchase obligations collateralized
by U.S. Treasury obligations), the fund invests in U.S. government agency
securities, including mortgage-backed securities. The fund may invest in
callable agency securities, which give the issuer (the U.S. government
agency) the right to redeem the security prior to maturity.
[Begin callout]
The fund invests in U.S. government obligations.
[End callout]
The fund may invest in mortgage-backed securities representing interests in
"pools" of mortgage loans issued by U.S. government agencies. 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 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.
The fund normally maintains the average dollar-weighted maturity of its
portfolio in a range of two to five years. Within this range, the fund
emphasizes an average dollar-weighted maturity of 31/2 years or less. In
determining a security's maturity for purposes of calculating the fund's
average maturity, an estimate of the average time for its principal to be
paid may be used. This can be substantially shorter than its stated final
maturity.
The fund may invest in zero-coupon bonds issued or guaranteed by the U.S.
government. Zero-coupon bonds are debt obligations that are issued at a
significant discount from face value. A zero coupon security pays no interest
to its holder during its life, and its value (above its cost to the fund)
consists of the difference between its face value at maturity and its cost.
The fund will only purchase securities and engage in trading practices that
are permitted, without limitation, to national banks, federal savings and
loan associations, and federal credit unions.
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
goal.
[INSERT GRAPHIC OF CHART WITH LINE GOING UP AND DOWN] MAIN RISKS
INTEREST RATE When interest rates rise, debt securities prices fall. The
opposite is also true: debt securities prices go up when interest rates fall.
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. Zero coupon bonds are also more
sensitive to interest rate changes than debt obligations that provide for
regular payments of interest.
INCOME Since the fund can only distribute what it earns, the fund's
distributions to its shareholders may decline when interest rates fall.
Because the fund only invests in U.S. government securities and repurchase
agreements, the level of income the fund may achieve may not be as high as
that of other funds that invest in lower-quality, longer-term securities.
CREDIT This is the possibility that an issuer will be unable to make
interest payments or repay principal. Changes in an issuer's financial
strength or in a security's credit rating may affect its value and thus
impact the value of fund shares and fund performance.
PREPAYMENT 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 prior to
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 with falling interest rates and decrease with rising
interest rates.
REINVESTMENT During periods of declining interest rates, mortgage
prepayments generally increase, and issuers of callable securities typically
exercise call options. When this happens, the fund may be forced to reinvest
assets at lower interest rates.
EXTENSION RISK During periods of rising interest rates, mortgage prepayments
generally occur at a slower than expected rate, and issuers of callable
securities may be less likely to exercise call options. As a result, rising
interest rates can effectively extend the maturity of mortgage-backed and
callable agency securities and thus the fund's average maturity. Securities
with longer maturities generally fluctuate more widely in response to changes
in interest rates than short- or intermediate-term securities.
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 will also 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 21 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).
[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 BULL AND BEAR] PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns from year to year over the past 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.
ADVISOR CLASS ANNUAL TOTAL RETURNS1
[Insert bar graph]
89 90 91 92 93 94 95 96 97 98
9.64% 9.65% 12.06% 6.64% 7.75% -2.15% 11.09% 3.99% 6.24% 6.44%
[Begin callout]
Best
Quarter:
Q3 '92
4.97%
Worst
Quarter:
Q1 '94
- -1.86%
[End callout]
1 YEAR 5 YEARS 10 YEARS
- ----------------------------------------------------------------------
Franklin Global Government
Income Fund - Advisor Class1 5.83% 5.63% 7.29%
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
1 YEAR 5 YEARS 10 YEARS
- ----------------------------------------------------------------------
Franklin Short-Intermediate
U.S. Government Securities
Fund - Advisor Class1 6.44% 5.04% 7.07%
Lehman Brothers Short U.S.
Treasury 1-5 Year Index2 7.75% 6.17% 7.86%
1. Performance figures reflect a "blended" figure combining the following
methods of calculation: (a) For periods before January 1, 1997, a restated
figure is used based on the fund's Class A performance, excluding the effect
of Class A's maximum initial sales charge and including the effect of the
Class A distribution and service (12b-1) fees; and (b) for periods after
January 1, 1997, an actual Advisor Class figure is used reflecting a
deduction of all applicable charges and fees for that class. This blended
figure assumes reinvestment of dividends and capital gains.
