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N-1A
FRANKLIN INVESTORS SECURITIES TRUST
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Investment Goal
To maximize total return, consistent with reasonable risk, by seeking to optimize capital appreciation and high current income
under varying market conditions.
Fees and Expenses of the Fund
These tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts in Class A if you and your family invest, or agree to invest in the future, at
least $50,000 in Franklin Templeton funds. More information about these and other discounts is available from your financial professional and under “Your Account” on page 87 in the Fund's Prospectus and under “Buying and Selling Shares” on page 81 of the Fund’s
Statement of Additional Information. In addition, more information about sales charge discounts and waivers for purchases
of shares through specific financial intermediaries is set forth in Appendix A - "Intermediary Sales Charge Discounts and
Waivers" to the Fund's prospectus.
Please note that the tables and examples below do not reflect any transaction fees that may be charged by financial intermediaries,
or commissions that a shareholder may be required to pay directly to its financial intermediary when buying or selling Class
R6 or Advisor Class shares.
You may qualify for sales charge discounts in Class A if you and your family invest, or agree to invest in the future, at
least $50,000 in Franklin Templeton funds.
50000
Shareholder Fees (fees paid directly from your investment)
0.0550
0
0
0
0.0100
0
0
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
0.0046
0.0046
0.0046
0.0046
0.0025
0.0100
0
0
0.0012
0.0012
0.0008
0.0012
0.0084
0.0159
0.0055
0.0059
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of the period. The Example also assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. The Example reflects adjustments made to the Fund's operating expenses due to the fee
waivers and/or expense reimbursements by management for the 1 Year numbers only. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
631
803
990
1530
262
502
866
1889
52
172
303
685
60
189
329
738
If you do not sell your shares:
162
502
866
1889
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A
higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held
in a taxable account. These costs, which are not reflected in annual Fund operating expenses or in the Example, affect the
Fund's performance. During the most recent fiscal year, the Fund's portfolio turnover rate was 32.46% of the average value of its portfolio.
0.3246
Principal Investment Strategies
Under normal market conditions, the Fund invests at least 80% of its net assets in convertible securities (and common stock
received upon conversion of convertible securities). A convertible security is generally a debt security or preferred stock that may be converted within a specified period of
time into common stock of the same or a different issuer. By investing in convertible securities, the Fund seeks the opportunity
to participate in the capital appreciation of underlying stocks, while at the same time relying on the fixed income aspect
of the convertible securities to provide current income and reduced price volatility, which can limit the risk of loss in
a down equity market.
A convertible security shares features of both equity and debt securities. Like an equity security, the value of a convertible
security tends to increase as the price of the underlying stock goes up, and to decrease as the price of the underlying stock
goes down. Like a debt security, a convertible security provides a fixed income stream and also tends to increase in value
when interest rates fall and decrease in value when interest rates rise.
When choosing convertible securities for this Fund, the investment manager attempts to maintain a balance in the portfolio
between the equity and debt characteristics of convertible securities with an emphasis on the equity features. The investment
manager also considers the company’s long-term earnings, asset value and cash flow potential. Some of the convertible
securities in which the Fund may invest have been structured to provide enhanced yield, increased equity exposure, or enhanced
downside protection. These securities, generally referred to as enhanced convertible securities, typically provide a benefit
to the issuer in exchange for the enhanced features, such as a conversion premium that is paid by the Fund. The Fund may invest
in convertible securities of companies of any capitalization size, but generally seeks to make its portfolio representative
of the entire convertible securities market.
Convertible securities generally fall within the lower-rated categories as determined by securities rating agencies. Therefore,
the Fund may invest up to 100% of its assets in securities that are rated below investment grade; however, the Fund will not
invest more than 10% of its assets in non-convertible debt securities rated below B by an independent rating agency such as
Standard & Poor's or Moody's Investors Service. The Fund may invest up to 20% of its net assets in other securities, such
as common or preferred stocks and non-convertible debt securities. The Fund currently intends to limit its investments in
foreign securities to 25% or less of its total assets.
While the Fund does not concentrate in any one industry, from time to time, based on economic conditions, it may make significant
investments in certain sectors such as technology, consumer discretionary and health care.
Under normal market conditions, the Fund invests at least 80% of its net assets in convertible securities (and common stock
received upon conversion of convertible securities).
Principal Risks
You could lose money by investing in the Fund. Mutual fund shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other agency
of the U.S. government.
Convertible Securities Convertible securities are subject to the risks of stocks when the underlying stock price is high relative to the conversion
price (because more of the security's value resides in the conversion feature) and debt securities when the underlying stock
price is low relative to the conversion price (because the conversion feature is less valuable). A convertible security is
not as sensitive to interest rate changes as a similar non-convertible debt security, and generally has less potential for
gain or loss than the underlying stock.
Market The market values of securities or other investments owned by the Fund will go up or down, sometimes rapidly or unpredictably.
The market value of a security or other investment may be reduced by market activity or other results of supply and demand
unrelated to the issuer. This is a basic risk associated with all investments. When there are more sellers than buyers, prices
tend to fall. Likewise, when there are more buyers than sellers, prices tend to rise.
The current global outbreak of the novel strain of coronavirus, COVID-19, has resulted in market closures and dislocations,
extreme volatility, liquidity constraints and increased trading costs. Efforts to contain the spread of COVID-19 have resulted
in global travel restrictions and disruptions of healthcare systems, business operations and supply chains, layoffs, reduced
consumer demand, defaults and credit ratings downgrades, and other significant economic impacts. The effects of COVID-19 have
impacted global economic activity across many industries and may heighten other pre-existing political, social and economic
risks, locally or globally. The full impact of the COVID-19 pandemic is unpredictable and may adversely affect the Fund’s
performance.
Stock prices tend to go up and down more dramatically than those of debt securities. A slower-growth or recessionary economic
environment could have an adverse effect on the prices of the various stocks held by the Fund.
Credit An issuer of debt securities may fail to make interest payments or repay principal when due, in whole or in part. Changes
in an issuer's financial strength or in a security's or government's credit rating may affect a security's value.
High-Yield Debt Securities Issuers of lower-rated or “high-yield” debt securities (also known as “junk bonds”) are not as strong
financially as those issuing higher credit quality debt securities. High-yield debt securities are generally considered predominantly
speculative by the applicable rating agencies as their issuers are more likely to encounter financial difficulties because
they may be more highly leveraged, or because of other considerations. In addition, high yield debt securities generally are
more vulnerable to changes in the relevant economy, such as a recession or a sustained period of rising interest rates, that
could affect their ability to make interest and principal payments when due. The prices of high-yield debt securities generally
fluctuate more than those of higher credit quality. High-yield debt securities are generally more illiquid (harder to sell)
and harder to value.
Liquidity From time to time, the trading market for a particular security or type of security or other investments in which the Fund
invests may become less liquid or even illiquid. Reduced liquidity will have an adverse impact on the Fund’s ability
to sell such securities or other investments when necessary to meet the Fund’s liquidity needs, which may arise or increase
in response to a specific economic event or because the investment manager wishes to purchase particular investments or believes
that a higher level of liquidity would be advantageous. Reduced liquidity will also generally lower the value of such securities
or other investments. Market prices for such securities or other investments may be relatively volatile.
Income The Fund's distributions to shareholders may decline when prevailing interest rates fall, when the Fund experiences defaults
on debt securities it holds, or when the Fund realizes a loss upon the sale of a debt security.
Focus To the extent that the Fund focuses on particular countries, regions, industries, sectors or types of investment from time
to time, the Fund may be subject to greater risks of adverse developments in such areas of focus than a fund that invests
in a wider variety of countries, regions, industries, sectors or investments.
Technology Companies The Fund may focus in the technology sector. The technology sector has historically been volatile due to the rapid pace of
product change and development within the sector. Companies in the technology sector may be affected by worldwide technological
developments, the success of their products and services (which may be outdated quickly), anticipated products or services
that are delayed or cancelled, and investor perception of the company and/or its products or services. Technology companies
may also be affected by legislation or changes in government regulation and policies.
Consumer Discretionary Companies By focusing its investments in financials related industries, the Fund carries much greater risks of adverse developments
and price movements in such industries than a fund that invests in a wider variety of industries. Because the Fund concentrates
in a specific industry or group of industries, there is also the risk that the Fund will perform poorly during a slump in
demand for securities of companies in such industries.
Healthcare Companies The activities of healthcare companies may be funded or subsidized by federal and state governments. If government funding
and subsidies are reduced or discontinued, the profitability of these companies could be adversely affected. Healthcare companies
may also be affected by government policies on healthcare reimbursements, regulatory approval for new drugs and medical products,
and similar matters. They are also subject to legislative risk, i.e., the risks associated with the reform of the healthcare
system through legislation.
Smaller and Mid-Capitalization Companies Securities issued by smaller and mid-capitalization companies may be more volatile in price than those of larger companies,
involve substantial risks and should be considered speculative. Such risks may include greater sensitivity to economic conditions,
less certain growth prospects, and lack of depth of management and funds for growth and development. They may also have limited
product lines or be developing or marketing new products or services for which markets are not yet established and may never
become established. In addition, smaller and mid-capitalization companies may be particularly affected by interest rate increases,
as they may find it more difficult to borrow money to continue or expand operations, or may have difficulty in repaying any
loans.
Foreign Securities (non-U.S.) Investing in foreign securities typically involves more risks than investing in U.S. securities, including risks related to
currency exchange rates and policies, country or government specific issues, less favorable trading practices or regulation
and greater price volatility. Certain of these risks also may apply to securities of U.S. companies with significant foreign
operations.
Interest Rate When interest rates rise, debt security prices generally fall. The opposite is also generally true: debt security prices rise
when interest rates fall. Interest rate changes are influenced by a number of factors, including government policy, monetary
policy, inflation expectations, perceptions of risk, and supply of and demand for bonds. In general, securities with longer
maturities or durations are more sensitive to interest rate changes.
Management The Fund is subject to management risk because it is an actively managed investment portfolio. The Fund's investment manager
applies investment techniques and risk analyses in making investment decisions for the Fund, but there can be no guarantee
that these decisions will produce the desired results.
Performance
The following bar chart and table provide some indication of the risks of investing in the Fund. The bar chart shows changes
in the Fund's performance from year to year for Class A shares. The table shows how the Fund's average annual returns for
1 year, 5 years, 10 years or since inception, as applicable, compared with those of a broad measure of market performance. The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the
future. You can obtain updated performance information at franklintempleton.com or by calling (800) DIAL BEN/342-5236.
Sales charges are not reflected in the bar chart, and if those charges were included, returns would be less than those shown.
The following bar chart and table provide some indication of the risks of investing in the Fund. The bar chart shows changes
in the Fund's performance from year to year for Class A shares. The table shows how the Fund's average annual returns for
1 year, 5 years, 10 years or since inception, as applicable, compared with those of a broad measure of market performance.
The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the
future.
franklintempleton.com
(800) DIAL BEN/342-5236
Sales charges are not reflected in the bar chart, and if those charges were included, returns would be less than those shown.
Class A Annual Total Returns
Best Quarter:
2020-06-30
0.3301
Worst Quarter:
2011-09-30
-0.1612
Average Annual Total Returns(figures reflect sales charges)
For the periods ended December 31, 2020
Return Before Taxes
0.3818
0.1779
0.1214
Return After Taxes on Distributions
0.3425
0.1508
0.1012
Return After Taxes on Distributions and Sale of Fund Shares
0.2449
0.1327
0.0909
0.4414
0.1823
0.1194
0.4674
0.1956
0.4660
0.1943
0.1306
0.3937
0.1698
0.1244
The figures in the average annual total returns table above reflect the Class A maximum front-end sales charge of 5.50%. Prior
to September 10, 2018, Class A shares were subject to a maximum front-end sales charge of 5.75%. If the prior maximum front-end
sales charge of 5.75% was reflected, performance for Class A in the average annual total returns table would be lower.
The 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. Actual after-tax returns depend on an investor's tax situation and may differ
from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements,
such as 401(k) plans or individual retirement accounts. After-tax returns are shown only for Class A and after-tax returns
for other classes will vary.
Investment Goal
To maximize total return by emphasizing high current income and long-term capital appreciation, consistent with reasonable
risk.
Fees and Expenses of the Fund
These tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts in Class A if you and your family invest, or agree to invest in the future, at
least $50,000 in Franklin Templeton funds. More information about these and other discounts is available from your financial professional and under “Your Account” on page 87 in the Fund's Prospectus and under “Buying and Selling Shares” on page 81 of the Fund’s
Statement of Additional Information. In addition, more information about sales charge discounts and waivers for purchases
of shares through specific financial intermediaries is set forth in Appendix A - "Intermediary Sales Charge Discounts and
Waivers" to the Fund's prospectus.
