-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E6xdSgOL4ve6mnQhQYWNBiwwCx/IliHaBdtArIOak94txnH1Wa1ccsmf0RNLWbtK +H9yRFg2FipHNJQhlnX6Dw== 0000809707-08-000019.txt : 20080516 0000809707-08-000019.hdr.sgml : 20080516 20080516143633 ACCESSION NUMBER: 0000809707-08-000019 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20080516 DATE AS OF CHANGE: 20080516 EFFECTIVENESS DATE: 20080516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN INVESTORS SECURITIES TRUST CENTRAL INDEX KEY: 0000809707 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 033-11444 FILM NUMBER: 08841765 BUSINESS ADDRESS: STREET 1: ONE FRANKLIN PARKWAY CITY: SAN MATEO STATE: CA ZIP: 94403-1906 BUSINESS PHONE: 650-312-2200 MAIL ADDRESS: STREET 1: ONE FRANKLIN PARKWAY CITY: SAN MATEO STATE: CA ZIP: 94403-1906 0000809707 S000006850 FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND C000018509 CLASS A FISAX C000018510 CLASS C FCSCX C000064441 Advisor 0000809707 S000006851 FRANKLIN CONVERTIBLE SECURITIES FUND C000018511 CLASS A FISCX C000018512 CLASS C FROTX C000064442 Advisor 0000809707 S000006852 FRANKLIN EQUITY INCOME FUND C000018513 CLASS A FISEX C000018514 CLASS B FBEIX C000018515 CLASS C FRETX C000018516 CLASS R FREIX C000064443 Advisor 0000809707 S000006855 FRANKLIN LOW DURATION TOTAL RETURN FUND C000018523 CLASS A C000064444 Advisor 497 1 fist497c051608.txt FIST1 P-1 SUPPLEMENT DATED MAY 15, 2008 TO THE PROSPECTUS DATED MARCH 1, 2008 OF FRANKLIN INVESTORS SECURITIES TRUST (Franklin Balanced Fund, Franklin Convertible Securities Fund, Franklin Equity Income Fund, Franklin Limited Maturity U.S. Government Securities Fund, Franklin Real Return Fund) The prospectus is amended as follows: I. As of May 15, 2008, the Franklin Convertible Securities Fund offers three classes of shares, Class A, Class C and Advisor Class and the Franklin Equity Income Fund offers five classes of shares, Class A, Class B, Class C, Class R and Advisor Class. II. For Franklin Convertible Securities Fund, the sections entitled "Performance - - Class A Annual Total Returns" and "Performance - Average Annual Total Returns" beginning on page 28 are replaced with the following: CLASS A ANNUAL TOTAL RETURNS(1) [Insert bar graph] - -6.98% 21.15% 15.36% 0.81% -15.55 35.44% 16.02% 6.93% 12.15% 0.50% 98 99 00 01 02 03 04 05 06 07 YEAR Best Quarter: Q2 '03 15.60% Worst Quarter: Q3 '01 -12.77% AVERAGE ANNUAL TOTAL RETURNS For the periods ended December 31, 2007 1 YEAR 5 YEARS 10 YEARS - ---------------------------------------------------------------- Franklin Convertible Securities Fund - Class A(2) Return Before Taxes -5.31% 12.29% 7.04% Return After Taxes on Distributions -7.12% 10.25% 4.81% Return After Taxes on Distributions and Sale of Fund Shares -2.87% 9.72% 4.76% The Merrill Lynch All U.S. 4.53% 10.67% 7.09% Convertibles Index(3) (index reflects no deduction for fees, expenses, or taxes) 1 YEAR 5 YEARS 10 YEARS - ---------------------------------------------------------------- Franklin Convertible Securities Fund - Class C(2) -1.13% 12.79% 6.89% The Merrill Lynch All U.S. 4.53% 10.67% 7.09% Convertibles Index(3) 1 YEAR 5 YEARS 10 YEARS Franklin Convertible 0.50% 13.63% 7.68% Securities Fund - Advisor Class(4) The Merrill Lynch All U.S. 4.53% 10.67% 7.09% Convertibles Index(3) After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns depend on your particular tax situation and may differ from those shown. These after-tax return figures do not apply to you if you hold your Fund shares through a tax-deferred arrangement such as a 401(k) plan or individual retirement account. The Fund's past performance, before and after taxes, is not necessarily an indication of how it will perform in the future. After-tax returns are shown only for Class A; after-tax returns for other classes of shares will vary. 1. Figures do not reflect sales charges. If they did, returns would be lower. As of March 31, 2008, the Fund's year-to-date return was -6.66%. 2. Figures reflect sales charges. 3. Source: Standard & Poor's Micropal (The Merrill Lynch All U.S Convertibles Index). The unmanaged Merrill Lynch All U.S. Convertibles Index comprises domestic securities of all quality grades that are convertible into U.S. dollar-denominated common stock, ADRs or cash equivalents. The index is unmanaged and includes reinvested dividends. One cannot invest directly in an index, nor is an index representative of the Fund's portfolio. 4. Effective May 15, 2008, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the following methods of calculation: (a) for periods prior to May 15, 2008, a restated figure is used based on the Fund's Class A performance, excluding the effect of Class A's maximum initial sales charge but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after May 15, 2008, actual Advisor Class performance is used reflecting all charges and fees applicable to that class. III. For Franklin Convertible Securities Fund, the section entitled "Fees and Expenses" beginning on page 30 is replaced with the following: This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A CLASS C ADVISOR CLASS - -------------------------------------------------------------------------------- Maximum sales charge (load) As a percentage of offering price 5.75%(2) 1.00% None Load imposed on purchases 5.75%(2) None None Maximum deferred sales charge (load) None(3) 1.00% None Redemption fee on shares sold within 7 2.00% 2.00% 2.00% calendar days following their purchase date(1) Please see "Choosing a Share Class" on page 95 for an explanation of how and when these sales charges apply. ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) CLASS A CLASS C ADVISOR CLASS(4) - ------------------------------------------------------------------------------- Management fees(5) 0.47% 0.47% 0.47% Distribution and service (12b-1) fees 0.25% 1.00% None Other expenses 0.16% 0.16% 0.16% Acquired fund fees and expenses(6) 0.01% 0.01% 0.01% Total annual Fund operating expenses(5) 0.89% 1.64% 0.64% Management fee reduction(5) -0.01% -0.01% -0.01% -------------------------------- -------------------------------- Net annual Fund operating expenses(5,6) 0.88% 1.63% 0.63% ================================ 1. The redemption fee is calculated as a percentage of the amount redeemed (using standard rounding criteria), and may be charged when you sell or exchange your shares or if your shares are involuntarily redeemed. The fee is retained by the Fund and generally withheld from redemption proceeds. For more details, see "Redemption Fee" section. 2. The dollar amount of the sales charge is the difference between the offering price of the shares purchased (which factors in the applicable sales charge in this table) and the net asset value of those shares. Since the offering price is calculated to two decimal places using standard rounding criteria, the number of shares purchased and the dollar amount of the sales charge as a percentage of the offering price and of your net investment may be higher or lower depending on whether there was a downward or upward rounding. 3. There is a 1% contingent deferred sales charge that applies to investments of $1 million or more (see page 101) and purchases by certain retirement plans without an initial sales charge. 4. The Fund began offering Advisor Class shares on May 15, 2008. Total annual Fund operating expenses are based on the expenses for the Fund's Class A shares for the fiscal year ended October 31, 2007. 5. The manager had agreed in advance to reduce its fee to reflect reduced services resulting from the Fund's investment in a Franklin Templeton money fund. This reduction is required by the Fund's board of trustees and an exemptive order by the Securities and Exchange Commission. 6. Net annual Fund operating expenses differ from the ratio of expenses to average net assets shown in the Financial Highlights, which reflect the operating expenses of the Fund and do not include acquired fund fees and expenses. EXAMPLE This example can help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It assumes: o You invest $10,000 for the periods shown; o Your investment has a 5% return each year; and o The Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ---------------------------------------------------------------------- If you sell your shares at the end of the period: CLASS A $660(1) $840 $1,035 $1,597 CLASS C $266 $514 $887 $1,933 ADVISOR CLASS $64 $202 $351 $786 If you do not sell your shares: CLASS C $166 $514 $887 $1,933 1. Assumes a contingent deferred sales charge (CDSC) will not apply. IV. For Franklin Equity Income Fund, the sections entitled "Performance - Class A Annual Total Returns" and "Performance - Average Annual Total Returns" beginning on page 45 are replaced with the following: CLASS A ANNUAL TOTAL RETURNS(1) [Insert bar graph] 6.69% 0.80% 18.60% -1.33% -15.11% 24.89% 10.47% 3.21% 16.36% -3.55% 98 99 00 01 02 03 04 05 06 07 YEAR Best Quarter: Q2 '03 16.75% Worst Quarter: Q3 '02 -18.69% AVERAGE ANNUAL TOTAL RETURNS For the periods ended December 31, 2007 1 YEAR 5 YEARS 10 YEARS - ---------------------------------------------------------------- Franklin Equity Income Fund - - Class A(2) Return Before Taxes -9.08% 8.54% 4.87% Return After Taxes on Distributions -10.01% 7.75% 3.56% Return After Taxes on Distributions and Sale of Fund Shares -4.66% 7.38% 3.62% S&P 500 Index(3,4) 5.49% 12.83% 5.91% Russell 1000 Value Index(3,5) -0.17% 14.63% 7.68% (indices reflect no deduction for fees, expenses, or taxes) SINCE INCEPTION 1 YEAR 5 YEARS (1/1/99) - ---------------------------------------------------------------- Franklin Equity Income Fund - - Class B(2) -7.90% 8.72% 4.65% S&P 500 Index(3,4) 5.49% 12.83% 3.65% Russell 1000 Value Index(3,5) -0.17% 14.63% 6.84% 1 YEAR 5 YEARS 10 YEARS Franklin Equity Income Fund - - Class C(2) -5.19% 9.01% 4.71% S&P 500 Index(3,4) 5.49% 12.83% 5.91% Russell 1000 Value Index(3,5) -0.17% 14.63% 7.68% 1 YEAR 5 YEARS 10 YEARS Franklin Equity Income Fund - - Class R(6) -3.85% 9.55% 5.22% S&P 500 Index(3,4) 5.49% 12.83% 5.91% Russell 1000 Value Index(3,5) -0.17% 14.63% 7.68% 1 YEAR 5 YEARS 10 YEARS Franklin Equity Income Fund -3.55% 9.83% 5.49% - - Advisor Class(7) S&P 500 Index(3,4) 5.49% 12.83% 5.91% Russell 1000 Value Index(3,5) -0.17% 14.63% 7.68% After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns depend on your particular tax situation and may differ from those shown. These after-tax return figures do not apply to you if you hold your Fund shares through a tax-deferred arrangement such as a 401(k) plan or individual retirement account. The Fund's past performance, before and after taxes, is not necessarily an indication of how it will perform in the future. After-tax returns are shown only for Class A; after-tax returns for other classes of shares will vary. 1. Figures do not reflect sales charges. If they did, returns would be lower. As of March 31, 2008, the Fund's year-to-date return was -7.00%. 2. Figures reflect sales charges. 3. The S&P 500 Index is replacing the Russell 1000 Value Index as the Fund's lead benchmark. The manager believes the composition of the S&P 500 Index provides a better comparison because the Fund's strategy has changed from value to blend/core. The Russell 1000 Value Index may be excluded from this comparison in the future. 4. Source: Standard & Poor's Micropal (S&P 500(R)Index). The unmanaged Standard & Poor's (S&P) 500(R) Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. It includes reinvested dividends. One cannot invest directly in an index, nor is an index representative of the Fund's portfolio. 5. Source: Standard & Poor's Micropal (Russell 1000 Value Index). The unmanaged Russell 1000 Value Index is market capitalization weighted and measures performance of those Russell 100 index companies with lower price-to-book ratios and lower forecasted growth values. It includes reinvested dividends. One cannot invest directly in an index, nor is an index representative of the Fund's portfolio. 