2. The unmanaged Lehman Brothers Short U.S. Treasury 1-5 Year Index includes
U.S. government securities and treasuries with maturities from one to five
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
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
ADVISOR CLASS
Maximum sales charge (load) imposed on purchases None
Exchange fee 1 $5.00
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
ADVISOR CLASS
Management fees 0.56%
Distribution and service (12b-1) fees None
Other expenses 0.13%
Total annual fund operating expenses 0.69%
1. This fee is only for market timers (see page 32).
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
- ----------------------------------------------------------------------------
$70 $221 $384 $859
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the fund's investment manager. Together, Advisers and its
affiliates manage over $220 billion in assets.
The team responsible for the fund's management is:
JACK LEMEIN, EXECUTIVE VICE PRESIDENT OF ADVISERS
Mr. Lemein has been a manager of the fund since 1987 and has more than 30
years' experience in the securities industry.
DAVE CAPURRO, SENIOR VICE PRESIDENT OF ADVISERS
Mr. Capurro has been a manager of the fund since 1987. He joined the Franklin
Templeton Group in 1983.
TOM RUNKEL, SENIOR VICE PRESIDENT OF ADVISERS
Mr. Runkel has been a manager of the fund since 1987. He joined the Franklin
Templeton Group in 1985.
The fund pays the manager a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended October 31, 1998, the fund
paid 0.56% of its average monthly net assets to the manager.
[INSERT GRAPHIC OF DOLLAR BILL] FINANCIAL HIGHLIGHTS
This table presents the financial performance for Advisor Class since its
inception. This information has been audited by PricewaterhouseCoopers LLP.
ADVISOR CLASS YEAR ENDED OCTOBER 31,
1998 1997 1
- --------------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of year 10.30 10.24
----------------------
Net investment income .57 .47
Net realized and unrealized gains .16 .07
----------------------
Total from investment operations .73 .54
----------------------
Less distributions from net investment income (.58) (.48)
----------------------
Net asset value, end of year 10.45 10.30
======================
Total return (%)2 7.38 5.45
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 3,644 385
Ratios to average net assets: (%)
Expenses .69 .70 3
Net investment income 5.28 5.35 3
Portfolio turnover rate (%) 37.70 40.56
1. For the period January 2, 1997 (effective date) to October 31, 1997.
2. Total return is not annualized.
3. Annualized.
[INSERT GRAPHIC OF DOLLAR SIGNS AND STACKS OF COINS] DISTRIBUTIONS AND TAXES;
YEAR 2000 PROBLEM
INCOME AND CAPITAL GAINS DISTRIBUTIONS The Franklin Global Government Income
Fund intends to pay a dividend at least monthly representing its net
investment income. Capital gains, if any, may be distributed annually. The
amount of these distributions will vary and there is no guarantee the fund
will pay dividends.
To receive a distribution, you must be a shareholder on the record date. The
record dates for the fund's distributions will vary. Please keep in mind that
if you invest in the fund shortly before the record date of a distribution,
any distribution will lower the value of the fund's shares by the amount of
the distribution and you will receive some of your investment back in the
form of a taxable distribution. If you would like information on upcoming
record dates for the fund's distributions, please call 1-800/DIAL BEN(R).
The Franklin Short-Intermediate U.S. Government Securities Fund declares
dividends daily from its net investment income and pays 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 fund will pay dividends.
Please keep in mind that if you invest in the 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 shares of the fund or receive them in cash.
Any capital gains the fund distributes are taxable to you as long-term
capital gains no matter how long you have owned your shares.
[Begin callout]
BACKUP WITHHOLDING
By law, the fund must withhold 31% of your taxable distributions and proceeds
if you do not provide your correct taxpayer identification number (TIN) or
certify that your TIN is correct, 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 shares will
generally 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 The 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, the 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, the
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. The Franklin Global Government Income 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.
The 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, the 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 pencil marking an X] QUALIFIED INVESTORS
The following investors may qualify to buy Advisor Class shares of the fund.
o Qualified registered investment advisors or certified financial planners
with clients invested in any series of Franklin Mutual Series Fund Inc. on
October 31, 1996, or who buy through a broker-dealer or service agent who
has an agreement with Franklin Templeton Distributors, Inc.
(Distributors). Minimum investments: $1,000 initial and $50 additional.
o Broker-dealers, registered investment advisors or certified financial
planners who have an agreement with Distributors for clients participating
in comprehensive fee programs. Minimum investments: $250,000 initial
($100,000 initial for an individual client) and $50 additional.
o Officers, trustees, directors and full-time employees of Franklin
Templeton and their immediate family members. Minimum investments: $100
initial ($50 for accounts with an automatic investment plan) and $50
additional.
o Each series of the Franklin Templeton Fund Allocator Series. Minimum
investments: $1,000 initial and $1,000 additional.