Please note that the tables and examples below do not reflect any transaction fees that may be charged by financial intermediaries,
or commissions that a shareholder may be required to pay directly to its financial intermediary when buying or selling Class
R6 or Advisor Class shares.
You may qualify for sales charge discounts in Class A if you and your family invest, or agree to invest in the future, at
least $50,000 in Franklin Templeton funds.
50000
Shareholder Fees (fees paid directly from your investment)
0.0550
0
0
0
0
0.0100
0
0
0
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
0.0046
0.0046
0.0046
0.0046
0.0025
0.0100
0
0
0.0015
0.0015
0.0006
0.0015
0.0086
0.0161
0.0052
0.0061
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of the period. The Example also assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. The Example reflects adjustments made to the Fund's operating expenses due to the fee
waivers and/or expense reimbursements by management for the 1 Year numbers only. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
632
808
1000
1552
263
507
875
1911
112
352
611
1351
51
165
289
651
61
194
339
761
If you do not sell your shares:
163
507
875
1911
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A
higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held
in a taxable account. These costs, which are not reflected in annual Fund operating expenses or in the Example, affect the
Fund's performance. During the most recent fiscal year, the Fund's portfolio turnover rate was 26.90% of the average value of its portfolio.
0.2690
Principal Investment Strategies
The Fund normally invests at least 80% of its net assets in equity securities, including securities convertible into common
stocks. The Fund generally invests predominantly in common stocks, and the remainder of its assets in other equity-related
instruments such as convertible securities and equity-linked notes (ELNs).
While the Fund does not concentrate in any one industry, from time to time, based on economic conditions, it may make significant
investments in certain sectors.
The Fund may invest in foreign securities, but does not currently anticipate investing more than 15% of its total assets in
securities of issuers domiciled outside the United States.
The Fund’s strategy is to invest in a broadly diversified portfolio of equity securities that the Fund’s investment
manager considers to be financially strong, with a focus on "blue chip" companies. The investment manager applies a "bottom-up"
approach to investing in individual securities. The investment manager will assess the market price of a company's securities
relative to the investment manager's evaluation of the company's long-term earnings, cash flow potential and balance sheet
strength. The investment manager also considers a company's price/earnings ratio, return on capital, profit margins and asset
value. The Fund’s investment manager considers dividend yield and the opportunity for dividend growth in selecting stocks
for the Fund because the investment manager believes that, over time, dividend income can contribute significantly to total
return and can be a more consistent source of investment return than capital appreciation.
Principal Risks
You could lose money by investing in the Fund. Mutual fund shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other agency
of the U.S. government.
Market The market values of securities or other investments owned by the Fund will go up or down, sometimes rapidly or unpredictably.
The market value of a security or other investment may be reduced by market activity or other results of supply and demand
unrelated to the issuer. This is a basic risk associated with all investments. When there are more sellers than buyers, prices
tend to fall. Likewise, when there are more buyers than sellers, prices tend to rise.
The current global outbreak of the novel strain of coronavirus, COVID-19, has resulted in market closures and dislocations,
extreme volatility, liquidity constraints and increased trading costs. Efforts to contain the spread of COVID-19 have resulted
in global travel restrictions and disruptions of healthcare systems, business operations and supply chains, layoffs, reduced
consumer demand, defaults and credit ratings downgrades, and other significant economic impacts. The effects of COVID-19 have
impacted global economic activity across many industries and may heighten other pre-existing political, social and economic
risks, locally or globally. The full impact of the COVID-19 pandemic is unpredictable and may adversely affect the Fund’s
performance.
Stock prices tend to go up and down more dramatically than those of debt securities. A slower-growth or recessionary economic
environment could have an adverse effect on the prices of the various stocks held by the Fund.
Income Because the Fund can only distribute what it earns, the Fund's distributions to shareholders may decline when dividend income
from investments in stocks decline or when prevailing interest rates fall.
Focus To the extent that the Fund focuses on particular countries, regions, industries, sectors or types of investment from time
to time, the Fund may be subject to greater risks of adverse developments in such areas of focus than a fund that invests
in a wider variety of countries, regions, industries, sectors or investments.
Blend Style Investing A “blend” strategy results in investments in both growth and value stocks, or in stocks with characteristics of
both. Growth stock prices reflect projections of future earnings or revenues and can fall dramatically if the company fails
to meet those projections. With respect to value stocks, if other investors fail to recognize the company’s value, or
favor investing in faster-growing companies, value stocks may not increase in value as anticipated by the Fund's investment
manager or may decline even further.
Equity-Linked Notes (ELNs) ELNs may not perform as expected and could cause the Fund to realize significant losses including its entire principal investment.
Other risks include counterparty risk, liquidity risk and imperfect correlation between ELNs and the underlying securities.
Foreign Securities (non-U.S.) Investing in foreign securities typically involves more risks than investing in U.S. securities, including risks related to
currency exchange rates and policies, country or government specific issues, less favorable trading practices or regulation
and greater price volatility. Certain of these risks also may apply to securities of U.S. companies with significant foreign
operations.
Convertible Securities Convertible securities are subject to the risks of stocks when the underlying stock price is high relative to the conversion
price (because more of the security's value resides in the conversion feature) and debt securities when the underlying stock
price is low relative to the conversion price (because the conversion feature is less valuable). A convertible security is
not as sensitive to interest rate changes as a similar non-convertible debt security, and generally has less potential for
gain or loss than the underlying stock.
Interest Rate Common stocks with higher dividend yields can be sensitive to interest rate movements: when interest rates rise, the prices
of these stocks may tend to fall. The opposite can also be true: the prices of higher yielding stocks may tend to rise when
interest rates fall. Interest rate changes can be sudden and unpredictable and are influenced by a number of factors including
government policy, monetary policy, inflation expectations, perceptions of risk, and supply and demand of bonds. Increases
in interest rates may also have a negative effect on the types of companies in which the Fund normally invests because these
companies may find it more difficult to obtain credit to expand, may have more difficulty meeting interest payments or may
pay lower dividends due to the higher costs of borrowing.
Credit An issuer of debt securities may fail to make interest payments or repay principal when due, in whole or in part. Changes
in an issuer's financial strength or in a security's or government's credit rating may affect a security's value.
Management The Fund is subject to management risk because it is an actively managed investment portfolio. The Fund's investment manager
applies investment techniques and risk analyses in making investment decisions for the Fund, but there can be no guarantee
that these decisions will produce the desired results.
Performance
The following bar chart and table provide some indication of the risks of investing in the Fund. The bar chart shows changes
in the Fund's performance from year to year for Class A shares. The table shows how the Fund's average annual returns for
1 year, 5 years, 10 years or since inception, as applicable, compared with those of a broad measure of market performance. The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the
future. You can obtain updated performance information at franklintempleton.com or by calling (800) DIAL BEN/342-5236.
The secondary index in the table below shows how the Fund's performance compares to a group of securities that reflects the
broader equity markets universe.
Sales charges are not reflected in the bar chart, and if those charges were included, returns would be less than those shown.
The following bar chart and table provide some indication of the risks of investing in the Fund. The bar chart shows changes
in the Fund's performance from year to year for Class A shares. The table shows how the Fund's average annual returns for
1 year, 5 years, 10 years or since inception, as applicable, compared with those of a broad measure of market performance.
The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the
future.
franklintempleton.com
(800) DIAL BEN/342-5236
Sales charges are not reflected in the bar chart, and if those charges were included, returns would be less than those shown.
Class A Annual Total Returns
Best Quarter:
2020-06-30
0.1419
Worst Quarter:
2020-03-31
-0.2273
Average Annual Total Returns(figures reflect sales charges)
For the periods ended December 31, 2020
Return Before Taxes
-0.0020
0.0912
0.0940
Return After Taxes on Distributions
-0.0102
0.0778
0.0822
Return After Taxes on Distributions and Sale of Fund Shares
0.0032
0.0698
0.0744
0.0380
0.0953
0.0919
0.0535
0.1012
0.0975
0.0603
0.1077
0.0589
0.1064
0.1030
0.1840
0.1521
0.1388
No one index is representative of the Fund's portfolio.
The figures in the average annual total returns table above reflect the Class A maximum front-end sales charge of 5.50%. Prior
to September 10, 2018, Class A shares were subject to a maximum front-end sales charge of 5.75%. If the prior maximum front-end
sales charge of 5.75% was reflected, performance for Class A in the average annual total returns table would be lower.
The 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. Actual after-tax returns depend on an investor's tax situation and may differ
from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements,
such as 401(k) plans or individual retirement accounts. After-tax returns are shown only for Class A and after-tax returns
for other classes will vary.
Investment Goal
To maximize income to support monthly distributions, while maintaining the prospects for capital appreciation.
Fees and Expenses of the Fund
These tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts in Class A if you and your family invest, or agree to invest in the future, at
least $50,000 in Franklin Templeton funds. More information about these and other discounts is available from your financial professional and under “Your Account” on page 87 in the Fund's Prospectus and under “Buying and Selling Shares” on page 81 of the Fund’s
Statement of Additional Information. In addition, more information about sales charge discounts and waivers for purchases
of shares through specific financial intermediaries is set forth in Appendix A - "Intermediary Sales Charge Discounts and
Waivers" to the Fund's prospectus.
Please note that the tables and examples below do not reflect any transaction fees that may be charged by financial intermediaries,
or commissions that a shareholder may be required to pay directly to its financial intermediary when buying or selling Class
R6 or Advisor Class shares.
You may qualify for sales charge discounts in Class A if you and your family invest, or agree to invest in the future, at
least $50,000 in Franklin Templeton funds.
50000
Shareholder Fees (fees paid directly from your investment)
0.0550
0
0
0
0
0.0100
0
0
0
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
0.0055
0.0055
0.0055
0.0055
0.0055
0.0025
0.0100
0.0050
0
0
0.0013
0.0013
0.0013
0.0005
0.0013
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of the period. The Example also assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. The Example reflects adjustments made to the Fund's operating expenses due to the fee
waivers and/or expense reimbursements by management for the 1 Year numbers only. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
640
832
1041
1641
271
532
917
1999
120
377
654
1444
61
194
339
762
69
220
383
858
If you do not sell your shares:
171
532
917
1999
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A
higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held
in a taxable account. These costs, which are not reflected in annual Fund operating expenses or in the Example, affect the
Fund's performance. During the most recent fiscal year, the Fund's portfolio turnover rate was 64.69% of the average value of its portfolio.
0.6469
Principal Investment Strategies
Under normal market conditions, the Fund invests in a diversified portfolio of stocks (substantially dividend paying) and
debt securities. The Fund normally invests at least 25% of its total assets in debt securities, including bonds, notes, debentures and money
market securities. In addition, the Fund normally invests at least 25% of its total assets in equity securities, primarily
common and preferred stock. To the extent that the value of convertible and preferred securities can be attributed to their
debt characteristics, they will be treated as debt securities for purposes of this investment policy.
The Fund seeks income by investing in a combination of corporate, agency and government bonds issued in the United States
and other countries, as well as common stocks of companies in any market capitalization range and convertible securities.
The Fund seeks capital appreciation by investing in equity securities and convertible securities of companies from a variety
of industries.
The Fund generally invests in investment grade debt securities. The Fund may invest in debt securities of any duration. The
Fund does not currently anticipate investing more than 25% of its total assets in securities of issuers domiciled outside
the United States.
The Fund also invests in equity-linked notes, which are hybrid derivative-type instruments that are specially designed to
combine the characteristics of one or more reference securities (usually a single stock, a stock index or a basket of stocks
(underlying securities)) and a related equity derivative, such as a put or call option, in a single note form.
The Fund may, from time to time, use (i) equity-related derivatives, which may include call and put options on equity securities
and equity security indices, futures on equity securities and equity indexes and options on equity index futures, (ii) interest
rate derivatives, including interest rate swaps and interest rate/bond futures contracts, (iii) currency derivatives, including
forward foreign currency exchange contracts, currency futures contracts, currency swaps and currency options and (iv) credit-related
derivatives, such as credit default swaps and options on credit default swaps for various purposes, including enhancing Fund
returns, increasing liquidity, gaining exposure to particular instruments or markets in more efficient or less expensive ways
and/or hedging risks. The use of such derivative transactions may allow the Fund to obtain net long or net short exposures
to selected securities, markets, interest rates, countries, currencies, credits or durations.