6. Effective August 1, 2002, the Fund began offering Class R shares, which do not have initial sales charges. Performance quotations for this class reflect the following methods of calculation: (a) for periods prior to August 1, 2002, a restated figure is used based on the Fund's Class A performance, excluding the effect of Class A's maximum initial sales charge, reflecting the Rule 12b-1 rate differential between Class A and R; and (b) for periods after August 1, 2002, actual Class R performance is used reflecting all charges and fees applicable to that class. 7. Effective May 15, 2008, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the following methods of calculation: (a) for periods prior to May 15, 2008, a restated figure is used based on the Fund's Class A performance, excluding the effect of Class A's maximum initial sales charge but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after May 15, 2008, actual Advisor Class performance is used reflecting all charges and fees applicable to that class. V. For the Franklin Equity Income Fund, the section entitled "Fees and Expenses" beginning on page 48 is replaced with the following: 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 A CLASS B(4) CLASS C CLASS R CLASS - ------------------------------------------------------------------------------- Maximum sales charge (load) as a percentage of 5.75%(2) 4.00% 1.00% None None offering price Load imposed on purchases 5.75%(2) None None None None Maximum deferred sales 4.00%(5) 1.00% None None None(3) charge (load) Redemption fee on shares 2.00% 2.00% 2.00% 2.00% 2.00% sold within 7 calendar days following their purchase date(1) Please see "Choosing a Share Class" on page 95 for an explanation of how and when these sales charges apply. ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) ADVISOR CLASS A CLASS B(4) CLASS C CLASS R CLASS(6) - ------------------------------------------------------------------------------- Management fees(7) 0.48% 0.48% 0.48% 0.48% 0.48% Distribution and service 0.25% 1.00% 1.00%(5) 0.50% None (12b-1) fees Other expenses 0.20% 0.20% 0.20% 0.20% 0.20% Acquired fund fees and 0.01% 0.01% 0.01% 0.01% 0.01% expenses(8) Total annual Fund operating 0.94% 1.69% 1.69% 1.19% 0.69% expenses Management fee reduction(7) -0.01% -0.01% -0.01% -0.01% -0.01% -------------------------------------------------- Net annual Fund operating 0.93% 1.68% 1.68% 1.18% 0.68% expenses(7,8) ================================================== 1. The redemption fee is calculated as a percentage of the amount redeemed (using standard rounding criteria), and may be charged when you sell or exchange your shares or if your shares are involuntarily redeemed. The fee is retained by the Fund and generally withheld from redemption proceeds. For more details, see "Redemption Fee" section. 2. The dollar amount of the sales charge is the difference between the offering price of the shares purchased (which factors in the applicable sales charge in this table) and the net asset value of those shares. Since the offering price is calculated to two decimal places using standard rounding criteria, the number of shares purchased and the dollar amount of the sales charge as a percentage of the offering price and of your net investment may be higher or lower depending on whether there was a downward or upward rounding. 3. There is a 1% contingent deferred sales charge that applies to investments of $1 million or more (see page 101) and purchases by certain retirement plans without an initial sales charge. 4. New or additional investments into Class B are no longer permitted. Existing shareholders of Class B shares may continue as Class B shareholders, continue to reinvest dividends into Class B shares and exchange their Class B shares for Class B shares of other Franklin Templeton funds as permitted by the current exchange privileges. 5. Declines to zero after six years. 6. The Fund began offering Advisor Class shares on May 15, 2008. Total annual Fund operating expenses are based on the expenses for the Fund's Class A shares for the fiscal year ended October 31, 2007. 7. The manager had agreed in advance to reduce its fee to reflect reduced services resulting from the Fund's investment in a Franklin Templeton money fund. This reduction is required by the Fund's board of trustees and an exemptive order by the Securities and Exchange Commission. 8. Net annual Fund operating expenses differ from the ratio of expenses to average net assets shown in the Financial Highlights, which reflect the operating expenses of the Fund and do not include acquired fund fees and expenses. EXAMPLE This example can help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It assumes: o You invest $10,000 for the periods shown; o Your investment has a 5% return each year; and o The Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ---------------------------------------------------------------------- If you sell your shares at the end of the period: CLASS A $664(1) $854 $1,060 $1,652 CLASS B $571 $830 $1,113 $1,788(2) CLASS C $271 $530 $913 $1,987 CLASS R $120 $375 $649 $1,432 ADVISOR CLASS $69 $218 $379 $847 If you do not sell your shares: CLASS B $171 $530 $913 $1,788(2) CLASS C $171 $530 $913 $1,987 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. PLEASE KEEP THIS SUPPLEMENT FOR FUTURE REFERENCE. FIST1 SA-1 SUPPLEMENT DATED MAY 15, 2008 TO THE STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 1, 2008 OF FRANKLIN INVESTORS SECURITIES TRUST (Franklin Balanced Fund, Franklin Convertible Securities Fund, Franklin Equity Income Fund, Franklin Limited Maturity U.S. Government Securities Fund, Franklin Real Return Fund) The statement of additional information is amended as follows: I. The second paragraph under "Organization, Voting Rights and Principal Holders" beginning on page 59 is replaced with the following: The Convertible Fund currently offers three classes of shares, Class A, Class C and Advisor Class. The Equity Fund currently offers five classes of shares, Class A, Class B, Class C, Class R and Advisor Class. New or additional investments into Class B are no longer permitted. Existing