N-14 1 fistn140609.txt As filed with the Securities and Exchange Commission on June 19, 2009 Registration No. [ ] =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ] Pre-Effective Amendment No._____ [ ] Post-Effective Amendment No._____ (Check appropriate box or boxes) FRANKLIN INVESTORS SECURITIES TRUST (Exact Name of Registrant as Specified in Charter) (650) 312-2000 (Registrant's Area Code and Telephone Number) ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906 (Address of Principal Executive Offices) (Number, Street, City, State, Zip Code) CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906 (Name and Address of Agent for Service of Process) (Number, Street, City, State, Zip Code) Approximate Date of Public Offering: As soon as practicable after this Registration Statement becomes effective under the Securities Act of 1933, as amended. [Title of securities being registered: Class A, Class C and Advisor Class shares of beneficial interest, without par value, of Franklin Total Return Fund. No filing fee is due because Registrant is relying on section 24(f) of the Investment Company Act of 1940, as amended.] It is proposed that this filing will become effective on July 20, 2009 pursuant to Rule 488. PART A HSBC INVESTOR CORE PLUS FIXED INCOME FUND HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME FUND HSBC INVESTOR NEW YORK TAX-FREE BOND FUND (each a Series of HSBC Investor Funds) HSBC INVESTOR CORE PLUS FIXED INCOME FUND (ADVISOR) (a Series of HSBC Advisor Funds Trust) 3435 Stelzer Road Columbus, Ohio 43219-3035 1-800-782-8183 July 27, 2009 Dear Shareholder: I am writing to let you know that special meetings of the shareholders of the HSBC Investor Core Plus Fixed Income, HSBC Investor Core Plus Fixed Income Fund (Advisor), HSBC Investor Intermediate Duration Fixed Income and HSBC Investor New York Tax-Free Bond Funds (each a "Target Fund" and collectively, the "Target Funds") will be held on August 27, 2009. The purpose of the meetings is to vote on proposals to reorganize each Target Fund into certain funds (each an "Acquiring Fund" and collectively, the "Acquiring Funds") managed by Franklin Advisers, Inc. that are part of the Franklin Templeton family of funds. If you are a shareholder of record in one or more of the Target Funds as of the close of business on July 10, 2009, you have the opportunity to vote on the proposal(s) that affect your Target Fund(s). This package contains information about the proposals and the materials to use when casting your vote. The following table shows the Target Funds and the corresponding Acquiring Funds, as well as the share class of the Acquiring Fund that will be issued to each corresponding share class of the Target Fund: --------------------------------------------------------------------- TARGET FUND ACQUIRING FUND --------------------------------------------------------------------- HSBC Investor Core Plus Fixed Franklin Total Return Fund Income Fund --------------------------------------------------------------------- Class A Class A --------------------------------------------------------------------- Class B Class A --------------------------------------------------------------------- Class C Class C --------------------------------------------------------------------- HSBC Investor Core Plus Fixed Franklin Total Return Fund Income Fund (Advisor) --------------------------------------------------------------------- Class I Advisor Class --------------------------------------------------------------------- HSBC Investor Intermediate Franklin Total Return Fund Duration Fixed Income Fund --------------------------------------------------------------------- Class A Class A --------------------------------------------------------------------- Class B Class A --------------------------------------------------------------------- Class C Class C --------------------------------------------------------------------- Class I Advisor Class --------------------------------------------------------------------- HSBC Investor New York Tax-Free Franklin New York Bond Fund Intermediate-Term Tax-Free Income Fund --------------------------------------------------------------------- Class A Class A --------------------------------------------------------------------- Class B Class A --------------------------------------------------------------------- Class C Class C --------------------------------------------------------------------- Class I Advisor Class --------------------------------------------------------------------- Each proposal has been carefully reviewed by the Boards of Trustees of the HSBC Investor Funds and HSBC Advisor Funds Trust (together, the "Board of Trustees"). In light of the decision of HSBC Global Asset Management (USA) Inc. ("AMUS"), the investment adviser for the Target Funds, to exit the business of advising fixed income investment companies in the United States (other than money market funds) and the small asset size of the Target Funds, the Board of Trustees believes that on a long-term basis the Target Funds may not continue to be a competitive investment option. The Target Funds currently possess assets that are below critical mass and are not generating economies of scale. After reviewing AMUS's decision, the Board determined that the best course of action was to seek to reorganize each Target Fund into another fund with similar investment objectives and policies. The Trustees recommend that you vote for the proposed reorganizations. Should a reorganization be approved by shareholders of a Target Fund and other conditions to the reorganization be satisfied, your current shares in that Target Fund will be exchanged for shares of the corresponding Acquiring Fund even if the reorganizations of the other Target Funds are not approved or effected. More information on the specific details of and reasons for your Target Fund's reorganization is contained in the enclosed combined Prospectus/Proxy Statement. Although we are disappointed that the Target Funds have not grown sufficiently in size to allow them to continue to be competitive long-term investment vehicles, we believe that shareholders will be well served by the proposed reorganizations, which will allow them to remain invested in similar funds. Please read the enclosed materials carefully and cast your vote on the proxy card(s). Please vote your shares promptly. YOUR VOTE IS EXTREMELY IMPORTANT, NO MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY BE. VOTING IS QUICK AND EASY. To cast your vote, simply complete the proxy card(s) enclosed in this package. Be sure to sign the card(s) before mailing it (them) in the postage-paid envelope. You may also vote your shares by touch-tone telephone. Simply call the toll-free number on your proxy card(s), enter the control number found on the card(s), and follow the recorded instructions. If we do not hear from you after a reasonable amount of time, you may receive a call from our proxy solicitor, Computershare Limited, reminding you to vote. If you have any questions before you vote, please call AMUS at 1-800-782-8183. Thank you for your participation in this important initiative. Sincerely, Richard Fabietti President HSBC Investor Funds HSBC Advisor Funds Trust HSBC INVESTOR CORE PLUS FIXED INCOME FUND HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME FUND HSBC INVESTOR NEW YORK TAX-FREE BOND FUND (each a Series of HSBC Investor Funds) HSBC INVESTOR CORE PLUS FIXED INCOME FUND (ADVISOR) (a Series of HSBC Advisor Funds Trust) 3435 Stelzer Road Columbus, Ohio 43219-3035 1-800-782-8183 NOTICE OF SPECIAL MEETINGS OF SHAREHOLDERS TO BE HELD ON AUGUST 24, 2009 To Our Shareholders: Notice is hereby given that special meetings of shareholders of the HSBC Investor Core Plus Fixed Income Fund, the HSBC Investor Core Plus Fixed Income Fund (Advisor), the HSBC Investor Intermediate Duration Fixed Income Fund and the HSBC Investor New York Tax-Free Bond Fund (each a "Target Fund" and collectively the "Target Funds") will be held at the offices of Citi Fund Services Ohio, Inc. at 100 Summer Street, Suite 1500, Boston, Massachusetts 02110, on August 27, 2009 at 10:00 a.m., Eastern Time (the "Meeting"). The purpose of the Meeting is to consider and act upon the following proposals, and to transact such other business as may properly come before the Meeting or any adjournments thereof. PROPOSAL 1(A). FOR CLASS A, CLASS B AND CLASS C SHAREHOLDERS OF THE HSBC INVESTOR CORE PLUS FIXED INCOME FUND ONLY. To approve an Agreement and Plan of Reorganization providing for the (i) transfer of substantially all of the assets of the HSBC Investor Core Plus Fixed Income Fund, a series of HSBC Investor Funds, to the Franklin Total Return Fund (subject to the retention of certain assets to discharge liabilities) in exchange solely for Class A and Class C shares of beneficial interest of the Franklin Total Return Fund, and (ii) distribution of such shares to Class A, Class B, and Class C shareholders of the HSBC Investor Core Plus Fixed Income Fund in connection with its liquidation. PROPOSAL 1(B). FOR SHAREHOLDERS OF THE HSBC INVESTOR CORE PLUS FIXED INCOME FUND (ADVISOR) ONLY. To approve an Agreement and Plan of Reorganization providing for the (i) transfer of substantially all of the assets of the HSBC Investor Core Plus Fixed Income Fund (Advisor), a series of HSBC Advisor Funds Trust, to the Franklin Total Return Fund (subject to the retention of certain assets to discharge liabilities) in exchange solely for Advisor Class shares of beneficial interest of the Franklin Total Return Fund, and (ii) distribution of such shares to Class I shareholders of the HSBC Investor Core Plus Fixed Income Fund (Advisor) in connection with its liquidation. PROPOSAL 2. FOR SHAREHOLDERS OF THE HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME FUND ONLY. To approve an Agreement and Plan of Reorganization providing for the (i) transfer of substantially all of the assets of the HSBC Investor Intermediate Duration Fixed Income Fund to the Franklin Total Return Fund (subject to the retention of certain assets to discharge liabilities) in exchange solely for Class A and C and Advisor Class shares of beneficial interest of the Franklin Total Return Fund, and (ii) distribution of such shares to shareholders of the HSBC Investor Intermediate Duration Fixed Income Fund in connection with its liquidation. PROPOSAL 3. FOR SHAREHOLDERS OF THE HSBC INVESTOR NEW YORK TAX-FREE BOND FUND ONLY. To approve an Agreement and Plan of Reorganization providing for the (i) transfer of substantially all of the assets of the HSBC Investor New York Tax-Free Bond Fund to the Franklin New York Intermediate-Term Tax-Free Income Fund (subject to the retention of certain assets to discharge liabilities) in exchange solely for Class A and C and Advisor Class shares of beneficial interest of the Franklin New York Intermediate-Term Tax-Free Income Fund, and (ii) distribution of such shares to shareholders of the HSBC Investor New York Tax-Free Bond Fund in connection with its liquidation. It is not anticipated that any matters other than the approval of these proposals will be brought before the Meeting. If, however, any other business is properly brought before the Meeting, proxies will be voted in accordance with the judgment of the persons designated as proxies or otherwise as described in this Prospectus/Proxy Statement. Shareholders of record of each Target Fund at the close of business on July 10, 2009, are entitled to notice of, and to vote at, such Meeting and any adjournments thereof. You are cordially invited to attend the Meeting. Shareholders are requested and encouraged to complete, date and sign each enclosed proxy card and return it promptly in the postage-paid envelope provided for that purpose. Alternatively, to vote via telephone, please refer to the enclosed proxy card. If you intend to attend the Meeting in person, you may register your presence with the registrar and vote your shares in person, even if you have previously voted your shares by proxy. If you properly execute and return the enclosed proxy card in time to be voted at the Meeting, your shares represented by the proxy will be voted at the Meeting in accordance with your instructions. Unless revoked, proxies that have been executed and returned by shareholders without instructions will be voted in favor of the proposals. Each of the enclosed proxies is being solicited on behalf of the Boards of Trustees of the HSBC Investor Funds and HSBC Advisor Funds Trust (together the "Board of Trustees"). THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF THE TARGET FUNDS VOTE FOR THE PROPOSALS. By order of the Board of Trustees Jennifer A. English Secretary HSBC Investor Funds HSBC Advisor Funds Trust July 27, 2009 YOUR VOTE IS IMPORTANT - PLEASE VOTE YOUR SHARES PROMPTLY Shareholders are invited to attend the Meeting in person. Any shareholder who does not expect to attend the Meeting in person is urged to vote using the touch-tone telephone instructions found below or indicate voting instructions on the enclosed proxy card, date and sign it, and return it in the envelope provided, which needs no postage if mailed in the United States. In order to avoid unnecessary expense, we ask your cooperation in responding promptly, no matter how large or small your holdings may be. INSTRUCTIONS FOR EXECUTING PROXY CARD The following general rules for executing proxy cards may be of assistance to you and help avoid the time and expense involved in validating your vote if you fail to execute your proxy card properly. 1. INDIVIDUAL ACCOUNTS: Your name should be signed exactly as it appears in the registration on the proxy card. 2. JOINT ACCOUNTS: Either party may sign, but the name of the party signing should conform exactly to a name shown in the registration. 3. All other accounts should show the capacity of the individual signing. This can be shown either in the form of the account registration itself or by the individual executing the proxy card. For example: REGISTRATION VALID SIGNATURE A. 1) ABC Corp. John Smith, Treasurer 2) ABC Corp. John Smith, Treasurer c/o John Smith, Treasurer B. 1) ABC Corp. Profit Ann B. Collins, Trustee Sharing Plan 2) ABC Trust Ann B. Collins, Trustee 3) Ann B. Collins, Ann B. Collins, Trustee Trustee u/t/d 12/28/78 C. Anthony B. Craft, Cust. Anthony B. Craft f/b/o Anthony B. Craft, Jr. UGMA INSTRUCTIONS FOR VOTING BY TOUCH-TONE TELEPHONE 1. Read the Prospectus/Proxy Statement, and have your proxy card handy. 2. Call the toll-free number indicated on your proxy card. 3. Enter the number found in the shaded box on the front of your proxy card. 4. Follow the recorded instructions to cast your vote. COMBINED PROSPECTUS/PROXY STATEMENT DATED JULY 20, 2009 ACQUISITION OF SUBSTANTIALLY ALL OF THE ASSETS OF HSBC INVESTOR CORE PLUS FIXED INCOME FUND HSBC INVESTOR CORE PLUS FIXED INCOME FUND (ADVISOR) HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME FUND BY AND IN EXCHANGE FOR SHARES OF FRANKLIN TOTAL RETURN FUND AND ACQUISITION OF SUBSTANTIALLY ALL OF THE ASSETS OF HSBC INVESTOR NEW YORK TAX-FREE BOND FUND BY AND IN EXCHANGE FOR SHARES OF FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND This Prospectus/Proxy Statement solicits proxies to be voted at special meetings of shareholders (the "Meeting") of HSBC Investor Core Plus Fixed Income Fund, HSBC Investor Core Plus Fixed Income Fund (Advisor), HSBC Investor Intermediate Duration Fixed Income Fund, and HSBC Investor New York Tax-Free Bond Fund (each a "Fund" or a "Target Fund" and collectively the "Target Funds"). The Intermediate Duration Fixed Income Fund and the New York Tax-Free Bond Fund are each a series of HSBC Investor Funds. There are two series named Core Plus Fixed Income Fund, one of HSBC Investor Funds offering Class A, B and C shares and one of HSBC Advisor Funds Trust offering Class I shares. Each of these series invests all of its investable assets in the same underlying fund in a master-feeder structure (the "Underlying Portfolio"). The series, Core Plus Fixed Income Fund of HSBC Advisor Funds Trust, is referred to in this Prospectus/Proxy Statement as Core Plus Fixed Income Fund (Advisor) to differentiate the Funds. At each Meeting, shareholders of the Target Fund will be asked to approve an Agreement and Plan of Reorganization (the "Plan") relating to the reorganization of each Target Fund into the corresponding fund (an "Acquiring Fund") advised by Franklin Advisers, Inc., as described more fully in the Plan (each such reorganization, a "Reorganization" and together, the "Reorganizations"). The following table outlines the proposed Reorganizations, as well as the Acquiring Fund shares the shareholders of the Target Fund will receive if a proposed Reorganization is approved: ---------------------------------------------------------------------- TARGET FUND ACQUIRING FUND ---------------------------------------------------------------------- Proposal HSBC Investor Core Plus Fixed Franklin Total Return 1(A) Income Fund Fund ---------------------------------------------------------------------- Class A Shares Class A Shares ---------------------------------------------------------------------- Class B Shares Class A Shares ---------------------------------------------------------------------- Class C Shares Class C Shares ---------------------------------------------------------------------- ---------------------------------------------------------------------- Proposal HSBC Investor Core Plus Fixed Franklin Total Return 1(B) Income Fund (Advisor) Fund ---------------------------------------------------------------------- Class I Shares Advisor Class Shares ---------------------------------------------------------------------- Proposal 2 HSBC Investor Intermediate Franklin Total Return Duration Fixed Income Fund Fund ---------------------------------------------------------------------- Class A Shares Class A Shares ---------------------------------------------------------------------- Class B Shares Class A Shares ---------------------------------------------------------------------- Class C Shares Class C Shares ---------------------------------------------------------------------- Class I Shares Advisor Class Shares ---------------------------------------------------------------------- ---------------------------------------------------------------------- Proposal 3 HSBC Investor New York Tax-Free Franklin New York Bond Fund Intermediate-Term Tax-Free Income Fund ---------------------------------------------------------------------- Class A Shares Class A Shares ---------------------------------------------------------------------- Class B Shares Class A Shares ---------------------------------------------------------------------- Class C Shares Class C Shares ---------------------------------------------------------------------- Class I Shares Advisor Class Shares ---------------------------------------------------------------------- The principal offices of the Target Funds are located at 3435 Stelzer Road, Columbus, Ohio 43219-3035 and can be reached by calling 1-800-782-8183. The principal offices of the Acquiring Funds are located at One Franklin Parkway, San Mateo, CA 94403-1906 and can be reached by calling 1-800-342-5236. The Meeting will be held at the offices of Citi Fund Services Ohio, Inc. at 100 Summer Street, Suite 1500, Boston, Massachusetts 02110, on August 27, 2009 at 10:00 a.m., Eastern Time. The Boards of Trustees of HSBC Investor Funds and HSBC Advisor Funds Trust (together, the "Board of Trustees"), on behalf of each Target Fund, are soliciting these proxies. This Prospectus/Proxy Statement will first be sent to shareholders on or about July 27, 2009. If you are a shareholder of a Target Fund whose shareholders vote to approve the Plan on behalf of that Target Fund, you will receive Acquiring Fund shares having an aggregate net asset value ("NAV") equivalent to the aggregate NAV of your investment in that Target Fund as of the time of the Reorganization, as determined pursuant to the Plan. That Target Fund will then be liquidated and dissolved. Though shareholders of each Target Fund are voting on a Reorganization, no Reorganization is dependent on any other Reorganization, and the Plan represents a separate transaction for each separate Target Fund and its corresponding Acquiring Fund. This Prospectus/Proxy Statement includes information about the proposed Reorganizations and the Acquiring Funds that you should know before voting on the Plan with respect to your Target Fund. You should retain this Prospectus/Proxy Statement for future reference. Additional information about the Acquiring Funds and the proposed Reorganizations has been filed with the U.S. Securities and Exchange Commission (the "SEC") and can be found in the following documents and are incorporated into this Prospectus/Proxy Statement by reference: o The Prospectus of the Franklin Total Return Fund dated March 1, 2009, as supplemented and amended to date (the "Franklin Total Return Fund Prospectus"), which is enclosed herewith and is incorporated herein by reference; o The Prospectus of the Franklin New York Intermediate-Term Tax-Free Income Fund dated February 1, 2009, as supplemented and amended to date (the "Franklin New York Intermediate-Term Tax-Free Income Fund Prospectus"), which is enclosed herewith and is incorporated herein by reference; o The Prospectus of each Target Fund dated February 27, 2009, as supplemented and amended to date (the "Target Funds Prospectus"), which is incorporated herein by reference; and o A Statement of Additional Information ("SAI") dated July 20, 2009, relating to this Prospectus/Proxy Statement, which has been filed with the SEC and is incorporated herein by reference. You may request a free copy of the SAI relating to this Prospectus/Proxy Statement or the Acquiring Funds' Statements of Additional Information or annual or semiannual reports without charge by calling 1-800/DIAL BEN(R) or by writing to Franklin Templeton Investments at One Franklin Parkway, San Mateo, CA 94403-1906. You can obtain copies of a Target Fund's current Prospectus, Statement of Additional Information, or annual or semiannual reports without charge by contacting the Funds at 1-800-782-8183. THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 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 U.S. GOVERNMENT AGENCY. MUTUAL FUND SHARES INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. TABLE OF CONTENTS OVERVIEW PROPOSALS 1(A) AND 1(B) Reorganizations of HSBC Investor Core Plus Fixed Income Fund and HSBC Investor Core Plus Fixed Income Fund (Advisor) into Franklin Total Return Fund Summary of the Proposals Comparison of Investment Objectives/Goals and Strategies Comparison of Principal Risks Comparative Fee Tables Expense Example Comparison of Fund Performance Acquiring Fund Performance Key Differences in Rights of Target Fund and Acquiring Fund Shareholders Proposal 1(A) Proposal 1(B) PROPOSAL 2 Reorganization of HSBC Investor Intermediate Duration Fixed Income Fund into Franklin Total Return Fund The Proposal Comparison of Investment Objectives/Goals and Strategies Comparison of Principal Risks Comparative Fee Tables Expense Example Comparison of Fund Performance Acquiring Fund Performance Key Differences in Rights of Target Fund and Acquiring Fund Shareholders PROPOSAL 3 Reorganization of HSBC Investor New York Tax-Free Bond Fund into Franklin New York Intermediate-Term Tax-Free Income Fund The Proposal Comparison of Investment Objectives/Goals and Strategies Comparison of Principal Risks Comparative Fee Tables Expense Example Comparison of Fund Performance Acquiring Fund Performance Key Differences in Rights of Target Fund and Acquiring Fund Shareholders THE PROPOSED REORGANIZATIONS ADDITIONAL INFORMATION ABOUT THE FUNDS VOTING INFORMATION ATTACHMENTS OVERVIEW This is a summary of information contained elsewhere in this Prospectus/Proxy Statement, as well as the Plan, the Prospectuses of the Acquiring Funds and the Target Funds, and the SAI for this Prospectus/Proxy Statement, all of which are incorporated herein by reference. Shareholders should read the entire Prospectus/Proxy Statement and the Prospectuses of the Acquiring Funds (which are included herewith) carefully for more complete information. WHAT PROPOSAL(S) AM I BEING ASKED TO VOTE ON? As a Target Fund shareholder, you are being asked to vote on a Reorganization. A Reorganization consists of the transfer by the Target Fund of substantially all of its assets, except for assets in an amount deemed necessary to discharge the Target Fund's liabilities, to a corresponding Acquiring Fund in exchange for shares of that Acquiring Fund having a value equal to the net assets of the Target Fund, as determined pursuant to the Plan. These Acquiring Fund shares will be issued to the Target Fund shareholders as part of the liquidation of the Target Fund. Shareholders of a share class of a Target Fund would receive their pro rata portion of the shares of the applicable class of the corresponding Acquiring Fund as of the time the Reorganization occurs. Each Reorganization is currently scheduled to take place as of 4:00 p.m., Eastern Time, on August 28, 2009, or such other date and time as the parties may agree (the "Closing Date"). WHY ARE THE REORGANIZATIONS BEING PROPOSED? During 2008, HSBC Global Asset Management (USA) Inc. ("AMUS"), the investment adviser to the Target Funds, informed the Board of Trustees that it intends to exit the business of advising fixed income investment companies in the United States (other than money market funds) in light of a number of factors, including the Target Funds' small size and limited sales projections. AMUS and the Board of Trustees engaged in discussions regarding alternatives for the Target Funds, including the Reorganizations, that would allow AMUS and Halbis Capital Management (USA) Inc., the investment sub-adviser for the Target Funds, to exit this business while simultaneously providing benefits to shareholders of the Target Funds, such as tax-free exchanges of shares with other mutual funds. At the conclusion of this process, AMUS proposed that the Board of Trustees approve the Reorganizations, as opposed to other alternatives, in light of a number of factors, including the strength and reputation of Franklin Advisers, Inc., the investment advisor of the Acquiring Funds. In considering whether to approve the Reorganizations and to recommend approval of the Reorganizations to the shareholders of the Target Funds, the Trustees considered, among other things: o The terms and conditions of the Plan; o The relative compatibility of investment objectives/goals and restrictions and principal investment policies of the Acquiring Funds with those of the Target Funds; o The relative past performance of the Acquiring Funds and the Target Funds; o The anticipated effect of the Reorganizations on the fees and expense ratios experienced by Target Fund shareholders if they become shareholders of the Acquiring Funds; o The capabilities, practices and resources of the management of Franklin Advisers, Inc. and its affiliates in managing the Acquiring Funds; o The anticipated federal income tax treatment of the Reorganizations and tax consequences to the Target Funds and their shareholders; o Anticipated dispositions of portfolio securities in connection with the Reorganizations; o The costs incurred in connection with the Reorganizations, and the payment of certain of the expenses of the Reorganizations by Franklin Advisers, Inc., AMUS or entities under common ownership with Franklin Advisers, Inc. or AMUS; o Alternatives to the proposed Reorganizations, including liquidation of the Target Funds and the viability of the Target Funds absent approval of the proposed Reorganizations; o Whether shareholders of the Target Funds are expected to experience any dilution as a result of the Reorganizations; and o Benefits to and recommendation of AMUS. Upon concluding these considerations, the Board of Trustees determined that each Reorganization is in the best interests of the corresponding Target Fund and its shareholders and unanimously approved each Reorganization, subject to shareholder approval. For more information regarding the factors considered by the Trustees, please refer to the "The Proposed Reorganizations - Reasons for the Reorganizations and Trustees' Considerations" section below. HOW WOULD A REORGANIZATION BENEFIT SHAREHOLDERS OF A TARGET FUND? Among other features, a Reorganization would offer shareholders of a Target Fund the opportunity to invest in a larger combined portfolio that has similar investment goals and principal investment strategies. Shareholders also will benefit from a tax-free exchange (except with respect to any anticipated capital gain distributions) of their Target Fund shares for Acquiring Fund shares. Shareholders of a Target Fund will also benefit from the ability to exchange their Acquiring Fund shares into other Franklin Templeton funds that offer a wide variety of investment goals and strategies. Franklin Advisers, Inc. is a wholly owned subsidiary of Franklin Resources, Inc., a publicly owned global investment organization operating as Franklin Templeton Investments. Franklin Resources, Inc. has more than $421 billion in assets under management as of April 30, 2009. The scale of the fund complex, the investment options and strategies that will be available to Target Fund shareholders, and the shareholder services offered, together with Franklin Advisers, Inc.'s demonstrated long-term success in providing sound investment management expertise, provide Target Fund shareholders with potentially attractive alternatives to the benefits historically received from AMUS. WHO BEARS THE EXPENSES ASSOCIATED WITH THE REORGANIZATIONS? Franklin Advisers, Inc. and AMUS have agreed to bear or arrange for an entity under common ownership to bear expenses incurred in connection with the Reorganizations, including any costs directly associated with preparing, filing, printing, and distributing to the shareholders of each of the Target Funds all materials relating to this Prospectus/Proxy Statement and soliciting shareholder votes, as well as the conversion costs associated with the Reorganizations. However, both the Target Funds and the Acquiring Funds may incur brokerage fees and other transaction costs associated with the disposition and/or purchase of securities in contemplation of or as a result of the Reorganizations. IS A REORGANIZATION CONSIDERED A TAXABLE EVENT FOR FEDERAL INCOME TAX PURPOSES? As a condition to each Reorganization, each participating Target Fund and its corresponding Acquiring Fund will receive an opinion of counsel substantially to the effect that, on the basis of certain assumptions made and representations to be made on behalf of the Target Fund and the Acquiring Fund, the existing provisions of the Internal Revenue Code ("Code"), Treasury regulations promulgated thereunder, administrative positions of the Internal Revenue Service, and judicial decisions, for federal income tax purposes: o the Reorganization, as set forth in the Plan, will constitute a tax-free reorganization under section 368(a) of the Code; o no gain or loss will be recognized by the Acquiring Fund upon the receipt of the Target Fund's assets solely in exchange for shares of the Acquiring Fund; o no gain or loss will be recognized by the Target Fund upon transfer of the assets of the Target Fund to the corresponding Acquiring Fund solely in exchange for shares of the Acquiring Fund or upon the distribution of the shares of the Acquiring Fund to the Target Fund shareholders in exchange for their shares of the Target Fund; o no gain or loss will be recognized by shareholders of the Target Fund upon exchange of their shares for shares of the Acquiring Fund in the Reorganization; o the aggregate tax basis of the Acquiring Fund shares received by each shareholder of the Target Fund pursuant to the Reorganization will be the same as the aggregate tax basis of the shares of the Target Fund held by such shareholder as of the time of the Reorganization; o the holding period of the Acquiring Fund shares received by each shareholder of the Target Fund pursuant to the Reorganization will include the period during which shares of the Target Fund exchanged therefor were held by such shareholder, provided the shares of the Target Fund were held as capital assets on the date of the Reorganization; o the tax basis of the assets of the Target Fund acquired by the Acquiring Fund will be the same as the tax basis of such assets to the Target Fund immediately prior to the Reorganization; and o the holding period of the Target Fund's assets in the hands of the Acquiring Fund will include the period during which those assets were held by the Target Fund. The foregoing opinions may state that no opinion is expressed as to the effect of the Reorganization on the Acquiring Fund, the Target Fund or the Target Fund's shareholders with respect to any asset as to which unrealized gain or loss is required to be recognized for federal income tax purposes at the end of a taxable year (or on the termination or transfer thereof) under a mark-to-market system of accounting. LIQUIDATION OF HSBC MASTER FUNDS. HSBC Investor Intermediate Duration Fixed Income Fund, HSBC Investor Core Plus Fixed Income Fund and HSBC Investor Core Plus Fixed Income Fund (Advisor), each of which is organized as a feeder fund in a master-feeder structure with the corresponding master fund classified as a partnership, own 97.8%, 12.9% and 68.8%, respectively, of their corresponding master funds as of April 30, 2009. A liquidating distribution in-kind by a master fund to its corresponding feeder fund should not result in any gain or loss to either the master fund or the feeder fund. In general, the tax basis of the assets (other than money) distributed by a master fund to its corresponding feeder fund in liquidation of the feeder fund's interest in the master fund will be an amount equal to the feeder fund's tax basis in its master fund shares reduced by the amount of any money distributed in the same transaction. The holding period of the assets received by a feeder fund in such liquidating distribution will include the period the assets were held by the master fund. References below to the assets and tax attributes (e.g., capital losses, realized gain (loss) or unrealized appreciation (depreciation) of portfolio investments) of a feeder include its pro rata share of the assets and tax attributes of its corresponding master fund. ORDERLY REORGANIZATION OF THE TARGET FUNDS. The parties have agreed to cooperate to facilitate the orderly reorganization of the Target Funds into the Acquiring Funds. This transition may include the sale of some of the portfolio securities of the Target Funds prior to the Reorganizations. The sale of securities may result in the realization of capital gains to the Target Funds that, to the extent not offset by capital losses, would be distributed to shareholders prior to the Closing Date, and those distributions (if any) would be taxable to shareholders who hold shares in taxable accounts. The parties anticipate that any such sales of portfolio securities by the HSBC Investor Intermediate Duration Fixed Income Fund as a result of the Reorganization (as distinct from normal portfolio turnover) will be limited in scope and likely not result in any material amounts of capital gains to be distributed to shareholders by such Fund. The parties anticipate that approximately 30% of the assets of each of HSBC Investor Core Plus Fixed Income Fund and HSBC Investor Core Plus Fixed Income Fund (Advisor) and 37% of the assets of the HSBC Investor New York Tax-Free Bond Fund will be sold as a result of the Reorganization (as distinct from normal portfolio turnover). Because the Target Funds reorganizing into Franklin Total Return Fund are in a net capital loss position at April 30, 2009, taking into account any available capital loss carryovers, current year realized net capital loss and net unrealized depreciation in the value of portfolio investments, it is not anticipated that the sale of such securities prior to the Reorganization will result in any material amounts of capital gains to be distributed to shareholders by such Funds. Because the HSBC Investor New York Tax-Free Bond Fund is in small net gain capital position at April 30, 2009 of $245,510 or $0.06 per share, taking into account any available net unrealized appreciation in value of portfolio investments and realized capital losses, which net capital gain position as a percentage of such Target Fund's net assets at that date equals less one percent (1%), it is not anticipated that the sale of securities by the HSBC Investor New York Tax-Free Bond Fund prior to the Reorganization will result in any material amount of capital gains to be distributed to shareholders by such Target Fund. However, the amount of capital gains realized by the Target Funds prior to the Closing Date will differ, due to changes in portfolio composition and changes in market values of portfolio securities. The transaction costs incurred in connection with the sale of portfolio securities prior to the Reorganizations are estimated to be $232 for the HSBC Investor Core Plus Fixed Income Fund and HSBC Investor Core Plus Fixed Income Fund (Advisor), $79 for the HSBC Investor New York Tax-Free Bond Fund and $9 for the HSBC Investor Intermediate Duration Fixed Income Fund. GENERAL LIMITATION ON CAPITAL LOSSES. Capital losses can generally be carried forward to each of the eight (8) years succeeding the loss year to offset future capital gains. Each Acquiring Fund will succeed to the tax attributes of the corresponding Target Fund, including any available capital loss carryforwards, as of the Closing Date. Based on the respective net asset values of the Target Funds as of April 30, 2009, the Reorganization will result in a more than 50% "change in ownership" of each Target Fund, as the smaller Fund in comparison to the corresponding Acquiring Fund as of the same date (March 31, 2009 in the case of Franklin New York Intermediate-Term Tax-Free Fund). As a result, the capital loss carryovers (together with any current year realized net capital loss and net unrealized depreciation in the value of portfolio investments, collectively referred to as "aggregate capital loss carryovers") of a Target Fund will be subject to an annual limitation for federal income tax purposes. The final amounts of unrealized capital gain or (loss), capital loss carryovers and realized capital gain or loss at the time of the Reorganizations may differ from the amounts that are shown below. In addition, for five years beginning after the Closing Date, no combined Fund will be permitted to offset gains "built-in" to either the applicable Target Fund or the applicable Acquiring Fund at the time of the Reorganization against capital losses (including capital loss carry-forwards) built in to the other Fund at the time of the Reorganization. At April 30, 2009 (March 31, 2009 in the case of Franklin New York Intermediate-Term Tax-Free Fund) the aggregate capital loss carryovers of the Target Funds, as compared to those of the corresponding Acquiring Funds, and the approximate annual limitation on the use of a Target Fund's aggregate capital loss carryovers following the Reorganization are as follows:
---------------------------------------------------------------------------------------- HSBC Core HSBC Core Plus HSBC Franklin Total Plus Fixed Fixed Income Intermediate Return Fund Income Fund Fund (Advisor) Duration Fixed [Acquiring [Target Fund] [Target Fund] Income Fund Fund] Line Tax Attributes [Target Fund] ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ 1 Capital loss carryovers (1) ------------------------------------------------------------------------------------------ Expiring ($787,733) 2012-2016 ------------------------------------------------------------------------------------------ Expiring 2016 ($1,002,028) ($85,092) ------------------------------------------------------------------------------------------ Expiring ($44,803,103) 2009-2016 ------------------------------------------------------------------------------------------ 2 Realized capital ($915,623) ($1,417,616) ($4,602) ($34,529,519) gain (loss) on a book basis at 4/30/09 ------------------------------------------------------------------------------------------ 3 Unrealized ($1,343,609) ($6,341,025) ($1,222,358) ($78,397,586) appreciation (depreciation) on a book basis at 4/30/09 ------------------------------------------------------------------------------------------ 4 Aggregate capital ($3,046,965) ($8,760,669) ($1,312,052) ($157,730,208) loss carryovers [L1+L2+L3] ------------------------------------------------------------------------------------------ 5 Unrealized -15.2% -13.4% -9.9% -4.7% appreciation (deprecation) as a percentage of NAV [L3/L6] ------------------------------------------------------------------------------------------ 6 Net assets at $8,864,585 $47,375,293 $12,328,901 $1,677,821,831 4/30/09 ------------------------------------------------------------------------------------------ 7 Long-term 4.6% 4.6% 4.6% n/a tax-exempt rate [June 2009] ------------------------------------------------------------------------------------------ 8 Annual limitation $408,657 $2,184,001 $568,362 n/a [L6 x L7] ------------------------------------------------------------------------------------------
(1) Each Target Fund and Acquiring Fund as of the close of the last fiscal year ended at October 31, 2008. -------------------------------------------------------------- HSBC Investor New York Franklin Tax-Free New York Income Intermediate- Fund Term Tax-Free [Target [Acquiring Line Tax Attributes Fund] Fund] --------------------------------------------------------------- --------------------------------------------------------------- 1 Capital loss n/a carryovers (1) --------------------------------------------------------------- Expiring ($2,276,205) 2009-2016 --------------------------------------------------------------- 2 Realized capital ($60,226) ($4,792,798) gain (loss) on a book basis at 4/30/09 for Target Fund and at 3/31/09 for Acquiring Fund --------------------------------------------------------------- 3 Unrealized $305,636 $2,153,063 appreciation (depreciation) at 4/30/09 for Target Funds on a book basis and 3/31/09 for Acquiring Fund on a tax basis --------------------------------------------------------------- 4 Aggregate capital n/a ($4,915,940) loss carryovers [L1+L2+L3] --------------------------------------------------------------- 5 Net capital gain $245,410 n/a position [L1+L2+L3] --------------------------------------------------------------- 6 Unrealized 0.7% 0.6% appreciation (deprecation) as a percentage of NAV [L3/L7] --------------------------------------------------------------- 7 Net assets of $42,511,462 $350,775,531 Target Fund at 4/30/09 and Acquiring Fund at 3/31/09 --------------------------------------------------------------- 8 Long-term 4.6% n/a tax-exempt rate [June 2009] --------------------------------------------------------------- 9 Annual limitation $1,959,778 n/a [L7 x L8] --------------------------------------------------------------- (1) Target Fund and Acquiring Fund as of the close of the last fiscal year ended at October 31, 2008 and September 30, 2008, respectively. The actual annual loss limitation will equal the aggregate net asset value of a Target Fund on the Closing Date of the Reorganization multiplied by the long-term tax-exempt rate for ownership changes during the month in which the Reorganization closes (such limitation is increased by the amount of any built-in gain, i.e., unrealized appreciation in value of investments, of a Target Fund on the Closing Date that is recognized in a taxable year). This annual limitation on use of a Target Fund's aggregate capital loss carryovers may result in some portion of such carryovers expiring unutilized, depending on the facts at time of closing the Reorganization. However, the aggregate capital loss carryovers of the Acquiring Funds will continue to be available, provided, among other things, that the Acquiring Fund is larger than the sum of its corresponding Target Funds on the Closing Date. This being the case, the benefits of each Acquiring Fund's aggregate capital loss carryovers will accrue post-Reorganization to the shareholders of both the Acquiring Fund and its corresponding Target Funds. This might be viewed as resulting in a slight reduction in the available tax benefits for the shareholders of the Acquiring Fund, although such capital loss carryovers are a tax benefit only to the extent such losses offset future capital gains. Buying shares in a fund that has material unrealized appreciation in portfolio investments may be less tax efficient than buying shares in a fund with no such unrealized appreciation in value of investments. Conversely, buying shares in a fund with unrealized depreciation in value of investments may be more tax efficient because such deprecation when realized will offset other capital gains that might otherwise be distributed to shareholders causing the shareholders to pay tax on such distributions. These same considerations apply in the case of a reorganization. The shareholders of the Target Funds will be subject to either greater or less appreciation (depreciation) in value of portfolio investments as a result of the Reorganization. In case of the Target Funds reorganizing into Franklin Total Return Fund, based on each Target Fund's unrealized depreciation in value of investments on a book basis as a percentage of its net asset value at April 30, 2009 ranging from 9.9% to 15.2% as compared to that of Franklin Total Return Fund of 4.7% at April 30, 2009 and 5.0% on a combined basis, the shareholders of such Target Funds will be exposed to slightly less unrealized depreciation in value of investments post-Reorganization relative to what they are presently exposed. In the case of the HSBC Investor New York Tax-Free Income Fund, based on that Target Fund's unrealized appreciation in value of investments on a book basis as a percentage of its net asset value at April 30, 2009 of 0.7% as compared to that of Franklin New York Intermediate-Term Tax-Free Fund of 0.6% at March 31, 2009 and 0.6% on a combined basis, the shareholders of the HSBC Investor New York Tax-Free Income Fund will be exposed to approximately the same unrealized appreciation in value of investments post-Reorganization relative to what they re presently exposed. TRACKING YOUR BASIS AND HOLDING PERIOD; STATE AND LOCAL TAXES. After the Reorganization, you will continue to be responsible for tracking the adjusted tax basis and holding period for your shares for federal income tax purposes. You should consult your tax adviser regarding the effect, if any, of the Reorganization in light of your individual circumstances. You should also consult your tax adviser about the state and local tax consequences, if any, of the Reorganization because this discussion only relates to the federal income tax consequences. HAS EACH TARGET FUND'S BOARD OF TRUSTEES APPROVED THE PROPOSED REORGANIZATIONS? The Board of Trustees of each Target Fund has unanimously approved the proposals and recommends that you vote in favor of the Reorganizations by voting to approve the Plan. HOW DO THE REORGANIZATIONS AFFECT CERTAIN TARGET FUNDS' MASTER-FEEDER STRUCTURES? Each of the HSBC Investor Core Plus Fixed Income Fund, HSBC Investor Core Plus Fixed Income Fund (Advisor) and HSBC Investor Intermediate Duration Fixed Income Fund are organized as feeder funds in a "master-feeder structure." This means that it invests all of its investable assets in another investment company, an Underlying Portfolio, as opposed to investing directly in portfolio securities. If a Reorganization is approved for one of these Target Funds, the Underlying Portfolio in which the Target Fund invests will conduct an in-kind liquidation no later than the Closing Date, meaning that it will deliver to the Target Fund all of its assets (or such pro rata share of its assets as is appropriate given such Target Fund's relative ownership of beneficial interests in the Underlying Portfolio). Approval of a Reorganization for a Target Fund investing in a master-feeder structure is also approval of the in-kind liquidation by the applicable Underlying Portfolio. It is anticipated that such in-kind liquidations will not result in any gain or loss to either the Underlying Portfolio (master fund) or the corresponding Target Fund (feeder fund). Please refer to the "Is a Reorganization considered a taxable event for federal income tax purposes? -- Liquidation of HSBC Master Funds" section above. For more information regarding the mechanics of the Reorganizations, please refer to the "The Proposed Reorganizations - Agreement and Plan of Reorganization" section below. HOW WILL THE NUMBER OF SHARES OF AN ACQUIRING FUND THAT I WILL RECEIVE BE DETERMINED? As a Target Fund shareholder, you will receive your pro rata share of the Acquiring Fund shares of the appropriate class received by the Target Fund in the Reorganization. The number of shares a Target Fund will receive will be based on the relative net asset values of the Target Fund and the corresponding Acquiring Fund as of 4:00 p.m., Eastern Time, on the Closing Date. The Target Fund's assets will be valued using the valuation procedures used to value the assets of the corresponding Acquiring Fund. The total value of your holdings should not change as a result of a Reorganization, except to the extent that the Acquiring Funds' valuation procedures differ from the Target Funds' valuation procedures. For example, if the value of a portfolio asset held by a Target Fund is higher when using that Target Fund's valuation procedures (as compared to using the corresponding Acquiring Fund's valuation procedures), then the application of the Acquiring Fund's valuation procedures on the Closing Date will cause the dollar value of your holdings in the Acquiring Fund after the Reorganization to be less than the dollar value of your holdings in the Target Fund prior to the Reorganization. AMUS is monitoring this matter and will continue to do so up to the closing of the Reorganizations. AMUS does not believe that differences in the valuation procedures of the Acquiring Funds and Target Funds would have any material impact on shareholders in connection with the Reorganizations. For more information regarding valuation procedures, please refer to the "Do the procedures for pricing fund shares differ between the Target Funds and the Acquiring Funds?" section below. HOW DO THE FEES OF THE ACQUIRING FUNDS COMPARE TO THOSE OF THE TARGET FUNDS? As a result of the proposed Reorganizations, shareholders of the: o HSBC Investor New York Tax-Free Bond Fund are expected to experience a higher contractual investment management fee, but lower total fund operating expenses (with the exception of holders of Advisor Class shares, which would have higher total fund operating expenses), as a percentage of average daily net assets, as shareholders in the Franklin New York Intermediate-Term Tax-Free Fixed Income Fund. o HSBC Investor Core Plus Fixed Income Fund and HSBC Investor Core Plus Fixed Income Fund (Advisor) are expected to experience a lower contractual investment management fee and lower total fund operating expenses (with the exception of holders of Advisor Class shares, which would experience higher total fund operating expenses), as a percentage of average daily net assets, as shareholders of the Franklin Total Return Fund. Shareholders could also expect to experience (with the exception of current holders of Class B and Class C shares of the HSBC Investor Core Plus Fixed Income Fund) higher net operating expenses as a percentage of average daily net assets. o HSBC Investor Intermediate Duration Fixed Income Fund are expected to experience a lower contractual investment management fee and lower total fund operating expenses, as a percentage of average daily net assets, as shareholders of the Franklin Total Return Fund. Shareholders could also expect to experience (with the exception of current holders of Class B and Class C shares of the Target Fund) higher net operating expenses as a percentage of average daily net assets. As a shareholder in the HSBC Investor Core Plus Fixed Income Fund, the HSBC Investor Core Plus Fixed Income Fund (Advisor) and the HSBC Investor Intermediate Duration Fixed Income Fund, it is worth considering that the lower net operating expenses experienced by those Funds as compared to the Franklin Total Return Fund are solely a result of a written expense limitation agreement with AMUS that terminates on March 1, 2010. WILL I HAVE TO PAY ANY FRONT-END SALES CHARGES ON SHARES RECEIVED IN THE REORGANIZATIONS? No. You will not have to pay any front-end sales charge on any shares of an Acquiring Fund received as part of the Reorganizations. With respect to Class A shares of the Acquiring Funds, shareholders will be subject to any applicable front-end sales charge on subsequent purchases into such Acquiring Fund to the extent that such shareholders do not qualify for a reduction or elimination of a sales load under the Acquiring Fund's policies. Both of the Acquiring Funds offer a cumulative quantity discount and a letter of intent program. To qualify for a Class A front-end sales charge reduction, shareholders must notify the Acquiring Funds in advance of their purchase. An Acquiring Fund shareholder and his or her spouse and children under the age of 21 (and certain other accounts) may combine purchases of Class A shares for the purpose of qualifying for the front-end sales charge reductions offered by the Acquiring Funds. Under the cumulative quantity discount, an Acquiring Fund shareholder may combine certain existing holdings of Acquiring Fund shares - referred to as "cumulative quantity discount eligible shares" - with a current purchase of Class A shares to determine if the Acquiring Fund shareholder qualifies for a sales charge breakpoint. Under the Acquiring Funds' letter of intent program, the sales load charge may be reduced on purchases of Class A shares made during a 13-month period provided a letter of intent is executed and filed with the Acquiring Funds. Any letter of intent or that you established as a shareholder of the Target Fund will not be transferred to the Acquiring Fund and must be re-established with the Acquiring Fund if you desire to continue similar arrangements as a shareholder of the Acquiring Fund. For a detailed discussion of these programs for the Acquiring Funds, see the "Sales Charge Reductions and Waivers" section of the Acquiring Funds' prospectuses, which is enclosed herewith, and the "Buying and Selling Shares" section of the respective statements of additional information. For more information concerning the fees and expenses applicable to each Acquiring Fund, see the applicable "Comparative Fee Table" in each of the following proposals. WILL I HAVE TO PAY ANY CONTINGENT DEFERRED SALES CHARGES ON SHARES EXCHANGED IN THE REORGANIZATIONS? No. You will not have to pay any contingent deferred sales charge on any shares of a Target Fund exchanged as part of the Reorganizations. Class B shares of the Target Funds, which have a maximum contingent deferred sales charge of 4.00%, will be exchanged for Class A shares of the Acquiring Funds, which have no contingent deferred sales charge other than a 0.75% contingent deferred sales charge on redemptions made within 18 months of a purchase of shares worth $1 million or more. Class A shares received as part of the Reorganizations will not be subject to the 0.75% contingent deferred sales charge. However, shareholders will be subject to the 0.75% contingent deferred sales charge on subsequent purchases of Class A shares of an Acquiring Fund worth $1 million or more, to the extent that such shareholders do not qualify for a reduction or elimination of the contingent deferred sales charge under the Acquiring Fund's policies. For more information concerning the fees and expenses applicable to each Acquiring Fund, see the applicable "Comparative Fee Table" in each of the following proposals. ARE THE INVESTMENT OBJECTIVES/GOALS AND STRATEGIES OF THE TARGET FUNDS SIMILAR TO THE INVESTMENT GOALS AND STRATEGIES OF THE CORRESPONDING ACQUIRING FUNDS? Each Target Fund's investment objectives/goals and strategies are similar to those of its corresponding Acquiring Fund. For a detailed comparison of each Fund's investment objectives and strategies, see the applicable "Comparison of Investment Objectives/Goals and Strategies" section below. DO THE FUNDAMENTAL AND NON-FUNDAMENTAL INVESTMENT POLICIES DIFFER BETWEEN THE TARGET FUNDS AND THE ACQUIRING FUNDS? Although the language may differ between the fundamental investment policies of the Target Funds and the Acquiring Funds, the policies are similar and include investment policies required by the Investment Company Act of 1940, as amended ("1940 Act"). In addition, certain Acquiring Funds and Target Funds have adopted additional fundamental and/or non-fundamental policies that the corresponding Acquiring Fund or Target Fund has not. For a detailed comparison of the Target Funds' and the Acquiring Funds' fundamental and non-fundamental investment policies, see Attachment I to this Prospectus/Proxy Statement. DO THE PRINCIPAL RISKS ASSOCIATED WITH INVESTMENTS IN A TARGET FUND DIFFER FROM THE PRINCIPAL RISKS ASSOCIATED WITH INVESTMENTS IN THE CORRESPONDING ACQUIRING FUND? Although the principal risks associated with investments in each Target Fund are similar to the principal risks associated with investments in the corresponding Acquiring Fund, there are certain material differences that you should consider in connection with the Reorganizations. For a detailed comparison of each Fund's principal investment risks, see the applicable "Comparison of Principal Risks" section below. DO THE PROCEDURES FOR PURCHASING AND REDEEMING FUND SHARES DIFFER BETWEEN THE TARGET FUNDS AND THE ACQUIRING FUNDS? The procedures for purchasing and redeeming shares of the Target Funds and the Acquiring Funds are substantially similar to each other. For a detailed discussion of the procedures for purchasing and redeeming shares of an Acquiring Fund, see the respective Acquiring Fund's Prospectus, which is enclosed herewith. Please note that purchase orders into the Target Funds may be restricted in advance of the Closing Date. Shareholders of the Target Funds may redeem shares of the Target Fund in which they own shares through the Closing Date of the Reorganizations. DO THE EXCHANGE PRIVILEGES DIFFER BETWEEN THE TARGET FUNDS AND THE ACQUIRING FUNDS? Although the exchange privileges of the Target Funds and the Acquiring Funds are similar, there are certain differences that you should consider in connection with the Reorganizations. In particular, as a shareholder of a Franklin Fund, you will have exchange rights into other Franklin Templeton Funds, as opposed to HSBC Investor Funds. For a detailed discussion of the exchange privileges of an Acquiring Fund, see the "Your Account-Exchanging Shares" section of the respective Acquiring Fund's Prospectus. CAN SHAREHOLDERS OF A TARGET FUND WHO RECEIVE CLASS A SHARES OF AN ACQUIRING FUND EXCHANGE THOSE SHARES FOR ADVISOR CLASS SHARES OF AN ACQUIRING FUND? Class A shareholders of the HSBC Investor Core Plus Fixed Income Fund who receive Class A shares of the Franklin Total Return Fund in connection with the Reorganization will be eligible to exchange those shares for Advisor Class shares of the Franklin Total Return Fund following the Reorganization. In order to qualify for this exchange privilege, HSBC Investor Core Plus Fixed Income Fund Class A shareholders must be otherwise eligible to purchase Advisor Class shares of the Franklin Total Return Fund. The eligibility criteria for investing in Advisor Class shares of the Franklin Total Return Fund is described in the "Choosing a Share Class - Qualified Investors - Advisor Class" section of the Franklin Total Return Fund prospectus, which has been mailed with this Prospectus/Proxy Statement. For additional details about this exchange privilege, see the "Proposals 1(A) and 1(B) - Exchange privilege for holders of Class A shares of the HSBC Investor Core Plus Fixed Income Fund" section of this Prospectus/Proxy Statement. DO THE PROCEDURES FOR PRICING FUND SHARES DIFFER BETWEEN THE TARGET FUNDS AND THE ACQUIRING FUNDS? The procedures for valuing shares of the Target Funds are similar to the procedures for valuing shares of their corresponding Acquiring Funds. If a Reorganization is approved, on the Closing Date, the value of the assets of each Target Fund will be determined using the valuation procedures set forth in the corresponding Acquiring Fund's then-current prospectus and statement of additional information. Currently, the valuation procedures of the Acquiring Funds differ from those of the Target Funds in that the Acquiring Funds value fixed income securities at the mean of the bid and asked price, whereas the Target Funds price fixed income securities at the bid price, in each case as determined by a pricing agent. The HSBC Investor New York Tax-Free Bond Fund and the Franklin New York Intermediate-Term Tax-Free Income Fund also use different pricing agents to price portfolio holdings. The Target Funds may begin to value fixed income securities according to the Acquiring Funds' policies sometime prior to the closing. DO THE DIVIDEND AND DISTRIBUTION POLICIES DIFFER BETWEEN THE TARGET FUNDS AND THE ACQUIRING FUNDS? The Target Funds declare and pay dividends monthly to shareholders and pay capital gain distributions to shareholders at least annually. The Acquiring Funds typically declare dividends each day that NAV is calculated and pay such dividends monthly. Capital gains, if any, are distributed annually. Please note that on or before the Closing Date, each Target Fund is expected to declare additional dividends or other distributions in order to distribute substantially all of its investment company taxable income and net realized capital gain, including gain realized as a result of portfolio repositioning prior to the Reorganizations, if any. See the section entitled "Is a Reorganization considered a taxable event for federal income tax purposes? -- Orderly Reorganization of the Target Funds" for more information on the capital gain distributions, if any, prior to the Closing Date. Furthermore, each Acquiring Fund declares dividends and other distributions in accordance with its dividend and distribution policies as discussed above, and, based on those policies, distributions may be declared soon after the Closing Date. Those distributions may include amounts attributable to income or gain realized by an Acquiring Fund prior to the Reorganizations. Accordingly, as a shareholder of a Target Fund prior to the Reorganizations and a shareholder of an Acquiring Fund after the Reorganizations, you may receive distributions of investment company taxable income and net realized capital gain from both Funds within the same calendar year. DO THE POLICIES AND PROCEDURES DESIGNED TO DISCOURAGE EXCESSIVE AND SHORT-TERM TRADING OF FUND SHARES DIFFER BETWEEN THE TARGET FUNDS AND THE ACQUIRING FUNDS? The Target Funds and the Acquiring Funds have adopted excessive trading policies and procedures. Although the excessive trading policies and procedures adopted by each Fund are similar to each other, there are certain differences that you should consider. To deter market timing, the Target Funds impose redemption fees on shares sold or exchanged within thirty days of purchase. The redemption fees are in addition to any applicable contingent deferred sales charges. The Target Funds and AMUS reserve the right to reject or restrict purchase or exchange requests from any investor and also reserve the right to close any account in which a pattern of excessive trading has been identified. No redemption fee will be imposed on the cancellation of Target Fund shares in connection with the Reorganization. The policies and procedures adopted by the Acquiring Funds provide that the Acquiring Funds discourage and do not intend to accommodate short-term or frequent purchases and redemptions of their fund shares. The Acquiring Funds do not impose a redemption fee on shares sold within a certain number of days of purchase, however, the Acquiring Funds perform ongoing monitoring of trading in fund shares in order to try and identify shareholder trading patterns that suggest an ongoing short-term trading strategy. If and when a pattern of short-term trading is identified, the Acquiring Funds' transfer agent, Franklin Templeton Investor Services, LLC ("FTIS"), will seek to restrict or reject further short-term trading and/or take other action, if in the judgment of Franklin Advisers, Inc. or FTIS, such trading may be detrimental to the fund. For more information regarding the policies adopted by the Acquiring Funds to deter short-term trading of fund shares, please see the "Frequent Trading Policy" sections of the Acquiring Funds' prospectuses, which have been mailed with this Prospectus/Proxy Statement. IN SUMMARY, WHAT ARE SOME FACTORS I SHOULD CONSIDER WHEN COMPARING THE TARGET FUNDS AND THE CORRESPONDING ACQUIRING FUNDS? PROPOSALS 1(A) AND (B) - REORGANIZATION OF HSBC INVESTOR CORE PLUS FIXED INCOME FUND AND HSBC INVESTOR CORE PLUS FIXED INCOME FUND (ADVISOR) INTO FRANKLIN TOTAL RETURN FUND In considering whether to approve the Reorganizations, you should note that: o As of December 31, 2008, the and 1, 5, and 10-year performance of the Franklin Total Return Fund was comparable to that of the HSBC Investor Core Plus Fixed Income Fund and HSBC Investor Core Plus Fixed Income Fund (Advisor); o As a shareholder in the Franklin Total Return Fund, you could expect to experience a lower contractual investment management fee and lower total fund operating expenses (with the exception of holders of Advisor Class shares, which would experience higher total fund operating expenses), as a percentage of average daily net assets. You could also expect to experience (with the exception of current holders of Class B and Class C shares of the HSBC Investor Core Plus Fixed Income Fund) higher net operating expenses as a percentage of average daily net assets as a result of the Target Funds' expense limitation agreement with AMUS that terminates on March 1, 2010; o The maximum sales load imposed on purchases of Class A shares of the Franklin Total Return Fund is lower than that of HSBC Investor Core Plus Fixed Income Fund (4.25% versus 4.75%); o Class B shares of the HSBC Investor Core Plus Fixed Income Fund, which have a maximum contingent deferred sales charge of 4.00%, will be reorganized into Class A shares of the Franklin Total Return Fund which, under most circumstances, carry no contingent deferred sales charge. Any subsequent purchases of Class A shares of the Franklin Total Return Fund would be subject to a front end sales charge of up to 4.25%, and purchases of $1 million or more would not be subject to any sales charge except a 0.75% continent deferred sales charge on Class A shares sold within 18 months of the purchase of those shares; o The Franklin Total Return Fund is currently advised by Franklin Advisers, Inc., which would be responsible for the day-to-day management of the resulting combined Fund after the Reorganization. Franklin Advisers, Inc. is part of a group of affiliated companies that together managed over $421 billion in assets as of April 30, 2009; o The Franklin Total Return Fund is the significantly larger portfolio (net assets of $1.744 billion for the Franklin Total Return Fund versus $8.960 million and $47.262 million for the HSBC Investor Core Plus Fixed Income Fund, and HSBC Core Plus Fixed Income Fund (Advisor), respectively, as of May 29, 2009); o As a shareholder of the Franklin Total Return Fund, you will be able to exchange your shares into other Franklin Templeton funds with a wide variety of investment goals and strategies; o The investment strategy of the Franklin Total Return Fund permits investment of up to 20% of the fund's assets in high yield securities and up to 5% of the fund's assets in securities rated "B" or below while the HSBC Investor Core Plus Fixed Income Fund and HSBC Investor Core Plus Fixed Income Fund (Advisor) may invest a higher percentage (up to 25%) of their assets in high yield securities; o The Reorganization is intended to qualify for federal income tax purposes as a tax-free reorganization. Accordingly, pursuant to this treatment, neither the HSBC Investor Core Plus Fixed Income Fund, HSBC Investor Core Plus Fixed Income Fund (Advisor) nor their shareholders, nor the Franklin Total Return Fund nor its shareholders, are expected to recognize any gain or loss for federal income tax purposes from the Reorganization (except with respect to the potential capital gain distribution noted in the following bullet point); o In order to transition the portfolio, it is currently expected that a portion of the portfolio assets of the HSBC Investor Core Plus Fixed Income Fund and the HSBC Investor Core Plus Fixed Income Fund (Advisor) will be repositioned or sold prior to the Closing Date. Any such repositioning could cause the applicable Fund to distribute capital gains to its shareholders prior to the Closing Date and those distributions (if any) would be taxable to shareholders who hold shares in taxable accounts; and o Each Reorganization is a separate transaction and is not dependent on the shareholder approval of the other Reorganization. PROPOSAL 2 - REORGANIZATION OF HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME FUND INTO FRANKLIN TOTAL RETURN FUND In considering whether to approve the Reorganization, you should note that: o As of December 31, 2008, the 1 and 5 year performance of the HSBC Investor Intermediate Duration Fixed Income Fund is comparable to that of the Franklin Total Return Fund; o As a shareholder in the Franklin Total Return Fund, you could expect to experience a lower contractual investment management fee and lower total fund operating expenses, as a percentage of average daily net assets. You could also expect to experience (with the exception of current holders of Class B and Class C shares of the Target Fund) higher net operating expenses as a percentage of average daily net assets as a result of the Target Funds' expense limitation agreement with AMUS that terminates on March 1, 2010; o The maximum sales load imposed on purchases of Class A shares of the Franklin Total Return Fund is lower than that of the HSBC Investor Intermediate Duration Fixed Income Fund (4.25% versus 4.75%); o Class B shares of the HSBC Investor Intermediate Duration Fixed Income Fund, which have a maximum contingent deferred sales charge of 4.00%, will be reorganized into Class A shares of the Franklin Total Return Fund which, under most circumstances, carry no contingent deferred sales charge. Any subsequent purchases of Class A shares of the Franklin Total Return Fund would be subject to a front end sales charge of up to 4.25%, and purchases of $1 million or more would not be subject to any sales charge except a 0.75% continent deferred sales charge on Class A shares sold within 18 months of the purchase of those shares; o The Franklin Total Return Fund is currently managed by Franklin Advisers, Inc., which will be responsible for the day-to-day management of the resulting combined Fund after the Reorganization. Franklin Advisers, Inc. is part of a group of affiliated companies that together managed over $421 billion in assets as of April 30, 2009; o The Franklin Total Return Fund is the significantly larger portfolio (net assets of $1.744 billion for the Franklin Total Return Fund versus $12.289 million for the HSBC Investor Intermediate Duration Fixed Income Fund, as of May 29, 2009); o As a shareholder of the Franklin Total Return Fund, you will be able to exchange your shares into other Franklin Templeton funds with a wide variety of investment goals and strategies; o The investment strategy of the Franklin Total Return Fund permits investment of up to 20% of the fund's assets in high yield securities and up to 5% of the fund's assets in securities rated "B" or below while the HSBC Investor Core Plus Fixed Income Fund may invest a higher percentage (up to 25%) of its assets in high yield securities; o The Reorganization is intended to qualify for federal income tax purposes as a tax-free reorganization. Accordingly, pursuant to this treatment, neither the HSBC Investor Intermediate Duration Fixed Income Fund nor its shareholders, nor the Franklin Total Return Fund nor its shareholders, are expected to recognize any gain or loss for federal income tax purposes from the Reorganization (except with respect to the potential capital gain distribution noted in the following bullet point); and o In order to transition the portfolio, it is currently expected that a portion of the portfolio assets of the HSBC Investor Intermediate Duration Fixed Income Fund will be repositioned or sold prior to the Closing Date. Any repositioning of the Fund's portfolio could cause the Fund to distribute capital gains to its shareholders prior to the Closing Date and those distributions (if any) would be taxable to shareholders who hold shares in taxable accounts. PROPOSAL 3 - REORGANIZATION OF HSBC INVESTOR NEW YORK TAX-FREE BOND FUND INTO FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND In considering whether to approve the Reorganization, you should note that: o As of December 31, 2008, the 1, 5, and (as applicable) 10-year performance of the Franklin New York Intermediate-Term Tax-Free Income Fund is comparable to that of the HSBC Investor New York Tax-Free Bond Fund; o As a shareholder in the Franklin New York Intermediate-Term Tax-Free Fixed Income Fund, you could expect to experience a higher contractual investment management fee, but lower total fund operating expenses (with the exception of holders of Advisor Class shares, which would experience higher total fund operating expenses), as a percentage of average daily net assets. For the respective fiscal years ended September 30, 2008 and October 31, 2008, absent waivers, the total fund operating expenses of Class A shares of the Franklin New York Intermediate-Term Tax-Free Income Fund are lower than the total fund operating expenses of Class A shares of the HSBC Investor New York Tax-Free Bond Fund (0.73% versus 0.84%); o The maximum sales load imposed on purchases of Class A shares of the Franklin New York Intermediate-Term Tax-Free Income Fund is lower than that of the HSBC Investor New York Tax-Free Bond Fund (2.25% versus 4.75%); o Class B shares of the HSBC Investor New York Tax-Free Bond Fund, which have a maximum contingent deferred sales charge of 4.00%, will be reorganized into Class A shares of the Franklin New York Intermediate-Term Tax-Free Income Fund which, under most circumstances, carry no contingent deferred sales charge. Any subsequent purchases of Class A shares of the Franklin New York Intermediate-Term Tax-Free Income Fund would be subject to a front end sales charge of up to 2.25%, and purchases of $1 million or more would not be subject to any sales charge except a 0.75% continent deferred sales charge on Class A shares sold within 18 months of the purchase of those shares; o The Franklin New York Intermediate-Term Tax-Free Income Fund is currently managed by Franklin Advisers, Inc., which will be responsible for the day-to-day management of the resulting combined Fund after the Reorganization. Franklin Advisers, Inc. is part of a group of affiliated companies that together managed over $421 billion in assets as of April 30, 2009; o The Franklin New York Intermediate-Term Tax-Free Income Fund is a significantly larger portfolio (net assets of $388.8 million for the Franklin New York Intermediate-Term Tax-Free Income Fund versus $42.6 million for the HSBC Investor New York Tax-Free Bond Fund, as of May 29, 2009); o As a shareholder of the Franklin New York Intermediate-Term Tax-Free Income Fund, you would be able to exchange your shares into other Franklin Templeton funds with a wide variety of investment goals and strategies; o The Franklin New York Intermediate-Term Tax-Free Income Fund has, in