The investment manager applies a “bottom-up” approach to investing in individual securities. The investment manager
will assess the market price of a company’s securities relative to the investment manager’s evaluation of the company’s
long-term earnings, asset value and cash flow potential. The investment manager also considers a company’s price/earnings
ratio, profit margins and liquidation value. In determining an optimal mix of equity and fixed-income investments for the
Fund, the investment manager assesses changing economic, market and industry conditions.
Under normal market conditions, the Fund employs a managed distribution policy that is designed to provide shareholders with
regular distributions from their investment. Under this policy, the Fund distributes twelve level monthly payments throughout
each calendar year to enable shareholders to estimate the distributions they will receive from the Fund; however, the twelfth
monthly payment may be greater than the initially anticipated amount if additional income or capital gains are required to
be distributed. The targeted annual payout rate for all share classes is between approximately 2.75% and 6.25% per share based
on the last net asset value of the Fund of the prior calendar year in which the distribution is being made (e.g., for distributions
made in 2021, the targeted annual payout rate for all share classes will be based on the Fund’s net asset value on December
31, 2020). The distribution rate will vary by class based on the expenses of each class. Every year, the investment manager
will undertake to determine if an adjustment should be made to the monthly rate.
It is possible to lose money by investing in the Fund notwithstanding the managed distribution policy. There can be no assurance
or guarantee that the Fund will provide a fixed stable level of distributions at any time or over any period of time. An investment
in the Fund could lose money over short, intermediate, or even long periods of time.
Under normal market conditions, the Fund invests in a diversified portfolio of stocks (substantially dividend paying) and
debt securities.
Principal Risks
You could lose money by investing in the Fund. Mutual fund shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other agency
of the U.S. government.
Market The market values of securities or other investments owned by the Fund will go up or down, sometimes rapidly or unpredictably.
The market value of a security or other investment may be reduced by market activity or other results of supply and demand
unrelated to the issuer. This is a basic risk associated with all investments. When there are more sellers than buyers, prices
tend to fall. Likewise, when there are more buyers than sellers, prices tend to rise.
The current global outbreak of the novel strain of coronavirus, COVID-19, has resulted in market closures and dislocations,
extreme volatility, liquidity constraints and increased trading costs. Efforts to contain the spread of COVID-19 have resulted
in global travel restrictions and disruptions of healthcare systems, business operations and supply chains, layoffs, reduced
consumer demand, defaults and credit ratings downgrades, and other significant economic impacts. The effects of COVID-19 have
impacted global economic activity across many industries and may heighten other pre-existing political, social and economic
risks, locally or globally. The full impact of the COVID-19 pandemic is unpredictable and may adversely affect the Fund’s
performance.
Stock prices tend to go up and down more dramatically than those of debt securities. A slower-growth or recessionary economic
environment could have an adverse effect on the prices of the various stocks held by the Fund.
Credit An issuer of debt securities may fail to make interest payments or repay principal when due, in whole or in part. Changes
in an issuer's financial strength or in a security's or government's credit rating may affect a security's value.
Interest Rate When interest rates rise, debt security prices generally fall. The opposite is also generally true: debt security prices rise
when interest rates fall. Interest rate changes are influenced by a number of factors, including government policy, monetary
policy, inflation expectations, perceptions of risk, and supply of and demand for bonds. In general, securities with longer
maturities or durations are more sensitive to interest rate changes.
Managed Distribution Policy The Fund's monthly payments under the managed distribution policy may reduce the amount of assets available for investment
by the Fund, even if the Fund's assets grow over time. In addition, the Fund may return capital to shareholders (i.e., a return
of all or part of a shareholder's original investment). Fund shareholders are expected to receive a monthly distribution that
is equal to a set percentage per share, which will be different per class based on differences in class expenses, multiplied
by the number of shares owned on the record date; therefore, redemptions from a shareholder’s account will reduce future
distributions. The managed distribution policy is not designed to generate, and is not expected to result in, distributions
that equal a fixed percentage of the Fund's current net asset value per share or a fixed percentage of a shareholder’s
current account value.
Equity-Linked Notes (ELNs) ELNs may not perform as expected and could cause the Fund to realize significant losses including its entire principal investment.
Other risks include counterparty risk, liquidity risk and imperfect correlation between ELNs and the underlying securities.
Convertible Securities Convertible securities are subject to the risks of stocks when the underlying stock price is high relative to the conversion
price (because more of the security's value resides in the conversion feature) and debt securities when the underlying stock
price is low relative to the conversion price (because the conversion feature is less valuable). A convertible security is
not as sensitive to interest rate changes as a similar non-convertible debt security, and generally has less potential for
gain or loss than the underlying stock.
Management The Fund is subject to management risk because it is an actively managed investment portfolio. The Fund's investment manager
applies investment techniques and risk analyses in making investment decisions for the Fund, but there can be no guarantee
that these decisions will produce the desired results.
Derivative Instruments The performance of derivative instruments depends largely on the performance of an underlying instrument or factor, such as
a currency, security, interest rate or index, and such instruments often have risks similar to the underlying instrument,
in addition to other risks. Derivatives involve costs and can create economic leverage in the Fund’s portfolio which
may result in significant volatility and cause the Fund to participate in losses (as well as gains) in an amount that exceeds
the Fund’s initial investment. Other risks include illiquidity, mispricing or improper valuation of the derivative instrument,
and imperfect correlation between the value of the derivative and the underlying instrument so that the Fund may not realize
the intended benefits. When a derivative is used for hedging, the change in value of the derivative may also not correlate
specifically with the currency, security, interest rate, index or other risk being hedged. Derivatives also may present the
risk that the other party to the transaction will fail to perform.
LIBOR Transition The Fund invests in financial instruments that may have floating or variable rate calculations for payment obligations or
financing terms based on the London Interbank Offered Rate (LIBOR), which is the benchmark interest rate at which major global
banks lend to one another in the international interbank market for short-term loans. It is currently anticipated that LIBOR
will be discontinued by the end of 2021 and will cease to be published after that time (although there are initiatives to
delay the discontinuation beyond 2021 for certain LIBOR rates). The impact of the discontinuation of LIBOR and the transition
to an alternative rate on the Fund’s portfolio remains uncertain. There can be no guarantee that financial instruments
that transition to an alternative reference rate will retain the same value or liquidity as they would otherwise have had.
Foreign Securities (non-U.S.) Investing in foreign securities typically involves more risks than investing in U.S. securities, including risks related to
currency exchange rates and policies, country or government specific issues, less favorable trading practices or regulation
and greater price volatility. Certain of these risks also may apply to securities of U.S. companies with significant foreign
operations.
Performance
The following bar chart and table provide some indication of the risks of investing in the Fund. The bar chart shows changes
in the Fund's performance from year to year for Class A shares. The table shows how the Fund's average annual returns for
1 year, 5 years, 10 years or since inception, as applicable, compared with those of a broad measure of market performance. The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the
future. You can obtain updated performance information at franklintempleton.com or by calling (800) DIAL BEN/342-5236.
The secondary index in the table below shows how the Fund's performance compares to a group of securities that aligns with
the fixed-income component of the Fund's portfolio. The blended index in the table below shows how the Fund's performance
compares with groups of securities in approximately the same asset class allocations as the Fund.
Sales charges are not reflected in the bar chart, and if those charges were included, returns would be less than those shown.
The following bar chart and table provide some indication of the risks of investing in the Fund. The bar chart shows changes
in the Fund's performance from year to year for Class A shares. The table shows how the Fund's average annual returns for
1 year, 5 years, 10 years or since inception, as applicable, compared with those of a broad measure of market performance.
The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the
future.
franklintempleton.com
(800) DIAL BEN/342-5236
Sales charges are not reflected in the bar chart, and if those charges were included, returns would be less than those shown.
Class A Annual Total Returns
Best Quarter:
2020-06-30
0.0974
Worst Quarter:
2020-03-31
-0.1337
Average Annual Total Returns(figures reflect sales charges)
For the periods ended December 31, 2020
Return Before Taxes
-0.0037
0.0689
0.0670
Return After Taxes on Distributions
-0.0185
0.0526
0.0530
Return After Taxes on Distributions and Sale of Fund Shares
0.0008
0.0490
0.0492
0.0360
0.0729
0.0654
0.0514
0.0782
0.0708
0.0570
0.0848
0.0562
0.0836
0.0761
0.1840
0.1521
0.1388
0.0751
0.0443
0.0384
0.0550
0.0859
0.0868
No one index is representative of the Fund's portfolio.
The figures in the average annual total returns table above reflect the Class A maximum front-end sales charge of 5.50%. Prior
to September 10, 2018, Class A shares were subject to a maximum front-end sales charge of 5.75%. If the prior maximum front-end
sales charge of 5.75% was reflected, performance for Class A in the average annual total returns table would be lower.
The 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. Actual after-tax returns depend on an investor's tax situation and may differ
from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements,
such as 401(k) plans or individual retirement accounts. After-tax returns are shown only for Class A and after-tax returns
for other classes will vary.
Investment Goal
High level of current income, while providing lower volatility of principal than a fund that invests in fixed-rate securities.
Fees and Expenses of the Fund
These tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts in Class A if you and your family invest, or agree to invest in the future, at
least $100,000 in Franklin Templeton funds. More information about these and other discounts is available from your financial professional and under “Your Account” on page 149 in the Fund's Prospectus and under “Buying and Selling Shares” on page 89 of the Fund’s
Statement of Additional Information. In addition, more information about sales charge discounts and waivers for purchases
of shares through specific financial intermediaries is set forth in Appendix A – "Intermediary Sales Charge Discounts
and Waivers" to the Fund’s prospectus.
Please note that the tables and examples below do not reflect any transaction fees that may be charged by financial intermediaries,
or commissions that a shareholder may be required to pay directly to its financial intermediary when buying or selling Class
R6 or Advisor Class shares.
You may qualify for sales charge discounts in Class A if you and your family invest, or agree to invest in the future, at
least $100,000 in Franklin Templeton funds.
100000
Shareholder Fees (fees paid directly from your investment)
0.0225
0.0225
0
0
0
0.0100
0
0
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
0.0050
0.0050
0.0050
0.0050
0.0050
0.0025
0.0010
0.0065
0
0
0.0022
0.0022
0.0022
0.0022
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of the period. The Example also assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. The Example reflects adjustments made to the Fund's operating expenses due to the fee
waivers and/or expense reimbursements by management for the 1 Year numbers only. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
323
532
759
1410
308
486
680
1238
240
439
760
1668
62
204
358
807
75
236
411
918
If you do not sell your shares:
140
439
760
1668
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A
higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held
in a taxable account. These costs, which are not reflected in annual Fund operating expenses or in the Example, affect the
Fund's performance. During the most recent fiscal year, the Fund's portfolio turnover rate was 35.03% of the average value of its portfolio.
0.3503
Principal Investment Strategies
Under normal market conditions, the Fund invests at least 80% of its net assets in “adjustable-rate U.S. government mortgage
securities.” “Adjustable-rate U.S. government mortgage securities” include adjustable-rate mortgage securities (ARMS) and other
mortgage-backed securities, including collateralized mortgage obligations (CMOs), with interest rates that adjust periodically
to reflect prevailing market interest rates, which are issued or guaranteed by the U.S. government, its agencies or instrumentalities,
including government-sponsored entities.
Mortgage-backed securities represent an interest in a pool of mortgage loans made by banks and other financial institutions
to finance purchases of homes, commercial buildings and other real estate. As the underlying mortgage loans are paid off,
investors receive periodic principal and interest payments as well as any unscheduled principal prepayments on the underlying
mortgage loans. The mortgage-backed securities purchased by the Fund may include bonds and notes issued or guaranteed by U.S.
government-sponsored entities, such as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage
Corporation (Freddie Mac) and by the Government National Mortgage Association (Ginnie Mae). The Fund currently focuses on
mortgage-backed securities issued or guaranteed by Fannie Mae and Freddie Mac.
Government agency or instrumentality issues have different levels of credit support. Ginnie Mae pass-through mortgage certificates
are backed by the full faith and credit of the U.S. government. U.S. government-sponsored entities, such as Fannie Mae and Freddie Mac, may be chartered by Acts of Congress, but their securities
are neither issued nor guaranteed by the U.S. government. Although the U.S. government has provided financial support to Fannie
Mae and Freddie Mac, no assurance can be given that the U.S. government will continue to do so. Accordingly, securities issued by Fannie Mae and Freddie Mac may involve a greater risk of non-payment of principal and interest.