shareholders of Class B shares may continue as Class B shareholders, continue to reinvest dividends into Class B shares and exchange their Class B shares for Class B shares of other Franklin Templeton funds as permitted by the current exchange privileges. The Limited Maturity Fund and Real Return Fund currently offer two classes of shares, Class A and Advisor Class. The Balanced Fund currently offers four classes of shares, Class A, Class C, Class R and Advisor Class. The Convertible Fund and the Equity Fund began offering Advisor Class shares on May 15, 2008. Each fund may offer additional classes of shares in the future. The full title of each class is: o Franklin Balanced Fund - Class A o Franklin Balanced Fund - Class C o Franklin Balanced Fund - Class R o Franklin Balanced Fund - Advisor Class o Franklin Convertible Securities Fund - Class A o Franklin Convertible Securities Fund - Class C o Franklin Convertible Securities Fund - Advisor Class o Franklin Equity Income Fund - Class A o Franklin Equity Income Fund - Class B o Franklin Equity Income Fund - Class C o Franklin Equity Income Fund - Class R o Franklin Equity Income Fund - Advisor Class o Franklin Limited Maturity U.S. Government Securities Fund - Class A o Franklin Limited Maturity U.S. Government Securities Fund - Advisor Class o Franklin Real Return Fund - Class A o Franklin Real Return Fund - Advisor Class II. The sixth paragraph under "Organization, Voting Rights and Principal Holders" on page 60 is replaced with the following: As of March 11, 2008, the principal shareholders of the Funds, beneficial or of record, were: NAME AND ADDRESS SHARE CLASS PERCENTAGE (%) - ------------------------------------------------------- BALANCED FUND Franklin Advisers Inc.(1) A 33.48 One Franklin Parkway San Mateo, CA 94403-1906 Franklin Advisers Inc.(1) R 58.53 One Franklin Parkway San Mateo, CA 94403-1906 FTB&T Custodian for the R 20.93 Rollover IRA of David Ghandehari 1744 Lark Lane Sunnyvale, CA 94087-4827 FTB&T Custodian for the R 20.54 ERISA 403B of Saint Johns Lutheran Hospital FBO Karen A. Hutchinson 519 Sheldon Flats Road Libby, MT 59923-9454 Perks Family Living Trust Advisor 75.15 Edward D. Perks and Maggie P. Perks Trustee 561 Justin Morgan Drive Alamo, CA 94507-2249 EQUITY INCOME FUND Orchard Trust Company R 6.99 FBO Top grade Construction Inc. 8515 East Orchard Road 2T2 Greenwood Village, CO 80111-5002 LIMITED MATURITY FUND Ellard and Company Advisor 28.87 c/o Fiduciary Trust Company International P.O. Box 3199 Church Street Station New York, NY 10008-3199 Franklin Stable Value Advisor 51.72 FT 529 College Savings Plan 500 East Broward Blvd., Floor 13 Fort Lauderdale, FL 33394-3091 FRANKLIN REAL RETURN FUND Ellard and Company Advisor 51.68 c/o Fiduciary Trust Company International P.O. Box 3199 Church Street Station New York, NY 10008-3199 Wendel Company Advisor 33.01 CO the Bank of New York P.O. Box 1066 Wall Street Station New York, NY 10116-1066 1. Franklin Advisers, Inc. (Advisers) is a California corporation and is wholly owned by Franklin Resources, Inc. (Resources). Charles B. Johnson and Rupert H. Johnson, Jr., who are officers and/or trustees of the Trust, may be considered beneficial holders of the Balanced Fund shares held by Advisers. As principal shareholders of Resources, they may be able to control the voting of Advisers' shares of the Fund. From time to time, the number of Fund shares held in the "street name" accounts of various securities dealers for the benefit of their clients or in centralized securities depositories may exceed 5% of the total shares outstanding. To the best knowledge of the Convertible Fund, no other person holds beneficially or of record more than 5% of the outstanding shares of any class. III. The eighth paragraph under "Organization, Voting Rights and Principal Holders" on page 60 is replaced with the following: As of March 11, 2008, the officers and board members, as a group, owned of record and beneficially less than 1% of the outstanding shares of each Fund and class. The board members may own shares in other funds in Franklin Templeton Investments. PLEASE KEEP THIS SUPPLEMENT FOR FUTURE REFERENCE. FIST2 P-1 SUPPLEMENT DATED MAY 15, 2008 TO THE PROSPECTUS DATED MARCH 1, 2008 OF FRANKLIN INVESTORS SECURITIES TRUST (Franklin Adjustable U.S. Government Securities Fund, Franklin Floating Rate Daily Access Fund, Franklin Low Duration Total Return Fund, Franklin Total Return Fund) The prospectus is amended as follows: I. As of May 15, 2008, the Franklin Adjustable U.S. Government Securities Fund offers three classes of shares, Class A, Class C and Advisor Class and the Franklin Low Duration Total Return Fund offers two classes of shares, Class A and Advisor Class. II. For Adjustable U.S. Government Securities Fund, the sections entitled "Performance - Class A Annual Total Returns" and "Performance - Average Annual Total Returns" beginning on page 28 are replaced with the following: CLASS A ANNUAL TOTAL RETURNS(1) [Insert bar graph] 3.86% 4.38% 6.68% 6.43% 3.41% 1.23% 1.79% 2.06% 4.15% 5.03% 98 99 00 01 02 03 04 05 06 07 YEAR Best Quarter: Q4 '00 2.10% Worst Quarter: Q2 '04 -0.37% AVERAGE ANNUAL TOTAL RETURNS For the periods ended December 31, 2007 1 YEAR 5 YEARS 10 YEARS - ---------------------------------------------------------------- Franklin Adjustable U.S. Government Securities Fund - Class A(2) Return Before Taxes 2.72% 2.38% 3.65% Return After Taxes on Distributions 0.93% 1.03% 1.94% Return After Taxes on Distributions and Sale of Fund Shares 1.74% 1.23% 2.05% Lehman Bros. U.S. Government Index: 1-2 Year Component(3) 6.65% 3.09% 4.63% (index reflects no deduction for fees, expenses, or taxes) SINCE INCEPTION 1 YEAR (7/1/03) - ---------------------------------------------------------------- Franklin Adjustable U.S. Government Securities Fund - Class C(2) 3.48% 2.48% Lehman Bros. U.S. Government Index: 1-2 Year Component(3) 6.65% 3.16% 1 YEAR 5 YEARS 10 YEARS Franklin Adjustable U.S. 5.03% 2.84% 3.89% Government Securities Fund - Advisor Class(4) Lehman Bros. U.S. Government Index: 1-2 Year Component(3) 6.65% 3.09% 4.63% After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns depend on your particular tax situation and may differ from those shown. These after-tax return figures do not apply to you if you hold your Fund shares through a tax-deferred arrangement such as a 401(k) plan or individual retirement account. The Fund's past performance, before and after taxes, is not necessarily an indication of how it will perform in the future. After-tax returns are shown only for Class A; after-tax returns for other classes of shares will vary. 1. Figures do not reflect sales charges. If they did, returns would be lower. As of March 31, 2008, the Fund's year-to-date return was 1.48%. 