the past, maintained a shorter average effective maturity than the HSBC Investor New York Tax-Free Bond Fund (8.9 years for the Franklin New York Intermediate-Term Tax-Free Income Fund as of March 31, 2009 as compared to 11.3 years for the HSBC Investor New York Tax-Free Bond Fund as of January 31, 2009) and a larger allocation to AAA-rated securities (34.5% for the Franklin New York Intermediate-Term Tax-Free Income Fund as of March 31, 2009 as compared to 4% for the HSBC Investor New York Tax-Free Bond Fund as of January 31, 2009); o The Franklin New York Intermediate-Term Tax-Free Income Fund only invests in securities rated BBB or better while the HSBC Investor New York Tax-Free Bond Fund has no such limitation; o The Reorganization is intended to qualify for federal income tax purposes as a tax-free reorganization; accordingly, pursuant to this treatment, neither the HSBC Investor New York Tax-Free Bond Fund nor its shareholders, nor the Franklin New York Intermediate-Term Tax-Free Income Fund nor its shareholders, are expected to recognize any gain or loss for federal income tax purposes from the Reorganization (except with respect to the potential capital gain distribution noted below in the next bullet point); and o In order to transition the portfolio, it is currently expected that a portion of the portfolio assets of the HSBC Investor New York Tax-Free Bond Fund will be repositioned or sold prior to the Closing Date. Any repositioning of the Fund's portfolio could cause the Fund to distribute capital gains to its shareholders prior to the Closing Date and those distributions (if any) would be taxable to shareholders who hold shares in taxable accounts. HOW MANY VOTES AM I ENTITLED TO CAST? As a shareholder of a Target Fund, you are entitled to one vote for each whole share, and a proportionate fractional vote for each fractional share, you own of a Target Fund on the record date. The record date is July 10, 2009. HOW DO I VOTE MY SHARES? You can vote your shares in person at the Meeting or by completing and signing the enclosed proxy card(s) and mailing it (them) in the enclosed postage-paid envelope. You may also vote by touch-tone telephone by calling the toll-free number printed on your proxy card(s) and following the recorded instructions. If you need any assistance, or have any questions regarding the proposals or how to vote your shares, please call 1-800-782-8183. WHAT ARE THE QUORUM AND APPROVAL REQUIREMENTS FOR THE REORGANIZATIONS? Each Target Fund has a quorum, in substance, requirement of a majority of the outstanding shares present in person or represented by proxy at the Meeting. Approval of each Reorganization requires the affirmative vote of 67% or more of the voting securities present at the Meeting, if the holders of more than 50% of the outstanding voting securities of the Target Fund are present or represented by proxy, or of more than 50% of the outstanding voting securities of the Target Fund, whichever is less ("1940 Act Majority"). WHAT IF THERE ARE NOT ENOUGH VOTES TO REACH QUORUM OR TO APPROVE A REORGANIZATION BY THE SCHEDULED MEETING DATE? To facilitate receiving a sufficient number of votes, we may need to take additional action. Computershare Limited ("Computershare"), a proxy solicitation firm, may contact you by mail or telephone. Therefore, we encourage shareholders to vote as soon as they review the enclosed proxy materials to avoid additional mailings or telephone calls. If there are not sufficient votes to approve your Target Fund's proposal or to achieve a quorum by the time of the Meeting (August 27, 2009), the Meeting may be adjourned from time to time to permit further solicitation of proxy votes. WHO IS THE PROXY SOLICITATION FIRM? Computershare is a third party proxy vendor hired to call shareholders and record proxy votes. In order to hold a shareholder meeting, quorum must be reached - which in the case of a Reorganization is a majority of the Target Fund shares present in person or by proxy at the Meeting. If quorum is not attained, a Meeting must adjourn to a future date. Computershare may attempt to reach shareholders via multiple mailings to remind shareholders to cast their vote. As the Meeting approaches, phone calls may be made to clients who have not yet voted their shares so that the Meeting do not have to be postponed. Voting your shares immediately will help minimize additional solicitation expenses and prevent the need to make a call to you to solicit your vote. WHAT HAPPENS IF ANY OF THE REORGANIZATIONS ARE NOT APPROVED BY A TARGET FUND'S SHAREHOLDERS? Each Reorganization is a separate transaction and is not dependent on the shareholder approval of any other Reorganization. If shareholders of either the HSBC Investor Core Plus Fixed Income Fund or HSBC Investor Core Plus Fixed Income Fund (Advisor) approve a Reorganization and shareholders of the other Fund do not, the Underlying Portfolio for those Funds will conduct its in-kind liquidating distribution to both of those Funds, as appropriate, and the Fund for which the Reorganization was approved will complete its Reorganization. If the shareholders of a particular Target Fund do not approve a Reorganization, AMUS and the Board of Trustees will determine what, if any, additional action should be taken with respect to that particular Target Fund. Such action may include liquidation of that Target Fund. PROPOSALS 1(A) AND 1(B) REORGANIZATIONS OF HSBC INVESTOR CORE PLUS FIXED INCOME FUND AND HSBC INVESTOR CORE PLUS FIXED INCOME FUND (ADVISOR) INTO FRANKLIN TOTAL RETURN FUND SUMMARY OF THE PROPOSAL Shareholders of each of the HSBC Investor Core Plus Fixed Income Fund and HSBC Investor Core Plus Fixed Income Fund (Advisor) are being asked to approve the Plan as it relates to the Reorganization of each of the Funds. While the Reorganization and related shareholder approval of the Plan for each of these Funds is independent of the Reorganization and shareholder approval of the other, the Funds are so similar that the proposals are addressed together as PROPOSALS 1(A) AND 1(B). As a result of its Reorganization (if approved by shareholders), shareholders of the HSBC Investor Core Plus Fixed Income Fund or HSBC Investor Core Plus Fixed Income Fund (Advisor), as appropriate, would receive shares in the Franklin Total Return Fund in an amount equal to the net asset value of their holdings in their Fund as of the Closing Date, as determined pursuant to the Plan. You should consult the Prospectus dated March 1, 2009 (as supplemented), for more information about the Franklin Total Return Fund, a series of Franklin Investors Securities Trust, which has been mailed with and is incorporated by reference into this Prospectus/Proxy Statement. For more information regarding shareholder approval of the Reorganizations, please refer to the "What happens if any of the Reorganizations are not approved by a Target Fund's shareholders?" section above. A form of the Plan is attached hereto as Attachment II to this Prospectus/Proxy Statement. For more information regarding the calculation of the number of Acquiring Fund shares to be issued, please refer to the "How will the number of shares of an Acquiring Fund that I will receive be determined?" section above. COMPARISON OF INVESTMENT OBJECTIVES/GOALS AND STRATEGIES The following summarizes the investment objective/goals, strategies and management differences, if any, between HSBC Investor Core Plus Fixed Income Fund and HSBC Investor Core Plus Fixed Income Fund (Advisor) and the Franklin Total Return Fund: HSBC Investor Core Plus Fixed Income Fund HSBC Investor Core Plus Fixed Income Fund (Advisor) Franklin Total Return Fund ------------------------------------------------------------------------------ Investment The investment objective The Fund's principal Goal(s)/Objective(s) of the Fund is to maximize investment goal is to total return, consistent provide high current with reasonable risk. The income, consistent with "total return" sought by preservation of capital. the Fund consists of Its secondary goal is income earned on capital appreciation over investments, plus capital the long term. appreciation, if any, which generally arises from decreases in interest rates or improving credit fundamentals for a particular sector or security. Investment The Fund seeks to achieve Under normal market Strategies its investment objective conditions, the Fund by investing all of its invests at least 80% of assets in the HSBC its assets in investment Investor Core Plus Fixed grade debt securities and Income Portfolio (the investments, including "Portfolio"), which has government and corporate the same investment debt securities, mortgage- objective as the Fund. and asset-backed securities, investment grade corporate loans and futures with Under normal market reference securities that conditions, the Portfolio are investment grade. The invests at least 80% of Fund focuses on government its net assets in fixed and corporate debt income securities, such as securities and mortgage- U.S. government securities, and asset-backed securities. corporate debt securities, commercial paper, mortgage- Additionally, the Fund may backed and asset-backed invest up to 20% of its securities, and similar total assets in non- securities issued by investment grade debt foreign securities, including up to 5% in governments and securities rated lower corporations. The Portfolio than B by S&P or Moody's, invests primarily in which may include defaulted investment grade debt securities. securities, but may invest up to 25% of its total assets in high yield securities ("junk In order to effectively bonds") without any manage cash flows in or minimum rating or credit out of the Fund, the Fund quality. The Portfolio may buy and sell financial may invest up to 30% of futures contracts or its total assets in options on such securities denominated in contracts. The Fund may foreign currencies, also, from time to time, including, to a limited enter into forward extent, those in emerging currency contracts markets, and may invest (including cross currency beyond this limit in U.S. forwards) and currency dollar denominated futures contracts to try securities of foreign to hedge (protect) against issuers. currency exchange rate fluctuations or to generate Additionally, the Portfolio income or returns for the may invest more than 50% Fund. of its assets in mortgage-backed securities The Fund may invest up to including mortgage pass- 25% of its total assets in through securities, foreign securities, mortgage-backed bonds and including up to 20% of its collateralized mortgage total assets in non-U.S. obligations (CMOs) that dollar denominated carry a guarantee of securities and up to 10% timely payment. of its total assets in emerging market securities. The Portfolio may invest in derivative instruments, including, but not limited to, financial and foreign currency futures contracts as well as options on securities, foreign currencies, and foreign currency futures. The Portfolio intends to do so primarily for hedging purposes or for cash management purposes, as a substitute for investing directly in fixed income securities, but may also do so to enhance return when the subadviser believes the investment will assist the Portfolio in achieving its investment objectives. Investment Adviser HSBC Global Management Asset Franklin Advisers, Inc. (USA) Inc. Subadviser Halbis Capital Management Franklin Templeton (USA) Inc. Institutional, LLC Portfolio Kim Golden Roger Bayston, Kent Burns, Manager(s) Christopher J.Molumphy, David Yuen, Michael J. Materasso As you can see from the chart above, the investment objective/goals and strategies of the HSBC Investor Core Plus Fixed Income Fund and HSBC Investor Core Plus Fixed Income Fund (Advisor) are similar to those of the Franklin Total Return Fund. The Target and Acquiring Funds primarily invest in investment grade securities, such as U.S. government securities, corporate debt securities and mortgage- and asset-backed securities. There are, however, differences that you should consider. The Target Funds may invest up to 25% of their assets in non-investment grade securities, while the Franklin Total Return Fund may invest only 20% of its assets in such securities. In addition, the Target Funds may invest up to 30% of their total assets in securities denominated in foreign currencies while the Franklin Total Return Fund may invest only 20% of its assets in such securities. While these percentages are similar, a higher exposure to non-investment grade securities and securities denominated in foreign currencies may increase risk. In addition, the Franklin Total Return Fund, as part of its principal investment strategies, may invest in both domestic and foreign issuers. While the Target Funds also may invest in foreign issuers, as of January 31, 2009, 4.1% of the Franklin Total Return Fund portfolio was comprised of foreign securities, while 0.5% of the Target Funds' portfolio was comprised of foreign securities. For more information about Franklin Total Return Fund's investment goals, principal investment strategies and risks, see the "Goals and Strategies" and "Main Risks" sections of the Franklin Total Return Fund prospectus, which has been mailed with this Prospectus/Proxy Statement. For a discussion of the differences in each Fund's fundamental and non-fundamental investment policies, see Attachment I to this Prospectus/Proxy Statement. COMPARISON OF PRINCIPAL RISKS The principal risks associated with the HSBC Investor Core Plus Fixed Income Fund, HSBC Investor Core Plus Fixed Income Fund (Advisor) and the Franklin Total Return Fund are similar because they have similar investment goals and principal investment strategies. The actual risks of investing in each Fund depend on the securities held in each Fund's portfolio and on market conditions, both of which change over time. Many factors affect a Fund's performance. A Fund's share price changes daily based on changes in market conditions and interest rates and in response to other economic, political, or financial developments. A Fund's reaction to these developments will be affected by the types of securities in which the Fund invests, the financial condition, industry and economic sector, and geographic location of an issuer, and the Fund's level of investment in the securities of that issuer. When you sell your shares they may be worth more or less than what you paid for them, which means that you could lose money. Each Fund is subject to the following principal risks: CURRENT CREDIT AND GENERAL MARKET CONDITIONS. A Fund's performance will change daily based on many factors, including the quality of the instruments in a Fund's investment portfolio, national and international economic conditions and general market conditions. The fixed-income and credit markets are experiencing a period of extreme volatility which has negatively and substantially impacted market liquidity conditions. Initially, the concerns on the part of market participants were focused on the subprime segment of the mortgage-backed securities market. However, these concerns have since expanded to include a broad range of mortgage- and asset-backed and other debt securities, including those rated investment grade, the U.S. and international credit and interbank money markets generally, and a wide range of financial institutions and markets, asset classes and sectors. As a result, debt instruments are experiencing greater illiquidity, increased price volatility, credit downgrades, and increased likelihood of default. Securities that are less liquid are more difficult to value and may be hard to dispose of. Domestic and international equity markets have also been experiencing heightened volatility and turmoil, with issuers that have exposure to the real estate, mortgage and credit markets particularly affected. During times of market turmoil, investors tend to look to the safety of securities issued or backed by the U.S. Treasury, causing the prices of these securities to rise, and the yield to decline. These events and the continuing market upheavals may continue to have an adverse effect on price of the securities held by a Fund. INTEREST RATE RISK. When interest rates rise, debt security prices fall. The opposite is also true: debt security prices rise when interest rates fall. In general, securities with longer durations are more sensitive to these price changes. Increases in interest rates may also have a negative effect on the types of companies in which the Funds invest because these companies may find it more difficult to obtain credit to expand, or may have more difficulty meeting interest payments. CREDIT RISK. An issuer of debt securities may be unable to make interest payments and repay principal when due. Changes in an issuer's financial strength or in a security's credit rating may affect a security's value and, thus, impact Fund performance. HIGH YIELD ("JUNK BONDS") RISK. Securities rated below investment grade, sometimes called "junk bonds," generally have more credit risk than higher-rated securities. Companies issuing high yield, fixed-income securities are not as strong financially as those issuing securities with higher credit ratings. These companies are more likely to encounter financial difficulties and are more vulnerable to changes in the economy, such as a recession or a sustained period of rising interest rates, that could affect their ability to make interest and principal payments. If an issuer stops making interest and/or principal payments, payments on the securities may never resume. These securities may be worthless and the Fund could lose its entire investment. The prices of high yield, fixed-income securities fluctuate more than higher-quality securities. Prices are especially sensitive to developments affecting the company's business and to changes in the ratings assigned by rating agencies. Prices often are closely linked with the company's stock prices and typically rise and fall in response to factors that affect stock prices. In addition, the entire high yield securities market can experience sudden and sharp price swings due to changes in economic conditions, stock market activity, large sustained sales by major investors, a high-profile default, or other factors. High yield securities generally are less liquid than higher-quality securities. Many of these securities do not trade frequently, and when they do their prices may be significantly higher or lower than expected. At times, it may be difficult to sell these securities promptly at an acceptable price, which may limit the Fund's ability to sell securities in response to specific economic events or to meet redemption requests. DERIVATIVES/LEVERAGE RISK. Futures, options and swap contracts are considered derivative investments because their performance and value depend on the performance or value of the underlying asset. Derivative investments involve costs, may be volatile, and may involve a small investment relative to the risk assumed. Their successful use may depend on the manager's ability to predict market movements. If derivatives are used for leverage, their use would involve leveraging risk as well. Leverage, including borrowing, may cause a Fund's price and performance to be more volatile than if the Fund had not been leveraged. This is because leverage tends to exaggerate the effect of any increase or decrease in the value of the Fund's portfolio securities. Derivative risks include delivery failure, default by the other party or the inability to close out a position because the trading market becomes illiquid. Some derivatives are particularly sensitive to changes in interest rates. SWAP RISK. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument (or index). Credit default swaps are instruments which allow for the full or partial transfer of third-party credit risk, each in respect to a reference entity or entities, from one counterparty to the other. The buyer of the credit default swap receives credit protection or sheds credit risk, whereas the seller of the swap is selling credit protection or taking on credit risk. The use of swaps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. If the other party to the swap defaults, a Fund may, in some cases, lose periodic payments that it is contractually entitled to receive and, in other cases, lose the entire principal value of the investment security. The risk of loss to the Fund for a swap transaction on a net basis depends on which party is obligated to pay the net amount to the other party. If the counterparty is obligated to pay the net amount to the Fund, the risk of loss to the Fund is loss of the entire amount that the Fund is entitled to receive; if the Fund is obligated to pay the net amount, the Fund's risk of loss is limited to the net amount due. MORTGAGE-BACKED SECURITIES AND ASSET-BACKED SECURITIES. Mortgage-backed securities differ from conventional debt securities because principal is paid back over the life of the security rather than at maturity. The Fund may receive unscheduled prepayments of principal before the security's maturity date due to voluntary prepayments, refinancing or foreclosure on the underlying mortgage loans. To the Fund this means a loss of anticipated interest, and a portion of its principal investment represented by any premium the Fund may have paid. Mortgage prepayments generally increase when interest rates fall. Mortgage-backed securities also are subject to extension risk. An unexpected rise in interest rates could reduce the rate of prepayments on mortgage-backed securities and extend their life. This could cause the price of the mortgage-backed securities and the Fund's share price to fall and would make the mortgage-backed securities more sensitive to interest rate changes. In September 2008, the Federal Housing Finance Agency (FHFA), an agency of the U.S. government, placed Fannie Mae and Freddie Mac into conservatorship, a statutory process with the objective of returning the entities to normal business operations. FHFA will act as the conservator to operate Fannie Mae and Freddie Mac until they are stabilized. It is unclear what effect this conservatorship will have on the securities issued or guaranteed by Fannie Mae or Freddie Mac. 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-backed securities, asset-backed securities are subject to prepayment and extension risks. Extension risk is the risk that an issuer will exercise its right to pay principal on an obligation held by the Fund (such as an asset-based security) later than expected. This may happen during a period of rising interest rates. FOREIGN SECURITIES RISk. Investing in foreign securities, including securities of foreign governments, typically involves more risks than investing in U.S. securities. Certain of these risks also may apply to securities of U.S. companies with significant foreign operations. These risks can increase the potential for losses in a Fund and affect its share price. The political, economic and social structures of some foreign countries may be less stable and more volatile than those in the U.S. Investments in these countries may be subject to the risks of internal and external conflicts, currency devaluations, foreign ownership limitations and tax increases. It is possible that a government may take over the assets or operations of a company or impose restrictions on the exchange or export of currency or other assets. Some countries also may have different legal systems that may make it difficult for the Fund to vote proxies, exercise shareholder rights, and pursue legal remedies with respect to its foreign investments. Diplomatic and political developments, including rapid and adverse political changes, social instability, regional conflicts, terrorism and war, could affect the economies, industries and securities and currency markets, and the value of the Fund's investments, in non-U.S. countries. These factors are extremely difficult, if not impossible, to predict and take into account with respect to a Fund's investments. The risks of foreign investments typically are greater in less developed countries, sometimes referred to as emerging markets. For example, political and economic structures in these countries may be less established and may change rapidly. These countries also are more likely to experience high levels of inflation, deflation or currency devaluation, which can harm their economies and securities markets and increase volatility. In fact, short-term volatility in these markets and declines of 50% or more are not uncommon. Restrictions on currency trading that may be imposed by emerging market countries will have an adverse effect on the value of the securities of companies that trade or operate in such countries. Foreign companies may not be subject to the same disclosure, accounting, auditing and financial reporting standards and practices as U.S. companies. Thus, there may be less information publicly available about foreign companies than about most U.S. companies. CURRENCY EXCHANGE RATES RISK. Foreign securities may be issued and traded in foreign currencies. As a result, their values may be affected by changes in exchange rates between foreign currencies and the U.S. dollar, as well as between currencies of countries other than the U.S. For example, if the value of the U.S. dollar goes up compared to a foreign currency, an investment traded in that foreign currency will go down in value because it will be worth fewer U.S. dollars. INCOME RISK. Since the Fund can only distribute what it earns, the Fund's distributions to shareholders may decline when interest rates fall. PORTFOLIO TURNOVER. The manager will sell a security when it believes it is appropriate to do so, regardless of how long the Fund has held the security. Because of the anticipated use of certain investment strategies, the Fund's turnover rate may exceed 100% per year. The rate of portfolio turnover will not be a limiting factor for the 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. The HSBC Investor Core Plus Fixed Income Fund and HSBC Investor Core Plus Fixed Income Fund (Advisor) are subject to the following additional principal risk: WHEN-ISSUED SECURITIES. The price and yield of securities purchased on a "when-issued" basis is fixed on the date of the commitment but payment and delivery are scheduled for a future date. Consequently, these securities present a risk of loss if the other party to a "when-issued" transaction fails to deliver or pay for the security. In addition, purchasing securities on a "when-issued" basis can involve a risk that the yields available in the market on the settlement date may actually be higher (or lower) than those obtained in the transaction itself and, as a result, the "when-issued" security may have a lesser (or greater) value at the time of settlement than the Fund's payment obligation with respect to that security. The Franklin Total Return Fund is subject to the following additional principal risks: CALL/PREPAYMENT RISK. A debt security may be prepaid (called) before maturity. An issuer is more likely to call its securities when interest rates are falling, because the issuer can issue new securities with lower interest payments. If a security is called, the Fund may have to replace it with a lower-yielding security. At any time, the Fund may have a large amount of its assets invested in debt securities subject to call risk. A call of some or all of these securities may lower the Fund's income and yield and its distributions to shareholders. MORTGAGE DOLLAR ROLLS. In a mortgage dollar roll, the Fund takes the risk that the market price of the mortgage-backed securities will drop below their future purchase price. The Fund also takes the risk that the mortgage-backed securities that it repurchases at a later date will have less favorable market characteristics than the securities originally sold (e.g., greater prepayment risk). When the Fund uses a mortgage dollar roll, it is also subject to the risk that the other party to the agreement will not be able to perform. Mortgage dollar rolls add leverage to the Fund's portfolio and increase the Fund's sensitivity to interest rate changes. FLOATING RATE CORPORATE LOANS. The Fund is subject to the risk that the scheduled interest or principal payments on its floating rate investments will not be paid. In the event that a nonpayment occurs, the value of that obligation likely will decline. In turn, the net asset value of the Fund's shares also will decline. Floating rate investments may be issued in connection with highly leveraged transactions. Such transactions include leveraged buyout loans, leveraged recapitalization loans, and other types of acquisition financing. These obligations are subject to greater credit risks than other investments including a greater possibility that the borrower may default or go into bankruptcy. COMPARATIVE FEE TABLES The tables below allow a shareholder to compare the sales charges, management fees and expense ratios of the Target Fund with its corresponding Acquiring Fund and to analyze the estimated expenses that the Acquiring Fund expects to bear following the Reorganization. The shareholder fees presented below for the Acquiring Fund apply both before and after giving effect to the Reorganization. However, you will not have to pay any front-end sales charge on any shares of the Acquiring Fund received as part of the Reorganization. Annual Fund Operating Expenses are paid by each Fund. They include management fees, administrative costs and distribution and shareholder servicing fees, including pricing and custody services. In addition, following the presentation of that information, Annual Fund Operating Expenses (and related Example Expenses) are presented on a PRO FORMA combined basis. The Annual Fund Operating Expenses shown in the table below represent expenses for the 12 months ended October 31, 2008 for the HSBC Investor Core Plus Fixed Income Fund/HSBC Investor Core Plus Fixed Income Fund (Advisor) and Franklin Total Return Fund and those projected for the Franklin Total Return Fund on a PRO FORMA basis after giving effect to the proposed Reorganization, and are based on PRO FORMA combined net assets as if the transaction had occurred on March 31, 2009. SHAREHOLDER TRANSACTION EXPENSES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS I SHARES/ CLASS A CLASS B CLASS C ADVISOR SHARES SHARES* SHARES CLASS SHARES** HSBC INVESTOR CORE PLUS FIXED INCOME FUND HSBC INVESTOR CORE PLUS FIXED INCOME FUND (ADVISOR) Maximum sales charge (load) on purchases (as a percentage of offering 4.75% None None None price)(1) Maximum deferred sales charge (load) on redemptions (as None 4.00% 1.00% None a percentage of sales price) Redemption/Exchang Fee (as a percentage of 2.00% 2.00% 2.00% 2.00% amount redeemed or exchanged)(2) FRANKLIN TOTAL RETURN FUND Maximum sales charge (load) on purchases (as a percentage of 4.25%(3) n/a None None offering price) Maximum deferred sales charge (load) on redemptions (as None(4) n/a 1.00% None a percentage of sales price) Redemption/Exchang Fee (as a percentage of None n/a None None amount redeemed or exchanged) * The Franklin Total Return Fund has Class B shares outstanding, but these shares are generally no longer offered for sale, except that existing shareholders of Class B shares may continue as Class B shareholders, continue to reinvest dividends into Class B shares and exchange their Class B shares for Class B shares of other Franklin Templeton funds as permitted by the current exchange privileges. ** Class I Shares of the HSBC Investor Core Plus Fixed Income Fund (Advisor) are a part of the HSBC Advisor Funds Trust. The Franklin Total Return Fund offers Advisor Class Shares. (1) Lower sales charges are available depending on the amounts invested. (2) A redemption/exchange fee of 2.00% will be charged for any shares redeemed or exchanged after holding them for less than 30 days. This fee does not apply to shares purchased through reinvested dividends or capital gains or shares held in certain omnibus accounts or retirement plans that cannot implement the fee. No redemption fee will be imposed on the cancellation of Target Fund shares in connection with the Reorganization. (3) The dollar amount of the sales charge is the difference between the offering price of the shares purchased (which factors in the applicable sales charge in this table) and the net asset value of those shares. Since the offering price is calculated to two decimal places using standard rounding criteria, the number of shares purchased and the dollar amount of the sales charge as a percentage of the offering price and of your net investment may be higher or lower depending on whether there was a downward or upward rounding. (4) There is a 0.75% contingent deferred sales charge that applies to investments of $1 million or more, which will not apply to shares received as part of the Reorganizations. See "Sales Charges - Class A" under "Choosing a Share Class" in the Franklin Total Return Fund prospectus. ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) CLASS I SHARES/ CLASS A CLASS B CLASS C ADVISOR SHARES SHARES* SHARES CLASS SHARES** HSBC INVESTOR CORE PLUS FIXED INCOME FUND/ HSBC INVESTOR CORE PLUS FIXED INCOME FUND (ADVISOR) (1) Management Fee 0.48% 0.48% 0.48% 0.48% Distribution 0.00%(2) 0.75% 0.75% None (12b-1 Fee) Shareholder 0.25% 0.25% 0.25% None servicing Fee Other operating 0.73% 0.73% 0.73% 0.24% expenses Total Fund Operating Expenses 1.46% 2.21% 2.21% 0.72% Fee Waiver and/or expense 0.76% 0.76% 0.76% 0.27% reimbursement(3) Net operating 0.70% 1.45% 1.45% 0.45% expenses FRANKLIN TOTAL RETURN FUND Management 0.35% n/a 0.35% 0.35% Fee(4) Distribution 0.25% n/a 0.65% None (12b-1 Fee) Other operating 0.44% n/a 0.44% 0.44% expenses Acquired fund fees and 0.03% n/a 0.03% 0.03% expenses(5) Total annual Fund operating 1.07% n/a 1.47% 0.82% expenses(4) Management fee -0.19% n/a -0.19% -0.19% reduction(4) Net annual Fund operating 0.88% n/a 1.28% 0.63% expenses(4, 5) FRANKLIN TOTAL RETURN FUND (PRO FORMA COMBINED) Management Fee(4) 0.35% n/a 0.35% 0.35% Distribution 0.25% n/a 0.65% None (12b-1 Fee) Shareholder None None None None servicing Fee Other operating 0.44% n/a 0.44% 0.44% expenses Acquired fund fees and 0.03% n/a 0.03% 0.03% expenses(5) Total Annual Fund Operating 1.07% n/a 1.47% 0.82% Expenses(4) Fee Waiver and/or expense -0.19% n/a -0.19% -0.19% reimbursement(4) Net operating 0.88% n/a 1.28% 0.63% expenses(4) * The Franklin Total Return Fund has Class B shares outstanding, but these shares are generally no longer offered for sale, except that existing shareholders of Class B shares may continue as Class B shareholders, continue to reinvest dividends into Class B shares and exchange their Class B shares for Class B shares of other Franklin Templeton funds as permitted by the current exchange privileges. ** Class I shares are issued by HSBC Investor Core Plus Fixed Income Fund (Advisor). The Franklin Total Return Fund offers Advisor Class shares. (1) The table reflects the combined fees and expenses of both the HSBC Investor Core Plus Fixed Income Fund/HSBC Investor Core Plus Fixed Income Fund (Advisor) and the HSBC Investor Core Plus Fixed Income Portfolio. See the "How do the Reorganizations affect certain Target Funds' master-feeder structures?" section of this Prospectus/Proxy Statement for more information regarding the master-feeder structure of the Target Funds. (2) There is a non-compensatory 12b-1 plan for Class A shares, which authorizes payments of up to 0.25% of the Target Fund's average daily net assets attributable to Class A shares. No payments have been made and there is no current intention to charge the fee. (3) AMUS, the Target Funds' adviser, has entered into a written expense limitation agreement with the Target Funds under which it will limit total expenses of the Funds (excluding interest, taxes, brokerage commissions, acquired fund fees and expenses and extraordinary expenses) to an annual rate of 0.70% for Class A shares, 1.45% for Class B shares, 1.45% for Class C shares and 0.45% for Class I shares. The expense limitation is contractual and shall be in effect until March 1, 2010. (4) The investment manager and administrator have contractually agreed to waive or limit their respective fees and to assume as their own expense certain expenses otherwise payable by the Acquiring Fund so that common expenses (i.e., a combination of investment management fees, fund administration fees, and other expenses, but excluding the Rule 12b-1 fees and acquired fund fees and expenses) for each class of the Acquiring Fund do not exceed 0.60% (other than certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations, and liquidations) until February 28, 2010. The manager also had agreed in advance to reduce its fee to reflect reduced services resulting from the Acquiring Fund's investment in a Franklin Templeton money fund. The manager is required by the Acquiring Fund's board of trustees and an exemptive order by the SEC to reduce its fee if the Acquiring Fund invests in a Franklin Templeton money fund. (5) Net Annual Fund Operating Expenses differ from the ratio of expenses to average net assets shown in the Financial Highlights, which reflect the operating expenses of the Fund and do not include acquired fund fees and expenses. EXPENSE EXAMPLE The Example is intended to help you compare the cost of investing in shares of the HSBC Investor Core Plus Fixed Income Fund or HSBC Investor Core Plus Fixed Income Fund (Advisor) with the cost of investing in the Franklin Total Return Fund currently and on a PRO FORMA basis, and allows you to compare these costs with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay at the end of the time periods indicated, assuming the following: o $10,000 investment o 5% annual return o no changes in the Fund's operating expenses The costs reflect the effects of expense limitations and/or fee waivers on the part of the investment adviser for the period of the contractual limitation and/or waiver. Absent such arrangements, the costs would be higher. Because this Example is hypothetical and for comparison only, your actual costs may be higher or lower.