Investors should remember that guarantees of timely repayment of principal and interest do not apply to the market prices
and yields of the securities or to the net asset value or performance of the Fund, which will vary with changes in interest
rates and other market conditions.
Periodic interest rate adjustments may help keep the prices of ARMS relatively stable when compared with the prices of fixed-rate
securities, which generally fall when interest rates rise. As a result, the Fund may participate in increases in interest
rates resulting in higher current yields, but with less fluctuation in net asset value than a fund invested in comparable
fixed-rate securities. Adjustable-rate securities, however, frequently limit the maximum amount by which the interest rate
may change up or down. The Fund, therefore, may not benefit from increases in interest rates if prevailing interest rates
exceed a security's maximum allowable periodic or lifetime limits. During periods of falling interest rates, the interest
rates on these securities may reset downward, resulting in a lower yield for the Fund.
The Fund may invest up to 20% of its net assets in other securities, including fixed-rate mortgage-backed securities and mortgage-backed
securities, including non-agency CMOs, issued by a private entity. The Fund may also invest in direct obligations of the U.S.
government or of its agencies, instrumentalities or sponsored enterprises, such as Treasury bills, bonds or notes, and in
repurchase agreements collateralized by U.S. government or government agency securities.
Under normal market conditions, the Fund invests at least 80% of its net assets in “adjustable-rate U.S. government mortgage
securities.”
Principal Risks
You could lose money by investing in the Fund. Mutual fund shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other agency
of the U.S. government.
Interest Rate When interest rates rise, debt security prices generally fall. The opposite is also generally true: debt security prices rise
when interest rates fall. Interest rate changes are influenced by a number of factors, including government policy, monetary
policy, inflation expectations, perceptions of risk, and supply of and demand for bonds. In general, securities with longer
maturities or durations are more sensitive to interest rate changes.
Prepayment Prepayment risk occurs when a debt security can be repaid in whole or in part prior to the security's maturity and the Fund
must reinvest the proceeds it receives, during periods of declining interest rates, in securities that pay a lower rate of
interest. Also, if a security has been purchased at a premium, the value of the premium would be lost in the event of prepayment.
Prepayments generally increase when interest rates fall.
Mortgage Securities Mortgage securities differ from conventional debt securities because principal is paid back periodically over the life of
the security rather than at maturity. The Fund may receive unscheduled payments of principal due to voluntary prepayments,
refinancings or foreclosures on the underlying mortgage loans. Because of prepayments, mortgage securities may be less effective
than some other types of debt securities as a means of "locking in" long-term interest rates and may have less potential for
capital appreciation during periods of falling interest rates. A reduction in the anticipated rate of principal prepayments,
especially during periods of rising interest rates, may increase or extend the effective maturity of mortgage securities,
making them more sensitive to interest rate changes, subject to greater price volatility, and more susceptible than some other
debt securities to a decline in market value when interest rates rise.
Adjustable Rate Securities Because changes in interest rates on adjustable rate securities may lag behind changes in market rates, the value of such
securities may decline during periods of rising interest rates until their interest rates reset to market rates. During periods
of declining interest rates, because the interest rates on adjustable rate securities generally reset downward, their market
value is unlikely to rise to the same extent as the value of comparable fixed rate securities.
Extension Some debt securities, particularly mortgage-backed securities, are subject to the risk that the debt security’s effective
maturity is extended because calls or prepayments are less or slower than anticipated, particularly when interest rates rise.
The market value of such security may then decline and become more interest rate sensitive.
Market The market values of securities or other investments owned by the Fund will go up or down, sometimes rapidly or unpredictably.
The market value of a security or other investment may be reduced by market activity or other results of supply and demand
unrelated to the issuer. This is a basic risk associated with all investments. When there are more sellers than buyers, prices
tend to fall. Likewise, when there are more buyers than sellers, prices tend to rise.
The current global outbreak of the novel strain of coronavirus, COVID-19, has resulted in market closures and dislocations,
extreme volatility, liquidity constraints and increased trading costs. Efforts to contain the spread of COVID-19 have resulted
in global travel restrictions and disruptions of healthcare systems, business operations and supply chains, layoffs, reduced
consumer demand, defaults and credit ratings downgrades, and other significant economic impacts. The effects of COVID-19 have
impacted global economic activity across many industries and may heighten other pre-existing political, social and economic
risks, locally or globally. The full impact of the COVID-19 pandemic is unpredictable and may adversely affect the Fund’s
performance.
Income The Fund's distributions to shareholders may decline when prevailing interest rates fall, when the Fund experiences defaults
on debt securities it holds, or when the Fund realizes a loss upon the sale of a debt security.
Credit An issuer of debt securities may fail to make interest payments or repay principal when due, in whole or in part. Changes
in an issuer's financial strength or in a security's credit rating may affect a security's value. While securities issued
by Ginnie Mae are backed by the full faith and credit of the U.S. government, not all securities of the various U.S. government
agencies are, including those of Fannie Mae and Freddie Mac. Accordingly, securities issued by Fannie Mae and Freddie Mac
may involve a risk of non-payment of principal and interest.
Management The Fund is subject to management risk because it is an actively managed investment portfolio. The Fund's investment manager
applies investment techniques and risk analyses in making investment decisions for the Fund, but there can be no guarantee
that these decisions will produce the desired results.
Performance
The following bar chart and table provide some indication of the risks of investing in the Fund. The bar chart shows changes
in the Fund's performance from year to year for Class A shares. The table shows how the Fund's average annual returns for
1 year, 5 years, 10 years or since inception, as applicable, compared with those of a broad measure of market performance. The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the
future. You can obtain updated performance information at franklintempleton.com or by calling (800) DIAL BEN/342-5236.
Sales charges are not reflected in the bar chart, and if those charges were included, returns would be less than those shown.
The following bar chart and table provide some indication of the risks of investing in the Fund. The bar chart shows changes
in the Fund's performance from year to year for Class A shares. The table shows how the Fund's average annual returns for
1 year, 5 years, 10 years or since inception, as applicable, compared with those of a broad measure of market performance.
The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the
future.
franklintempleton.com
(800) DIAL BEN/342-5236
Sales charges are not reflected in the bar chart, and if those charges were included, returns would be less than those shown.
Class A Annual Total Returns
Best Quarter:
2020-06-30
0.0242
Worst Quarter:
2020-03-31
-0.0151
Average Annual Total Returns(figures reflect sales charges)
For the periods ended December 31, 2020
Return Before Taxes
-0.0108
0.0033
0.0047
Return After Taxes on Distributions
-0.0184
-0.0057
-0.0026
Return After Taxes on Distributions and Sale of Fund Shares
-0.0064
-0.0014
0.0005
-0.0082
0.0048
0.0057
-0.0013
0.0040
0.0029
0.0163
0.0119
0.0152
0.0105
0.0094
0.0254
0.0173
0.0111
Historical performance for Class A1 shares prior to their inception is based on the performance of Class A shares.
The 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. Actual after-tax returns depend on an investor's tax situation and may differ
from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements,
such as 401(k) plans or individual retirement accounts. After-tax returns are shown only for Class A and after-tax returns
for other classes will vary.
Investment Goal
High level of current income. A secondary goal is preservation of capital.
Fees and Expenses of the Fund
These tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts in Class A if you and your family invest, or agree to invest in the future, at
least $100,000 in Franklin Templeton funds. More information about these and other discounts is available from your financial professional and under “Your Account” on page 149 in the Fund's Prospectus and under “Buying and Selling Shares” on page 89 of the Fund’s
Statement of Additional Information. In addition, more information about sales charge discounts and waivers for purchases
of shares through specific financial intermediaries is set forth in Appendix A – "Intermediary Sales Charge Discounts
and Waivers" to the Fund’s prospectus.
Please note that the tables and examples below do not reflect any transaction fees that may be charged by financial intermediaries,
or commissions that a shareholder may be required to pay directly to its financial intermediary when buying or selling Class
R6 or Advisor Class shares.
You may qualify for sales charge discounts in Class A if you and your family invest, or agree to invest in the future, at
least $100,000 in Franklin Templeton funds.
100000
Shareholder Fees (fees paid directly from your investment)
0.0225
0
0
0
0.0100
0
0
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
0.0056
0.0056
0.0056
0.0056
0.0025
0.0065
0
0
0.0015
0.0015
0.0015
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of the period. The Example also assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. The Example reflects adjustments made to the Fund's operating expenses due to the fee
waivers and/or expense reimbursements by management for the 1 Year numbers only. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
321
530
757
1410
238
437
758
1668
63
222
395
897
73
234
409
917
If you do not sell your shares:
138
437
758
1668
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A
higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held
in a taxable account. These costs, which are not reflected in annual Fund operating expenses or in the Example, affect the
Fund's performance. During the most recent fiscal year, the Fund's portfolio turnover rate was 32.39% of the average value of its portfolio.
0.3239
Principal Investment Strategies
The Fund normally invests at least 80% of its net assets in income-producing floating interest rate corporate loans and corporate
debt securities made to or issued by U.S. companies, non-U.S. entities and U.S. subsidiaries of non-U.S. entities. Floating
interest rates vary with and are periodically adjusted to a generally recognized base interest rate such as the London Interbank
Offered Rate (LIBOR) or the Prime Rate. The Fund may invest in companies whose financial condition is troubled or uncertain
and that may be involved in bankruptcy proceedings, reorganizations or financial restructurings.
Floating interest rate corporate loans and debt securities, also called bank loans or senior floating rate interests (collectively,
floating rate investments), generally have credit ratings below investment grade and may be subject to restrictions on resale.
Under normal market conditions, the Fund invests at least 75% of its net assets in floating rate investments that are rated
B- or higher at the time of purchase by a nationally recognized statistical rating organization (NRSRO) or, if unrated, are
determined to be of comparable quality by the Fund’s investment manager. Under normal market conditions, the Fund may
invest up to 25% of its net assets in floating rate investments that are rated below B- by an NRSRO or, if unrated, are determined
to be of comparable quality by the investment manager.
The Fund's floating rate investments typically hold the most senior position in the capitalization structure of a company
and are generally secured by specific collateral. Such senior position means that, in case the company becomes insolvent,
the lenders or security holders in a senior position like the Fund's position will typically be paid before other unsecured
or subordinated creditors of the company from the assets of the company.
The Fund typically invests in a corporate loan or corporate debt security if the investment manager judges that the borrower
can meet the scheduled payments of interest and principal on the obligation. The investment manager performs its own independent
credit analysis of each borrower/issuer and of the collateral structure securing the Fund’s investment. The investment
manager also considers the nature of the industry in which the borrower operates, the nature of the borrower's assets, and
the general quality and creditworthiness of the borrower and of any shareholder or other entity providing credit support to
the borrower.
The Fund may invest in “covenant lite” loans and debt securities. Certain financial institutions may define “covenant
lite” loans differently. Covenant lite loans or securities, which have varied terms and conditions, may have tranches
that contain fewer or no maintenance financial covenants, which require borrowers/issuers to meet financial requirements specified
under the loan credit agreement that are tested regularly for compliance. The most common examples of maintenance financial
covenants include maximum leverage and minimum interest coverage ratios. Because a covenant lite loan or debt security does
not require the borrower to maintain these financial tests regularly, investors typically have less ability to declare a default,
and therefore receive collateral in a timely manner, or to force restructurings and other capital changes on struggling borrowers
compared to an otherwise similar loan that does contain maintenance financial covenants. The Fund may experience relatively
greater difficulty or delays in enforcing its rights on its holdings of certain covenant lite loans and debt securities than
its holdings of loans or securities with maintenance financial covenants. However, depending on the circumstances, there are
often alternative sources of recourse portfolio managers can seek in order to protect their investments. Further, the Fund
typically invests in a corporate loan or corporate debt security, including those that are covenant lite, if the investment
manager judges that the borrower can meet the scheduled payments of interest and principal on the obligation and meets other
creditworthiness criteria.
The Fund may invest in structured fixed income securities, including collateralized loan obligations (CLOs).
The Fund currently limits its investments in debt obligations of non-U.S. entities to no more than 25% of its total assets.
The Fund currently invests predominantly in debt obligations that are U.S. dollar-denominated or otherwise provide for payment
in U.S. dollars.