2. Figures reflect sales charges. 3. Source: Standard & Poor's Micropal. The unmanaged Lehman Brothers U.S. Government Index: 1-2 Year Component includes fixed rate securities issued by the U.S. government with remaining maturity of one year up to, but not including, two years. Securities must have at least $250 million par amount outstanding and be rated investment grade. All issues included must be publicly issued, dollar denominated and nonconvertible. It includes reinvested interest. One cannot invest directly in an index, nor is an index representative of the Fund's portfolio. 4. Effective May 15, 2008, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the following methods of calculation: (a) for periods prior to May 15, 2008, a restated figure is used based on the Fund's Class A performance, excluding the effect of Class A's maximum initial sales charge but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after May 15, 2008, actual Advisor Class performance is used reflecting all charges and fees applicable to that class. III. For Franklin Adjustable U.S. Government Securities Fund, the section entitled "Fees and Expenses" beginning on page 9 is replaced with the following: This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A CLASS C ADVISOR CLASS - ------------------------------------------------------------------------------ Maximum sales charge (load) as a percentage of offering price 2.25%(2) 1.00% None Load imposed on purchases 2.25%(2) None None Maximum deferred sales charge (load) None(3) 1.00% None Redemption fee on shares sold within 7 calendar days following their purchase 2.00% 2.00% 2.00% date(1) Please see "Choosing a Share Class" on page 84 for an explanation of how and when these sales charges apply. ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) CLASS A CLASS C ADVISOR CLASS (4) - ------------------------------------------------------------------------------ Management fees(5) 0.40% 0.40% 0.40% Distribution and service (12b-1) fees 0.25% 0.65% None Other expenses 0.27% 0.27% 0.27% Acquired fund fees and expenses(6) 0.01% 0.01% 0.01% Total annual Fund operating expenses(5) 0.93% 1.33% 0.68% Management fee reduction(5) -0.01% -0.01% -0.01% ----------------------------------- NET ANNUAL FUND OPERATING EXPENSES(5,6) 0.92% 1.32% 0.67% ----------------------------------- 1. The redemption fee is calculated as a percentage of the amount redeemed (using standard rounding criteria), and may be charged when you sell or exchange your shares or if your shares are involuntarily redeemed. The fee is retained by the Fund and generally withheld from redemption proceeds. For more details, see "Redemption Fee" section. 2. The dollar amount of the sales charge is the difference between the offering price of the shares purchased (which factors in the applicable sales charge in this table) and the net asset value of those shares. Since the offering price is calculated to two decimal places using standard rounding criteria, the number of shares purchased and the dollar amount of the sales charge as a percentage of the offering price and of your net investment may be higher or lower depending on whether there was a downward or upward rounding. 3. There is a 1% contingent deferred sales charge that applies to investments of $1 million or more (see page 89) and purchases by certain retirement plans without an initial sales charge. 4. The Fund began offering Advisor Class shares on May 15, 2008. Total annual Fund operating expenses are based on the expenses for the Fund's Class A shares for the fiscal year ended October 31, 2007. 5. The manager had agreed in advance to reduce its fee to reflect reduced services resulting from the Fund's investment in a Franklin Templeton money fund. This reduction is required by the Fund's board of trustees and an exemptive order by the Securities and Exchange Commission. 6. The ratio of expenses to average net assets shown in the Financial Highlights table reflects the operating expenses of the Fund and does not include acquired fund fees and expenses. For this reason, the net annual Fund operating expenses differ for Class A. For Class C, however, the net annual Fund operating expenses were the same in each table based on an additional adjustment due to the timing of the payment of the 12b-1 fee. EXAMPLE This example can help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It assumes: o You invest $10,000 for the periods shown; o Your investment has a 5% return each year; and o The Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS - --------------------------------------------------------------- If you sell your shares at the end of the period: CLASS A $317(1) $512 $723 $1,331 CLASS C $235 $421 $729 $1,601 ADVISOR CLASS $68 $214 $373 $835 If you do not sell your shares: CLASS C $135 $421 $729 $1,601 1. Assumes a contingent deferred sales charge (CDSC) will not apply. IV. For Franklin Low Duration Total Return Fund, the sections entitled "Performance - Class A Annual Total Returns" and "Performance - Average Annual Total Returns" beginning on page 28 are replaced with the following: CLASS A ANNUAL TOTAL RETURNS(1) 1.26% 4.26% 5.86% 05 06 07 YEAR Best Quarter: Q3 '07 2.10% Worst Quarter: Q1 '05 -0.24% AVERAGE ANNUAL TOTAL RETURNS For the periods ended December 31, 2007 SINCE