[Begin callout]
The FRANKLIN TEMPLETON FUNDS include all of the Franklin Templeton U.S.
registered mutual funds, except Franklin Valuemark Funds, Templeton Capital
Accumulator Fund, Inc., and Templeton Variable Products Series Fund.
[End callout]
o Governments, municipalities, and tax-exempt entities that meet the
requirements for qualification under section 501 of the Internal Revenue
Code. Minimum investments: $1 million initial investment in Advisor Class
or Class Z shares of any of the Franklin Templeton Funds and $50
additional.
o Accounts managed by the Franklin Templeton Group. Minimum investments: No
initial minimum and $50 additional.
o The Franklin Templeton Profit Sharing 401(k) Plan. Minimum investments:
No initial or additional minimums.
o Defined contribution plans such as employer stock, bonus, pension or
profit sharing plans that meet the requirements for qualification under
section 401 of the Internal Revenue Code, including salary reduction plans
qualified under section 401(k) of the Internal Revenue Code, and that are
sponsored by an employer (i) with at least 10,000 employees, or (ii) with
retirement plan assets of $100 million or more. Minimum investments: No
initial or additional minimums.
o Trust companies and bank trust departments initially investing in the
Franklin Templeton Funds at least $1 million of assets held in a
fiduciary, agency, advisory, custodial or similar capacity and over which
the trust companies and bank trust departments or other plan fiduciaries
or participants, in the case of certain retirement plans, have full or
shared investment discretion. Minimum investments: No initial or
additional minimums.
o Individual investors. Minimum investments: $5 million initial and $50
additional. You may combine all of your shares in the Franklin Templeton
Funds for purposes of determining whether you meet the $5 million minimum,
as long as $1 million is in Advisor Class or Class Z shares of any of the
Franklin Templeton Funds.
o Any other investor, including a private investment vehicle such as a
family trust or foundation, who is a member of an established group of 11
or more investors. Minimum investments: $5 million initial and $50
additional. For minimum investment purposes, the group's investments are
added together. The group may combine all of its shares in the Franklin
Templeton Funds for purposes of determining whether it meets the $5
million minimum, as long as $1 million is in Advisor Class or Class Z
shares of any of the Franklin Templeton Funds. There are certain other
requirements and the group must have a purpose other than buying fund
shares without a sales charge.
Please note that Advisor Class shares of the fund are no longer available to
retirement plans through Franklin Templeton's ValuSelect(R) program. Retirement
plans in the ValuSelect program before January 1, 1998, however, may continue
to invest in the fund's Advisor Class shares.
[INSERT GRAPHIC OF PAPER WITH LINES AND SOMEONE WRITING] BUYING SHARES
ACCOUNT APPLICATION If you are opening a new account, please complete and
sign the enclosed account application. To save time, you can sign up now for
services you may want on your account by completing the appropriate sections
of the application (see the next page).
BUYING SHARES
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- --------------------------------------------------------------------------------
[Insert graphic of Contact your investment Contact your investment
hands shaking] representative representative
THROUGH YOUR
INVESTMENT
REPRESENTATIVE
- --------------------------------------------------------------------------------
[Insert graphic of Make your check payable to Make your check payable to
envelope] the fund in which you are the fund in which you are
BY MAIL investing. investing. Include your
account number on the check.
Mail the check and your
signed application to Fill out the deposit slip
Investor Services. 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 wire
three lightning control number and wire control number and wire
bolts] instructions. instructions.
BY WIRE
1-800/632-2301 Wire the funds and mail your To make a same day wire
(or 1-650/312-2000 signed application to investment, please call us
collect) Investor Services. Please by 1:00 p.m. pacific time
include the wire control and make sure your wire
number or your new account arrives by 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 Services at Call Shareholder Services
two arrows pointing the number below, or send at the number below, or
in opposite signed written instructions. send signed written
directions] (Please see page 27 for instructions. (Please see
BY EXCHANGE information on exchanges.) page 27 for information on
exchanges.)
- --------------------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES 777 MARINERS ISLAND BLVD., P.O. BOX 7777,
SAN MATEO, CA 94403-7777
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. To sign up, complete the
appropriate section of your account application.