HSBC Investor Core Plus Fixed Income Franklin Total Franklin Total Return Fund Fund* Return Fund (estimated PRO FORMA)** ----------------------------------------------------------------------------------------- 1 3 5 10 1 3 5 10 1 3 5 10 Year Years Years Years Year Years Years Years Year Years Years Years Class A $543 $844 $1,166 $2,076 $511(1) $727 $960 $1,62 $511 $727 $960 $1,628 Shares Class B Shares Assuming $548 $818 $1,115 $2,119 n/a n/a n/a n/a n/a n/a n/a n/a redemption Assuming no $148 $618 $1,115 $2,119 n/a n/a n/a n/a n/a n/a n/a n/a redemption Class C Shares Assuming $248 $618 $1,115 $2,485 $230 $440 $772 $1,710 $230 $440 $772 $1,710 redemption Assuming no $148 $618 $1,115 $2,485 $130 $440 $772 $1,710 $130 $440 $772 $1,710 redemption Class I Shares/Advisor $46 $203 $374 $869 $64 $236 $423 $963 $64 $236 $423 $963 Class Shares
* The Example reflects the combined fees and expenses of both the HSBC Investor Core Plus Fixed Income Fund/HSBC Investor Core Plus Fixed Income Fund (Advisor) and the HSBC Investor Core Plus Fixed Income Portfolio. For Class B and C shares, the amount of expenses varies depending upon whether you redeem at the end of such periods, because the contingent deferred sales charge ("CDSC") is taken into account as well as other expenses. ** The estimated pro forma expenses for the Franklin Total Return Fund will not change if calculated based on the combination of the HSBC Investor Core Plus Fixed Income Fund, HSBC Investor Core Plus Fixed Income Fund and HSBC Investor Intermediate Duration Fixed Income Fund into the Franklin Total Return Fund. (1) Assumes a CDSC will not apply. The projected post-Reorganization PRO FORMA combined Annual Fund Operating Expenses and Example Expenses presented above are based on numerous material assumptions, including that the current contractual agreements will remain in place for one year. Although these projections represent good faith estimates, there can be no assurance that any particular level of expenses or expense savings will be achieved because expenses depend on a variety of factors, including the future level of the Acquiring Fund's assets, many of which are beyond the control of each Acquiring Fund or Franklin Advisers, Inc. If a Reorganization is approved, the resulting combined Fund will retain the Acquiring Fund's expense structure. COMPARISON OF FUND PERFORMANCE The following table shows, for the periods shown, the (unaudited) average annual total return for Class I shares of the Target Fund and Advisor Class shares of the Acquiring Fund, along with each Fund's primary benchmark index. An index has an inherent performance advantage over the Funds since the index has no cash in its portfolio and incurs no operating expenses. An investor cannot invest directly in an index. The table assumes reinvestment of dividends and distributions, but does not reflect sales charges. If sales charges were reflected, returns would be less than those shown. The returns for other share classes will differ from the returns shown because of differences in expenses of each class. Performance is based on net expenses during the periods and takes into account fee waivers and/or expense reimbursements, if any, that may have been in place. If such waivers and/or reimbursements had not been in effect, performance would have been lower. Performance shown for the Target Fund also reflects the impact of payments received during the years ended December 31, 2006 and December 31, 2008, in connection with certain class action settlements. Absent such payments, the Target Fund returns would have been lower. EACH FUND'S PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. Lipper CLASS I Intermediate HSBC Investor ADVISOR CLASS Barclay's Investment Core Plus Fixed Franklin Capital U.S. Grade Debt Income Fund Total Aggregate Bond Funds (Advisor) Return Fund Index (1)(2) Average (3) ------------------------------------------------------------ 1999 -1.08% -.72% -.82% -1.28% 2000 11.22% 10.80% 11.63% 10.08% 2001 9.12% 7.10% 8.44% 7.68% 2002 8.56% 8.47% 10.26% 8.27% 2003 4.53% 8.16% 4.10% 4.77% 2004 4.26% 5.53% 4.34% 3.93% 2005 2.40% 2.06% 2.43% 1.82% 2006 6.99% 5.12% 4.33% 4.06% 2007 5.18% 5.12% 6.97% 4.70% 2008 -7.07% -5.23% 5.24% -4.43% YTD (as of 2.18% 1.43% March 31, 2009) (1) The unmanaged Barclay's Capital U.S. Aggregate Bond Index is the benchmark index for the HSBC Investor Core Plus Fixed Income Fund, HSBC Investor Core Plus Fixed Income Fund (Advisor) and the Franklin Total Return Fund. The index represents securities that are SEC-registered, taxable and dollar denominated. The index covers the U.S. investment grade fixed-rate bond market, with index components for government and corporate securities, mortgage pass-through securities and asset-backed securities. All issues included must have at least one year to final maturity and must be rated investment grade (Baa3 or better) by Moody's Investors Service. They must also be dollar denominated and nonconvertible. Total return includes price appreciation/depreciation and income as a percentage of the original investment. The Index is rebalanced monthly by market capitalization. One cannot invest directly in an index, nor is an index representative of the Fund's portfolio. (2) On November 1, 2008, the Lehman Brothers U.S. Aggregate Bond Index was rebranded as the Barclays Capital U.S. Aggregate Bond Index. (3) The Lipper Intermediate Investment Grade Debt Funds Average is an additional benchmark index used by the HSBC Investor Core Plus Fixed Income Fund and the HSBC Investor Core Plus Fixed Income Fund (Advisor). The Lipper mutual fund average is an equally weighted average composed of mutual funds with similar investment objectives. ACQUIRING FUND PERFORMANCE For additional information regarding the performance of the Acquiring Fund, including the annual total returns for the past ten years and the 1-, 5- and 10- year average annual total returns, see the "Performance" and "Financial Highlights" sections of the Franklin Total Return Fund prospectus, which has been mailed with this Prospectus/Proxy Statement. KEY DIFFERENCES IN RIGHTS OF TARGET FUND AND ACQUIRING FUND SHAREHOLDERS HSBC Investor Core Plus Fixed Income Fund and HSBC Investor Core Plus Fixed Income Fund (Advisor) are separate series of HSBC Investor Funds and HSBC Advisor Funds Trust, respectively, each of which is a Massachusetts business trust. Class A, Class B, and Class C shares of HSBC Core Plus Fixed Income Fund are governed by the Declaration of Trust and Bylaws of HSBC Investor Funds. Class I shares of HSBC Core Plus Fixed Income Fund (Advisor) are governed by the Declaration of Trust and Bylaws of HSBC Advisor Funds Trust. Franklin Total Return Fund is organized as a separate series of Franklin Investors Securities Trust, a Delaware statutory trust, and is governed by an Agreement and Declaration of Trust and Bylaws. Key differences affecting the rights of shareholders under the HSBC Investor Core Plus Fixed Income Fund's Declarations of Trust/Bylaws and the Franklin Total Return Fund's Declaration of Trust/Bylaws are presented below. HSBC INVESTOR CORE PLUS FIXED INCOME FUND FRANKLIN TOTAL RETURN FUND ----------------------------------------------------------------------------- Quorum for a shareholder's meeting Quorum for a shareholders' meeting is generally a majority of the is generally forty per cent of the outstanding shares present in person shares entitled to vote, which are or by proxy. present in person or by proxy. Generally, the vote of 67 percent or Generally, a majority of the votes more of the voting securities cast at a meeting at which a quorum present at a meeting, if the holders is present shall decide any of more than 50 percent of the questions, unless the Agreement and outstanding voting securities are Declaration of Trust or Bylaws present or represented by proxy, or otherwise require. of more than 50 percent of the outstanding voting securities, whichever is less, unless the Declaration of Trust or Bylaws otherwise require. Maximum number of days prior to a Maximum number of days prior to a shareholders' meeting during which a shareholders' meeting during which record date may be set by that a record date may be set by that Fund's Board is 60. Fund's Board is 120. Shareholders must be given at least Shareholders must be given at least 10 and not more than 60 days notice 10 and not more than 120 days of a shareholder meeting. notice of shareholder meeting. Shareholders of the Investor Trust Shareholders can't request (A, B, C shares) can request a shareholder meeting for the purpose shareholder meeting under certain of removing a Trustee, but can circumstances for the purpose of request a meeting to elect removing a Trustee; Otherwise, additional trustees, provided shareholders may vote to remove a certain conditions are met. Trustee either by declaration in Shareholders may vote to remove a writing or at a shareholder meeting Trustee at a shareholder meeting called for that purpose. called for that purpose. HSBC INVESTOR CORE PLUS FIXED INCOME FUND (ADVISOR) FRANKLIN TOTAL RETURN FUND ---------------------------------------------------------------------------- Quorum for a shareholder's meeting Quorum for a shareholders' meeting is generally a majority of the is generally forty per cent of the outstanding shares entitled to vote, shares entitled to vote, which are which are present in person or by present in person or by proxy. proxy. Generally, the vote of 67 percent or Generally, a majority of the votes more of the voting securities cast at a meeting at which a quorum present at a meeting, if the holders is present generally shall decide of more than 50 percent of the any questions, unless the Agreement outstanding voting securities are and Declaration of Trust or Bylaws present or represented by proxy, or otherwise require. of more than 50 percent of the outstanding voting securities, whichever is less, unless the Declaration of Trust or Bylaws otherwise require. Maximum number of days prior to a Maximum number of days prior to a shareholders' meeting during which a shareholders' meeting during which record date may be set by that a record date may be set by that Fund's Board is 60. Fund's Board is 120. Shareholders must be given at least Shareholders must be given 120 days 10 and not more than 60 days notice notice of a shareholder meeting. of a shareholder meeting. Shareholders of the Advisor Trust (I Shareholders can't request shares) can request a shareholder shareholder meeting for the purpose meeting under certain circumstances of removing a Trustee, but can for the purpose of removing a request a meeting to elect Trustee; Otherwise, a Trustee may be additional trustees, provided removed at any meeting of certain conditions are met. Shareholders by a vote of 67% of the Shareholders may vote to remove a outstanding Shares of each series. Trustee at a shareholder meeting called for that purpose. EXCHANGE PRIVILEGE FOR HOLDERS OF CLASS A SHARES OF THE HSBC INVESTOR CORE PLUS FIXED INCOME FUND Class A shareholders of the HSBC Investor Core Plus Fixed Income Fund who receive Class A shares of the Franklin Total Return Fund in connection with the Reorganization will be eligible to exchange those shares for Advisor Class shares of the Franklin Total Return Fund following the Reorganization. Following the closing of the Reorganization, each HSBC Investor Core Plus Fixed Income Fund Class A shareholder that received Class A shares of the Franklin Total Return Fund may exchange those shares for Advisor Class shares of the Franklin Total Return Fund, provided that, the HSBC Investor Core Plus Fixed Income Fund Class A shareholder meets the eligibility requirements for investment in Advisor Class shares of the Franklin Total Return Fund. Advisor Class shares of the Franklin Total Return Fund have different class-specific expenses and a lower expense ratio than Class A shares. The two share classes, however, generally have the same or similar liquidation and other rights. The eligibility criteria and other information regarding Advisor Class shares of the Franklin Total Return Fund can be found in the Franklin Total Return Fund prospectus, which has been mailed with this Prospectus/Proxy Statement. PROPOSAL (1)(A): APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION BY SHAREHOLDERS OF CLASS A, CLASS B AND CLASS C SHARES OF THE HSBC INVESTOR CORE PLUS FIXED INCOME FUND AS IT RELATES TO THE CLASS A, CLASS B, AND CLASS C SHARES OF THE FUND Shareholders of Class A, Class B, and Class C shares of the HSBC Investor Core Plus Fixed Income Fund are being asked to approve the Plan as it relates to the Class A, Class B, and Class C shares of the Fund. Class A, Class B, and Class C shares of the HSBC Investor Core Plus Fixed Income Fund are governed by the Declaration of Trust and Bylaws of HSBC Investor Funds. Under these governing documents, approval of the Reorganization relating to the Class A, Class B, and Class C shares of the Fund requires the affirmative vote of a 1940 Act Majority (as previously defined). As stated above the approval of the Reorganization relating to the Class A, Class B and Class C shares is not dependent upon the approval of the Reorganization of the Class I shares of the HSBC Investor Core Plus Fixed Income Fund (Advisor). In the event shareholders of Class A, Class B and Class C shares do not approve the Reorganization, AMUS and the Board of Trustees will determine what, if any, additional action should be taken with respect to the Class A, Class B and Class C shares of the Fund. PROPOSAL (1)(B): APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION BY SHAREHOLDERS OF CLASS I SHARES OF THE HSBC INVESTOR CORE PLUS FIXED INCOME FUND (ADVISOR) AS IT RELATES TO THE CLASS I SHARES OF THE FUND Shareholders of Class I shares of the HSBC Core Plus Fixed Income Fund (Advisor) are being asked to approve the Plan as it relates to the Class I shares of the Fund. Class I shares of the HSBC Investor Core Plus Fixed Income Fund (Advisor) are governed by the Declaration of Trust and Bylaws of HSBC Advisor Funds Trust. Under these governing documents, approval of the Reorganization relating to the Class I shares of the Fund requires the affirmative vote of a 1940 Act Majority (as previously defined). As stated above the approval of the Reorganization relating to the Class I shares is not dependent upon the approval of the Reorganization of the Class A, Class B and Class C shares of the HSBC Investor Core Plus Fixed Income Fund. In the event shareholders of Class I shares do not approve the Reorganization, AMUS and the Board of Trustees will determine what, if any, additional action should be taken with respect to the Class I shares of the HSBC Core Plus Fixed Income Fund. THE BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE FOR PROPOSALS 1(A) AND 1(B), AS APPROPRIATE. PROPOSAL 2 REORGANIZATION OF HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME FUND INTO FRANKLIN TOTAL RETURN FUND SUMMARY OF PROPOSAL Shareholders of the HSBC Investor Intermediate Duration Fixed Income Fund are being asked to approve the Plan as it relates to the HSBC Investor Intermediate Duration Fixed Income Fund's Reorganization. As a result of the Reorganization, shareholders of the HSBC Investor Intermediate Duration Fixed Income Fund would receive shares in the Franklin Total Return Fund in an amount equal to the net asset value of their holdings in the HSBC Investor Intermediate Duration Fixed Income Fund as of the Closing Date, as determined pursuant to the Plan. You should consult the Prospectus dated March 1, 2009 (as supplemented), for more information about the Franklin Total Return Fund, a series of Franklin Investors Securities Trust, which has been mailed with this Prospectus/Proxy Statement and is incorporated herein by reference. A form of the Plan is attached hereto as Attachment II to this Prospectus/Proxy Statement. For more information regarding the calculation of the number of Acquiring Fund shares to be issued in connection with the Reorganization, please refer to the "How will the number of shares of an Acquiring Fund that I will receive be determined?" section above. COMPARISON OF INVESTMENT OBJECTIVES/GOALS AND STRATEGIES The following summarizes the investment objective/goals, strategies and management differences, if any, between HSBC Investor Intermediate Duration Fixed Income Fund and the Franklin Total Return Fund: HSBC Investor Intermediate Duration Franklin Total Return Fixed Income Fund Fund ---------------------------------------------------------------------------- Investment The investment objective The Fund's principal Goal(s)/Objective(s) of the HSBC Investor investment goal is to Intermediate Duration provide high current Fixed Income Fund is to income, consistent with maximize total return, preservation of capital. consistent with Its secondary goal is reasonable risk. The capital appreciation "total return" sought by over the long term. the Fund consists of income earned on investments, plus capital appreciation, if any, which generally arises from decreases in interest rates or improving credit fundamentals for a particular sector or security. Investment The Fund seeks to achieve Under normal market Strategies its investment objective conditions, the Fund by investing all of its invests at least 80% of assets in the HSBC its assets in investment Investor Intermediate grade debt securities Duration Fixed Income and investments, Portfolio (the including government and "Portfolio"), which has corporate debt the same investment securities, mortgage- objective as the Fund. and asset-backed securities, investment grade corporate loans Under normal market and futures with conditions, the Portfolio reference securities invests at least 80% of that are investment its net assets in fixed grade. The Fund focuses income securities. These on government and securities may include corporate debt U.S. government securities and mortgage- securities and corporate and asset-backed debt securities, securities. commercial paper, mortgage-backed Additionally, the Fund securities and may invest up to 20% of asset-backed securities, its total assets in and similar securities non-investment grade issued by foreign debt securities, governments and including up to 5% in corporations. The securities rated lower Portfolio invests than B by S&P or primarily in investment Moody's, which may grade debt securities, include defaulted but may invest up to 25% securities. of its total assets in high yield securities In order to effectively ("junk bonds"). The manage cash flows in or Portfolio may invest up out of the Fund, the to 30% of its total Fund may buy and sell assets in securities financial futures denominated in foreign contracts or options on currencies, including, to such contracts. The Fund a limited extent, those may also, from time to in emerging markets and time, enter into forward may invest beyond this currency contracts limit in U.S. (including cross dollar-denominated currency forwards) and securities of foreign currency futures issuers. contracts to try to hedge (protect) against Additionally, the currency exchange rate Portfolio may invest more fluctuations or to than 50% of its assets in generate income or mortgage-backed returns for the Fund. securities including mortgage pass-through The Fund may invest up securities, to 25% of its total mortgage-backed bonds and assets in foreign collateralized mortgage securities, including up obligations (CMOs) that to 20% of its total carry a guarantee of assets in non-U.S. timely payment. dollar denominated securities and up to 10% The Portfolio may invest of its total assets in derivative in emerging market instruments, including, securities. but not limited to, financial and foreign currency futures contracts as well as options on securities, foreign currencies, and foreign currency futures. The Portfolio intends to do so primarily for hedging purposes or for cash management purposes, as a substitute for investing directly in fixed income securities, but may also do so to enhance return when the subadviser believes the investment will assist the Portfolio in achieving its investment objectives. Investment Adviser HSBC Global Asset Franklin Advisers, Inc. Management (USA) Inc. Subadviser Halbis Capital Management Franklin Templeton (USA) Inc. Institutional, LLC Portfolio Manager(s) Kim Golden Roger Bayston, Kent Burns, Christopher J. Molumphy, David Yuen, Michael J. Materasso As you can see from the chart above, the investment objective/goals and strategies of the HSBC Investor Intermediate Duration Fixed Income Fund are similar to those of the Franklin Total Return Fund. Both primarily invest in investment grade securities, such as U.S. government securities, corporate debt securities and mortgage- and asset-backed securities. There are, however, differences that you should consider. The HSBC Investor Intermediate Duration Fixed Income Fund may invest up to 25% of its assets in non-investment grade securities, while the Franklin Total Return Fund may invest only 20% of its assets in such securities. In addition, the HSBC Investor Intermediate Duration Fixed Income Fund may invest up to 30% of its total assets in securities denominated in foreign currencies while the Franklin Total Return Fund may invest only 20% of its assets in such securities. While these percentages are similar, a higher exposure to non-investment grade securities and securities denominated in foreign currencies may increase a Fund's risk. As noted above, the Franklin Total Return Fund, as part of its principal investment strategies, may invest in both domestic and foreign issuers. While the HSBC Investor Intermediate Duration Fixed Income Fund also may invest in foreign issuers, as of January 31, 2009, 4.1% of the Franklin Total Return Fund portfolio was comprised of foreign securities, while 0.5% of the HSBC Investor Intermediate Duration Fixed Income Fund's portfolio was comprised of foreign securities. For more information about Franklin Total Return Fund's investment goals, principal investment strategies and risks, see the "Goals and Strategies" and "Main Risks" sections of the Franklin Total Return Fund prospectus, which has been mailed with this Prospectus/Proxy Statement. For a discussion of the differences in each Fund's fundamental and non-fundamental investment policies, see Attachment I to this Prospectus/Proxy Statement. COMPARISON OF PRINCIPAL RISKS The principal risks associated with the HSBC Investor Intermediate Duration Fixed Income Fund and the Franklin Total Return Fund are similar because they have similar investment goals and principal investment strategies. The actual risks of investing in each Fund depend on the securities held in each Fund's portfolio and on market conditions, both of which change over time. Many factors affect a Fund's performance. A Fund's share price changes daily based on changes in market conditions and interest rates and in response to other economic, political, or financial developments. A Fund's reaction to these developments will be affected by the types of securities in which the Fund invests, the financial condition, industry and economic sector, and geographic location of an issuer, and the Fund's level of investment in the securities of that issuer. When you sell your shares they may be worth more or less than what you paid for them, which means that you could lose money. Both Funds are subject to the following principal risks: CURRENT CREDIT AND GENERAL MARKET CONDITIONS. A Fund's performance will change daily based on many factors, including the quality of the instruments in a Fund's investment portfolio, national and international economic conditions and general market conditions. The fixed-income and credit markets are experiencing a period of extreme volatility which has negatively and substantially impacted market liquidity conditions. Initially, the concerns on the part of market participants were focused on the subprime segment of the mortgage-backed securities market. However, these concerns have since expanded to include a broad range of mortgage- and asset-backed and other debt securities, including those rated investment grade, the U.S. and international credit and interbank money markets generally, and a wide range of financial institutions and markets, asset classes and sectors. As a result, debt instruments are experiencing greater illiquidity, increased price volatility, credit downgrades, and increased likelihood of default. Securities that are less liquid are more difficult to value and may be hard to dispose of. Domestic and international equity markets have also been experiencing heightened volatility and turmoil, with issuers that have exposure to the real estate, mortgage and credit markets particularly affected. During times of market turmoil, investors tend to look to the safety of securities issued or backed by the U.S. Treasury, causing the prices of these securities to rise, and the yield to decline. These events and the continuing market upheavals may continue to have an adverse effect on price of the securities held by the Fund. INTEREST RATE RISK. When interest rates rise, debt security prices fall. The opposite is also true: debt security prices rise when interest rates fall. In general, securities with longer durations are more sensitive to these price changes. Increases in interest rates may also have a negative effect on the types of companies in which the Funds invest because these companies may find it more difficult to obtain credit to expand, or may have more difficulty meeting interest payments. CREDIT RISK. An issuer of debt securities may be unable to make interest payments and repay principal when due. Changes in an issuer's financial strength or in a security's credit rating may affect a security's value and, thus, impact Fund performance. CALL/PREPAYMENT RISK. A debt security may be prepaid (called) before maturity. An issuer is more likely to call its securities when interest rates are falling, because the issuer can issue new securities with lower interest payments. If a security is called, the Fund may have to replace it with a lower-yielding security. At any time, the Fund may have a large amount of its assets invested in debt securities subject to call risk. A call of some or all of these securities may lower the Fund's income and yield and its distributions to shareholders. HIGH YIELD ("JUNK BONDS") RISK. Securities rated below investment grade, sometimes called "junk bonds," generally have more credit risk than higher-rated securities. Companies issuing high yield, fixed-income securities are not as strong financially as those issuing securities with higher credit ratings. These companies are more likely to encounter financial difficulties and are more vulnerable to changes in the economy, such as a recession or a sustained period of rising interest rates, that could affect their ability to make interest and principal payments. If an issuer stops making interest and/or principal payments, payments on the securities may never resume. These securities may be worthless and the Fund could lose its entire investment. The prices of high yield, fixed-income securities fluctuate more than higher-quality securities. Prices are especially sensitive to developments affecting the company's business and to changes in the ratings assigned by rating agencies. Prices often are closely linked with the company's stock prices and typically rise and fall in response to factors that affect stock prices. In addition, the entire high yield securities market can experience sudden and sharp price swings due to changes in economic conditions, stock market activity, large sustained sales by major investors, a high-profile default, or other factors. High yield securities generally are less liquid than higher-quality securities. Many of these securities do not trade frequently, and when they do their prices may be significantly higher or lower than expected. At times, it may be difficult to sell these securities promptly at an acceptable price, which may limit the Fund's ability to sell securities in response to specific economic events or to meet redemption requests. Derivatives/Leverage Risk. Futures, options and swap contracts are considered derivative investments because their performance and value depend on the performance or value of the underlying asset. Derivative investments involve costs, may be volatile, and may involve a small investment relative to the risk assumed. Their successful use may depend on the manager's ability to predict market movements. If derivatives are used for leverage, their use would involve leveraging risk as well. Leverage, including borrowing, may cause a Fund's price and performance to be more volatile than if the Fund had not been leveraged. This is because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio's portfolio securities. Derivative risks include delivery failure, default by the other party or the inability to close out a position because the trading market becomes illiquid. Some derivatives are particularly sensitive to changes in interest rates. The risk of loss to the Fund for a swap transaction on a net basis depends on which party is obligated to pay the net amount to the other party. If the counterparty is obligated to pay the net amount to the Fund, the risk of loss to the Fund is loss of the entire amount that the Fund is entitled to receive; if the Fund is obligated to pay the net amount, the Fund's risk of loss is limited to the net amount due. MORTGAGE-BACKED SECURITIES AND ASSET-BACKED SECURITIES. Mortgage-backed securities differ from conventional debt securities because principal is paid back over the life of the security rather than at maturity. The Fund may receive unscheduled prepayments of principal before the security's maturity date due to voluntary prepayments, refinancing or foreclosure on the underlying mortgage loans. To the Fund this means a loss of anticipated interest, and a portion of its principal investment represented by any premium the Fund may have paid. Mortgage prepayments generally increase when interest rates fall. Mortgage-backed securities also are subject to extension risk. An unexpected rise in interest rates could reduce the rate of prepayments on mortgage-backed securities and extend their life. This could cause the price of the mortgage-backed securities and the Fund's share price to fall and would make the mortgage-backed securities more sensitive to interest rate changes. In September 2008, the Federal Housing Finance Agency (FHFA), an agency of the U.S. government, placed Fannie Mae and Freddie Mac into conservatorship, a statutory process with the objective of returning the entities to normal business operations. FHFA will act as the conservator to operate Fannie Mae and Freddie Mac until they are stabilized. It is unclear what effect this conservatorship will have on the securities issued or guaranteed by Fannie Mae or Freddie Mac. 