INCEPTION 1 YEAR (11/17/04) - ---------------------------------------------------------------- Franklin Low Duration Total Return Fund - Class A(2) Return Before Taxes 3.43% 2.88% Return After Taxes on Distributions 1.90% 1.53% Return After Taxes on Distributions and Sale of Fund Shares 2.20% 1.66% The Lehman Brothers U.S. Aggregate Index: 1-3 Year Component(3) 6.72% 4.13% The Lehman Brothers U.S. Government Index: 1-3 Year Component(3) 7.10% 4.13% (indices reflect no deduction for fees, expenses, or taxes) SINCE INCEPTION 1 YEAR (11/17/04) - ---------------------------------------------------------------- Franklin Low Duration Total Return Fund 5.86% 3.63% - - Advisor Class(4) The Lehman Brothers U.S. Aggregate Index: 1-3 Year Component(3) 6.72% 4.13% The Lehman Brothers U.S. Government Index: 1-3 Year Component(3) 7.10% 4.13% After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns depend on your particular tax situation and may differ from those shown. These after-tax return figures do not apply to you if you hold your Fund shares through a tax-deferred arrangement such as a 401(k) plan or individual retirement account. The Fund's past performance, before and after taxes, is not necessarily an indication of how it will perform in the future. 1. Figures do not reflect sales charges. If they did, returns would be lower. As of March 31, 2008, the Fund's year-to-date return was 2.10%. 2. Figures reflect sales charges. 3. The Lehman Brothers U.S. Aggregate Index: 1-3 Year Component is replacing the Lehman Brothers U.S. Government Index: 1-3 Year Component as the Fund's benchmark. The manager believes the composition of the Lehman Brothers U.S. Aggregate Index: 1-3 Year Component better reflects the Fund's holdings. The Lehman Brothers U.S. Government Index: 1-3 Year Component may be excluded from this comparison in the future. Source: Standard & Poor's Micropal. The unmanaged Lehman Brothers U.S. Aggregate Index: 1-3 Year Component represents securities that are SEC-registered, taxable and dollar denominated. The index covers the U.S. investment grade fixed-rate bond market, with index components for government and corporate securities, mortgage pass-through securities and asset-backed securities. All issues included must have a remaining maturity of one year up to, but not including, three years and must be rated investment grade (Baa3 or better) by Moody's Investors Service. They must be dollar denominated and nonconvertible. Total return includes price appreciation/depreciation and income as a percentage of the original investment. The index is rebalanced monthly by market capitalization. It includes reinvested interest. One cannot invest directly in an index, nor is an index representative of the Fund's portfolio. Source: Standard & Poor's Micropal. The unmanaged Lehman Brothers U.S. Government Index: 1-3 Year Component includes fixed rate securities issued by the U.S. government with remaining maturity of one year up to, but not including, three years. Securities must have at least $250 million par amount outstanding and be rated investment grade. All issues included must be publicly issued, dollar denominated and nonconvertible. It includes reinvested interest. One cannot invest directly in an index, nor is an index representative of the Fund's portfolio. 4. Effective May 15, 2008, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the following methods of calculation: (a) for periods prior to May 15, 2008, a restated figure is used based on the Fund's Class A performance, excluding the effect of Class A's maximum initial sales charge but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after May 15, 2008, actual Advisor Class performance is used reflecting all charges and fees applicable to that class. V. For Franklin Low Duration Total Return Fund, the section entitled "Fees and Expenses" beginning on page 47 is replaced with the following: 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 ADVISOR CLASS - ------------------------------------------------------------------ Maximum sales charge (load) as a percentage of offering price 2.25%(2) None Load imposed on purchases 2.25%(2) None Maximum deferred sales charge (load) None(3) None Redemption fee on shares sold within 7 calendar days following their purchase 2.00% 2.00% date(1) Please see "Choosing a Share Class" on page 84 for an explanation of how and when these sales charges apply. ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) CLASS A ADVISOR CLASS (4) - ---------------------------------------------------------------------- Management fees(5) 0.43% 0.43% Distribution and service (12b-1) fees 0.25% None Other expenses (including administration 0.74% 0.74% fees) Acquired fund fees and expenses(6) 0.02% 0.02% Total annual Fund operating expenses(5) 1.44% 1.19% Management and administration fee -0.52% -0.52% reduction(5) -------------------- NET ANNUAL FUND OPERATING EXPENSES(5,6) 0.92% 0.67% -------------------- 1. The redemption fee is calculated as a percentage of the amount redeemed (using standard rounding criteria), and may be charged when you sell or exchange your shares or if your shares are involuntarily redeemed. The fee is retained by the Fund and generally withheld from redemption proceeds. For more details, see "Redemption Fee" section. 2. The dollar amount of the sales charge is the difference between the offering price of the shares purchased (which factors in the applicable sales charge in this table) and the net asset value of those shares. Since the offering price is calculated to two decimal places using standard rounding criteria, the number of shares purchased and the dollar amount of the sales charge as a percentage of the offering price and of your net investment may be higher or lower depending on whether there was a downward or upward rounding. 3. There is a 1% contingent deferred sales charge that applies to investments of $1 million or more (see page 89) and purchases by certain retirement plans without an initial sales charge. 