DISTRIBUTION OPTIONS You may reinvest distributions you receive from the
fund in an existing account in the same share class of the fund or in Advisor
Class or Class A shares of another Franklin Templeton Fund. To reinvest your
distributions in Advisor Class shares of another Franklin Templeton Fund, you
must qualify to buy that fund's Advisor Class shares. For distributions
reinvested in Class A shares of another Franklin Templeton Fund, initial
sales charges and contingent deferred sales charges (CDSCs) will not apply if
you reinvest your distributions within 365 days. You can also have your
distributions deposited in a bank account, or mailed by check. Deposits to a
bank account may be made by electronic funds transfer.
[Begin callout]
For Franklin Templeton 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 the
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. You also may exchange your Advisor Class shares
for Class A shares of a fund that does not currently offer an Advisor Class
(without any sales charge)* or for Class Z shares of Franklin Mutual Series
Fund Inc.
[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]
If you do not qualify to buy Advisor Class shares of Templeton Developing
Markets Trust, Templeton Foreign Fund or Templeton Growth Fund, you also may
exchange your shares for Class A shares of those funds (without any sales
charge)* or for shares of Templeton Institutional Funds, Inc.
Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee.
*If you exchange into Class A shares and you later decide you would like to
exchange into a fund that offers an Advisor Class, you may exchange your
Class A shares for Advisor Class shares if you otherwise qualify to buy the
fund's Advisor Class shares.
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 32).
SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. Certain terms and
minimums apply. To sign up, complete the appropriate section of your
application.
[INSERT GRAPHIC OF CERTIFICATE] SELLING SHARES
You can sell your shares at any time.
SELLING SHARES IN WRITING Requests to sell $100,000 or less can generally 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 may also 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 hands Contact your investment representative
shaking]
THROUGH YOUR INVESTMENT
REPRESENTATIVE
- --------------------------------------------------------------------------------
[Insert graphic of envelope] Send written instructions and endorsed share
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 phone] As long as your transaction is for $100,000 or
BY PHONE less, you do not hold share certificates and
1-800/632-2301 you have not changed your address by phone
within the last 15 days, you can sell your
shares by phone.
A check will be mailed to the name(s) and
address on the account. Written instructions,
with a signature guarantee, are required to
send the check to another address or to make it
payable to another person.
- --------------------------------------------------------------------------------
[Insert graphic of three You can call or write to have redemption
lightning bolts] proceeds of $1,000 or more wired to a bank or
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 two arrows Obtain a current prospectus for the fund you
pointing in opposite are considering.
directions]
BY EXCHANGE Call Shareholder Services at the number below,
or send signed written instructions. See the
policies above for selling shares by mail or
phone.
If you hold share certificates, you will need
to return them to the fund before your exchange
can be processed.
- --------------------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES 777 MARINERS ISLAND BLVD., P.O. BOX 7777,
SAN MATEO, CA 94403-7777
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[INSERT GRAPHIC OF PAPER AND PEN] ACCOUNT POLICIES
CALCULATING SHARE PRICE The fund calculates the net asset value per share
(NAV) each business day at the close of trading on the New York Stock
Exchange (normally 1:00 p.m. pacific time). The NAV for Advisor Class is
calculated by dividing its net assets by the number of its shares outstanding.
The fund's assets are generally valued at their market value. If market
prices are unavailable, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued at their fair
value. If the fund holds securities listed primarily on a foreign exchange
that trades on days when the fund is not open for business, the value of your
shares may change on days that you cannot buy or sell shares.
Requests to buy and sell shares are processed at the NAV next calculated
after we receive your request in proper form.
ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250
($50 for employee 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.
STATEMENTS AND REPORTS You will receive confirmations and account statements
that show your account transactions. You will also 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 will also 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. 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 Advisor Class shares may
receive up to 0.25% of the amount invested. This amount is paid by Franklin
Templeton Distributors, Inc. from its own resources.
[Insert graphic of question mark] QUESTIONS
If you have any questions about the fund or your account, you can write to us
at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, CA 94403-7777. You
can also call us at one of the following numbers. For your protection and to
help ensure we provide you with quality service, all calls may be monitored
or recorded.
HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
6:30 a.m. to 2:30 p.m. (Saturday)
Fund Information 1-800/DIAL BEN 5:30 a.m. to 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.franklin-templeton.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, DC 20549-6009. You can also visit the SEC's Internet site at
http://www.sec.gov.