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-backed securities, asset-backed securities are subject to prepayment and extension risks. Extension risk is the risk that an issuer will exercise its right to pay principal on an obligation held by the Fund (such as an asset-based security) later than expected. This may happen during a period of rising interest rates. FOREIGN SECURITIES RISK. Investing in foreign securities, including securities of foreign governments, typically involves more risks than investing in U.S. securities. Certain of these risks also may apply to securities of U.S. companies with significant foreign operations. These risks can increase the potential for losses in a Fund and affect its share price. The political, economic and social structures of some foreign countries may be less stable and more volatile than those in the U.S. Investments in these countries may be subject to the risks of internal and external conflicts, currency devaluations, foreign ownership limitations and tax increases. It is possible that a government may take over the assets or operations of a company or impose restrictions on the exchange or export of currency or other assets. Some countries also may have different legal systems that may make it difficult for the Fund to vote proxies, exercise shareholder rights, and pursue legal remedies with respect to its foreign investments. Diplomatic and political developments, including rapid and adverse political changes, social instability, regional conflicts, terrorism and war, could affect the economies, industries and securities and currency markets, and the value of the Fund's investments, in non-U.S. countries. These factors are extremely difficult, if not impossible, to predict and take into account with respect to a Fund's investments. The risks of foreign investments typically are greater in less developed countries, sometimes referred to as emerging markets. For example, political and economic structures in these countries may be less established and may change rapidly. These countries also are more likely to experience high levels of inflation, deflation or currency devaluation, which can harm their economies and securities markets and increase volatility. In fact, short-term volatility in these markets and declines of 50% or more are not uncommon. Restrictions on currency trading that may be imposed by emerging market countries will have an adverse effect on the value of the securities of companies that trade or operate in such countries. Foreign companies may not be subject to the same disclosure, accounting, auditing and financial reporting standards and practices as U.S. companies. Thus, there may be less information publicly available about foreign companies than about most U.S. companies. CURRENCY EXCHANGE RATES RISK. Foreign securities may be issued and traded in foreign currencies. As a result, their values may be affected by changes in exchange rates between foreign currencies and the U.S. dollar, as well as between currencies of countries other than the U.S. For example, if the value of the U.S. dollar goes up compared to a foreign currency, an investment traded in that foreign currency will go down in value because it will be worth fewer U.S. dollars. INCOME RISK. Since the Fund can only distribute what it earns, the Fund's distributions to shareholders may decline when interest rates fall. PORTFOLIO TURNOVER. The manager will sell a security when it believes it is appropriate to do so, regardless of how long the Fund has held the security. Because of the anticipated use of certain investment strategies, the Fund's turnover rate may exceed 100% per year. The rate of portfolio turnover will not be a limiting factor for the 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. The HSBC Investor Intermediate Duration Fixed Income Fund is subject to the following additional principal risks: WHEN-ISSUED SECURITIES. The price and yield of securities purchased on a "when-issued" basis is fixed on the date of the commitment but payment and delivery are scheduled for a future date. Consequently, these securities present a risk of loss if the other party to a "when-issued" transaction fails to deliver or pay for the security. In addition, purchasing securities on a "when-issued" basis can involve a risk that the yields available in the market on the settlement date may actually be higher (or lower) than those obtained in the transaction itself and, as a result, the "when-issued" security may have a lesser (or greater) value at the time of settlement than the Fund's or Portfolio's payment obligation with respect to that security. The Franklin Total Return Fund is subject to the following additional principal risks: MORTGAGE DOLLAR ROLLS. In a mortgage dollar roll, the Fund takes the risk that the market price of the mortgage-backed securities will drop below their future purchase price. The Fund also takes the risk that the mortgage-backed securities that it repurchases at a later date will have less favorable market characteristics than the securities originally sold (e.g., greater prepayment risk). When the Fund uses a mortgage dollar roll, it is also subject to the risk that the other party to the agreement will not be able to perform. Mortgage dollar rolls add leverage to the Fund's portfolio and increase the Fund's sensitivity to interest rate changes. FLOATING RATE CORPORATE LOANS. The Fund is subject to the risk that the scheduled interest or principal payments on its floating rate investments will not be paid. In the event that a nonpayment occurs, the value of that obligation likely will decline. In turn, the net asset value of the Fund's shares also will decline. Floating rate investments may be issued in connection with highly leveraged transactions. Such transactions include leveraged buyout loans, leveraged recapitalization loans, and other types of acquisition financing. These obligations are subject to greater credit risks than other investments including a greater possibility that the borrower may default or go into bankruptcy. COMPARATIVE FEE TABLES The tables below allow a shareholder to compare the sales charges, management fees and expense ratios of the Target Fund with its corresponding Acquiring Fund and to analyze the estimated expenses that the Acquiring Fund expects to bear following the Reorganization. The shareholder fees presented below for the Acquiring Fund apply both before and after giving effect to the Reorganization. However, you will not have to pay any front-end sales charge on any shares of the Acquiring Fund received as part of the Reorganization. Annual Fund Operating Expenses are paid by each Fund. They include management fees, distribution and shareholder servicing fees and administrative costs, including pricing and custody services. In addition, following the presentation of that information, Annual Fund Operating Expenses (and related Example Expenses) are presented on a PRO FORMA combined basis. The Annual Fund Operating Expenses shown in the table below represent expenses for the 12 months ended October 31, 2008 for the HSBC Investor Intermediate Duration Fixed Income Fund and Franklin Total Return Fund and those projected for the Franklin Total Return Fund on a PRO FORMA basis after giving effect to the proposed Reorganization, and are based on PRO FORMA combined net assets as if the transaction had occurred on March 31, 2009. SHAREHOLDER TRANSACTION EXPENSES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS I SHARES/ ADVISOR CLASS A CLASS B CLASS C CLASS SHARES SHARES* SHARES SHARES** HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME FUND Maximum sales charge (load) on purchases (as a percentage of offering 4.75% None None None price)(1) Maximum deferred sales charge (load) on redemptions (as None 4.00% 1.00% None a percentage of sales price) Redemption/Exchang Fee (as a percentage of 2.00% 2.00% 2.00% 2.00% amount redeemed or exchanged)(2) FRANKLIN TOTAL RETURN FUND Maximum sales charge (load) on purchases (as a percentage of 4.25%(3) n/a None None offering price) Maximum deferred sales charge (load) on redemptions (as None(4) n/a 1.00% None a percentage of sales price) Redemption/Exchang Fee (as a percentage of None n/a None None amount redeemed or exchanged) * The Franklin Total Return Fund has Class B shares outstanding, but these shares are generally no longer offered for sale, except that existing shareholders of Class B shares may continue as Class B shareholders, continue to reinvest dividends into Class B shares and exchange their Class B shares for Class B shares of other Franklin Templeton funds as permitted by the current exchange privileges. ** The HSBC Investor Intermediate Duration Fixed Income Fund offers Class I shares. The Franklin Total Return Fund offers Advisor Class shares. (1) Lower sales charges are available depending on the amounts invested. (2) A redemption/exchange fee of 2.00% will be charged for any shares redeemed or exchanged after holding them for less than 30 days. This fee does not apply to shares purchased through reinvested dividends or capital gains or shares held in certain omnibus accounts or retirement plans that cannot implement the fee. No redemption fee will be imposed on the cancellation of Target Fund shares in connection with the Reorganization. (3) The dollar amount of the sales charge is the difference between the offering price of the shares purchased (which factors in the applicable sales charge in this table) and the net asset value of those shares. Since the offering price is calculated to two decimal places using standard rounding criteria, the number of shares purchased and the dollar amount of the sales charge as a percentage of the offering price and of your net investment may be higher or lower depending on whether there was a downward or upward rounding. (4) There is a 0.75% contingent deferred sales charge that applies to investments of $1 million or more, which will not apply to shares received as part of the Reorganizations. See "Sales Charges - Class A" under "Choosing a Share Class" in the Franklin Total Return Fund prospectus. ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) CLASS I SHARES/ ADVISOR CLASS A CLASS B CLASS C CLASS SHARES SHARES* SHARES SHARES** HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME FUND(1) Management Fee 0.40% 0.40% 0.40% 0.40% Distribution 0.00%(2) 0.75% 0.75% None (12b-1 Fee) Shareholder 0.25% 0.25% 0.25% None servicing Fee Other operating 1.11% 1.11% 1.11% 1.11% expenses Total Fund Operating Expenses 1.76% 2.51% 2.51% 1.51% Fee Waiver and/or expense 1.11% 1.11% 1.11% 1.11% reimbursement(3) Net operating 0.65% 1.40% 1.40% 0.40% expenses FRANKLIN TOTAL RETURN FUND Management 0.35% n/a 0.35% 0.35% Fee(4) Distribution 0.25% n/a 0.65% None (12b-1 Fee) Other operating 0.44% n/a 0.44% 0.44% expenses Acquired fund fees and 0.03% n/a 0.03% 0.03% expenses(5) Total annual Fund operating 1.07% n/a 1.47% 0.82% expenses(4) Management fee -0.19% n/a -0.19% -0.19% reduction(4) Net annual Fund operating 0.88% n/a 1.28% 0.63% expenses(4, 5) FRANKLIN TOTAL RETURN FUND (PRO FORMA COMBINED) Management Fee(4) 0.35% n/a 0.35% 0.35% Distribution 0.25% n/a 0.65% None (12b-1 Fee) Shareholder None None None None servicing Fee Other operating 0.44% n/a 0.44% 0.44% expenses Acquired fund fees and 0.03% n/a 0.03% 0.03% expenses(5) Total Annual Fund Operating 1.07% n/a 1.47% 0.82% Expenses(4) Fee Waiver and/or expense -0.19% n/a -0.19% -0.19% reimbursement(4) Net operating 0.88% n/a 1.28% 0.63% expenses(4) * The Franklin Total Return Fund has Class B shares outstanding, but these shares are generally no longer offered for sale, except that existing shareholders of Class B shares may continue as Class B shareholders, continue to reinvest dividends into Class B shares and exchange their Class B shares for Class B shares of other Franklin Templeton funds as permitted by the current exchange privileges. ** The HSBC Investor Intermediate Duration Fixed Income Fund offers Class I shares. The Franklin Total Return Fund offers Advisor Class shares. (1) The table reflects the combined fees and expenses of both the HSBC Investor Intermediate Duration Fixed Income Fund and the HSBC Intermediate Duration Fixed Income Portfolio. See the "How do the Reorganizations affect certain Target Funds' master-feeder structures?" section of this Prospectus/Proxy Statement for more information regarding the master-feeder structure of the Target Funds. (2) There is a non-compensatory 12b-1 plan for Class A shares, which authorizes payments of up to 0.25% of the Target Fund's average daily net assets attributable to Class A shares. No payments have been made and there is no current intention to charge the fee. (3) AMUS, the Target Fund's adviser, has entered into a written expense limitation agreement with the Target Fund under which it will limit total expenses of the Target Fund (excluding interest, taxes, brokerage commissions, acquired fund fees and expenses and extraordinary expenses) to an annual rate of 0.70% for Class A shares, 1.45% for Class B shares, 1.45% for Class C shares and 0.45% for Class I shares. The expense limitation is contractual and shall be in effect until March 1, 2010. (4) The investment manager and administrator have contractually agreed to waive or limit their respective fees and to assume as their own expense certain expenses otherwise payable by the Acquiring Fund so that common expenses (i.e., a combination of investment management fees, fund administration fees, and other expenses, but excluding the Rule 12b-1 fees and acquired fund fees and expenses) for each class of the Acquiring Fund do not exceed 0.60% (other than certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations, and liquidations) until February 28, 2010. The manager also had agreed in advance to reduce its fee to reflect reduced services resulting from the Acquiring Fund's investment in a Franklin Templeton money fund. The manager is required by the Acquiring Fund's board of trustees and an exemptive order by the SEC to reduce its fee if the Acquiring Fund invests in a Franklin Templeton money fund. (5) Net Annual Fund Operating Expenses differ from the ratio of expenses to average net assets shown in the Financial Highlights, which reflect the operating expenses of the Acquiring Fund and do not include acquired fund fees and expenses. EXPENSE EXAMPLE The Example is intended to help you compare the cost of investing in shares of the HSBC Investor Intermediate Duration Fixed Income Fund with the cost of investing in the Franklin Total Return Fund currently and on a PRO FORMA basis, and allows you to compare these costs with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay at the end of the time periods indicated, assuming the following: o $10,000 investment o 5% annual return o no changes in the Fund's operating expenses The costs reflect the effects of expense limitations and/or fee waivers on the part of the investment adviser for the period of the contractual limitation and/or waiver. Absent such arrangements, the costs would be higher. Because this Example is hypothetical and for comparison only, your actual costs may be higher or lower.
HSBC Investor Intermediate Franklin Total Return Fund Duration Fixed Franklin Total (estimated PRO Income Fund* Return Fund forma)** ----------------------------------------------------------------------------------------------------- 1 3 5 10 1 3 5 10 1 3 5 10 Year Years Years Years Year Years Years Years Year Years Years Years Class A $538 $900 $1,285 $2,362 $511(1) $727 $960 $1,628 $511 $727 $960 $1,628 Shares Class B Shares Assuming $543 $876 $1,236 $2,406 n/a n/a n/a n/a n/a n/a n/a n/a redemption Assuming no redemption $143 $676 $1,236 $2,406 n/a n/a n/a n/a n/a n/a n/a n/a Class C Shares Assuming $243 $676 $1,236 $2,762 $230 $440 $772 $1,710 $230 $440 $772 $1,710 redemption Assuming no $143 $676 $1,236 $2,762 $130 $440 $772 $1,710 $130 $440 $772 $1,710 redemption Class I Shares/Advisor $41 $368 $718 $1,706 $64 $236 $423 $963 $64 $236 $423 $963 Class Shares
* The Example reflects the combined fees and expenses of both the HSBC Investor Intermediate Duration Fixed Income Fund and the HSBC Investor Intermediate Duration Fixed Income Portfolio. For Class B and Class C shares, the amount of expenses varies depending upon whether you redeem at the end of such periods, because the CDSC is taken into account as well as other expenses. ** The estimated pro forma expenses for the Franklin Total Return Fund will not change if calculated based on the combination of the HSBC Investor Core Plus Fixed Income Fund, HSBC Investor Core Plus Fixed Income Fund (Advisor) and HSBC Investor Intermediate Duration Fixed Income Fund into the Franklin Total Return Fund. (1) Assumes a CDSC will not apply. The projected post-Reorganization PRO FORMA combined Annual Fund Operating Expenses and Example Expenses presented above are based on numerous material assumptions, including that the current contractual agreements will remain in place for one year. Although these projections represent good faith estimates, there can be no assurance that any particular level of expenses or expense savings will be achieved because expenses depend on a variety of factors, including the future level of the Acquiring Fund's assets, many of which are beyond the control of the Acquiring Fund or Franklin Advisers, Inc. If the Reorganization is approved, the resulting combined Fund will retain the Acquiring Fund's expense structure. COMPARISON OF FUND PERFORMANCE The following table shows, for the periods shown, the (unaudited) average annual total return for Class I shares of the Target Fund and the Advisor Class shares of the Acquiring Fund, along with each Fund's primary benchmark index. An index has an inherent performance advantage over the Funds since the index has no cash in its portfolio and incurs no operating expenses. An investor cannot invest directly in an index. The table assumes reinvestment of dividends and distributions, but does not reflect sales charges. If sales charges were reflected, returns would be less than those shown. The returns for other share classes will differ from the returns shown because of differences in expenses of each class. Performance is based on net expenses during the periods and takes into account fee waivers and/or expense reimbursements, if any, that may have been in place. If such waivers and/or reimbursements had not been in effect, performance would have been lower. Performance shown for the Target Fund also reflects the impact of payments received during the years ended December 31, 2006 and December 31, 2008, in connection with certain class action settlements. Absent such payments, the Target Fund returns would have been lower. Each Fund's past performance is not a guarantee of future results. Barclay's Lipper Class I Capital U.S. Intermediate HSBC Investor Aggregate Investment Intermediate Advisor Class Bond Grade Debt Duration Fixed Franklin Total Index(1) Funds Income Fund* Return Fund (2) Average (3) -------------------------------------------------------------------- 2002 7.55% 8.47% 10.26% 8.27% 2003 3.35% 8.16% 4.10% 4.77% 2004 3.23% 5.53% 4.34% 3.93% 2005 1.29% 2.06% 2.43% 1.82% 2006 9.15% 5.12% 4.33% 4.06% 2007 4.78% 5.12% 6.97% 4.70% 2008 -5.31% -5.23% 5.24% -4.43% YTD (as of 2.41% 1.43% March 31, 2009) (1) The unmanaged Barclay's Capital U.S. Aggregate Bond Index is the benchmark index for both the HSBC Investor Intermediate Duration Fixed Income Fund and the Total Return Fund. The index represents securities that are SEC-registered, taxable and dollar denominated. The index covers the U.S. investment grade fixed-rate bond market, with index components for government and corporate securities, mortgage pass-through securities and asset-backed securities. All issues included must have at least one year to final maturity and must be rated investment grade (Baa3 or better) by Moody's Investors Service. They must also be dollar denominated and nonconvertible. Total return includes price appreciation/depreciation and income as a percentage of the original investment. The Index is rebalanced monthly by market capitalization. One cannot invest directly in an index, nor is an index representative of the Fund's portfolio. (2) On November 1, 2008, the Lehman Brothers U.S. Aggregate Bond Index was rebranded as the Barclays Capital U.S. Aggregate Bond Index. (3) The Lipper Intermediate Investment Grade Debt Funds Average is an additional benchmark index used by the HSBC Investor Intermediate Duration Fixed Income Fund. The Lipper mutual fund average is an equally weighted average composed of mutual funds with similar investment objectives. ACQUIRING FUND PERFORMANCE For additional information regarding the performance of the Acquiring Fund, including the annual total returns for the past ten years and the 1-, 5- and 10- year average annual total returns, see the "Performance" and "Financial Highlights" sections of the Franklin Total Return Fund prospectus which has been mailed with this Prospectus/Proxy Statement. KEY DIFFERENCES IN RIGHTS OF TARGET FUND AND ACQUIRING FUND SHAREHOLDERS HSBC Investor Intermediate Duration Fixed Income Fund is organized as a separate series of HSBC Investor Funds, a Massachusetts business trust, and is governed by a Declaration of Trust and Bylaws. Franklin Total Return Fund is organized as a separate series of Franklin Investors Securities Trust, a Delaware statutory trust, and is governed by an Agreement and Declaration of Trust and Bylaws. Key differences affecting the rights of shareholders under the HSBC Investor Intermediate Duration Fixed Income Fund's Declaration of Trust/Bylaws and Franklin Total Return Fund's Agreement and Declaration of Trust/Bylaws are presented below. HSBC Investor Intermediate Duration Fixed Income Fund Franklin Total Return Fund Quorum for a shareholder's Quorum for a shareholders' meeting is generally a majority meeting is generally forty per of the outstanding shares present cent of the shares entitled to in person or by proxy. vote, which are present in person or by proxy. Generally, the vote of 67 percent Generally, a majority of the or more of the voting securities votes cast at a meeting at which present at a meeting, if the a quorum is present generally holders of more than 50 percent shall decide any questions, of the outstanding voting unless the Agreement and securities are present or Declaration of Trust or Bylaws represented by proxy, or of more otherwise require. than 50 percent of the outstanding voting securities, whichever is less, unless the Declaration of Trust or Bylaws otherwise require. Maximum number of days prior to a Maximum number of days prior to shareholders' meeting during a shareholders' meeting during which a record date may be set by which a record date may be set that Fund's Board is 60. by that Fund's Board is 120. Shareholders must be given at Shareholders must be given at least 10 and not more than 60 least 10 and not more than 120 days notice of a shareholder days notice of shareholder meeting. meeting. Shareholders can request a Shareholders can't request shareholder meeting under certain shareholder meeting for the circumstances for the purpose of purpose of removing a Trustee, removing a Trustee; Otherwise, but can request a meeting to shareholders may vote to remove a elect additional trustees, Trustee either by declaration in provided certain conditions are writing or at a shareholder met. Shareholders may vote to meeting called for that purpose. remove a Trustee at a shareholder meeting called for that purpose. PROPOSAL 2: APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION BY SHAREHOLDERS OF THE HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME FUND Shareholders of Class A, Class B, Class C and Class I shares of the HSBC Investor Intermediate Duration Fixed Income Fund are being asked to approve the Reorganization by approving the Plan. Under the Declaration of Trust and Bylaws of the Fund, approval of the Reorganization requires the affirmative vote of a 1940 Act Majority (as previously defined). In the event shareholders of the Fund do not approve the Reorganization, AMUS and the Board of Trustees will determine what, if any, additional action should be taken with respect to the Fund. THE BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE FOR PROPOSAL 2. PROPOSAL 3 Reorganization of HSBC Investor New York Tax-Free Bond Fund Into Franklin New York Intermediate-Term Tax-Free Income Fund Summary of the Proposal Shareholders of the HSBC Investor New York Tax-Free Bond Fund are being asked to approve the Plan as it relates to the HSBC Investor New York Tax-Free Bond Fund's Reorganization. As a result of the Reorganization, shareholders of the HSBC Investor New York Tax-Free Bond Fund will receive shares in the Franklin New York Intermediate-Term Tax-Free Income Fund in an amount equal to the net asset value of their holdings in the HSBC Investor New York Tax-Free Bond Fund as of the Closing Date, as determined pursuant to the Plan. You should consult the Prospectus dated February 1, 2009 (as supplemented), for more information about the Franklin New York Intermediate-Term Tax-Free Income Fund, a series of Franklin New-York Tax-Free Trust, which has been mailed with this Prospectus/Proxy Statement and is incorporated herein by reference. A form of the Plan is attached hereto as Attachment II to this Prospectus/Proxy Statement. For more information regarding the calculation of the number of Acquiring Fund shares to be issued, please refer to the "How will the number of shares of an Acquiring Fund that I will receive be determined?" section above. COMPARISON OF INVESTMENT OBJECTIVES/GOALS AND STRATEGIES The following summarizes the investment objective/goals, strategies and management differences, if any, between the HSBC Investor New York Tax-Free Bond Fund and the Franklin New York Intermediate-Term Tax-Free Income Fund: Franklin New York HSBC Investor New York Intermediate-Term Tax-Free Bond Fund Tax-Free Income Fund ------------------------------------------------------ Investment To provide shareholders To provide investors Goal(s)/ of the Fund with income with as high a level of objective(s) exempt from federal, income exempt from New York State and federal income taxes and New York City personal New York State and New income taxes. York City personal income taxes as is consistent with prudent investment management and the preservation of shareholders' capital. Investment As a fundamental policy, Under normal market Strategies under normal market conditions, the Fund conditions, the Fund invests at least 80% of invests at least 80% of its total assets in its net assets in securities that pay obligations of the State interest free from of New York and its federal income taxes, authorities, agencies, including the federal instrumentalities and alternative minimum tax, political subdivisions, and from New York State and of Puerto Rico, or personal income taxes. the U.S. territories and As a non-fundamental their authorities, policy, the Fund also agencies, normally invests at instrumentalities and least 80% of its total political subdivisions, assets in securities the interest on which is that pay interest free exempt from regular from the personal income federal income tax, and taxes of New York City. New York State and New York City personal income Additionally, although taxes. Under normal the Fund tries to invest circumstances, at least all of its assets in 80% of the Fund's net tax-free securities, it assets will be invested is possible, although in obligations the not anticipated, that up interest on which is to 20% of its total exempt from both regular assets may be in federal income tax and securities that pay the federal alternative taxable interest, minimum tax. including interest that may be subject to the federal alternative Additionally, the Fund minimum tax. may invest up to 20% of its net assets in The Fund may also invest obligations the interest up to 35% of its assets income on which is in municipal securities subject to federal, New issued by U.S. York State and New York territories. City personal income taxes. In addition, dividends attributable to interest on certain municipal obligations may be subject to the federal alternative minimum tax. The Fund may invest in taxable securities (such as U.S. Government obligations or certificates of deposit of domestic banks) only if such securities are of comparable quality and credit risk with the municipal obligations described above. Investment HSBC Global Asset Franklin Advisers, Inc. Adviser Management (USA) Investment Halbis Capital Management n/a Subadviser (USA) Inc. Portfolio Brian M. Lockwood James P. Conn, CFA Manager(s) Brian F. Colalucci John Pomeroy As you can see from the chart above, the investment objective/goals and strategies of the HSBC Investor New York Tax-Free Bond Fund are similar to those of the Franklin New York Intermediate-Term Tax-Free Income Fund. Each seeks to provide income that is exempt from federal, New York State and New York City personal income taxes and invests at least 80% of its total assets in securities that provide such income. There are, however, differences that you should consider. For example, while both the HSBC Investor New York Tax-Free Bond Fund and the Franklin New York Intermediate-Term Tax-Free Income Fund seek to provide income that is exempt from New York City personal income taxes, only the HSBC Investor New York Tax-Free Bond Fund had made the pursuit of such income a fundamental policy. Policies that are fundamental may only be changed upon approval by shareholders. The Franklin New York Intermediate-Term Tax-Free Income Fund has, in the past, maintained a shorter average effective maturity than the HSBC Investor New York Tax-Free Bond Fund (8.9 years for the Franklin New York Intermediate-Term Tax-Free Income Fund as of March 31, 2009 as compared to 11.3 years for the HSBC Investor New York Tax-Free Bond Fund as of January 31, 2009) and a larger allocation to AAA-rated securities (34.5% for the Franklin New York Intermediate-Term Tax-Free Income Fund as of March 31, 2009 as compared to 4% for the HSBC Investor New York Tax-Free Bond Fund as of January 31, 2009). The Franklin New York Intermediate-Term Tax-Free Income Fund only invests in securities rated BBB or better while the HSBC Investor New York Tax-Free Bond Fund has no such limitation. The Franklin New York Intermediate-Term Tax-Free Income Fund maintains a dollar-weighted average portfolio maturity of three to 10 years. The HSBC Investor New York Tax-Free Bond Fund is considered to be "non-diversified" under the 1940 Act, which means that the Fund can invest a greater percentage of its assets in fewer securities than the Franklin New York Intermediate-Term Tax-Free Income Fund, a "diversified" fund. For more information about Franklin New York Intermediate-Term Tax-Free Income Fund's investment objectives/goals, principal investment strategies and risks, see the "Goals and Strategies" and "Main Risk" sections of the Franklin New York Intermediate-Term Tax-Free Income Fund's prospectus, which has been mailed with this Prospectus/Proxy Statement. For a discussion of the differences in each Fund's fundamental and non-fundamental investment policies, see Attachment I to this Prospectus/Proxy Statement. COMPARISON OF PRINCIPAL RISKS The principal risks associated with the HSBC Investor New York Tax-Free Bond Fund and the Franklin New York Intermediate-Term Tax-Free Income Fund are similar because they have similar investment goals and principal investment strategies. The actual risks of investing in each Fund depend on the securities held in each Fund's portfolio and on market conditions, both of which change over time. Many factors affect a Fund's performance. A Fund's share price changes daily based on changes in market conditions and interest rates and in response to other economic, political, or financial developments. A Fund's reaction to these developments will be affected by the types of securities in which the Fund invests, the financial condition, industry and economic sector, and geographic location of an issuer, and the Fund's level of investment in the securities of that issuer. When you sell your shares they may be worth more or less than what you paid for them, which means that you could lose money. Both Funds are subject to the following principal risks: MARKET RISK: A security's value may be reduced by market activity or the results of supply and demand. This is a basic risk associated with all securities. When there are more sellers than buyers, prices tend to fall. Likewise, when there are more buyers than sellers, prices tend to rise. CREDIT RISK: An issuer of debt securities may be unable to make interest payments and repay principal when due. Changes in an issuer's financial strength or in a security's credit rating may affect a security's value and, thus, impact Fund performance. INTEREST RATE RISK: When interest rates rise, debt security prices fall. The opposite is also true: debt security prices rise when interest rates fall. In general, securities with longer maturities are more sensitive to these price changes. CONCENTRATION RISK: Because each Fund concentrates its investments in New York municipal obligations and may invest a significant portion of its assets in the securities of a single issuer or sector, the value of the Fund's assets could lose significant value due to the poor performance of a single issuer or sector. STATE-SPECIFIC RISK (NEW YORK): A fund investing primarily within a single state, such as New York, is by definition, less diversified geographically then one investing across many states and therefore has greater exposure to adverse economic and political changes within the state, as well as risks associated with any natural disasters or acts of terrorism that might impact the State of New York. Historically, New York State and other issuers of New York municipal obligations have experienced periods of severe recession and financial difficulty. Because a significant share of New York State's economy depends on financial and business services, any change in market conditions that adversely affect these industries could affect the ability of New York and its localities to meet its financial obligations. If such difficulties arise, you could lose money on your investment. TAX-EXEMPT SECURITIES RISK: While each Fund endeavors to purchase only bona fide tax-exempt securities, there are risks that: (a) a security issued as tax-exempt may be reclassified as taxable by the Internal Revenue Service, or a state tax authority, and/or (b) future legislative, administrative or court actions could adversely impact the qualification of income from a tax-exempt security as tax-free. Such reclassifications or actions could cause interest from a security to become taxable, possibly retroactively, subjecting you to increased tax liability. In addition, such reclassifications or actions could cause the value of a security, and therefore the value of the Fund's shares, to decline. WHEN-ISSUED SECURITIES. The price and yield of securities purchased on a "when-issued" basis is fixed on the date of the commitment but payment and delivery are scheduled for a future date. Consequently, these securities present a risk of loss if the other party to a "when-issued" transaction fails to deliver or pay for the security. In addition, purchasing securities on a "when-issued" basis can involve a risk that the yields available in the market on the settlement date may actually be higher (or lower) than those obtained in the transaction itself and, as a result, the "when-issued" security may have a lesser (or greater) value at the time of settlement than the Fund's payment obligation with respect to that security. INCOME RISK. Since the Fund can only distribute what it earns, the Fund's distributions to shareholders may decline when interest rates fall. The HSBC Investor New York Tax-Free Bond Fund is subject to the following additional principal risks: NON-DIVERSIFIED RISK: A fund that is classified as non-diversified has the ability to concentrate a relatively high percentage of its investments in the securities of a small number of issuers. This