The Fund currently does not intend to invest more than 25% of its net assets in the obligations of borrowers in any single
industry, except that, under normal market conditions, the Fund invests more than 25% of its net assets in debt obligations
of companies operating in the industry group consisting of financial institutions and their holding companies, including commercial
banks, thrift institutions, insurance companies and finance companies. These firms, or "agent banks," may serve as administrators
of corporate loans issued by other companies. For purposes of this restriction, the Fund currently considers such companies
to include the borrower, the agent bank and any intermediate participant. The Fund may invest up to 100% of its net assets
in loans where firms in such industry group are borrowers, agent banks or intermediate participants.
In addition to the Fund’s main investments, the Fund may invest up to 20% of its net assets in certain other types of
debt obligations and equity or debt securities, including, but not limited to, other secured, second lien, subordinated or
unsecured corporate loans and corporate debt securities, fixed rate obligations of U.S. companies, non-U.S. entities and U.S.
subsidiaries of non-U.S. entities and equity securities (including convertible securities, warrants and rights) to the extent
that they are acquired in connection with or incidental to the Fund's other investment activities.
Principal Risks
You could lose money by investing in the Fund. Mutual fund shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other agency
of the U.S. government.
Credit An issuer of debt securities may fail to make interest payments or repay principal when due, in whole or in part. Changes
in an issuer's financial strength or in a security's or government's credit rating may affect a security's value.
Floating Rate Corporate Investments Floating rate corporate loans and corporate debt securities generally have credit ratings below investment grade and may be
subject to resale restrictions. They are often issued in connection with highly leveraged transactions, and may be subject
to greater credit risks than other investments including the possibility of default or bankruptcy. In addition, a secondary
market in corporate loans may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement
periods, which may impair the ability to accurately value existing and prospective investments and to realize in a timely
fashion the full value upon the sale of a corporate loan. A significant portion of floating rate investments may be “covenant
lite” loans that may contain fewer or less restrictive constraints on the borrower or other borrower-friendly characteristics.
Market The market values of securities or other investments owned by the Fund will go up or down, sometimes rapidly or unpredictably.
The market value of a security or other investment may be reduced by market activity or other results of supply and demand
unrelated to the issuer. This is a basic risk associated with all investments. When there are more sellers than buyers, prices
tend to fall. Likewise, when there are more buyers than sellers, prices tend to rise.
The current global outbreak of the novel strain of coronavirus, COVID-19, has resulted in market closures and dislocations,
extreme volatility, liquidity constraints and increased trading costs. Efforts to contain the spread of COVID-19 have resulted
in global travel restrictions and disruptions of healthcare systems, business operations and supply chains, layoffs, reduced
consumer demand, defaults and credit ratings downgrades, and other significant economic impacts. The effects of COVID-19 have
impacted global economic activity across many industries and may heighten other pre-existing political, social and economic
risks, locally or globally. The full impact of the COVID-19 pandemic is unpredictable and may adversely affect the Fund’s
performance.
Impairment of Collateral The value of collateral securing a loan or other corporate debt security may decline after the Fund invests and there is a
risk that the value of the collateral may not be sufficient to cover the amount owed to the Fund, or the collateral securing
a loan may be found invalid, may be used to pay other outstanding obligations of the borrower under applicable law or may
be difficult to sell.
Liquidity From time to time, the trading market for a particular security or type of security or other investments in which the Fund
invests may become less liquid or even illiquid. Reduced liquidity will have an adverse impact on the Fund’s ability
to sell such securities or other investments when necessary to meet the Fund’s liquidity needs, which may arise or increase
in response to a specific economic event or because the investment manager wishes to purchase particular investments or believes
that a higher level of liquidity would be advantageous. Reduced liquidity will also generally lower the value of such securities
or other investments. Market prices for such securities or other investments may be relatively volatile.
High-Yield Debt Securities Issuers of lower-rated or “high-yield” debt securities are not as strong financially as those issuing higher credit
quality debt securities. High-yield debt securities are generally considered predominantly speculative by the applicable rating
agencies as their issuers are more likely to encounter financial difficulties because they may be more highly leveraged, or
because of other considerations. In addition, high yield debt securities generally are more vulnerable to changes in the relevant
economy, such as a recession or a sustained period of rising interest rates, that could affect their ability to make interest
and principal payments when due. The prices of high-yield debt securities generally fluctuate more than those of higher credit
quality. High-yield debt securities are generally more illiquid (harder to sell) and harder to value.
Prepayment Prepayment risk occurs when a debt security can be repaid in whole or in part prior to the security's maturity and the Fund
must reinvest the proceeds it receives, during periods of declining interest rates, in securities that pay a lower rate of
interest. Also, if a security has been purchased at a premium, the value of the premium would be lost in the event of prepayment.
Prepayments generally increase when interest rates fall.
Interest Rate When interest rates rise, debt security prices generally fall. The opposite is also generally true: debt security prices rise
when interest rates fall. Interest rate changes are influenced by a number of factors, including government policy, monetary
policy, inflation expectations, perceptions of risk, and supply of and demand for bonds. In general, securities with longer
maturities or durations are more sensitive to interest rate changes.
Variable Rate Securities Because changes in interest rates on variable rate securities (including floating rate securities) may lag behind changes
in market rates, the value of such securities may decline during periods of rising interest rates until their interest rates
reset to market rates. During periods of declining interest rates, because the interest rates on variable rate securities
generally reset downward, their market value is unlikely to rise to the same extent as the value of comparable fixed rate
securities.
Income The Fund's distributions to shareholders may decline when prevailing interest rates fall, when the Fund experiences defaults
on debt securities it holds, or when the Fund realizes a loss upon the sale of a debt security.
Concentration Because of the Fund’s focus on a given industry or group of industries, the losses the Fund may experience are greater
upon any single economic, business, political, regulatory, or other occurrence affecting such industry or group of industries.
As a result, there may be more fluctuation in the price of the Fund’s shares.
Collateralized Loan Obligations (CLOs) The risks of an investment in a CLO depend largely on the type of collateral held by the special purpose entity (SPE) and
the tranche of the CLO in which the Fund invests. CLOs may be deemed to be illiquid and subject to the Fund’s restrictions
on investments in illiquid investments. In addition to the normal risks associated with debt securities and loans (e.g., interest
rate risk, credit risk and default risk), CLOs carry additional risks including, but not limited to: (i) the possibility that
distributions from collateral securities will not be adequate to make interest or other payments; (ii) the quality of the
collateral may decline in value or quality or go into default or be downgraded; (iii) the Fund may invest in tranches of a
CLO that are subordinate to other classes; and (iv) the complex structure of the security may not be fully understood at the
time of investment.
LIBOR Transition The Fund invests in financial instruments that may have floating or variable rate calculations for payment obligations or
financing terms based on the London Interbank Offered Rate (LIBOR), which is the benchmark interest rate at which major global
banks lend to one another in the international interbank market for short-term loans. It is currently anticipated that LIBOR
will be discontinued by the end of 2021 and will cease to be published after that time (although there are initiatives to
delay the discontinuation beyond 2021 for certain LIBOR rates). The impact of the discontinuation of LIBOR and the transition
to an alternative rate on the Fund’s portfolio remains uncertain. There can be no guarantee that financial instruments
that transition to an alternative reference rate will retain the same value or liquidity as they would otherwise have had.
Management The Fund is subject to management risk because it is an actively managed investment portfolio. The Fund's investment manager
applies investment techniques and risk analyses in making investment decisions for the Fund, but there can be no guarantee
that these decisions will produce the desired results.
Foreign Securities (non-U.S.) Investing in foreign securities typically involves more risks than investing in U.S. securities, including risks related to
currency exchange rates and policies, country or government specific issues, less favorable trading practices or regulation
and greater price volatility. Certain of these risks also may apply to securities of U.S. companies with significant foreign
operations.
Performance
The following bar chart and table provide some indication of the risks of investing in the Fund. The bar chart shows changes
in the Fund's performance from year to year for Class A shares. The table shows how the Fund's average annual returns for
1 year, 5 years, 10 years or since inception, as applicable, compared with those of a broad measure of market performance. The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the
future. You can obtain updated performance information at franklintempleton.com or by calling (800) DIAL BEN/342-5236.
Sales charges are not reflected in the bar chart, and if those charges were included, returns would be less than those shown.
The following bar chart and table provide some indication of the risks of investing in the Fund. The bar chart shows changes
in the Fund's performance from year to year for Class A shares. The table shows how the Fund's average annual returns for
1 year, 5 years, 10 years or since inception, as applicable, compared with those of a broad measure of market performance.
The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the
future.
franklintempleton.com
(800) DIAL BEN/342-5236
Sales charges are not reflected in the bar chart, and if those charges were included, returns would be less than those shown.
Class A Annual Total Returns
Best Quarter:
2016-09-30
0.0417
Worst Quarter:
2020-03-31
-0.1176
Average Annual Total Returns(figures reflect sales charges)
For the periods ended December 31, 2020
Return Before Taxes
-0.0626
0.0209
0.0220
Return After Taxes on Distributions
-0.0809
0.0017
0.0039
Return After Taxes on Distributions and Sale of Fund Shares
-0.0373
0.0078
0.0092
-0.0528
0.0215
0.0204
-0.0365
0.0295
-0.0374
0.0281
0.0269
0.0278
0.0519
0.0447
The 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. Actual after-tax returns depend on an investor's tax situation and may differ
from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements,
such as 401(k) plans or individual retirement accounts. After-tax returns are shown only for Class A and after-tax returns
for other classes will vary.
Investment Goal
A high level of current income as is consistent with prudent investing, while seeking preservation of capital.
Fees and Expenses of the Fund
These tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts in Class A if you and your family invest, or agree to invest in the future, at
least $100,000 in Franklin Templeton funds. More information about these and other discounts is available from your financial professional and under “Your Account” on page 149 in the Fund's Prospectus and under “Buying and Selling Shares” on page 89 of the Fund’s
Statement of Additional Information. In addition, more information about sales charge discounts and waivers for purchases
of shares through specific financial intermediaries is set forth in Appendix A – "Intermediary Sales Charge Discounts
and Waivers" to the Fund’s prospectus.
Please note that the tables and examples below do not reflect any transaction fees that may be charged by financial intermediaries,
or commissions that a shareholder may be required to pay directly to its financial intermediary when buying or selling Class
R6 or Advisor Class shares.
You may qualify for sales charge discounts in Class A if you and your family invest, or agree to invest in the future, at
least $100,000 in Franklin Templeton funds.
100000
Shareholder Fees (fees paid directly from your investment)
0.0225
0
0
0
0
0.0100
0
0
0
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
0.0049
0.0049
0.0049
0.0049
0.0049
0.0020
0.0020
0.0020
0.0009
0.0020
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of the period. The Example also assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. The Example reflects adjustments made to the Fund's operating expenses due to the fee
waivers and/or expense reimbursements by management for the 1 Year numbers only. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
296
500
720
1355
213
406
721
1614
98
359
641
1444
33
164
307
724
47
202
370
859
If you do not sell your shares:
113
406
721
1614
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A
higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held
in a taxable account. These costs, which are not reflected in annual Fund operating expenses or in the Example, affect the
Fund's performance. During the most recent fiscal year, the Fund's portfolio turnover rate was 93.23% of the average value of its portfolio.
0.9323
Principal Investment Strategies
Under normal market conditions, the Fund invests primarily in debt securities, which may be represented by derivative investments
that provide exposure to debt securities such as futures, options and swap agreements. The debt securities in which the Fund
may invest include government and corporate debt securities, mortgage- and asset-backed securities, floating interest rate
corporate loans and debt securities and municipal securities.
The Fund targets an estimated average portfolio duration of three (3) years or less. Duration is a measure of the expected
price volatility of a debt instrument as a result of changes in market rates of interest, based on the weighted average timing
of the instrument’s expected principal and interest payments and other factors.
Under normal market conditions, the Fund invests primarily in investment grade debt securities and in unrated securities that
the investment manager deems are of comparable quality. Derivatives whose reference securities are investment grade are considered
by the Fund to be investment grade. The Fund's focus on the credit quality of its portfolio is intended to reduce credit risk
and help to preserve the Fund's capital.
The Fund also may invest up to 20% of its total assets in non-investment grade securities, including up to 5% in securities
rated lower than B- by S&P® Global Ratings (S&P) or Moody's Investors Services (Moody's), which may include defaulted securities. (In calculating the
above non-investment grade debt limitations, the Fund combines its non-investment grade debt securities with the net long
and short exposure to non-investment grade debt securities from derivative instruments.) Excluding derivatives, the Fund invests
no more than 33% of its total assets in non-investment grade debt securities, including no more than 5% in securities rated
lower than B- by S&P or Moody's, which may include defaulted securities. For purposes of the credit limitations above, non-investment
grade debt securities include unrated securities that the investment manager deems are of comparable quality. The Fund's investments
in marketplace loans are not subject to the 5% limitations described above.
