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SUPPLEMENT DATED OCTOBER 1, 1998
TO THE PROSPECTUS OF
FRANKLIN STRATEGIC INCOME FUND
dated September 1, 1998
The prospectus is amended as follows:
I. Distribution option 3 in the section "What Distributions Might I Receive From
the Fund? - Distribution Options" is replaced with the following:
3. Receive distributions in cash - You may receive dividends, or both dividend
and capital gain distributions in cash. If you have the money sent to another
person or to a checking or savings account, you may need a signature guarantee.
If you send the money to a checking or savings account, please see "Electronic
Fund Transfers" under "Services to Help You Manage Your Account."
II. The second sentence in the section "Services to Help You Manage Your Account
Automatic Investment Plan" is replaced with the following:
Under the plan, you can have money transferred automatically from your checking
or savings account to the fund each month to buy additional shares.
III. The second paragraph under "Services to Help You Manage Your Account
Systematic Withdrawal Plan" is replaced with the following:
If you would like to establish a systematic withdrawal plan, please complete the
systematic withdrawal plan section of the shareholder application included with
this prospectus and indicate how you would like to receive your payments. You
may choose to direct your payments to buy the same class of shares of another
Franklin Templeton Fund or have the money sent directly to you, to another
person, or to a checking or savings account. If you choose to have the money
sent to a checking or savings account, please see "Electronic Fund Transfers"
below. Once your plan is established, any distributions paid by the fund will be
automatically reinvested in your account.
IV. The section "Services to Help You Manage Your Account - Electronic Fund
Transfers - Class I Only" is replaced with the following:
Electronic Fund Transfers
You may choose to have dividend and capital gain distributions or payments under
a systematic withdrawal plan sent directly to a checking or savings account. If
the account is with a bank that is a member of the Automated Clearing House, the
payments may be made automatically by electronic funds transfer. If you choose
this option, please allow at least fifteen days for initial processing. We will
send any payments made during that time to the address of record on your
account.
V. The following definition is revised in the "Useful Terms and Definitions"
section:
Contingency Period - For Class I shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. For Class II shares, the contingency
period is 18 months. The holding period begins on the day you buy your shares.
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.
VI. The following paragraphs are added to the end of the section "What Are the
Risks of Investing in the Fund?":
Euro. On January 1, 1999, the European Monetary Union (EMU) plans to introduce 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.
The process to establish the Euro may result in market volatility. It is not
possible to predict the impact of the Euro on the business or financial
condition of European issuers or on the fund. The transition and the elimination
of currency risk among EMU countries may change the economic environment and
behavior of investors, particularly in European markets. 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.
Resources has created an interdepartmental team to handle all Euro-related
changes to enable the Franklin Templeton Funds to process transactions
accurately and completely with minimal disruption to business activities. While
there can be no assurance that the fund will not be adversely affected, Advisers
and its affiliated service providers are taking steps that they believe are
reasonably designed to address the Euro issue.
VII. The second paragraph under "What Are the Risks of Investing in the Fund?
Credit Risk" is replaced in its entirety with the following:
Securities rated below investment grade, sometimes called "junk bonds,"
generally have more credit risk than higher-rated securities, and an investment
in the fund will have greater price swings than an investment in a fund
emphasizing higher-rated debt securities. The principal risks of investing in
high yield debt securities include:
Substantial credit risk. High yield debt securities carry a high degree
of credit risk. Companies issuing high yield debt securities are not as
strong financially as those with higher credit ratings, and their ability
to make interest payments or repay principal is less certain. These
companies are more likely to encounter financial difficulties and to be
materially affected by them. They are also 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
in a timely manner.
Defaulted debt securities risk. In some cases, the fund may own
securities where the issuer is not paying or stops paying interest and/or
principal on the securities. Payments on these securities may never
resume. These securities may be worthless, and the fund could lose its
entire investment, which may lower the fund's Net Asset Value. Defaulted
securities tend to lose much of their value before they default, in which
case the fund's Net Asset Value will be adversely affected before the
issuer stops making interest or principal payments.
Volatility risk. The market prices of high yield debt securities
fluctuate more than higher-quality securities and may decline
significantly in periods of general or regional economic difficulty.
Prices are especially sensitive to developments affecting the company's
business and business prospects and to changes in the ratings assigned by
ratings organizations such as S&P and Moody's. Prices are often closely
linked with the company's stock prices and typically will rise and fall in
response to business developments, general stock market activity or other
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. Price
swings in the high yield securities market can adversely affect the prices
of all high yield securities.
Reduced liquidity risk. The high yield securities market is generally
less liquid than the market for higher-quality bonds, and large purchases
or sales of these securities can cause sudden and substantial changes in
their market prices. Many of these securities do not trade frequently, and
when they do trade their prices may be significantly higher or lower than
expected. In less liquid markets such as this, it is generally more
difficult to sell 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.
The fund relies on Advisers' judgment, analysis and experience in evaluating the
credit and other risks of investing in high yield securities and the high yield
market as a whole. In order for the fund to achieve its investment goal,
Advisers must correctly predict general economic and market trends and evaluate
particular issuers' financial resources, sensitivity to economic conditions and
trends, operating history and quality of management, as well as regulatory and
other matters.
Please keep this supplement for future reference.