makes that fund's performance more susceptible to a single economic, political or regulatory event than a diversified fund might be. DERIVATIVES RISK: Gains and losses from speculative positions in a derivative may be much greater than the derivative's original cost. The Fund's use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. The Fund's investment in a derivative instrument could lose more than the principal amount invested. These investments could increase the Fund's price volatility or reduce the return on your investment. The Franklin New York Intermediate-Term Tax-Free Income Fund is subject to the following additional principal risks: CALL/PREPAYMENT RISK. A debt security may be prepaid (called) before maturity. An issuer is more likely to call its securities when interest rates are falling, because the issuer can issue new securities with lower interest payments. If a security is called, the Fund may have to replace it with a lower-yielding security. At any time, the Fund may have a large amount of its assets invested in debt securities subject to call risk. A call of some or all of these securities may lower the Fund's income and yield and its distributions to shareholders. CANCELLATION RISK: Municipal lease obligations differ from other municipal securities because the relevant legislative body must appropriate the money each year to make the lease payments. If the money is not appropriated, the lease can be cancelled without penalty and investors who own the lease obligations may not be paid. COMPARATIVE FEE TABLES The tables below allow a shareholder to compare the sales charges, management fees and expense ratios of the HSBC Investor New York Tax-Free Bond Fund with the Franklin New York Intermediate-Term Tax-Free Income Fund and to analyze the estimated expenses that the Franklin New York Intermediate-Term Tax-Free Income Fund expects to bear following the Reorganization. The shareholder fees presented below for the Franklin New York Intermediate-Term Tax-Free Income Fund apply both before and after giving effect to the Reorganization. However, you will not have to pay any front-end sales charge on any shares of the Franklin New York Intermediate-Term Tax-Free Income Fund received as part of the Reorganization. Annual Fund Operating Expenses are paid by each Fund. They include management fees, distribution and shareholder servicing fees and administrative costs, including pricing and custody services. In addition, following the presentation of that information, Annual Fund Operating Expenses (and related Example Expenses) are presented on a PRO forma combined basis. The Annual Fund Operating Expenses shown in the table below represent expenses for the 12 months ended October 31, 2008 and September 30, 2008 for the HSBC Investor New York Tax-Free Bond Fund and Franklin New York Intermediate-Term Tax-Free Income Fund, respectively, and those projected for the Franklin New York Intermediate-Term Tax-Free Income Fund on a PRO FORMA basis after giving effect to the proposed Reorganization, and are based on PRO FORMA combined net assets as if the transaction had occurred on March 31, 2009. The expense table information provided for the period prior to the transaction is based on the most recent prospectuses of the HSBC Investor New York Tax-Free Bond and Franklin New York Intermediate-Term Tax-Free Income Funds, while the pro forma information is based on the 12 month period ended September 30, 2008. SHAREHOLDER TRANSACTION EXPENSES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS I SHARES/ ADVISOR CLASS A CLASS B CLASS C CLASS SHARES SHARES* SHARES SHARES** HSBC INVESTOR NEW YORK TAX-FREE BOND FUND Maximum sales charge (load) on purchases (as a percentage of offering 4.75% None None None price)(1) Maximum deferred sales charge (load) on redemptions (as None 4.00% 1.00% None a percentage of sales price) Redemption/Exchang Fee (as a percentage of 2.00% 2.00% 2.00% 2.00% amount redeemed or exchanged)(2) FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND Maximum sales charge (load) on purchases (as a 2.25%(3) n/a None None percentage of offering price) Maximum deferred sales charge (load) on redemptions (as None(4) n/a 1.00% None a percentage of sales price) Redemption/Exchang Fee (as a percentage of None n/a None None amount redeemed or exchanged) * The Franklin New York Intermediate-Term Tax-Free Income Fund has Class B shares outstanding, but these shares are generally no longer offered for sale, except that existing shareholders of Class B shares may continue as Class B shareholders, continue to reinvest dividends into Class B shares and exchange their Class B shares for Class B shares of other Franklin Templeton funds as permitted by the current exchange privileges. ** The HSBC Investor New York Tax-Free Bond Fund offers Class I shares. The Franklin New York Intermediate-Term Tax-Free Income Fund offers Advisor Class shares. The Franklin New York Intermediate-Term Tax-Free Income Fund began offering Advisor Class shares on December 1, 2008. (1) Lower sales charges are available depending on the amounts invested. (2) A redemption/exchange fee of 2.00% will be charged for any shares redeemed or exchanged after holding them for less than 30 days. This fee does not apply to shares purchased through reinvested dividends or capital gains or shares held in certain omnibus accounts or retirement plans that cannot implement the fee. No redemption fee will be imposed in connection with the Reorganization and cancellation of Target Fund shares. (3) The dollar amount of the sales charge is the difference between the offering price of the shares purchased (which factors in the applicable sales charge in this table) and the net asset value of those shares. Since the offering price is calculated to two decimal places using standard rounding criteria, the number of shares purchased and the dollar amount of the sales charge as a percentage of the offering price and of your net investment may be higher or lower depending on whether there was a downward or upward rounding. (4) There is a 0.75% contingent deferred sales charge that applies to investments of $1 million or more, which will not apply to shares received as part of the Reorganizations. See "Sales Charges - Class A" under "Choosing a Share Class" in the Franklin New York Intermediate-Term Tax-Free Income Fund prospectus. ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) CLASS I SHARES/ ADVISOR CLASS A CLASS B CLASS C CLASS SHARES SHARES* SHARES SHARES** HSBC INVESTOR NEW YORK TAX-FREE BOND FUND Management Fee 0.25% 0.25% 0.25% 0.25% Distribution 0.00%(1) 0.75% 0.75% None (12b-1 Fee) Shareholder 0.25% 0.25% 0.25% None servicing Fee Other operating 0.34% 0.34% 0.34% 0.34% expenses Total Fund Operating 0.84% 1.59% 1.59% 0.59% Expenses FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND Management Fee 0.53% n/a 0.53% 0.53% Distribution 0.10% n/a 0.65% None (12b-1 Fee) Shareholder n/a n/a n/a n/a servicing Fee Other operating 0.10% n/a 0.10% 0.10% expenses Total Fund Operating 0.73% n/a 1.28% 0.63%(2) Expenses FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND (PRO FORMA COMBINED) Management Fee 0.52% n/a 0.52% 0.52% Distribution 0.10% n/a 0.65% None (12b-1 Fee) Shareholder n/a n/a n/a n/a servicing Fee Other operating 0.09% n/a 0.09% 0.09% expenses Total Annual Fund Operating 0.71% n/a 1.26% 0.61%(2) Expenses Fee Waiver and/or expense n/a n/a n/a n/a reimbursement Net operating n/a n/a n/a n/a expenses * The Franklin New York Intermediate-Term Tax-Free Income Fund has Class B shares outstanding, but these shares are generally no longer offered for sale, except that existing shareholders of Class B shares may continue as Class B shareholders, continue to reinvest dividends into Class B shares and exchange their Class B shares for Class B shares of other Franklin Templeton funds as permitted by the current exchange privileges ** The HSBC Investor New York Tax-Free Bond Fund offers Class I shares. The Franklin New York Intermediate-Term Tax-Free Income Fund offers Advisor Class shares. (1) There is a non-compensatory 12b-1 plan for Class A shares, which authorizes payments of up to 0.25% of the Target Fund's average daily net assets attributable to Class A shares. No payments have been made and there is no current intention to charge the fee. (2) The Franklin New York Intermediate-Term Tax-Free Income Fund began offering Advisor Class shares on December 1, 2008. Total Annual Fund Expenses are based on the expenses of the Fund's Class A shares for the fiscal year ended September 30, 2008. EXPENSE EXAMPLE The Example is intended to help you compare the cost of investing in shares of the HSBC Investor New York Tax-Free Bond Fund with the cost of investing in the Franklin New York Intermediate-Term Tax-Free Income Fund currently and on a PRO FORMA basis, and allows you to compare these costs with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay at the end of the time periods indicated, assuming the following: o $10,000 investment o 5% annual return o no changes in the Fund's operating expenses Because this Example is hypothetical and for comparison only, your actual costs may be higher or lower. Franklin New York Intermediate-Term HSBC Investor New Franklin New York Tax-Free Income York Tax-Free Bond Intermediate-Term Fund (estimated PRO Fund* Tax-Free Income Fund FORMA) ------------------------------------------------------------------------------------ 1 3 5 10 1 3 5 10 1 3 5 10 Year Years Years Years Year Years Years Years Year Years Years Years Class A $557 $730 $919 $1,463 $298(1) $453 $622 $1,111 $296(1) $447 $611 $1,088 Shares Class B n/a n/a n/a n/a n/a n/a n/a n/a Shares Assuming $562 $702 $866 $1,503 n/a n/a n/a n/a n/a n/a n/a n/a redemption Assuming no $162 $502 $866 $1,503 n/a n/a n/a n/a n/a n/a n/a n/a redemption Class C Shares Assuming $262 $502 $866 $1,889 $230 $406 $702 $1,545 $228 $400 $692 $1,523 redemption Assuming no $162 $502 $866 $1,889 $130 $406 $702 $1,545 $128 $400 $692 $1,523 redemption Class I Shares/Advisor $ 60 $189 $329 $ 738 $ 64 $202 $351 $786 $62 $195 $340 $762 Class Shares
* For Class B and C shares, the amount of expenses varies depending upon whether you redeem at the end of such periods, because the CDSC is taken into account as well as other expenses. (1) Assumes a CDSC will not apply. The projected post-Reorganization PRO FORMA combined Annual Fund Operating Expenses and Example Expenses presented above are based on numerous material assumptions, including that the current contractual agreements will remain in place for one year. Although these projections represent good faith estimates, there can be no assurance that any particular level of expenses or expense savings will be achieved because expenses depend on a variety of factors, including the future level of the Acquiring Fund's assets, many of which are beyond the control of each Acquiring Fund or Franklin Advisers, Inc. If a Reorganization is approved, the resulting combined Fund will retain the Acquiring Fund's expense structure. COMPARISON OF FUND PERFORMANCE The following table shows, for the periods shown, the (unaudited) average annual total return for Class A shares of the HSBC Investor New York Tax-Free Bond Fund and Class A of the Franklin New York Intermediate-Term Tax-Free Income Fund, along with each Fund's primary benchmark index. An index has an inherent performance advantage over the Funds since the index has no cash in its portfolio and incurs no operating expenses. An investor cannot invest directly in an index. The table assumes reinvestment of dividends and distributions, but does not reflect sales charges. If sales charges were reflected, returns would be less than those shown. The returns for other share classes will differ from the returns shown because of differences in expenses of each class. Performance is based on net expenses during the periods and takes into account fee waivers and/or expense reimbursements, if any, that may have been in place. If such waivers and/or reimbursements had not been in effect, performance would have been lower. EACH FUND'S PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. Franklin New Barclays HSBC Investor York Capital Lipper NY New York Intermediate- Municipal Bond Municipal Debt Tax-Free Bond Term Tax-Free Index: 10 Year Funds Fund Income Fund Component (1) Average(2) ------------------------------------------------------------- 1999 -3.34% -1.69% -1.25% -4.78% 2000 10.55% 10.36% 10.76% 11.90% 2001 3.80% 4.40% 4.62% 3.81% 2002 8.96% 9.46% 10.17% 8.83% 2003 4.44% 4.85% 5.70% 4.78% 2004 3.03% 3.17% 4.15% 3.49% 2005 2.04% 1.53% 2.74% 3.07% 2006 3.52% 3.61% 4.71% 4.65% 2007 3.04% 3.21% 4.29% 1.50% 2008 -1.75% -0.75% 1.52% -8.64% YTD (as of March 31, 3.39% 3.42% 2009) (1) Source: (C) 2008 Morningstar. The unmanaged Barclay's Capital Municipal Bond Index: 10-Year Component is the 10-year (8-12) component of the Municipal Bond Index, which is a market value-weighted index engineered for the long-term tax-exempt bond market. All bonds included have a minimum credit rating of at least Baa3/BBB-. They must have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. The bonds must be dated after 12/31/90, and must be at least one year from their maturity date. Remarketed issues, taxable municipal bonds, bonds with floating rates and derivatives are excluded from the index. The index has four main bond sectors: general obligation, revenue, insured and pre-refunded. It includes reinvested income or distributions. One cannot invest directly in an index, nor is an index representative of the Fund's portfolio. (2) The Lipper NY Municipal Debt Funds Average is an additional benchmark index used by the HSBC Investor New York Tax-Free Bond Fund. The Lipper mutual fund average is an equally weighted average composed on mutual funds with similar investment objectives. ACQUIRING FUND PERFORMANCE For additional information regarding the performance of the Acquiring Fund, including the annual total returns for the past ten years and the 1-, 5- and 10- year average total returns, see the "Performance" and "Financial Highlights" sections of the Franklin New York Intermediate-Term Tax-Free Income Fund prospectus, which has been mailed with this Prospectus/Proxy Statement. KEY DIFFERENCES IN RIGHTS OF TARGET FUND AND ACQUIRING FUND SHAREHOLDERS HSBC Investor New York Tax-Free Bond Fund is organized as a separate series of HSBC Investor Funds, a Massachusetts business trust, and is governed by a Declaration of Trust and Bylaws. Franklin New York Intermediate-Term Tax-Free Income Fund is organized as a separate series of Franklin New York Tax-Free Trust, a Delaware statutory trust, and is also governed by an Agreement and Declaration of Trust and Bylaws. Key differences affecting the rights of shareholders under the HSBC Investor New York Tax-Free Bond Fund's Declaration of Trust/Bylaws and Franklin New York Intermediate-Term Tax-Free Income Fund's Agreement and Declaration of Trust/Bylaws are presented below. HSBC Investor New York Tax-Free Bond Franklin New York Intermediate-Term Fund Tax-Free Income Fund ---------------------------------------------------------------------------- Quorum for a shareholder's meeting Quorum for a shareholders' meeting is generally a majority of the is generally forty per cent of the outstanding shares present in person shares entitled to vote, which are or by proxy. present in person or by proxy. Generally, the vote of 67 percent or Generally, a majority of the votes more of the voting securities cast at a meeting at which a quorum present at a meeting, if the holders is present generally shall decide of more than 50 percent of the any questions, unless the Agreement outstanding voting securities are and Declaration of Trust or Bylaws present or represented by proxy, or otherwise require. of more than 50 percent of the outstanding voting securities, whichever is less, unless the Declaration of Trust or Bylaws otherwise require. Maximum number of days prior to a Maximum number of days prior to a shareholders' meeting during which a shareholders' meeting during which record date may be set by that a record date may be set by that Fund's Board is 60. Fund's Board is 120. Shareholders must be given at least Shareholders must be given at least 10 and not more than 60 days notice 10 and not more than 120 days of a shareholder meeting. notice of shareholder meeting. Shareholders can request a Shareholders can't request shareholder meeting under certain shareholder meeting for the purpose circumstances for the purpose of of removing a Trustee, but can removing a Trustee; Otherwise, request a meeting to elect shareholders may vote to remove a additional trustees, provided Trustee either by declaration in certain conditions are met. writing or at a shareholder meeting Shareholders may vote to remove a called for that purpose. Trustee at a shareholder meeting called for that purpose. PROPOSAL 3: APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION BY SHAREHOLDERS OF THE HSBC INVESTOR NEW YORK TAX-FREE BOND FUND Shareholders of Class A, Class B, Class C and Class I shares of the HSBC Investor New York Tax-Free Bond Fund are being asked to approve the Reorganization by approving the Plan. Under the Declaration of Trust and Bylaws of the Fund, approval of the Reorganization requires the affirmative vote of a 1940 Act Majority (as previously defined). In the event shareholders of the Fund do not approve the Reorganization, AMUS and the Board of Trustees will determine what, if any, additional action should be taken with respect to the Fund. THE BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE FOR PROPOSAL 3. THE PROPOSED REORGANIZATIONS AGREEMENT AND PLAN OF REORGANIZATION If approved by shareholders of a Target Fund, the Reorganization for that Fund is expected to occur on August 28, 2009 or such other date as the parties may agree. The terms and conditions under which each Reorganization may be consummated are set forth in the Plan. Significant provisions of the Plan are summarized below; however, this summary is qualified in its entirety by reference to the Plan. A copy of the form of Plan is attached as Attachment II to this Prospectus/Proxy Statement. The Plan provides that, with respect to the Reorganizations of HSBC Investor Core Plus Fixed Income Fund , HSBC Investor Core Plus Fixed Income Fund (Advisor) and HSBC Investor Intermediate Duration Fixed Income Fund, prior to or as of the close of each Target Fund's business on the Closing Date, the appropriate Underlying Portfolio will conduct an in-kind liquidating distribution. Each Underlying Portfolio will deliver to HSBC Investor Core Plus Fixed Income Fund, HSBC Investor Core Plus Fixed Income Fund (Advisor) and HSBC Investor Intermediate Duration Fixed Income Fund, as appropriate, all of its assets or such pro rata share of its assets as is appropriate given such Target Funds' relative ownership of beneficial interests in the Underlying Portfolio. Thereafter, each Target Fund will convey to the corresponding Acquiring Fund all of its assets, except for assets in an amount deemed necessary to (i) discharge the Target Fund's unpaid liabilities, and (ii) pay contingent liabilities deemed to exist against the Target Fund as of the Closing Date. In consideration, the corresponding Acquiring Fund will deliver to the Target Fund full and fractional shares of Class A, Class C and Advisor Class shares (as applicable) having an aggregate net asset value equal to the aggregate value of the net assets of the Target Fund, as determined pursuant to the terms of the Plan. Immediately after the transfer of assets, the Target Fund will distribute to its shareholders of record, with respect to each class of shares, the shares of the Acquiring Fund of the corresponding class received by the Target Fund, determined as of immediately after the close of business on the Closing Date, on a pro rata basis within that class. Subsequently, each Target Fund will completely liquidate, except as to the contingent liability reserve, as described more fully in the Plan. Each Target Fund will use commercially reasonable efforts to discharge all of its known liabilities and obligations prior to the Closing Date, and neither the corresponding Acquiring Fund nor the trust of which it is a series will assume any such liabilities existing at the Closing Date. Each Acquiring Fund and the trust of which it is a series specifically disclaims the assumption of any such liabilities. Until the Closing Date, shareholders of the Target Funds will continue to be able to redeem their shares. Redemption requests received after the Closing Date will be treated as requests received by a corresponding Acquiring Fund for the redemption of its shares. The obligations of the Funds under the Plan are subject to various conditions, including approval of the shareholders of each Target Fund. The Plan also requires that each Acquiring Fund and Target Fund take, or cause to be taken, all action, and do or cause to be done all things, reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by the Plan. The Plan may be terminated by mutual agreement of the parties or on certain other grounds. Please refer to Attachment II to this Prospectus/Proxy Statement to review the terms and conditions of the Plan. REASONS FOR THE REORGANIZATIONS AND TRUSTEES' CONSIDERATIONS As indicated above, during 2008, AMUS, the investment adviser to the Target Funds, informed the Board of Trustees that it intends to exit the business of advising fixed income investment companies in the United States (other than money market funds) in light of a number of factors, including the Target Funds' small size and limited sales projections. As also indicated, AMUS and the Board of Trustees engaged in discussions regarding alternatives for the Target Funds, including the Reorganizations, that would allow AMUS and Halbis Capital Management (USA) Inc., the investment sub-adviser for the Target Funds, to exit this business while simultaneously providing potential benefits to shareholders of the Target Funds, such as tax-free exchanges of shares with other mutual funds. The Trustees convened several times to consider the future of the Target Funds. During discussions the Trustees raised various questions and received responsive information from AMUS regarding the alternatives, including the Reorganizations. At meetings held on March 30-31, 2009 and June 1-2, 2009, the Trustees were presented with information to assist them in evaluating the Reorganizations, such as: o The terms and conditions of the Plan; o The relative compatibility of investment objectives/goals and restrictions and principal investment policies of the Acquiring Funds with those of the Target Funds; o The relative past performance of the Acquiring Funds and the Target Funds; o The anticipated effect of the Reorganizations on the fees and expense ratios borne by Target Fund shareholders if they become shareholders of the Acquiring Funds; o The capabilities, practices and resources of the management of Franklin Advisers, Inc. and its affiliates; o The anticipated federal income tax treatment of the Reorganizations and tax consequences to the Target Funds and their shareholders; o Anticipated dispositions of portfolio securities in connection with the Reorganizations; o The costs incurred in connection with the Reorganizations, and the payment of certain of the expenses of the Reorganizations by Franklin Advisers, Inc., AMUS or entities under common ownership with Franklin Advisers, Inc. or AMUS; o Alternatives to the proposed Reorganizations, including liquidation of the Target Funds and the viability of the Target Funds absent approval of the proposed Reorganizations; o Whether shareholders of the Target Funds are expected to experience any dilution as a result of the Reorganizations; and Benefits to and recommendation of AMUS. At the conclusion of this process, AMUS proposed that the Board of Trustees approve the Reorganizations. The Board of Trustees considered the above information, as well as other information, in considering this proposal. The Independent Trustees were advised by independent legal counsel during this process. On June 2, 2009, the Board of Trustees determined each Reorganization to be in the best interests of the applicable Target Fund and its shareholders and unanimously approved each Reorganization. Some of the factors set forth above, which served as the basis for the Trustees' determination to approve the Reorganizations, are discussed in greater detail below. COMPARISON OF INVESTMENT OBJECTIVES/GOALS AND POLICIES AND PAST PERFORMANCE AND EXPENSES. The Trustees considered that: o each Acquiring Fund and corresponding Target Fund have similar investment objectives/goals and policies; o past performance of the Acquiring Funds has generally been comparable to the past performance of the Target Funds over 1, 5, and 10-year periods, as appropriate; in this regard, the Trustees were aware that past performance does not necessarily indicate future results; and o expense comparisons between each Target Fund and its corresponding Acquiring Fund are in many cases favorable for Target Fund shareholders; in cases where expense comparisons are not directly favorable, the Trustees also considered other factors, such as (i) the fact that AMUS is contractually obligated to provide expense reimbursements and/or fee waivers only through March 1, 2010 with respect to the HSBC Investor Core Plus Fixed Income Fund, the HSBC Investor Core Plus Fixed Income Fund (Advisor) and HSBC Investor Intermediate Duration Fixed Income Fund; (ii) the other benefits to shareholders of the Reorganizations described herein; and (iii) the potential disadvantages of other potential alternatives to the Reorganizations. FRANKLIN ADVISERS, INC.'S CAPABILITIES. The Trustees considered that Franklin Advisers, Inc. is a wholly owned subsidiary of Franklin Resources, Inc., a publicly owned global investment organization operating as Franklin Templeton Investments, and that Franklin Resources, Inc. and its affiliates have more than $421 billion in assets under management as of April 30, 2009. In this regard, the Trustees considered, among other things, the size of the Franklin Templeton Funds fund complex, the investment options and strategies that would be available to Target Fund shareholders through exchanges of shares, and the shareholder services offered. TAX CONSEQUENCES. The Trustees considered that they were advised (i) that the Reorganizations, unlike certain alternatives, would be treated as "tax-free" for federal income tax purposes; (ii) of other tax matters that affect the relative desirability of the Reorganizations to Target Fund shareholders, such as capital loss carryforwards; and (iii) that it is likely that a portion of the portfolio securities in each of the Target Funds will be disposed of prior to the Closing Date. In this regard, the Trustees considered that dispositions of portfolio securities may result in the realization of capital gains that, to the extent not offset by capital losses, will be distributed to Target Fund shareholders prior to consummation of the Reorganizations. EXPENSES OF THE REORGANIZATIONS. The Trustees considered that Franklin Advisers, Inc., AMUS or entities under common ownership with Franklin Advisers, Inc. or AMUS will bear the costs of the Reorganizations, including legal, accounting, printing, proxy solicitation and similar expenses, although the Target Funds and Acquiring Funds are expected to bear transaction costs associated with the purchase or disposition of portfolio securities made in connection with the Reorganizations. ALTERNATIVES TO THE PROPOSED REORGANIZATIONS. The Trustees considered alternatives to the Reorganizations, including (i) reorganizing the Target Funds with one or more other affiliated funds, (ii) reorganizing the Target Funds into funds in other fund complexes, and (iii) liquidating the Target Funds, and the fact that only certain other alternatives were viable and all alternatives had undesirable aspects for Target Fund shareholders. BENEFITS TO AMUS. The Trustees considered that (i) they had been advised that AMUS would receive no compensation from Franklin Advisers, Inc. related to the Reorganizations, except that Franklin Advisers, Inc. has agreed to pay or arrange for an entity under common ownership to pay a portion of the costs of the Reorganizations and (ii) AMUS has entered into written expense limitation agreements with the HSBC Investor Core Plus Fixed Income Fund, the HSBC Investor Core Plus Fixed Income Fund (Advisor) and the HSBC Investor Intermediate Duration Fixed Income Fund under which it has agreed to limit total expenses of each Fund through March 1, 2010, but that these expense limitation agreements would no longer be in effect following a Reorganization RECOMMENDATION OF AMUS. The Trustees considered that (i) AMUS recommended to the Trustees that the Reorganizations be approved and that AMUS and (ii) its affiliates serve separately as fiduciaries for significant numbers of shareholders invested in the Target Funds and otherwise maintain customer relationships with substantially all other Target Fund shareholders. Based on the foregoing, together with other factors and information considered to be relevant, the Trustees unanimously determined that each Reorganization is in the best interests of the respective Target Fund and its shareholders. Consequently, the Trustees approved the Reorganizations and directed that the Plan be submitted to the shareholders of the Target Funds for approval. DESCRIPTION OF THE SECURITIES TO BE ISSUED Holders of HSBC Investor Core Plus Fixed Income Fund Class A shares and Class B shares will receive Class A shares of Franklin Total Return Fund. Holders of HSBC Investor Core Plus Fixed Income Fund Class C shares will receive Class C shares of Franklin Total Return Fund. Holders of HSBC Investor Core Plus Fixed Income Fund (Advisor) Class I shares will receive Advisor Class shares of Franklin Total Return Fund. Franklin Total Return Fund is a series of Franklin Investors Securities Trust. Holders of HSBC Investor Intermediate Duration Fixed Income Fund Class A shares and Class B shares will receive Class A shares of Franklin Total Return Fund. Holders of HSBC Investor Intermediate Duration Fixed Income Fund Class C shares will receive Class C shares of Franklin Total Return Fund. Holders of HSBC Investor Intermediate Duration Fixed Income Fund Class I shares will receive Advisor Class shares of Franklin Total Return Fund. Franklin Total Return Fund is a series of Franklin Investors Securities Trust. Holders of HSBC Investor New York Tax-Free Bond Fund Class A shares and Class B shares will receive Class A shares of Franklin New York Intermediate-Term Tax-Free Income Fund. Holders of HSBC Investor New York Tax-Free Bond Fund Class C shares will receive Class C shares of Franklin New York Intermediate-Term Tax-Free Income Fund. Holders of HSBC Investor New York Tax-Free Bond Fund Class I shares will receive Advisor Class shares of Franklin New York Intermediate-Term Tax-Free Income Fund. Franklin New York Intermediate-Term Tax-Free Income Fund is a series of Franklin New York Tax-Free Trust. Franklin Investors Securities Trust and Franklin New York Tax-Free Trust are collectively referred to as the Franklin Trusts. The Trustees of the Franklin Trusts are authorized to issue an unlimited number of shares of beneficial interest of separate series. Each share of an Acquiring Fund represents an equal proportionate interest with each other share of the Fund, and each such share of an Acquiring Fund is entitled to equal liquidation and redemption rights. The Franklin Trusts do not hold annual meetings of shareholders. There will normally be no meetings of shareholders for the purpose of electing Trustees unless less than a majority of the Trustees holding office have been elected by shareholders, at which time the Trustees then in office will call a shareholder meeting for the election of Trustees. For more information about redemption rights and exchange privileges, please refer to the "Buying and Selling Shares" and the "Exchanging Shares" sections, respectively, in the enclosed Franklin prospectuses. FORMS OF ORGANIZATION The HSBC Investor Intermediate Duration Fixed Income Fund is a diversified series of HSBC Investor Funds. The HSBC Investor New York Tax-Free Bond Fund is a non-diversified series of HSBC Investor Funds. The HSBC Investor Core Plus Fixed Income Fund is a series of HSBC Investor Funds and the HSBC Investor Core Plus Fixed Income Fund (Advisor) is a series of HSBC Advisor Funds Trust. The HSBC Investor Funds and HSBC Advisor Funds Trust are each open-end management investment companies organized as Massachusetts business trusts. The HSBC Investor Funds and HSBC Advisor Funds Trust are authorized to issue an unlimited number of shares of beneficial interest. The Acquiring Funds are diversified funds of the Franklin Trusts, each an open-end management investment company organized as Delaware statutory trusts. Each of the Franklin Trusts is authorized to issue an unlimited number of shares of beneficial interest. OPERATION OF THE ACQUIRING FUNDS FOLLOWING THE REORGANIZATIONS Franklin Advisers, Inc. does not expect any Acquiring Fund to revise its investment objectives/goals or strategies as a result of a Reorganization. In addition, Franklin Advisers, Inc. does not anticipate significant changes to an Acquiring Fund's management or to entities that provide the Fund with services. Specifically, the Trustees and officers, the investment manager, distributor, and other