The Fund may invest up to 25% of its total assets in foreign securities, including up to 20% of its total assets in non-U.S.
dollar denominated securities and up to 10% of its total assets in emerging market securities.
The Fund may invest a portion of its assets in marketplace loans to consumers and small and mid-sized enterprises or companies
(SMEs), which may include loans for individual leases, that may be originated through online lending platforms.
The Fund may invest in many different securities issued or guaranteed by the U.S. government or by non-U.S. governments, or
their respective agencies or instrumentalities, including mortgage-backed securities and inflation-indexed securities issued
by the U.S. Treasury. Mortgage-backed securities represent an interest in a pool of mortgage loans made by banks and other
financial institutions to finance purchases of homes, commercial buildings and other real estate. The individual mortgage
loans are packaged or "pooled" together for sale to investors. As the underlying mortgage loans are paid off, investors receive
principal and interest payments. These securities may be fixed-rate or adjustable-rate mortgage-backed securities (ARMS).
The Fund may purchase or sell mortgage-backed securities on a delayed delivery or forward commitment basis through the "to-be-announced"
(TBA) market. With TBA transactions, the particular securities to be delivered must meet specified terms and standards. The
Fund may also invest a small portion of its assets directly in mortgage loans.
To pursue its investment goal, the Fund regularly enters into various derivative transactions, including currency forwards,
currency, interest rate/bond futures contracts and options on interest rate futures contracts, options on exchange-traded
funds, swap agreements, including interest rate, fixed income total return, currency and credit default swaps, options on
interest rate and credit default swap agreements. The use of these derivative transactions may allow the Fund to obtain net
long or short exposures to select currencies, interest rates, countries, duration or credit risks. These derivatives may be
used to enhance Fund returns, increase liquidity, gain exposure to certain instruments or markets in a more efficient or less
expensive way and/or hedge risks associated with its other portfolio investments.
The Fund may invest in mortgage dollar rolls. In a mortgage dollar roll, the Fund sells mortgage-backed securities for delivery
in the current month and simultaneously contracts to repurchase substantially similar (same type, coupon, and maturity) securities
on a specified future date. During the period between the sale and repurchase, the Fund forgoes principal and interest paid
on the mortgage-backed securities. The Fund earns money on a mortgage dollar roll from any difference between the sale price
and the future purchase price, as well as the interest earned on the cash proceeds of the initial sale.
The Fund may invest a significant portion of its assets in structured fixed income securities, such as collateralized debt
obligations (“CDOs”), which are generally a type of asset-backed securities. The Fund's investments in CDOs may
include investments in collateralized loan obiligations (CLOs), which are a type of CDO.
In choosing investments, the Fund’s investment manager selects securities in various market sectors based on the investment
manager’s assessment of changing economic, market, industry and issuer conditions. The investment manager uses a “top-down”
analysis of macroeconomic trends, combined with a “bottom-up” fundamental analysis of market sectors, industries
and issuers, to try to take advantage of varying sector reactions to economic events.
Under normal market conditions, the Fund invests primarily in debt securities, which may be represented by derivative investments
that provide exposure to debt securities such as futures, options and swap agreements. The debt securities in which the Fund
may invest include government and corporate debt securities, mortgage- and asset-backed securities, floating interest rate
corporate loans and debt securities and municipal securities.
Principal Risks
You could lose money by investing in the Fund. Mutual fund shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other agency
of the U.S. government.
Credit An issuer of debt securities may fail to make interest payments or repay principal when due, in whole or in part. Changes
in an issuer's financial strength or in a security's or government's credit rating may affect a security's value.
Interest Rate When interest rates rise, debt security prices generally fall. The opposite is also generally true: debt security prices rise
when interest rates fall. Interest rate changes are influenced by a number of factors, including government policy, monetary
policy, inflation expectations, perceptions of risk, and supply of and demand for bonds. In general, securities with longer
maturities or durations are more sensitive to interest rate changes.
Mortgage Securities and Asset-Backed Securities Mortgage securities differ from conventional debt securities because principal is paid back periodically over the life of
the security rather than at maturity. The Fund may receive unscheduled payments of principal due to voluntary prepayments,
refinancings or foreclosures on the underlying mortgage loans. Because of prepayments, mortgage securities may be less effective
than some other types of debt securities as a means of "locking in" long-term interest rates and may have less potential for
capital appreciation during periods of falling interest rates. A reduction in the anticipated rate of principal prepayments,
especially during periods of rising interest rates, may increase or extend the effective maturity of mortgage securities,
making them more sensitive to interest rate changes, subject to greater price volatility, and more susceptible than some other
debt securities to a decline in market value when interest rates rise.
Issuers of asset-backed securities may have limited ability to enforce the security interest in the underlying assets, and
credit enhancements provided to support the securities, if any, may be inadequate to protect investors in the event of default.
Like mortgage securities, asset-backed securities are subject to prepayment and extension risks.
High-Yield Debt Securities Issuers of lower-rated or “high-yield” debt securities (also known as “junk bonds”) are not as strong
financially as those issuing higher credit quality debt securities. High-yield debt securities are generally considered predominantly
speculative by the applicable rating agencies as their issuers are more likely to encounter financial difficulties because
they may be more highly leveraged, or because of other considerations. In addition, high yield debt securities generally are
more vulnerable to changes in the relevant economy, such as a recession or a sustained period of rising interest rates, that
could affect their ability to make interest and principal payments when due. The prices of high-yield debt securities generally
fluctuate more than those of higher credit quality. High-yield debt securities are generally more illiquid (harder to sell)
and harder to value.
Floating Rate Corporate Investments Floating rate corporate loans and corporate debt securities generally have credit ratings below investment grade and may be
subject to resale restrictions. They are often issued in connection with highly leveraged transactions, and may be subject
to greater credit risks than other investments including the possibility of default or bankruptcy. In addition, a secondary
market in corporate loans may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement
periods, which may impair the ability to accurately value existing and prospective investments and to realize in a timely
fashion the full value upon the sale of a corporate loan. A significant portion of floating rate investments may be “covenant
lite” loans that may contain fewer or less restrictive constraints on the borrower or other borrower-friendly characteristics.
Derivative Instruments The performance of derivative instruments depends largely on the performance of an underlying instrument, such as a currency,
security, interest rate or index, and such instruments often have risks similar to the underlying instrument, in addition
to other risks. Derivatives involve costs and can create economic leverage in the Fund’s portfolio which may result in
significant volatility and cause the Fund to participate in losses (as well as gains) in an amount that exceeds the Fund’s
initial investment. Certain derivatives have the potential for unlimited loss, regardless of the size of the initial investment.
Other risks include illiquidity, mispricing or improper valuation of the derivative instrument, and imperfect correlation
between the value of the derivative and the underlying instrument so that the Fund may not realize the intended benefits.
When a derivative is used for hedging, the change in value of the derivative may also not correlate specifically with the
currency, security, interest rate, index or other risk being hedged. Derivatives also may present the risk that the other
party to the transaction will fail to perform.
Collateralized Debt Obligations (CDOs) The risks of an investment in a CDO, a type of asset backed security and which includes collateralized loan obligations (CLOs),
depend largely on the type of collateral held by the special purpose entity (SPE) and the tranche of the CDO in which the
Fund invests and may be affected by the performance of a CDO's collateral manager. CDOs may be deemed to be illiquid and subject
to the Fund’s restrictions on investments in illiquid investments. In addition to the normal risks associated with debt
securities and asset backed securities (e.g., interest rate risk, credit risk and default risk), CDOs carry additional risks
including, but not limited to: (i) the possibility that distributions from collateral securities will not be adequate to make
interest or other payments; (ii) the quality of the collateral may decline in value or quality or go into default or be downgraded;
(iii) the Fund may invest in tranches of a CDO that are subordinate to other classes; and (iv) the complex structure of the
security may not be fully understood at the time of investment.
Income The Fund's distributions to shareholders may decline when prevailing interest rates fall, when the Fund experiences defaults
on debt securities it holds, or when the Fund realizes a loss upon the sale of a debt security.
Marketplace Loans Marketplace loans are subject to the risks associated with debt investments generally, including but not limited to, interest
rate, credit, liquidity, high yield debt, market and income risks. Marketplace loans generally are not rated by rating agencies,
are often unsecured, and are highly risky and speculative investments. Lenders and investors, such as the Fund, assume all
of the credit risk on the loans they fund or purchase and there are no assurances that payments due on underlying loans will
be made. In addition, investments in marketplace loans may be adversely affected if the platform operator or a third-party
service provider becomes unable or unwilling to fulfill its obligations in servicing the loans. Moreover, the Fund may have
limited information about the underlying marketplace loans and information provided to the platform regarding the loans and
the borrowers’ credit information may be incomplete, inaccurate or outdated. It also may be difficult for the Fund to
sell an investment in a marketplace loan before maturity at the price at which the Fund believes the loan should be valued
because these loans typically are considered by the Fund to be illiquid securities.
Foreign Securities (non-U.S.) Investing in foreign securities typically involves more risks than investing in U.S. securities, including risks related to
currency exchange rates and policies, country or government specific issues, less favorable trading practices or regulation
and greater price volatility. Certain of these risks also may apply to securities of U.S. companies with significant foreign
operations.
Currency Management Strategies Currency management strategies may substantially change the Fund’s exposure to currency exchange rates and could result
in losses to the Fund if currencies do not perform as the investment manager expects. In addition, currency management strategies,
to the extent that they reduce the Fund’s exposure to currency risks, also reduce the Fund’s ability to benefit
from favorable changes in currency exchange rates. Using currency management strategies for purposes other than hedging further
increases the Fund’s exposure to foreign investment losses. Currency markets generally are not as regulated as securities
markets. In addition, currency rates may fluctuate significantly over short periods of time, and can reduce returns.
Sovereign Debt Securities Sovereign debt securities are subject to various risks in addition to those relating to debt securities and foreign investments
generally, including, but not limited to, the risk that a governmental entity may be unwilling or unable to pay interest and
repay principal on its sovereign debt, or otherwise meet its obligations when due because of cash flow problems, insufficient
foreign reserves, the relative size of the debt service burden to the economy as a whole, the government’s policy towards
principal international lenders such as the International Monetary Fund, or the political considerations to which the government
may be subject. If a sovereign debtor defaults (or threatens to default) on its sovereign debt obligations, the indebtedness
may be restructured. Some sovereign debtors have in the past been able to restructure their debt payments without the approval
of some or all debt holders or to declare moratoria on payments. In the event of a default on sovereign debt, the Fund may
also have limited legal recourse against the defaulting government entity.
Emerging Market Countries The Fund’s investments in emerging market countries are subject to all of the risks of foreign investing generally,
and have additional heightened risks due to a lack of established legal, political, business and social frameworks to support
securities and currency markets, including: delays in settling portfolio transactions; currency and capital controls; greater
sensitivity to interest rate changes; pervasiveness of corruption and crime; currency exchange rate volatility; and inflation,
deflation or currency devaluation.
Extension Some debt securities, particularly mortgage-backed securities, are subject to the risk that the debt security’s effective
maturity is extended because calls or prepayments are less or slower than anticipated, particularly when interest rates rise.
The market value of such security may then decline and become more interest rate sensitive.
Prepayment Prepayment risk occurs when a debt security can be repaid in whole or in part prior to the security's maturity and the Fund
must reinvest the proceeds it receives, during periods of declining interest rates, in securities that pay a lower rate of
interest. Also, if a security has been purchased at a premium, the value of the premium would be lost in the event of prepayment.
Prepayments generally increase when interest rates fall.
Mortgage Dollar Rolls In a mortgage dollar roll, the Fund takes the risk that: the market price of the mortgage securities will drop below their
future repurchase price; the securities that it repurchases at a later date will have less favorable market characteristics;
the other party to the agreement will not be able to perform; the roll adds leverage to the Fund's portfolio; and, it increases
the Fund's sensitivity to interest rate changes. In addition, investment in mortgage dollar rolls may increase the portfolio
turnover rate for the Fund.
Liquidity From time to time, the trading market for a particular security or type of security or other investments in which the Fund
invests may become less liquid or even illiquid. Reduced liquidity will have an adverse impact on the Fund’s ability
to sell such securities or other investments when necessary to meet the Fund’s liquidity needs, which may arise or increase
in response to a specific economic event or because the investment manager wishes to purchase particular investments or believes
that a higher level of liquidity would be advantageous. Reduced liquidity will also generally lower the value of such securities
or other investments. Market prices for such securities or other investments may be relatively volatile.