4. The Fund began offering Advisor Class shares on May 15, 2008. Total annual Fund operating expenses are based on the expenses for the Fund's Class A shares for the fiscal year ended October 31, 2007. 5. The investment manager and administrator have contractually agreed to waive or limit their respective fees and to assume as their own expense certain expenses otherwise payable by the Fund so that total annual Fund operating expenses, excluding acquired fund fees and expenses, do not exceed 0.90% for Class A and 0.65% for Advisor Class(other than certain non-routine expenses or costs, including those relating to litigation and indemnification, reorganizations and liquidations) until February 28, 2009. The manager also had agreed in advance to reduce its fee to reflect reduced services resulting from the Fund's investment in a Franklin Templeton money fund. The manager, however, is required by the Fund's board of trustees and an exemptive order by the Securities and Exchange Commission to reduce its fee if the Fund invests in a Franklin Templeton money fund. 6. Net annual Fund operating expenses differ from the ratio of expenses to average net assets shown in the Financial Highlights, which reflect the operating expenses of the Fund and do not include acquired fund fees and expenses. EXAMPLE This example can help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It assumes: o You invest $10,000 for the periods shown; o Your investment has a 5% return each year; and o The Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ---------------------------------------------------------------------- CLASS A $317(1) $616 $937 $1,846 ADVISOR CLASS $68 $322 $595 $1,376 1. Assumes a contingent deferred sales charge (CDSC) will not apply. PLEASE KEEP THIS SUPPLEMENT FOR FUTURE REFERENCE. FIST2 SA-1 SUPPLEMENT DATED MAY 15, 2008 TO THE STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 1, 2008 OF FRANKLIN INVESTORS SECURITIES TRUST (Franklin Adjustable U.S. Government Securities Fund, Franklin Floating Rate Daily Access Fund, Franklin Low Duration Total Return Fund, Franklin Total Return Fund) The statement of additional information is amended as follows: I. The second paragraph under "Organization, Voting Rights and Principal Holders" beginning on page 49 is replaced with the following: Adjustable U.S. Government Fund currently offers three classes of shares, Class A, Class C and Advisor Class. Floating Rate Daily Access Fund currently offers four classes of shares, Class A, Class B, Class C and Advisor Class. Low Duration Fund currently offers two classes of shares, Class A and Advisor Class. Total Return Fund currently offers five classes of shares, Class A, Class B, Class C, Class R and Advisor Class. New or additional investments into Class B are no longer permitted. Existing shareholders of Class B shares may continue as Class B shareholders, continue to reinvest dividends into Class B shares and exchange their Class B shares for Class B shares of other Franklin Templeton funds as permitted by the current exchange privileges. The Adjustable U.S. Government Fund and the Low Duration Fund began offering Advisor Class shares on May 15, 2008. The Funds may offer additional classes of shares in the future. The full title of each class is: o Franklin Adjustable U.S. Government Fund - Class A o Franklin Adjustable U.S. Government Fund - Class C o Franklin Adjustable U.S. Government Fund - Advisor Class o Franklin Floating Rate Daily Access Fund - Class A o Franklin Floating Rate Daily Access Fund - Class B o Franklin Floating Rate Daily Access Fund - Class C o Franklin Floating Rate Daily Access Fund - Advisor Class o Franklin Low Duration Total Return Fund - Class A o Franklin Low Duration Total Return Fund - Advisor Class o Franklin Total Return Fund - Class A o Franklin Total Return Fund - Class B o Franklin Total Return Fund - Class C o Franklin Total Return Fund - Class R o Franklin Total Return Fund - Advisor Class II. The sixth paragraph under "Organization, Voting Rights and Principal Holders" on page 50 is replaced with the following: As of March 11, 2008, the principal shareholders of the Funds, beneficial or of record, were: NAME AND ADDRESS SHARE CLASS PERCENTAGE (%) - ---------------------------------------------------------------- FLOATING RATE DAILY ACCESS FUND THAFNAB & Company Advisor 14.01 FBO Indiana State District Council of Labors and HOD Carriers Health and Welfare Department P.O. Box 540 Terre Haute, IN 47808-0540 NFS, LLC FEBO Advisor 9.69 First Midwest Bank DBA UNATCO 2801 W. Jefferson Street Joliet, IL 60435-5299 SEI Private Trust Company Advisor 12.60 FBO Johnson Trust One Freedom Valley Drive Oaks, PA 19456 NFS, LLC FEBO Advisor 6.79 Union Bank and Trust Trustee FBO Clients 312 Central Avenue SE, Suite 508 Minneapolis, MN 55414-1166 LOW DURATION FUND Franklin Advisers, Inc.(1) A 24.23 One Franklin Parkway San Mateo, CA 94403-1906 TOTAL RETURN FUND PIMS Prudential Retirement R 5.62 as Nominee for the TTE Cust PL 300 Grundos Pumps Corporation 5900 E Shields Avenue Fresno, CA 93727-8000 Hartford Life Insurance Co. R 30.30 Separate Account ATTN: UIT Operations P.O. Box 2999 Hartford, CT 06104-2999 Age 13-16 Years Advisor 7.42 FT 529 College Savings Plan 500 E. Broward Blvd, Suite 2100 Fort Lauderdale, FL 33394-3007 Growth Target Advisor 7.60 Fund F/T Fund Allocator 3344 Quality Drive Rancho Cordova, CA 95760-7313 Conservative Target Fund Advisor 13.74 F/T Fund Allocator 3344 Quality Drive Rancho Cordova, CA 95670-7313 Moderate Target Fund Advisor 21.00 F/T Fund Allocator 3344 Quality Drive Rancho Cordova, CA 95670-7313 Ellard & Co. Advisor 29.91 c/o Fiduciary Trust Co. Int'l. P.O. Box 3199, Church Street Station New York, NY 10008-3199 1. Franklin Advisers, Inc. (Advisers) is a California corporation and is wholly owned by Franklin Resources, Inc. (Resources). Charles B. Johnson and Rupert H. Johnson, Jr., who are officers and trustees of the Trust, may be considered beneficial holders of Fund shares held by Advisers. As principal shareholders of Resources, they may be able to