entities will continue to serve the Acquiring Funds in their current capacities. The portfolio managers of the Acquiring Funds are expected to continue to manage their respective funds. CAPITALIZATION The following tables show the capitalization of the each Target Fund and the corresponding Acquiring Fund as of October 31, 2008 (as of March 31, 2009 for the Franklin New York Intermediate-Term Tax-Free Income Fund) and on a PRO FORMA combined basis (unaudited) as of October 31, 2008 giving effect to the Reorganizations. Net Asset Net Value Shares Assets Per Share Outstanding Adjustments ----------------------------------------------- HSBC Investor Core Plus Fixed Income Fund Class A $8,370,962 $9.09 921,234 Class B $1,721,673 $9.10 189,256 Class C $94,895 $9.07 10,463 HSBC Investor Core Plus Fixed Income Fund (Advisor) Class I $54,917,516 $8.89 6,180,099 Franklin Total Return Fund Class A $780,550,753 $8.60 90,736,130 Class C $103,564,303 $8.60 12,045,197 Advisor Class $345,256,080 $8.61 40,078,667 Franklin Total Return Fund PRO FORMA Combined Fund Class A $790,643,388 $8.60 91,909,692 Class C $103,659,198 $8.60 12,056,231 Advisor Class $400,173,596 $8.61 46,457,008 Net Asset Net Value Shares Assets Per Share Outstanding Adjustments ----------------------------------------------- HSBC Investor Intermediate Duration Fixed Income Fund Class A $1,645,561 $8.91 184,626 Class B $1,365,279 $8.93 152,864 Class C $221,571 $8.93 24,819 Class I $9,641,333 $8.93 1,080,077 Franklin Total Return Fund Class A $780,550,753 $8.60 90,736,130 Class C $103,564,303 $8.60 12,045,197 Advisor Class $345,256,080 $8.61 40,078,667 Franklin Total Return Fund PRO FORMA Combined Fund Class A $783,561,593 $8.60 91,086,228 Class C $103,785,874 $8.60 12,070,961 Advisor Class $354,897,413 $8.61 41,198,450 Net Asset Net Value Shares Assets Per Share Outstanding Adjustments ----------------------------------------------- Franklin Total Return Fund PRO FORMA Combined Fund(1) Class A $793,654,228 $8.60 92,259,790 Class C $103,880,769 $8.60 12,081,995 Advisor Class $409,814,929 $8.61 47,576,791 Net Asset Net Value Shares Assets Per Share Outstanding Adjustments ----------------------------------------------- HSBC Investor New York Tax-Free Bond Fund Class A $23,258,382 $10.70 2,174,452 Class B $3,916,092 $10.69 366,455 Class C $477,309 $10.73 44,482 Class I $14,436,284 $10.70 1,349,506 Franklin New York Intermediate-Term Tax-Free Income Fund Class A $321,384,897 $10.64 30,215,834 Class C $29,093,667 $10.66 2,729,706 Advisor Class $296,967 $10.64 27,916 Franklin New York Intermediate-Term Tax-Free Income Fund PRO FORMA Combined Fund Class A $348,559,371 $10.64 32,769,826 Class C $29,570,976 $10.66 2,774,482 Advisor Class $14,733,251 $10.64 1,384,710 (1)Pro forma information reflects the combination of HSBC Investor Core Plus Fixed Income Fund, HSBC Investor Core Plus Fixed Income Fund (Advisor) and HSBC Investor Intermediate Duration Fixed Income Fund into the Franklin Total Return Fund. The table above assumes that the Reorganizations of the HSBC Investor Core Plus Fixed Income Fund, HSBC Investor Core Plus Fixed Income Fund (Advisor), and HSBC Investor Intermediate Duration Fixed Income Fund into the Franklin Total Return Fund occurred on October 31, 2008, and that the Reorganization of the HSBC Investor New York Tax-Free Bond Fund into the Franklin New York Intermediate-Term Tax-Free Income Fund occurred on March 31, 2009. The table is for informational purposes only. No assurance can be given as to how many Acquiring Fund shares will be received by shareholders of a Target Fund on the date that the Reorganization takes place, and the foregoing should not be relied upon to reflect the number of shares of an Acquiring Fund that actually will be received on or after that date. ADDITIONAL INFORMATION ABOUT THE FUNDS MANAGEMENT OF THE TARGET FUNDS AMUS is the investment adviser for each of the Target Funds. The principal business address of AMUS is 452 Fifth Avenue, New York, New York 10018. As the investment adviser, AMUS has overall responsibility for directing the Target Funds' investments. As of April 30, 2009, AMUS managed approximately $32 billion in the HSBC Investor Family of Funds. Halbis Capital Management (USA) Inc. ("Halbis"), 452 Fifth Avenue, New York, New York 10018, is the subadviser for the Target Funds pursuant to investment sub-advisory contracts with AMUS. Halbis is a wholly owned subsidiary of Halbis Capital Management (UK) Limited and is an affiliate of AMUS. Halbis makes the day-to-day investment decisions and continuously reviews, supervises and administers the investment programs of the Target Funds. INVESTMENT ADVISORY CONTRACT The HSBC Investor Core Plus Fixed Income Fund, HSBC Investor Core Plus Fixed Income Fund (Advisor) and the HSBC Investor Intermediate Duration Fixed Income Fund pursue their investment objectives by investing all of their assets in the Underlying Portfolios, and do not have their own investment management agreements with AMUS. In such cases, all investment management fees are paid by the Underlying Portfolio, but are borne indirectly by the holders of interests in the HSBC Investor Core Plus Fixed Income Fund, HSBC Investor Core Plus Fixed Income Fund (Advisor) and the HSBC Investor Intermediate Duration Fixed Income Fund. Shareholders of the HSBC Investor Core Plus Fixed Income Fund, HSBC Investor Core Plus Fixed Income Fund (Advisor) and the HSBC Investor Intermediate Duration Fixed Income Fund bear their own expenses and the expenses of the Underlying Portfolios, which may be greater than other structures. For its services as investment adviser, AMUS is entitled to a fee, which is accrued daily and paid monthly, based on daily net assets, at an annual rate as set forth below. These amounts are inclusive of any sub-advisory fees that AMUS pays to Halbis. FUND OR PORTFOLIO ASSET RANGE FEE --------------------------------------------------------- Core Plus Fixed Income $0-50 million 0.575% Portfolio $50-95 million 0.450% $95-150 million 0.200% $150-250 million 0.400% $250+ million 0.350% Intermediate Duration Fixed on all Assets 0.40% Income Portfolio New York Tax-Free Bond Fund on all Assets 0.25% For these advisory and management services (including any sub-advisory services), during the fiscal year ended October 31, 2008, management fees were paid as follows: ------------------------------------------------------------------------------- Percentage of Average net Assets ------------ Core Plus Fixed Income 0.48% Portfolio Intermediate Duration Fixed 0.40% Income Portfolio New York Tax-Free Bond Fund 0.25% For more information about each of the Target Funds' management, please refer to the "Fund Management" section of the Target Funds' Prospectus, which is incorporated herein by reference and to the "Investment Adviser" section of the Target Funds' statement of additional information, which is incorporated by reference into the SAI related to this Prospectus/Proxy Statement. A discussion regarding the basis for the Board of Trustees' approval of the investment advisory and subadvisory agreements for the Target Funds is available in the April 30, 2009 semi-annual report to shareholders. ------------------------------------------------------------------------------- TARGET FUNDS' PORTFOLIO MANAGERS Kim Golden, CFA is the portfolio manager of the HSBC Investor Core Plus Fixed Income Fund and the HSBC Investor Intermediate Duration Fixed Income Fund. He is primarily responsible for day-to-day management. Brian M. Lockwood and Brian F. Colalucci are co-managers of the New York Tax-Free Bond Fund and are jointly and primarily responsible for day-to-day management. Kim Golden, CFA, is a Managing Director of Halbis and Head of Distressed Investing. Mr. Golden joined AMUS in February 2004. Previously he was Managing Director of the T. Rowe Price Recovery Funds and Vice President of T. Rowe Price Associates. At T. Rowe Price, he invested in financially distressed and bankrupt companies on behalf of the Recovery Fund and other investment funds at the firm, and traded a broad array of financial instruments including bonds, bank loans, trade claims, equities and derivatives. Prior to joining T. Rowe Price, Mr. Golden worked for Chemical Bank (now J.P. Morgan Chase) in investment banking and corporate finance, where he was involved in merger and acquisition advisory, structured leveraged buyouts, and was one of the bank's principal valuation experts. Earlier at Chemical, Mr. Golden spent several years advising Fortune 100 companies on international finance issues, including foreign exchange exposure, forecasting, risk management, cross border flows, hedging, and the use of derivatives. Before joining Chemical Bank, he was an officer at the U.S. Treasury in the Office of International Monetary Affairs. Mr. Golden holds an MPA from the Woodrow Wilson School at Princeton University and B.A. and a B.Mus. (performance) from Oberlin College. Brian M. Lockwood is a senior portfolio manager and the team leader of the fixed income division in the Private Bank Investment Management Group of HSBC. Additionally, Mr. Lockwood chairs the fixed income strategy committee for the US Curve for both local and global investment groups. He manages co-mingled and segregated taxable and tax-exempt assets, including HSBC collective and common funds and tactical mandates. Prior to joining HSBC, Brian worked as a fixed income manager for Ramius Capital Group and DLJ/Credit Suisse Asset Management. His duties have included the management of various active fixed mandates, as well as the overall trading of $13 billion in assets. Mr. Lockwood has also traded fixed income securities for Spear, Leads, & Kellogg and began his career in the institutional trading/sales division of National Westminster Bank, NA. He has specialized in yield curve analysis, fixed income relative value, and an active management discipline. Brian F. Colalucci joined the fixed income division in HSBC's Private Bank Investment Management Group in 2008. Prior to joining HSBC, he was a Senior Vice President and Portfolio Manager at Robeco Investment Management, where he was part of the firm's tax-exempt, high net worth portfolio team with assets under management of $2 billion. Prior to Robeco, Mr. Colalucci worked for Western Asset Management, where he was responsible for implementing investment strategies and trading tax-exempt securities for the firm's institutional portfolios, mutual funds, and high net worth accounts. He began his investment career at Citigroup Asset Management in 1996, where he was a Vice President and portfolio manager for Citi's institutional and retail clients. At Citi, Mr. Colalucci co-managed Citi's top state-specific tax-exempt money market funds with assets under management of over $3 Billion. Mr. Colalucci holds a B.S.B.A degree from Villanova University and has 13 years of investment experience. Information about the portfolio managers' compensation, other accounts managed by these individuals, and their ownership of securities in the Target Funds or other funds that they manage is available in the Target Funds' SAI, which can be obtained by contacting the Funds at 1-800-782-8183. MANAGEMENT OF THE ACQUIRING FUNDS Franklin Advisers, Inc., One Franklin Parkway, San Mateo, CA 94403-1906, is the Acquiring Funds' investment manager. Together, Franklin Advisers, Inc. and its affiliates manage more than $421 billion in assets as of April 30, 2009. Under an agreement with Franklin Advisers, Inc., Franklin Templeton Institutional, LLC ("FT Institutional"), 600 Fifth Avenue, New York, New York 10020, is the Franklin Total Return Fund's sub-advisor. FT Institutional provides Franklin Advisers, Inc. with investment management advice and assistance. FT Institutional recommends the optimal equity allocation and provides advice regarding the Franklin Total Return Fund's investments. FT Institutional also determines which securities will be purchased, retained or sold and executes these transactions. FT Institutional's activities are subject to the board's review and control, as well as Franklin Advisers, Inc.'s instruction and supervision. INVESTMENT MANAGEMENT CONTRACT For its services as investment manager, Franklin Advisers, Inc. is entitled to a fee, which is calculated daily and paid monthly, based on daily net assets, at an annual rate as set forth below. Each class of the Fund's shares pays its proportionate share of the fee. These amounts are inclusive of any sub-advisory fees that Franklin Advisers, Inc. pays to FT Institutional. FUND ASSET RANGE FEE ----------------------------------------------------------------- up to and including $500 Franklin Total Return Fund million 0.425% over $500 million up to and including $1 billion 0.325% over $1 billion up to and including $1.5 billion 0.280% over $1.5 billion up to and including $6.5 billion 0.235% over $6.5 billion up to and including $11.5 billion 0.215% over $11.5 billion up to and including $16.5 billion 0.200% over $16.5 billion up to and including $19 billion 0.190% over $19 billion up to and including $21.5 billion 0.180% over $21.5 billion 0.170% Franklin New York Intermediate-Term up to and including $100 Tax-Free Income Fund million 0.625% over $100 million and not over $250 million 0.500% over $250 million and not over $7.5 billion 0.450% over $7.5 billion and not over $10 billion 0.440% over $10 billion and not over $12.5 billion 0.430% over $12.5 billion and not over $15 billion 0.420% over $15 billion and not over $17.5 billion 0.400% over $17.5 billion and not over $20 billion 0.380% in excess of $20 billion 0.360% For these management services (including any sub-advisory services), during the fiscal year indicated, management fees were paid as follows: PERCENTAGE FISCAL YEAR OF AVERAGE FUND ENDED NET ASSETS -------------------------------------------------------------------- Franklin Total Return Fund October 31, 2008 0.32%* Franklin New York Intermediate-Term September 30, 2008 0.53% Tax-Free Income Fund * For the fiscal year ended October 31, 2008, management fees, before any advance waiver, were 0.35% of the Franklin Total Return Fund's average net assets. Under an agreement by Franklin Advisers, Inc. to limit its fees and to reduce its fees to reflect reduced services resulting from the Franklin Total Return Fund's investment in a Franklin Templeton money fund, the Franklin Total Return Fund paid 0.32% of its average net assets to the adviser for its services. Franklin Advisers, Inc., is required by the Franklin Total Return Fund's board of trustees and an exemptive order by the SEC to reduce its fee if the Franklin Total Return Fund invests in a Franklin Templeton money fund. If the Reorganizations are approved, the resulting combined Funds will retain the Acquiring Funds' management fee structure. For more information about each of the Acquiring Funds' management, please refer to the "Management" section of the Acquiring Funds' Prospectus, which is incorporated herein by reference, and included herein and to the "Management and Other Services" section of the Acquiring Funds' statement of additional information, which are incorporated by reference into the SAI to this Prospectus/Proxy Statement. A discussion regarding the basis for the board of trustees approving the investment management contract of each respective Acquiring Fund is available in the Franklin Total Return Fund's semiannual report to shareholders for the six-month period ended April 30, 2009 or the Franklin New York Intermediate-Term Tax-Free Income Fund's semiannual report to shareholders for the six-month period ended March 31, 2009, as applicable. ADDITIONAL MANAGEMENT INFORMATION In 2003 and 2004, multiple lawsuits were filed against Franklin Resources, Inc., and certain of its investment advisor subsidiaries, among other defendants, alleging violations of federal securities and state laws and seeking, among other relief, monetary damages, restitution, removal of fund trustees, directors, investment managers, administrators and distributors, rescission of management contracts and 12b-1 plans, and/or attorneys' fees and costs. Specifically, the lawsuits claim breach of duty with respect to alleged arrangements to permit market timing and/or late trading activity, or breach of duty with respect to the valuation of the portfolio securities of certain Templeton funds managed by Franklin Resources, Inc. subsidiaries, allegedly resulting in market timing activity. The lawsuits are styled as class actions, or derivative actions on behalf of either the named funds or Franklin Resources, Inc., and have been consolidated for pretrial purposes, along with hundreds of other similar lawsuits against other mutual fund companies. All of the Franklin Templeton Investments mutual funds that were named in the litigation as defendants have since been dismissed, as have the independent trustees to those funds. Franklin Resources, Inc. previously disclosed these private lawsuits in its regulatory filings and on its public website. Any material updates regarding these matters will be disclosed in Franklin Resources, Inc.'s Form 10-Q or Form 10-K filings with the U.S. Securities and Exchange Commission. ACQUIRING FUNDS' PORTFOLIO MANAGERS The Franklin Total Return Fund is managed by a team of dedicated professionals focused on investments in investment grade debt securities. The portfolio managers of the team are as follows: Roger Bayston, CFA, is a Senior Vice President of Franklin Advisers, Inc. Mr. Bayston has been lead portfolio manager of the Franklin Total Return Fund since its inception. He has primary responsibility for the investments of the Franklin Total Return Fund. He has final authority over all aspects of the Franklin Total Return Fund's investment portfolio, including but not limited to, purchases and sales of individual securities, portfolio risk assessment, and the management of daily cash balances in accordance with anticipated management requirements. The degree to which he may perform these functions, and the nature of these functions, may change from time to time. He joined Franklin Templeton Investments in 1991. Kent Burns, CFA, is a Portfolio Manager of Franklin Advisers, Inc. Mr. Burns has been a portfolio manager of the Franklin Total Return Fund since its inception, providing research and advice on the purchases and sales of individual securities, and portfolio risk assessment. He joined Franklin Templeton Investments in 1994. Christopher J. Molumphy, CFA, is an Executive Vice President and Director of Franklin Advisers, Inc. Mr. Molumphy has been a portfolio manager of the Franklin Total Return Fund since its inception, providing research and advice on the purchases and sales of individual securities, and portfolio risk assessment. He joined Franklin Templeton Investments in 1988. David Yuen, CFA, is a Portfolio Manager of Franklin Advisers, Inc. Mr. Yuen has been a portfolio manager of the Franklin Total Return Fund since 2005, providing research and advice on the purchases and sales of individual securities, and portfolio risk assessment. He joined Franklin Templeton Investments in 2000. Michael J. Materasso is an Executive Vice President of FT Institutional. Mr. Materasso has been a portfolio manager of the Franklin Total Return Fund since 2008, providing research and advice on the purchases and sales of individual securities, and portfolio risk assessment. He joined Franklin Templeton Investments in 1988. The Franklin New York Intermediate-Term Tax-Free Income Fund is managed by a team of dedicated professionals focused on investments in New York municipal securities. The portfolio managers of the team are as follows: James P. Conn, CFA, is a Vice President of Franklin Advisers, Inc. Mr. Conn has been lead portfolio manager of the Franklin New York Intermediate-Term Tax-Free Income Fund since 1999. He has primary responsibility for the investments of the Franklin New York Intermediate-Term Tax-Free Income Fund. He has final authority over all aspects of the Franklin New York Intermediate-Term Tax-Free Income Fund's investment portfolio, including but not limited to, purchases and sales of individual securities, portfolio risk assessment, and the management of daily cash balances in accordance with anticipated management requirements. The degree to which he may perform these functions, and the nature of these functions, may change from time to time. He joined Franklin Templeton Investments in 1996. John Pomeroy is a Vice President of Franklin Advisers, Inc. Mr. Pomeroy has been a portfolio manager of the Franklin New York Intermediate-Term Tax-Free Income Fund since its inception, providing research and advice on the purchases and sales of individual securities, and portfolio risk assessment. He joined Franklin Templeton Investments in 1986. Information about the portfolio managers' compensation, other accounts managed by these individuals, and their ownership of securities in the Acquiring Funds or other funds that they manage is available in the Acquiring Funds' Statements of Additional Information which are incorporated by reference into the SAI to this Prospectus/Proxy Statement. DISTRIBUTION OF TARGET FUND SHARES Foreside Distribution Services LP ("Foreside" or the "Distributor"), whose address is 10 High Street, Suite 302, Boston, MA 02110, acts as distributor to the Target Funds under a Distribution Agreement with each of the HSBC Investor Funds and HSBC Advisor Funds Trust. Under the terms of the Distribution Agreement, Foreside provides services to the Trusts related to, among other things, the review and approval of Target Fund selling agreements, the review of the Target Funds' marketing materials, and the compensation of third party intermediaries. Foreside and its affiliates also serve as distributor to other investment companies. The Distributor may make payments to broker-dealers for their services in distributing shares of the Target Funds. Distribution Plans have been adopted by the HSBC Investor Funds (the "Distribution Plans") with respect to the Class A shares (the "Class A Plan"), the Class B shares (the "Class B Plan"), and Class C shares (the "Class C Plan"), of each Target Fund, as applicable. Pursuant to the Distribution Plans, the Distributor is reimbursed from each Fund monthly for costs and expenses incurred by the Distributor in connection with the distribution of Class A shares, Class B shares, and Class C shares of the Funds and for the provision of certain shareholder services with respect to these shares. Payments to the Distributor are for various types of activities, including: (1) payments to broker-dealers which advise shareholders regarding the purchase, sale or retention of Class A shares, Class B shares, and Class C shares of the Fund and which provide shareholders with personal services and account maintenance services ("service fees"), (2) payments to employees of the Distributor, and (3) printing and advertising expenses. Pursuant to the Class A Plan, the amount reimbursed from a Fund may not exceed on an annual basis 0.25% of the average daily net assets of the Fund represented by Class A shares outstanding during the period for which payment is being made. Pursuant to the Class B Plan and Class C Plan, respectively, payments by the Distributor to broker-dealers may be in amounts on an annual basis of up to 0.75% of a Fund's average daily net assets as presented by Class B shares and Class C shares, respectively, outstanding during the period for which payment is being made. The aggregate fees paid to the Distributor pursuant to the Class B Plan and Class C Plan, respectively, and to Servicing Agents (as defined in the Target Funds' statement of additional information) pursuant to the Shareholder Services Plan will not exceed on an annual basis 1.00% of a Fund's average daily net assets represented by Class B shares and Class C shares, respectively, outstanding during the period for which payment is being made. Salary expense of Foreside personnel who are responsible for marketing shares of the various series of a Trust may be allocated to such series on the basis of average net assets; travel expense is allocated to, or divided among, the particular series for which it is incurred. The distribution fees collected from the Funds by Foreside are used to pay commissions for the sale of Fund shares. The Distribution Plans are subject to the Board of Trustees' approval. The Funds are not liable for distribution and shareholder servicing expenditures made by the Distributor in any given year in excess of the maximum amount payable under the Distribution Plans in that year. For more information about the Target Funds' distribution, please refer to the "Distribution Arrangements/Sales Charges" section of the Target Funds' Prospectus, which is incorporated herein by reference, and to the "Distribution Plans - Class A, Class B, and Class C shares Only" and "The Distributor" and "Shareholder Services Plan" sections of the Target Funds' statement of additional information. DISTRIBUTION OF ACQUIRING FUND SHARES Franklin Templeton Distributors, Inc. ("Franklin Distributors") acts as the principal underwriter in the continuous public offering of the Acquiring Funds' shares. Franklin Distributors is located at One Franklin Parkway, San Mateo, CA 94403-1906. Franklin Distributors pays the expenses of the distribution of Acquiring Fund shares, including advertising expenses and the costs of printing sales material and prospectuses used to offer shares to the public. Each Acquiring Fund pays the expenses of preparing and printing amendments to its registration statements and prospectuses (other than those necessitated by the activities of Franklin Distributors) and of sending prospectuses to existing shareholders. Franklin Distributors does not receive compensation from the Acquiring Funds for acting as underwriter of the Acquiring Funds' Advisor Class shares. The Boards of the Franklin Trusts have adopted a separate plan pursuant to Rule 12b-1 for each class except Advisor Class of the Acquiring Funds. Although the plans differ in some ways for each class, each plan is designed to benefit the Acquiring Funds and their shareholders. The plans are expected to, among other things, increase advertising of the Funds, encourage purchases of the Acquiring Funds' shares and service to the shareholders, and increase or maintain assets of an Acquiring Fund so that certain fixed expenses may be spread over a broader asset base, with a positive impact on per share expense ratios. In addition, a positive cash flow into the Acquiring Funds is useful in managing the Acquiring Funds because the manager has more flexibility in taking advantage of new investment opportunities and handling shareholder redemptions. Under the plans, the Acquiring Funds pay Franklin Distributors or others for the expenses of activities that are primarily intended to sell shares of the class. These expenses also may include service fees paid to securities dealers or others who have executed a servicing agreement with an Acquiring Fund, Franklin Distributors or its affiliates and who provide service or account maintenance to shareholders (service fees), and the expenses of printing prospectuses and reports used for sales purposes, and of preparing and distributing sales literature and advertisements. Together, these expenses, including the service fees, are "eligible expenses." The 12b-1 fees charged to each class are based only on the fees attributable to that particular class. The Franklin Total Return Fund may pay up to 0.25% per year of Class A's average daily net assets and the Franklin New York Intermediate-Term Tax-Free Income Fund may pay up to 0.10% per year of Class A's average daily net assets. Each plan is a reimbursement plan. It allows the Acquiring Fund to reimburse Franklin Distributors for eligible expenses that Franklin Distributors has shown it has incurred. The Acquiring Funds will not reimburse more than the maximum amount allowed under the plan. The Franklin Total Return Fund pays Franklin Distributors up to 0.65% per year of Class C's average daily net assets, out of which 0.15% may be paid for services to the shareholders (service fees). The Franklin New York Intermediate-Term Tax-Free Income Fund pays Franklin Distributors up to 0.65% per year of Class C's average daily net assets, out of which 0.15% may be paid for services to the shareholders (service fees). The Class C plans also may be used to pay Franklin Distributors for advancing commissions to securities dealers with respect to the initial sale of Class C shares. The Class C plans are compensation plans. They allow the Acquiring Funds to pay a fee to Franklin Distributors that may be more than the eligible expenses Franklin Distributors has incurred at the time of the payment. Franklin Distributors must, however, demonstrate to the board that it has spent or has near-term plans to spend the amount received on eligible expenses. The Acquiring Funds will not pay more than the maximum amount allowed under the plan. In addition to the payments that Franklin Distributors or others are entitled to under each plan, each plan also provides that to the extent an Acquiring Fund, Franklin Advisers, Inc. or Franklin Distributors or other parties on behalf of an Acquiring Fund, Franklin Advisers, Inc. or Franklin Distributors make payments that are deemed to be for the financing of any activity primarily intended to result in the sale of Acquiring Fund shares within the context of Rule 12b-1 under the 1940 Act, then such payments shall be deemed to have been made pursuant to the plan. If the Reorganizations are approved, the resulting combined Funds will retain the Distribution and Service Plans for the Acquiring Funds. For more information about the Acquiring Funds' distribution, please refer to the "Distribution and Service (12b-1) Fees" section of the Acquiring Funds' Prospectuses. In addition, please refer to "The Underwriter" section of the Acquiring Funds' Statements of Additional Information, which are incorporated by reference into the SAI to this Prospectus/Proxy Statement. FINANCIAL HIGHLIGHTS OF THE TARGET FUNDS The Target Funds' financial highlights audited by KPMG LLP ("KPMG") as included in the Target Funds' prospectuses have been incorporated herein by reference in reliance on their reports given on KPMG's authority as experts in accounting and auditing. FINANCIAL HIGHLIGHTS OF THE ACQUIRING FUNDS FRANKLIN TOTAL RETURN FUND These tables present the Franklin Total Return Fund's Class A, Class C and Advisor Class financial performance for the past five years or since its inception. Certain information reflects financial results for a single Franklin Total Return Fund share. The total returns in the table represent the rate that an investor would have earned or lost on an investment in the Franklin Total Return Fund assuming reinvestment of dividends and capital gains. This information has been derived from the financial statements audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's financial statements, are included in the annual report, which is incorporated by reference into the SAI relating to this Prospectus/Proxy Statement. Franklin Total Return Fund - Class A Shares ------------------------------------------------------------------------- Class A Year Ended October 31, ------------------------------------------------------------------------- 2008 2007 2006 2005 2004 ------------------------------------------------------------------------- Per share operating performance (for a share outstanding throughout the year) ------------------------------------------------------------------------- Net asset value, beginning of $9.92 $9.95 $9.91 $10.22 $10.06 year ------------------------------------------------------------------------- Income from investment operations:(a) ------------------------------------------------------------------------- Net investment income 0.449 0.469 0.439 0.410 0.415 ------------------------------------------------------------------------- Net realized and unrealized (1.289) (0.010) 0.096 (0.280) 0.226 gains (losses) ------------------------------------------------------------------------- Total from investment operations (0.840) 0.459 0.535 0.130 0.641 ------------------------------------------------------------------------- Less distributions from net (0.480) (0.489)(0.495) (0.440)(0.481) investment income ------------------------------------------------------------------------- Redemption fees(b,c) -- -- -- -- -- ------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR $8.60 $9.92 $9.95 $9.91 $10.22 ------------------------------------------------------------------------- Total return(d) (8.79)% 4.62% 5.56% 1.27% 6.63% ------------------------------------------------------------------------- Ratios to average net assets ------------------------------------------------------------------------- Expenses before waiver and 1.01% 1.03% 1.03% 1.04% 1.04% payments by affiliates ------------------------------------------------------------------------- Expenses net of waiver and 0.85%(e) 0.85%(e) 0.85%(e) 0.85%(e) 0.80% payments by affiliates ------------------------------------------------------------------------- Net investment income 4.68% 4.69% 4.39% 3.88% 3.90% ------------------------------------------------------------------------- Supplemental data ------------------------------------------------------------------------- - Net assets, end of year (000's) $780,551 $683,73 $406,24 $291,473 $208,943 ------------------------------------------------------------------------- Portfolio turnover rate 300.07% 313.08% 251.50% 58.81% 