Variable Rate Securities Because changes in interest rates on variable rate securities (including floating rate securities) may lag behind changes
in market rates, the value of such securities may decline during periods of rising interest rates until their interest rates
reset to market rates. During periods of declining interest rates, because the interest rates on variable rate securities
generally reset downward, their market value is unlikely to rise to the same extent as the value of comparable fixed rate
securities.
Market The market values of securities or other investments owned by the Fund will go up or down, sometimes rapidly or unpredictably.
The market value of a security or other investment may be reduced by market activity or other results of supply and demand
unrelated to the issuer. This is a basic risk associated with all investments. When there are more sellers than buyers, prices
tend to fall. Likewise, when there are more buyers than sellers, prices tend to rise.
The current global outbreak of the novel strain of coronavirus, COVID-19, has resulted in market closures and dislocations,
extreme volatility, liquidity constraints and increased trading costs. Efforts to contain the spread of COVID-19 have resulted
in global travel restrictions and disruptions of healthcare systems, business operations and supply chains, layoffs, reduced
consumer demand, defaults and credit ratings downgrades, and other significant economic impacts. The effects of COVID-19 have
impacted global economic activity across many industries and may heighten other pre-existing political, social and economic
risks, locally or globally. The full impact of the COVID-19 pandemic is unpredictable and may adversely affect the Fund’s
performance.
LIBOR Transition The Fund invests in financial instruments that may have floating or variable rate calculations for payment obligations or
financing terms based on the London Interbank Offered Rate (LIBOR), which is the benchmark interest rate at which major global
banks lend to one another in the international interbank market for short-term loans. It is currently anticipated that LIBOR
will be discontinued by the end of 2021 and will cease to be published after that time (although there are initiatives to
delay the discontinuation beyond 2021 for certain LIBOR rates). The impact of the discontinuation of LIBOR and the transition
to an alternative rate on the Fund’s portfolio remains uncertain. There can be no guarantee that financial instruments
that transition to an alternative reference rate will retain the same value or liquidity as they would otherwise have had.
Management The Fund is subject to management risk because it is an actively managed investment portfolio. The Fund's investment manager
applies investment techniques and risk analyses in making investment decisions for the Fund, but there can be no guarantee
that these decisions will produce the desired results.
Performance
The following bar chart and table provide some indication of the risks of investing in the Fund. The bar chart shows changes
in the Fund's performance from year to year for Class A shares. The table shows how the Fund's average annual returns for
1 year, 5 years, 10 years or since inception, as applicable, compared with those of a broad measure of market performance. The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the
future. You can obtain updated performance information at franklintempleton.com or by calling (800) DIAL BEN/342-5236.
Sales charges are not reflected in the bar chart, and if those charges were included, returns would be less than those shown.
The following bar chart and table provide some indication of the risks of investing in the Fund. The bar chart shows changes
in the Fund's performance from year to year for Class A shares. The table shows how the Fund's average annual returns for
1 year, 5 years, 10 years or since inception, as applicable, compared with those of a broad measure of market performance.
The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the
future.
franklintempleton.com
(800) DIAL BEN/342-5236
Sales charges are not reflected in the bar chart, and if those charges were included, returns would be less than those shown.
Class A Annual Total Returns
Best Quarter:
2020-06-30
0.0609
Worst Quarter:
2020-03-31
-0.0645
Average Annual Total Returns(figures reflect sales charges)
For the periods ended December 31, 2020
Return Before Taxes
0.0073
0.0193
0.0159
Return After Taxes on Distributions
-0.0049
0.0084
0.0056
Return After Taxes on Distributions and Sale of Fund Shares
0.0041
0.0100
0.0077
0.0168
0.0198
0.0142
0.0281
0.0214
0.0155
0.0345
0.0279
0.0335
0.0265
0.0208
0.0333
0.0221
0.0159
Historical performance for Class C shares prior to their inception is based on the performance of Class A shares. Class C
performance has been adjusted to reflect differences in sales charges and 12b-1 expenses between classes.
The 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. Actual after-tax returns depend on an investor's tax situation and may differ
from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements,
such as 401(k) plans or individual retirement accounts. After-tax returns are shown only for Class A and after-tax returns
for other classes will vary.
Investment Goal
High current income, consistent with preservation of capital. As a secondary goal, capital appreciation over the long term.
Fees and Expenses of the Fund
These tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts in Class A if you and your family invest, or agree to invest in the future, at
least $100,000 in Franklin Templeton funds. More information about these and other discounts is available from your financial professional and under “Your Account” on page 149 in the Fund's Prospectus and under “Buying and Selling Shares” on page 89 of the Fund’s
Statement of Additional Information. In addition, more information about sales charge discounts and waivers for purchases
of shares through specific financial intermediaries is set forth in Appendix A – "Intermediary Sales Charge Discounts
and Waivers" to the Fund’s prospectus.
Please note that the tables and examples below do not reflect any transaction fees that may be charged by financial intermediaries,
or commissions that a shareholder may be required to pay directly to its financial intermediary when buying or selling Class
R6 or Advisor Class shares.
You may qualify for sales charge discounts in Class A if you and your family invest, or agree to invest in the future, at
least $100,000 in Franklin Templeton funds.
100000
Shareholder Fees (fees paid directly from your investment)
0.0375
0
0
0
0
0.0100
0
0
0
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
0.0047
0.0047
0.0047
0.0047
0.0047
0.0025
0.0065
0.0050
0
0
0.0018
0.0018
0.0018
0.0007
0.0018
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of the period. The Example also assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. The Example reflects adjustments made to the Fund's operating expenses due to the fee
waivers and/or expense reimbursements by management for the 1 Year numbers only. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
463
662
876
1495
232
423
735
1622
117
376
655
1453
55
184
325
734
66
219
385
867
If you do not sell your shares:
132
423
735
1622
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A
higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held
in a taxable account. These costs, which are not reflected in annual Fund operating expenses or in the Example, affect the
Fund's performance. During the most recent fiscal year, the Fund's portfolio turnover rate was 228.24% of the average value of its portfolio.
2.2824
Principal Investment Strategies
Under normal market conditions, the Fund invests primarily in debt securities, which may be represented by derivative investments
that provide exposure to debt securities such as futures, options and swap agreements. The debt securities in which the Fund
may invest include government and corporate debt securities, mortgage- and asset-backed securities, floating interest rate
corporate loans and debt securities and municipal securities.
Under normal market conditions, the Fund invests primarily in investment grade debt securities and in unrated securities that
the investment manager deems are of comparable quality. Derivatives whose reference securities are investment grade are considered
by the Fund to be investment grade. The Fund's focus on the credit quality of its portfolio is intended to reduce credit risk
and help to preserve the Fund's capital.
The Fund also may invest up to 20% of its total assets in non-investment grade securities, including up to 5% in securities
rated lower than B- by S&P® Global Ratings (S&P) or Moody's Investors Services (Moody's), which may include defaulted securities. (In calculating the
above non-investment grade debt limitations, the Fund combines its non-investment grade debt securities with the net long
and short exposure to non-investment grade debt securities from derivative instruments.) Excluding derivatives, the Fund invests
no more than 33% of its total assets in non-investment grade debt securities, including no more than 5% in securities rated
lower than B- by S&P or Moody's, which may include defaulted securities. For purposes of the credit limitations above, non-investment
grade debt securities include unrated securities that the investment manager deems are of comparable quality. The Fund's investments
in marketplace loans are not subject to the 5% limitations described above.
The Fund may invest up to 25% of its total assets in foreign securities, including up to 20% of its total assets in non-U.S.
dollar denominated securities and up to 10% of its total assets in emerging market securities.
The Fund may invest a portion of its assets in marketplace loans to consumers and small and mid-sized enterprises or companies
(SMEs), which may include loans for individual leases, that may be originated through online lending platforms.
The Fund may invest in many different securities issued or guaranteed by the U.S. government or by non-U.S. governments, or
their respective agencies or instrumentalities, including mortgage-backed securities and inflation-indexed securities issued
by the U.S. Treasury. Mortgage-backed securities represent an interest in a pool of mortgage loans made by banks and other
financial institutions to finance purchases of homes, commercial buildings and other real estate. The individual mortgage
loans are packaged or "pooled" together for sale to investors. As the underlying mortgage loans are paid off, investors receive
principal and interest payments. These securities may be fixed-rate or adjustable-rate mortgage-backed securities (ARMS).
The Fund may purchase or sell mortgage-backed securities on a delayed delivery or forward commitment basis through the "to-be-announced"
(TBA) market. With TBA transactions, the particular securities to be delivered must meet specified terms and standards. The
Fund may also invest a small portion of its assets directly in mortgage loans.
To pursue its investment goal, the Fund regularly enters into various derivative transactions, including currency forwards,
currency, interest rate/bond futures contracts and options on interest rate futures contracts, options on exchange-traded
funds, swap agreements, including interest rate, fixed income total return, currency and credit default swaps, options on
interest rate and credit default swap agreements. The use of these derivative transactions may allow the Fund to obtain net
long or short exposures to select currencies, interest rates, countries, duration or credit risks. These derivatives may be
used to enhance Fund returns, increase liquidity, gain exposure to certain instruments or markets in a more efficient or less
expensive way and/or hedge risks associated with its other portfolio investments.
The Fund may invest in mortgage dollar rolls. In a mortgage dollar roll, the Fund sells mortgage-backed securities for delivery
in the current month and simultaneously contracts to repurchase substantially similar (same type, coupon, and maturity) securities
on a specified future date. During the period between the sale and repurchase, the Fund forgoes principal and interest paid
on the mortgage-backed securities. The Fund earns money on a mortgage dollar roll from any difference between the sale price
and the future purchase price, as well as the interest earned on the cash proceeds of the initial sale.
The Fund may invest a significant portion of its assets in structured fixed income securities, such as collateralized debt
obligations (“CDOs”), which are generally a type of asset-backed securities. The Fund's investments in CDOs may
include investments in collateralized loan obiligations (CLOs), which are a type of CDO.
In pursuing its investment goals, the Fund may gain exposure to particular investments by investing directly in securities
or other instruments or by investing in other mutual funds or exchange-traded funds that provide exposure to such investments.
In choosing investments, the Fund’s investment manager selects securities in various market sectors based on the investment
manager’s assessment of changing economic, market, industry and issuer conditions. The investment manager uses a “top-down”
analysis of macroeconomic trends, combined with a “bottom-up” fundamental analysis of market sectors, industries
and issuers, to try to take advantage of varying sector reactions to economic events.
Principal Risks
You could lose money by investing in the Fund. Mutual fund shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other agency
of the U.S. government.
Interest Rate When interest rates rise, debt security prices generally fall. The opposite is also generally true: debt security prices rise
when interest rates fall. Interest rate changes are influenced by a number of factors, including government policy, monetary
policy, inflation expectations, perceptions of risk, and supply of and demand for bonds. In general, securities with longer
maturities or durations are more sensitive to interest rate changes.
Credit An issuer of debt securities may fail to make interest payments or repay principal when due, in whole or in part. Changes
in an issuer's financial strength or in a security's or government's credit rating may affect a security's value.
Mortgage Securities and Asset-Backed Securities Mortgage securities differ from conventional debt securities because principal is paid back periodically over the life of
the security rather than at maturity. The Fund may receive unscheduled payments of principal due to voluntary prepayments,
refinancings or foreclosures on the underlying mortgage loans. Because of prepayments, mortgage securities may be less effective
than some other types of debt securities as a means of "locking in" long-term interest rates and may have less potential for
capital appreciation during periods of falling interest rates. A reduction in the anticipated rate of principal prepayments,
especially during periods of rising interest rates, may increase or extend the effective maturity of mortgage securities,
making them more sensitive to interest rate changes, subject to greater price volatility, and more susceptible than some other
debt securities to a decline in market value when interest rates rise.
Issuers of asset-backed securities may have limited ability to enforce the security interest in the underlying assets, and
credit enhancements provided to support the securities, if any, may be inadequate to protect investors in the event of default.
Like mortgage securities, asset-backed securities are subject to prepayment and extension risks.