control the voting of Advisers' shares of the Fund. From time to time, the number of Fund shares held in the "street name" accounts of various securities dealers for the benefit of their clients or in centralized securities depositories may exceed 5% of the total shares outstanding. To the best knowledge of the Adjustable U.S. Government Fund, no other person holds beneficially or of record more than 5% of the outstanding shares of any class. III. The eighth paragraph under "Organization, Voting Rights and Principal Holders" on page 50 is replaced with the following: As of March 11, 2008, the officers and board members, as a group, owned of record and beneficially less than 1% of the outstanding shares of each Fund and class. The board members may own shares in other funds in Franklin Templeton Investments. PLEASE KEEP THIS SUPPLEMENT FOR FUTURE REFERENCE. FIST2 SA-1 SUPPLEMENT DATED MAY 15, 2008 TO THE STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 1, 2008 OF FRANKLIN INVESTORS SECURITIES TRUST (Franklin Adjustable U.S. Government Securities Fund, Franklin Floating Rate Daily Access Fund, Franklin Low Duration Total Return Fund, Franklin Total Return Fund) The statement of additional information is amended as follows: I. The second paragraph under "Organization, Voting Rights and Principal Holders" beginning on page 49 is replaced with the following: Adjustable U.S. Government Fund currently offers three classes of shares, Class A, Class C and Advisor Class. Floating Rate Daily Access Fund currently offers four classes of shares, Class A, Class B, Class C and Advisor Class. Low Duration Fund currently offers two classes of shares, Class A and Advisor Class. Total Return Fund currently offers five classes of shares, Class A, Class B, Class C, Class R and Advisor Class. New or additional investments into Class B are no longer permitted. Existing shareholders of Class B shares may continue as Class B shareholders, continue to reinvest dividends into Class B shares and exchange their Class B shares for Class B shares of other Franklin Templeton funds as permitted by the current exchange privileges. The Adjustable U.S. Government Fund and the Low Duration Fund began offering Advisor Class shares on May 15, 2008. The Funds may offer additional classes of shares in the future. The full title of each class is: o Franklin Adjustable U.S. Government Fund - Class A o Franklin Adjustable U.S. Government Fund - Class C o Franklin Adjustable U.S. Government Fund - Advisor Class o Franklin Floating Rate Daily Access Fund - Class A o Franklin Floating Rate Daily Access Fund - Class B o Franklin Floating Rate Daily Access Fund - Class C o Franklin Floating Rate Daily Access Fund - Advisor Class o Franklin Low Duration Total Return Fund - Class A o Franklin Low Duration Total Return Fund - Advisor Class o Franklin Total Return Fund - Class A o Franklin Total Return Fund - Class B o Franklin Total Return Fund - Class C o Franklin Total Return Fund - Class R o Franklin Total Return Fund - Advisor Class II. The sixth paragraph under "Organization, Voting Rights and Principal Holders" on page 50 is replaced with the following: As of March 11, 2008, the principal shareholders of the Funds, beneficial or of record, were: NAME AND ADDRESS SHARE CLASS PERCENTAGE (%) - ---------------------------------------------------------------- FLOATING RATE DAILY ACCESS FUND THAFNAB & Company Advisor 14.01 FBO Indiana State District Council of Labors and HOD Carriers Health and Welfare Department P.O. Box 540 Terre Haute, IN 47808-0540 NFS, LLC FEBO Advisor 9.69 First Midwest Bank DBA UNATCO 2801 W. Jefferson Street Joliet, IL 60435-5299 SEI Private Trust Company Advisor 12.60 FBO Johnson Trust One Freedom Valley Drive Oaks, PA 19456 NFS, LLC FEBO Advisor 6.79 Union Bank and Trust Trustee FBO Clients 312 Central Avenue SE, Suite 508 Minneapolis, MN 55414-1166 LOW DURATION FUND Franklin Advisers, Inc.(1) A 24.23 One Franklin Parkway San Mateo, CA 94403-1906 TOTAL RETURN FUND PIMS Prudential Retirement R 5.62 as Nominee for the TTE Cust PL 300 Grundos Pumps Corporation 5900 E Shields Avenue Fresno, CA 93727-8000 Hartford Life Insurance Co. R 30.30 Separate Account ATTN: UIT Operations P.O. Box 2999 Hartford, CT 06104-2999 Age 13-16 Years Advisor 7.42 FT 529 College Savings Plan 500 E. Broward Blvd, Suite 2100 Fort Lauderdale, FL 33394-3007 Growth Target Advisor 7.60 Fund F/T Fund Allocator 3344 Quality Drive Rancho Cordova, CA 95760-7313 Conservative Target Fund Advisor 13.74 F/T Fund Allocator 3344 Quality Drive Rancho Cordova, CA 95670-7313 Moderate Target Fund Advisor 21.00 F/T Fund Allocator 3344 Quality Drive Rancho Cordova, CA 95670-7313 Ellard & Co. Advisor 29.91 c/o Fiduciary Trust Co. Int'l. P.O. Box 3199, Church Street Station New York, NY 10008-3199 1. Franklin Advisers, Inc. (Advisers) is a California corporation and is wholly owned by Franklin Resources, Inc. (Resources). Charles B. Johnson and Rupert H. Johnson, Jr., who are officers and trustees of the Trust, may be considered beneficial holders of Fund shares held by Advisers. As principal shareholders of Resources, they may be able to control the voting of Advisers' shares of the Fund. From time to time, the number of Fund shares held in the "street name" accounts of various securities dealers for the benefit of their clients or in centralized securities depositories may exceed 5% of the total shares outstanding. To the best knowledge of the Adjustable U.S. Government Fund, no other person holds beneficially or of record more than 5% of the outstanding shares of any class. III. The eighth paragraph under "Organization, Voting Rights and Principal Holders" on page 50 is replaced with the following: As of March 11, 2008, the officers and board members, as a group, owned of record and beneficially less than 1% of the outstanding shares of each Fund and class. The board members may own shares in other funds in Franklin Templeton Investments. PLEASE KEEP THIS SUPPLEMENT FOR FUTURE REFERENCE. -----END PRIVACY-ENHANCED MESSAGE-----