High-Yield Debt Securities Issuers of lower-rated or “high-yield” debt securities (also known as “junk bonds”) are not as strong
financially as those issuing higher credit quality debt securities. High-yield debt securities are generally considered predominantly
speculative by the applicable rating agencies as their issuers are more likely to encounter financial difficulties because
they may be more highly leveraged, or because of other considerations. In addition, high yield debt securities generally are
more vulnerable to changes in the relevant economy, such as a recession or a sustained period of rising interest rates, that
could affect their ability to make interest and principal payments when due. The prices of high-yield debt securities generally
fluctuate more than those of higher credit quality. High-yield debt securities are generally more illiquid (harder to sell)
and harder to value.
Floating Rate Corporate Investments Floating rate corporate loans and corporate debt securities generally have credit ratings below investment grade and may be
subject to resale restrictions. They are often issued in connection with highly leveraged transactions, and may be subject
to greater credit risks than other investments including the possibility of default or bankruptcy. In addition, a secondary
market in corporate loans may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement
periods, which may impair the ability to accurately value existing and prospective investments and to realize in a timely
fashion the full value upon the sale of a corporate loan. A significant portion of floating rate investments may be “covenant
lite” loans that may contain fewer or less restrictive constraints on the borrower or other borrower-friendly characteristics.
Derivative Instruments The performance of derivative instruments depends largely on the performance of an underlying instrument, such as a currency,
security, interest rate or index, and such instruments often have risks similar to the underlying instrument, in addition
to other risks. Derivatives involve costs and can create economic leverage in the Fund’s portfolio which may result in
significant volatility and cause the Fund to participate in losses (as well as gains) in an amount that exceeds the Fund’s
initial investment. Certain derivatives have the potential for unlimited loss, regardless of the size of the initial investment.
Other risks include illiquidity, mispricing or improper valuation of the derivative instrument, and imperfect correlation
between the value of the derivative and the underlying instrument so that the Fund may not realize the intended benefits.
When a derivative is used for hedging, the change in value of the derivative may also not correlate specifically with the
currency, security, interest rate, index or other risk being hedged. Derivatives also may present the risk that the other
party to the transaction will fail to perform.
Collateralized Debt Obligations (CDOs) The risks of an investment in a CDO, a type of asset backed security and which includes collateralized loan obligations (CLOs),
depend largely on the type of collateral held by the special purpose entity (SPE) and the tranche of the CDO in which the
Fund invests and may be affected by the performance of a CDO's collateral manager. CDOs may be deemed to be illiquid and subject
to the Fund’s restrictions on investments in illiquid investments. In addition to the normal risks associated with debt
securities and asset backed securities (e.g., interest rate risk, credit risk and default risk), CDOs carry additional risks
including, but not limited to: (i) the possibility that distributions from collateral securities will not be adequate to make
interest or other payments; (ii) the quality of the collateral may decline in value or quality or go into default or be downgraded;
(iii) the Fund may invest in tranches of a CDO that are subordinate to other classes; and (iv) the complex structure of the
security may not be fully understood at the time of investment.
Income The Fund's distributions to shareholders may decline when prevailing interest rates fall, when the Fund experiences defaults
on debt securities it holds, or when the Fund realizes a loss upon the sale of a debt security.
Marketplace Loans Marketplace loans are subject to the risks associated with debt investments generally, including but not limited to, interest
rate, credit, liquidity, high yield debt, market and income risks. Marketplace loans generally are not rated by rating agencies,
are often unsecured, and are highly risky and speculative investments. Lenders and investors, such as the Fund, assume all
of the credit risk on the loans they fund or purchase and there are no assurances that payments due on underlying loans will
be made. In addition, investments in marketplace loans may be adversely affected if the platform operator or a third-party
service provider becomes unable or unwilling to fulfill its obligations in servicing the loans. Moreover, the Fund may have
limited information about the underlying marketplace loans and information provided to the platform regarding the loans and
the borrowers’ credit information may be incomplete, inaccurate or outdated. It also may be difficult for the Fund to
sell an investment in a marketplace loan before maturity at the price at which the Fund believes the loan should be valued
because these loans typically are considered by the Fund to be illiquid securities.
Foreign Securities (non-U.S.) Investing in foreign securities typically involves more risks than investing in U.S. securities, including risks related to
currency exchange rates and policies, country or government specific issues, less favorable trading practices or regulation
and greater price volatility. Certain of these risks also may apply to securities of U.S. companies with significant foreign
operations.
Currency Management Strategies Currency management strategies may substantially change the Fund’s exposure to currency exchange rates and could result
in losses to the Fund if currencies do not perform as the investment manager expects. In addition, currency management strategies,
to the extent that they reduce the Fund’s exposure to currency risks, also reduce the Fund’s ability to benefit
from favorable changes in currency exchange rates. Using currency management strategies for purposes other than hedging further
increases the Fund’s exposure to foreign investment losses. Currency markets generally are not as regulated as securities
markets. In addition, currency rates may fluctuate significantly over short periods of time, and can reduce returns.
Sovereign Debt Securities Sovereign debt securities are subject to various risks in addition to those relating to debt securities and foreign investments
generally, including, but not limited to, the risk that a governmental entity may be unwilling or unable to pay interest and
repay principal on its sovereign debt, or otherwise meet its obligations when due because of cash flow problems, insufficient
foreign reserves, the relative size of the debt service burden to the economy as a whole, the government’s policy towards
principal international lenders such as the International Monetary Fund, or the political considerations to which the government
may be subject. If a sovereign debtor defaults (or threatens to default) on its sovereign debt obligations, the indebtedness
may be restructured. Some sovereign debtors have in the past been able to restructure their debt payments without the approval
of some or all debt holders or to declare moratoria on payments. In the event of a default on sovereign debt, the Fund may
also have limited legal recourse against the defaulting government entity.
Emerging Market Countries The Fund’s investments in emerging market countries are subject to all of the risks of foreign investing generally,
and have additional heightened risks due to a lack of established legal, political, business and social frameworks to support
securities and currency markets, including: delays in settling portfolio transactions; currency and capital controls; greater
sensitivity to interest rate changes; pervasiveness of corruption and crime; currency exchange rate volatility; and inflation,
deflation or currency devaluation.
Extension Some debt securities, particularly mortgage-backed securities, are subject to the risk that the debt security’s effective
maturity is extended because calls or prepayments are less or slower than anticipated, particularly when interest rates rise.
The market value of such security may then decline and become more interest rate sensitive.
Investing in Underlying Investment Companies To the extent the Fund invests in underlying investment companies, including ETFs, the Fund’s performance is related
to the performance of the underlying investment companies held by it. In addition, shareholders of the Fund will indirectly
bear the fees and expenses of the underlying investment companies and such investments may be more costly than if the Fund
had owned the underlying securities directly. In addition, the Fund pays brokerage commissions in connection with the purchase
and sale of shares of ETFs.
Prepayment Prepayment risk occurs when a debt security can be repaid in whole or in part prior to the security's maturity and the Fund
must reinvest the proceeds it receives, during periods of declining interest rates, in securities that pay a lower rate of
interest. Also, if a security has been purchased at a premium, the value of the premium would be lost in the event of prepayment.
Prepayments generally increase when interest rates fall.
Mortgage Dollar Rolls In a mortgage dollar roll, the Fund takes the risk that: the market price of the mortgage securities will drop below their
future repurchase price; the securities that it repurchases at a later date will have less favorable market characteristics;
the other party to the agreement will not be able to perform; the roll adds leverage to the Fund's portfolio; and, it increases
the Fund's sensitivity to interest rate changes. In addition, investment in mortgage dollar rolls may increase the portfolio
turnover rate for the Fund.
Liquidity From time to time, the trading market for a particular security or type of security or other investments in which the Fund
invests may become less liquid or even illiquid. Reduced liquidity will have an adverse impact on the Fund’s ability
to sell such securities or other investments when necessary to meet the Fund’s liquidity needs, which may arise or increase
in response to a specific economic event or because the investment manager wishes to purchase particular investments or believes
that a higher level of liquidity would be advantageous. Reduced liquidity will also generally lower the value of such securities
or other investments. Market prices for such securities or other investments may be relatively volatile.
Variable Rate Securities Because changes in interest rates on variable rate securities (including floating rate securities) may lag behind changes
in market rates, the value of such securities may decline during periods of rising interest rates until their interest rates
reset to market rates. During periods of declining interest rates, because the interest rates on variable rate securities
generally reset downward, their market value is unlikely to rise to the same extent as the value of comparable fixed rate
securities.
Market The market values of securities or other investments owned by the Fund will go up or down, sometimes rapidly or unpredictably.
The market value of a security or other investment may be reduced by market activity or other results of supply and demand
unrelated to the issuer. This is a basic risk associated with all investments. When there are more sellers than buyers, prices
tend to fall. Likewise, when there are more buyers than sellers, prices tend to rise.
The current global outbreak of the novel strain of coronavirus, COVID-19, has resulted in market closures and dislocations,
extreme volatility, liquidity constraints and increased trading costs. Efforts to contain the spread of COVID-19 have resulted
in global travel restrictions and disruptions of healthcare systems, business operations and supply chains, layoffs, reduced
consumer demand, defaults and credit ratings downgrades, and other significant economic impacts. The effects of COVID-19 have
impacted global economic activity across many industries and may heighten other pre-existing political, social and economic
risks, locally or globally. The full impact of the COVID-19 pandemic is unpredictable and may adversely affect the Fund’s
performance.
LIBOR Transition The Fund invests in financial instruments that may have floating or variable rate calculations for payment obligations or
financing terms based on the London Interbank Offered Rate (LIBOR), which is the benchmark interest rate at which major global
banks lend to one another in the international interbank market for short-term loans. It is currently anticipated that LIBOR
will be discontinued by the end of 2021 and will cease to be published after that time (although there are initiatives to
delay the discontinuation beyond 2021 for certain LIBOR rates). The impact of the discontinuation of LIBOR and the transition
to an alternative rate on the Fund’s portfolio remains uncertain. There can be no guarantee that financial instruments
that transition to an alternative reference rate will retain the same value or liquidity as they would otherwise have had.
Management The Fund is subject to management risk because it is an actively managed investment portfolio. The Fund's investment manager
applies investment techniques and risk analyses in making investment decisions for the Fund, but there can be no guarantee
that these decisions will produce the desired results.
Portfolio Turnover The investment manager will sell a security when it believes it is appropriate to do so, regardless of how long the Fund has
held the security. The Fund's turnover rate may exceed 100% per year because of the anticipated use of certain investment
strategies. The rate of portfolio turnover will not be a limiting factor for the investment manager in making decisions on
when to buy or sell securities, including entering into mortgage dollar rolls. High turnover will increase the Fund's transaction
costs and may increase your tax liability if the transactions result in capital gains.
Performance
The following bar chart and table provide some indication of the risks of investing in the Fund. The bar chart shows changes
in the Fund's performance from year to year for Class A shares. The table shows how the Fund's average annual returns for
1 year, 5 years, 10 years or since inception, as applicable, compared with those of a broad measure of market performance. The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the
future. You can obtain updated performance information at franklintempleton.com or by calling (800) DIAL BEN/342-5236.
Sales charges are not reflected in the bar chart, and if those charges were included, returns would be less than those shown.
The following bar chart and table provide some indication of the risks of investing in the Fund. The bar chart shows changes
in the Fund's performance from year to year for Class A shares. The table shows how the Fund's average annual returns for
1 year, 5 years, 10 years or since inception, as applicable, compared with those of a broad measure of market performance.
The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the
future.
franklintempleton.com
(800) DIAL BEN/342-5236
Sales charges are not reflected in the bar chart, and if those charges were included, returns would be less than those shown.
Class A Annual Total Returns
Best Quarter:
2020-06-30
0.0730
Worst Quarter:
2020-03-31
-0.0413
Average Annual Total Returns(figures reflect sales charges)
For the periods ended December 31, 2020
Return Before Taxes
0.0318
0.0330
0.0334
Return After Taxes on Distributions
0.0191
0.0217
0.0193
Return After Taxes on Distributions and Sale of Fund Shares
0.0186
0.0202
0.0196
0.0570
0.0369
0.0332
0.0694
0.0385
0.0347
0.0759
0.0449
0.0737
0.0434
0.0398
0.0751
0.0443
0.0384
The figures in the average annual total returns table above reflect the Class A maximum front-end sales charge of 3.75%. Prior
to March 1, 2019, Class A shares were subject to a maximum front-end sales charge of 4.25%. If the prior maximum front-end
sales charge of 4.25% was reflected, performance for Class A in the average annual total returns table would be lower.
The 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. Actual after-tax returns depend on an investor's tax situation and may differ
from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements,
such as 401(k) plans or individual retirement accounts. After-tax returns are shown only for Class A and after-tax returns
for other classes will vary.