100.05% ------------------------------------------------------------------------- Portfolio turnover rate 68.00% 92.51% 89.19% 51.26% 45.85% excluding mortgage dollar rolls ------------------------------------------------------------------------- a. The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations in the annual report for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. b. Amount rounds to less than $0.01 per share. c. Effective September 1, 2008, the redemption fee was eliminated. d. Total return does not reflect sales commissions or contingent deferred sales charges, if applicable. e. Benefit of expense reduction rounds to less than 0.01%. Franklin Total Return Fund - Class C Shares ------------------------------------------------------------------------- Class C Year Ended October 31, ------------------------------------------------------------------------- 2008 2007 2006 2005 2004 ------------------------------------------------------------------------- Per share operating performance (for a share outstanding throughout the year) ------------------------------------------------------------------------- Net asset value, beginning of year $9.91 $9.94 $9.91 $10.22 $10.05 ------------------------------------------------------------------------- Income from investment operations:(a) ------------------------------------------------------------------------- Net investment income 0.406 0.424 0.395 0.364 0.363 ------------------------------------------------------------------------- Net realized and unrealized gains (1.275)(0.005) 0.089 (0.275) 0.247 (losses) ------------------------------------------------------------------------- Total from investment operations (0.869) 0.419 0.484 0.089 0.610 ------------------------------------------------------------------------- Less distributions from net (0.441)(0.449) (0.454)(0.399) (0.440) investment income ------------------------------------------------------------------------- Redemption fees(b,c) -- -- -- -- -- ------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR $8.60 $9.91 $9.94 $9.91 $10.22 ------------------------------------------------------------------------- Total return(d) (9.15)% 4.31% 5.03% 0.86% 6.31% ------------------------------------------------------------------------- Ratios to average net assets ------------------------------------------------------------------------- Expenses before waiver and 1.41% 1.43% 1.43% 1.44% 1.44% payments by affiliates ------------------------------------------------------------------------- Expenses net of waiver and 1.25%(e) 1.25%(e) 1.25%(e) 1.25%(e)1.20% payments by affiliates ------------------------------------------------------------------------- Net investment income 4.28% 4.29% 3.99% 3.48% 3.50% ------------------------------------------------------------------------- Supplemental data ------------------------------------------------------------------------- Net assets, end of year (000's) $103,56 $84,457 $46,110 $34,751 $22,202 ------------------------------------------------------------------------- Portfolio turnover rate 300.07% 313.08% 251.50% 58.81% 100.05% ------------------------------------------------------------------------- Portfolio turnover rate excluding 68.00% 92.51% 89.19% 51.26% 45.85% mortgage dollar rolls ------------------------------------------------------------------------- a. The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations in the annual report for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. b. Amount rounds to less than $0.01 per share. c. Effective September 1, 2008, the redemption fee was eliminated. d. Total return does not reflect sales commissions or contingent deferred sales charges, if applicable. e. Benefit of expense reduction rounds to less than 0.01%. Franklin Total Return Fund - Advisor Class Shares ------------------------------------------------------------------------- Advisor Class Year Ended October 31, ------------------------------------------------------------------------- 2008 2007 2006 2005 2004 ------------------------------------------------------------------------- Per share operating performance (for a share outstanding throughout the year) ------------------------------------------------------------------------- Net asset value, beginning of $9.93 $9.96 $9.92 $10.24 $10.07 year ------------------------------------------------------------------------- Income from investment operations:(a) ------------------------------------------------------------------------- Net investment income 0.479 0.497 0.470 0.436 0.426 ------------------------------------------------------------------------- Net realized and unrealized (1.295) (0.012) 0.090 (0.289) 0.251 gains (losses) ------------------------------------------------------------------------- Total from investment operations (0.816) 0.485 0.560 0.147 0.677 ------------------------------------------------------------------------- Less distributions from net (0.504) (0.515)(0.520) (0.467) (0.507) investment income ------------------------------------------------------------------------- Redemption fees(b,c) -- -- -- -- -- ------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR $8.61 $9.93 $9.96 $9.92 $10.24 ------------------------------------------------------------------------- Total return (8.64)% 4.99% 5.82% 1.43% 7.00% ------------------------------------------------------------------------- Ratios to average net assets ------------------------------------------------------------------------- Expenses before waiver and 0.76% 0.78% 0.78% 0.79% 0.79% payments by affiliates ------------------------------------------------------------------------- Expenses net of waiver and 0.60%(d) 0.60%(d) 0.60%(d) 0.60%(d) 0.55% payments by affiliates ------------------------------------------------------------------------- Net investment income 4.93% 4.94% 4.64% 4.13% 4.15% ------------------------------------------------------------------------- Supplemental data ------------------------------------------------------------------------- Net assets, end of year (000's)$345,256 $280,776 $222,992 $178,792 $146,053 ------------------------------------------------------------------------- Portfolio turnover rate 300.07% 313.08% 251.50% 58.81% 100.05% ------------------------------------------------------------------------- Portfolio turnover rate 68.00% 92.51% 89.19% 51.26% 45.85% excluding mortgage dollar rolls ------------------------------------------------------------------------- a. The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations in the annual report for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. b. Amount rounds to less than $0.01 per share. c. Effective September 1, 2008, the redemption fee was eliminated. d. Benefit of expense reduction rounds to less than 0.01%. FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND These tables present the Franklin New York Intermediate-Term Tax-Free Income Fund's financial performance for the past five years or since its inception. Certain information reflects financial results for a single Franklin New York Intermediate-Term Tax-Free Income Fund share. The total returns in the table represent the rate that an investor would have earned or lost on an investment in the Franklin New York Intermediate-Term Tax-Free Income Fund assuming reinvestment of dividends and capital gains. This information (except for the six months ended March 31, 2009) has been derived from the financial statements audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's financial statements, are included in the annual report, which is incorporated by reference into the SAI relating to this Prospectus/Proxy Statement. Franklin New York Intermediate-Term Tax-Free Income Fund - Class A Shares ------------------------------------------------------------------------------ Six Months Year Ended Ended March December Class A 31, Year Ended September 30, 31, ------------------------------------------------------------------------------ 2009 2008 2007 2006 2005 2004(g) 2003 ------------------------------------------------------------------------------ Per share operating performance (for a share outstanding throughout the year) ------------------------------------------------------------------------------ Net asset value, $10.37 $10.80 $10.93 $10.96 $11.15 $11.16 $11.04 beginning of year ------------------------------------------------------------------------------ Income from investment operations:(a) ------------------------------------------------------------------------------ Net investment 0.20 0.39 0.39 0.39 0.38 0.30 0.41 incomeb ------------------------------------------------------------------------------ Net realized and unrealized gains 0.26 (0.42) (0.12) (0.04) (0.19) (0.02) 0.12 (losses) ------------------------------------------------------------------------------ Total from investment 0.46 (0.03) 0.27 0.35 0.19 0.28 0.53 operations ------------------------------------------------------------------------------ Less distributions from net (0.19) (0.40) (0.40) (0.38) (0.38) (0.29) (0.41) investment income ------------------------------------------------------------------------------ Redemption fees(c) -- --(f) --(f) --(f) --(f) -- -- ------------------------------------------------------------------------------ NET ASSET VALUE, $10.64 $10.37 $10.80 $10.93 $10.96 $11.15 $11.16 END OF YEAR ------------------------------------------------------------------------------ Total returnd 4.48% (0.39)% 2.51% 3.28% 1.72% 2.57% 4.85% ------------------------------------------------------------------------------ Ratios to average net assetse ------------------------------------------------------------------------------ Expenses before 0.73% 0.73% 0.74% 0.75% 0.74% 0.75% 0.75% waiver and payments by affiliates ------------------------------------------------------------------------------ Expenses net of waiver and 0.73% 0.73% 0.74% 0.75% 0.74% 0.67% 0.60% payments by affiliates ------------------------------------------------------------------------------ Net investment 3.74% 3.58% 3.62% 3.56% 3.40% 3.57% 3.64% income ------------------------------------------------------------------------------ Supplemental data ------------------------------------------------------------------------------ Net assets, end $321,385 $320,661 $273,552 $222,308 $233,785 $227,288 $217,829 of year (000's) ------------------------------------------------------------------------------ Portfolio turnover 9.23% 8.37% 20.61% 30.01% 5.42% 4.66% 3.35% rate ------------------------------------------------------------------------------ a. The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations in the annual report for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. b. Based on average daily shares outstanding. c. Effective September 1, 2008, the redemption fee was eliminated. d. Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. e. Ratios are annualized for periods less than one year. f. Amount rounds to less than $0.01 per share. g. For the period January 1, 2004 to September 30, 2004. Franklin New York Intermediate-Term Tax-Free Income Fund - Class C Shares ---------------------------------------------------------------------------- Six Months Year Ended Ended March December Class C 31, Year Ended September 30, 31, ------------------------------------------------------------------------------- 2009 2008 2007 2006 2005 2004(g) 2003(h) ------------------------------------------------------------------------------- Per share operating performance (for a share outstanding throughout the year) ------------------------------------------------------------------------------- Net asset value, $10.38 $10.82 $10.95 $10.97 $11.16 $11.17 $11.27 beginning of year ------------------------------------------------------------------------------- Income from investment operations: (a) ------------------------------------------------------------------------------- Net investment 0.17 0.33 0.33 0.33 0.32 0.25 0.17 income(b) ------------------------------------------------------------------------------- Net realized and 0.27 (0.43) (0.12) (0.03) (0.19) (0.01) (0.10) unrealized gains (losses) ------------------------------------------------------------------------------- Total from investment 0.44 (0.10) 0.21 0.30 0.13 0.24 0.07 operations ------------------------------------------------------------------------------- Less distributions from net investment (0.16) (0.34) (0.34) (0.32) (0.32) (0.25) (0.17) income ------------------------------------------------------------------------------- Redemption fees(c) -- --f --f --f --f -- -- ------------------------------------------------------------------------------- NET ASSET VALUE, END $10.66 $10.38 $10.82 $10.95 $10.97 $11.16 $11.17 OF YEAR ------------------------------------------------------------------------------- Total return(d) 4.29% (1.04)% 1.95% 2.81% 1.16% 2.14% 0.64% ------------------------------------------------------------------------------- Ratios to average net assets(e) ------------------------------------------------------------------------------- Expenses before waiver 1.28% 1.28% 1.29% 1.29% 1.29% 1.30% 1.30% and payments by affiliates ------------------------------------------------------------------------------- Expenses net of waiver 1.28% 1.28% 1.29% 1.29% 1.29% 1.22% 1.15% and payments by affiliates ------------------------------------------------------------------------------- Net investment income 3.19% 3.03% 3.07% 3.02% 2.85% 3.02% 3.09% ------------------------------------------------------------------------------- Supplemental data ------------------------------------------------------------------------------- Net assets, end of $29,094 $18,007 $11,175 $12,123 $12,323 $8,772 $3,965 year (000's) ------------------------------------------------------------------------------- Portfolio turnover rate 9.23% 8.37% 20.61% 30.01% 5.42% 4.66% 3.35% ------------------------------------------------------------------------------- a. The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations in the annual report for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. b. Based on average daily shares outstanding. c. Effective September 1, 2008, the redemption fee was eliminated. d. Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. e. Ratios are annualized for periods less than one year. f. Amount rounds to less than $0.01 per share. g. For the period January 1, 2004 to September 30, 2004. h. For the period July 1, 2003 (effective date) to December 31, 2003. Franklin New York Intermediate-Term Tax-Free Income Fund - Advisor Class Shares ------------------------------------------------------------------------- Advisor Class Period Ended March 31, ------------------------------------------------------------------------- 2009(e) ------------------------------------------------------------------------- Per share operating performance (for a share outstanding throughout the period) ------------------------------------------------------------------------- Net asset value, beginning of period $10.29 ------------------------------------------------------------------------- Income from investment operations:(a) ------------------------------------------------------------------------- Net investment income(b) 0.14 ------------------------------------------------------------------------- Net realized and unrealized gains (losses) 0.34 ------------------------------------------------------------------------- Total from investment operations 0.48 ------------------------------------------------------------------------- Less distributions from net investment income (0.13) ------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $10.64 ------------------------------------------------------------------------- Total return(c) 4.67% ------------------------------------------------------------------------- Ratios to average net assets(d) ------------------------------------------------------------------------- Expenses 0.63% ------------------------------------------------------------------------- Net investment income 3.84% ------------------------------------------------------------------------- Supplemental data ------------------------------------------------------------------------- Net assets, end of period (000's) $297 ------------------------------------------------------------------------- Portfolio turnover rate 9.23% ------------------------------------------------------------------------- a. The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations in the annual report for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. b. Based on average daily shares outstanding. c. Total return does is not annualized for periods less than one year. d. Ratios are annualized for periods less than one year. e. For the period December 1, 2008 (effective date) to March 31, 2009. VOTING INFORMATION This Prospectus/Proxy Statement is furnished in connection with a solicitation of proxies by, and on behalf of, the Board of Trustees of the Target Funds, to be used at the Meeting. This Prospectus/Proxy Statement, along with a Notice of the Meeting and a proxy card, is first being mailed to shareholders of the HSBC Investor Core Plus Fixed Income, the HSBC Investor Core Plus Fixed Income (Advisor), the HSBC Investor Intermediate Duration Fixed Income and the HSBC Investor New York Tax-Free Bond Funds on or about July 27, 2009. Only shareholders of record as of the close of business on the Record Date, July 10, 2009, will be entitled to notice of, and to vote at, the Meeting. If the enclosed form of proxy card is properly executed and returned in time to be voted at the Meeting, the proxies named therein will vote the shares represented by the proxy in accordance with the instructions marked thereon. Unmarked but properly executed proxy cards will be voted FOR the proposed Reorganization and FOR any other matters deemed appropriate. You can vote in any one of three ways: o By mail, with the enclosed proxy card; o In person at the Meeting; or o By telephone. TO VOTE BY TELEPHONE: (1) Read the Prospectus/Proxy Statement and have your proxy card at hand. (2) Call the 1-800 number that appears on your proxy card. (3) Enter the control number set forth on the proxy card and follow the instructions. We encourage you to vote by telephone by using the control number that appears on your enclosed proxy card. Use of telephone voting will reduce the time and costs associated with this proxy solicitation. A shareholder signing and returning a proxy has the power to revoke it at any time before it is exercised: (i) by filing a written notice of revocation with the Funds' sub-administrator, Citi Fund Services, whose address is 3435 Stelzer Road, Columbus, Ohio 43219-3035; (ii) by returning a duly executed proxy with a later date before the time of the Meeting, or (iii) if a shareholder has executed a proxy but is present at the Meeting and wishes to vote in person, by notifying the Secretary of the Fund (without complying with any formalities) at any time before it is voted. Being present at the Meeting alone does not revoke a previously executed and returned proxy. Unless revoked, all valid and executed proxies will be voted in accordance with the specifications thereon or, in the absence of such specifications, FOR approval of the Plan of Reorganization and the Reorganizations contemplated thereby. SOLICITATION OF VOTES In addition to the mailing of this Prospectus/Proxy Statement, proxies may be solicited by telephone or in person by the Target Funds' Trustees, officers of the Target Funds' Trust, by personnel of AMUS, the Target Funds' investment adviser, the Target Funds' sub-administrator or distributor, and personnel of the Target Funds' transfer agent, or by broker-dealer firms. Computershare Limited, a professional proxy solicitation firm (the "Solicitor"), has been engaged to assist in the solicitation of proxies, at an estimated cost of approximately $25,000. It is expected that the solicitation will be primarily by mail. As the date of the Meeting approaches, however, certain Target Fund shareholders may receive a telephone call from a representative of the Solicitor if their votes have not yet been received. Authorization to permit the Solicitor to execute proxies may be obtained by telephonic instructions from shareholders of a Target Fund. Proxies that are obtained telephonically will be recorded in accordance with the procedures set forth below. The Trustees believe that these procedures are reasonably designed to ensure that both the identity of the shareholder casting the vote and the voting instructions of the shareholder are accurately determined. In all cases where a telephonic proxy is solicited, the Solicitor representative is required to ask for each shareholder's full name and address and to confirm that the shareholder has received the proxy materials in the mail. If the shareholder is a corporation or other entity, the Solicitor representative is required to ask for the person's title and confirmation that the person is authorized to direct the voting of the shares. If the information provided by the person agrees with the information that the Solicitor has, then the Solicitor representative may ask for the shareholder's instructions on the proposal described in this Prospectus/Proxy Statement. Although the Solicitor representative is permitted to answer questions about the process, he or she is not permitted to recommend to the shareholder how to vote, other than by reading any recommendation set forth in this Prospectus/Proxy Statement. The Solicitor representative will record the shareholder's instructions on the proxy card. Within 72 hours, the shareholder will be sent a letter or mailgram to confirm his or her vote and asking the shareholder to call the Solicitor immediately if his or her instructions are not correctly reflected in the confirmation. If a shareholder wishes to participate in the Meeting, but does not wish to give a proxy by telephone, the shareholder may still submit the proxy card originally sent with this Prospectus/Proxy Statement or attend the Meeting in person. Each Target Fund will request broker-dealer firms, custodians, nominees, and fiduciaries to forward proxy material to the beneficial owners of the shares of record. Such broker-dealer firms, custodians, nominees, and fiduciaries may be reimbursed for their reasonable expenses incurred in connection with such proxy solicitation. In addition, certain officers and representatives of AMUS or its affiliates, who will receive no extra compensation for their services, may solicit proxies by telephone, telegram, or personally. QUORUM AND VOTING REQUIREMENTS With regard to each proposal, a majority of the shares of each Target Fund outstanding on the Record Date, present in person or represented by proxy, constitutes a quorum for the transaction of business with respect to the proposal. Approval of each proposal requires the affirmative vote of a 1940 Act Majority. EFFECT OF ABSTENTION AND BROKER "NON-VOTES" For purposes of determining the presence of a quorum for transacting business at the Meeting, executed proxies marked as abstentions and broker "non-votes" (that is, proxies from brokers or nominees indicating that such persons have not received instructions from the beneficial owner or other persons entitled to vote shares on a particular matter with respect to which the brokers or nominees do not have discretionary power) will be treated as shares that are present for quorum purposes but which have not been voted. Such instructions will have the same effect as that of a vote against approval of the Plan of Reorganization, because approval requires the affirmative vote of a 1940 Act Majority. ADJOURNMENT If a quorum is not present in person or by proxy at the time the Meeting is called to order, the persons named as proxies may vote those proxies that have been received to adjourn the Meeting at a later date. If a quorum is present but there are not sufficient votes in favor of the Plan of Reorganization, the persons named as proxies may propose one or more adjournments of the Meeting to permit further solicitation of proxies concerning the Plan of Reorganization. Any adjournment will require the affirmative vote of a majority of the Funds' shares present at the Meeting to be adjourned. If an adjournment of the Meeting is proposed because there are not sufficient votes in favor of the Plan of Reorganization, the persons named as proxies will vote their proxies as they deem appropriate under the circumstances. OTHER MATTERS The Board of Trustees of the Target Funds does not intend to bring any matters before the Meeting other than those described in this Prospectus/Proxy Statement. The Trustees are not aware of any other matters to be brought before the Meeting by others. If any other matter legally comes before the Meeting, proxies for which discretion has been granted will be voted in accordance with the views of management. FUTURE SHAREHOLDER PROPOSALS You may request inclusion in the HSBC Investor Funds' proxy statement for shareholder meetings certain proposals for action which you intend to introduce at such meeting. Any shareholder proposals must be presented a reasonable time before the proxy materials for the next meeting are sent to shareholders. The submission of a proposal does not guarantee its inclusion in the proxy statement and is subject to limitations under the federal securities laws. The Trust is not required to hold regular meetings of shareholders, and in order to minimize its costs, does not intend to hold meetings of the shareholders unless so required by applicable law, regulation, regulatory policy, or unless otherwise deemed advisable by the Board of Trustees of the Trust. Therefore, it is not practicable to specify a date by which proposals must be received in order to be incorporated in an upcoming proxy statement for a meeting of shareholders. RECORD DATE AND OUTSTANDING SHARES TARGET FUNDS Only shareholders of record of the Target Funds at the close of business on the Record Date are entitled to notice of and to vote at the Meeting and at any postponement or adjournment thereof. The following table shows the number of shares of each class and the total number of outstanding shares of each Target Fund as of the close of business on the Record Date: [TO BE UPDATED WITH RECORD DATE INFORMATION AS OF JULY 10, 2009] Unless otherwise noted below, as of the Record Date, the current officers and Trustees of the Target Funds in the aggregate beneficially owned less than 1% of the Class A, Class B, Class C and Class I shares of the HSBC Investor Core Plus Fixed Income, the HSBC Investor Core Plus Fixed Income (Advisor), the HSBC Investor Intermediate Duration Fixed Income and the HSBC Investor New York Tax-Free Bond Funds, respectively. As of the Record Date, the following persons owned of record or beneficially 5% or more of the outstanding shares of the class identified of the HSBC Investor Core Plus Fixed Income, the HSBC Investor Core Plus Fixed Income (Advisor), the HSBC Investor Intermediate Duration Fixed Income and the HSBC Investor New York Tax-Free Bond Funds, respectively: [TO BE UPDATED WITH RECORD DATE INFORMATION AS OF JULY 10, 2009] ACQUIRING FUNDS The following table shows the number of shares of each class and the total number of outstanding shares of each Acquiring Fund as of the close of business on the Record Date: [TO BE UPDATED WITH RECORD DATE INFORMATION AS OF JULY 10, 2009] Unless otherwise noted below, as of the Record Date, the current officers and Trustees of the Acquiring Funds in the aggregate beneficially owned less than 1% of the Class A, Class B, Class C and Advisor Class shares of the Franklin Total Return Fund and Franklin New York Intermediate-Term Tax-Free Income Fund. As of the Record Date, the following persons owned of record or beneficially 5% or more of the outstanding shares of the class identified of the Franklin Total Return Fund and Franklin New York Intermediate-Term Tax-Free Income Fund: [TO BE UPDATED WITH RECORD DATE INFORMATION AS OF JULY 10, 2009] The votes of the shareholders of the Franklin Total Return and Franklin New York Intermediate-Term Tax-Free Income Funds are not being solicited since their approval or consent is not necessary for the Reorganizations to take place. INFORMATION ABOUT THE FUNDS Each Fund is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and certain other federal securities statutes, and files reports and other information with the SEC. Proxy materials, reports and other information filed by the Funds can be inspected and copied at the Public Reference Facilities maintained by the SEC at 100 F Street NE, Room 1580, Washington, DC 20549. The SEC maintains an Internet World Wide Website (at http://www.sec.gov) which contains other information about the Fund. ATTACHMENTS TO PROSPECTUS/PROXY STATEMENT Attachment I Comparison of the Fundamental and Non-Fundamental InvestmentPolicies of the Target Funds and the Acquiring Funds Attachment II Form of Agreement and Plan of Reorganization Attachment I COMPARISONS OF THE FUNDAMENTAL AND NON-FUNDAMENTAL INVESTMENT POLICIES OF THE TARGET FUNDS AND THE ACQUIRING FUNDS While the fundamental and non-fundamental investment policies of the Target Funds and the Acquiring Funds are comparable, there are certain differences to note. First, with respect to concentration, each of the Target and Acquiring Funds has a slightly different policy, each reflecting the Fund's particular investment objective, strategy, type and industry or area of focus. Second, the Target Funds and the Acquiring Funds have different fundamental policies on making loans, each having different restrictions and exceptions. Third, each of the Target and Acquiring Funds has a slightly different non-fundamental policy with respect to short-selling securities, investing in futures and/or options on futures, and repurchase agreements. Finally, certain of the Target and Acquiring Funds have adopted fundamental or non-fundamental investment policies that the other Funds have not. For example, certain Target Funds have adopted non-fundamental investment policies with respect to purchasing on margin and investments in warrants. Additionally, certain Target funds have adopted fundamental investment policies with respect to purchasing not more than 10% of all outstanding debt obligations of any one issuer. Similarly, certain Acquiring Funds have adopted non-fundamental investment policies with respect to asset-backed securities, convertible securities, credit-linked securities, hybrid securities, mortgage-backed securities and other investment strategies. Below is a detailed side-by-side comparison of the Target Funds' and the Acquiring Funds' fundamental and non-fundamental investment policies. Fundamental investment policies and limitations are subject to change only by shareholder vote, whereas non-fundamental investment policies and limitations are subject to change by approval of the Board of Trustees. The prospectuses of the Target Funds and the Acquiring Funds contain additional investment policies that are considered non-fundamental, which are described in the Proposals 1(A) and 1(B), Proposal 2 and Proposal 3 sections of this Prospectus/Proxy Statement. TARGET FUNDS ACQUIRING FUNDS ---------------------------------------------------------------------- HSBC INVESTOR CORE PLUS FIXED FRANKLIN TOTAL RETURN FUND INCOME FUND AND HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME FUND The Funds may not underwrite the The Fund may not act as an securities of other issuers underwriter except to the extent (except to the extent that the the Fund may be deemed to be an Portfolio (Fund) may be deemed to underwriter when disposing of be an underwriter within the securities it owns or when meaning of the 1933 Act in the selling its own shares. disposition of restricted (FUNDAMENTAL) securities). (FUNDAMENTAL) The Funds may not make loans The Fund may not make loans if, except: (i) by purchasing debt as a result, more than 33 1/3% securities in accordance with its of its total assets would be investment objective and policies, lent to other persons, including or entering into repurchase other investment companies to agreements, and (ii) by lending the extent permitted by the its portfolio securities. Investment Company Act of 1940, (FUNDAMENTAL) as amended (1940 Act), or any rules, exemptions or interpretations thereunder that may be adopted, granted or issued by the U.S. Securities and Exchange Commission (SEC). This limitation does not apply to (i) the lending of portfolio securities, (ii) the purchase of debt securities, other debt instruments, loan participations and/or engaging in direct corporate loans in accordance with its investment goals and policies, and (iii) repurchase agreements to the extent the entry into a repurchase agreement is deemed to be a loan. (FUNDAMENTAL) The Funds may not purchase or sell The Fund may not purchase or real estate, although it may sell real estate unless acquired purchase and sell securities of as a result of ownership of companies which deal in real securities or other instruments estate, other than real estate and provided that this limited partnerships, and may restriction does not prevent the purchase and sell marketable Fund from (i) purchasing or securities which are secured by selling securities or interests in real estate. instruments secured by real (FUNDAMENTAL) estate or interests therein, securities or instruments representing interests in real estate or securities or instruments of issuers that invest, deal or otherwise engage in transactions in real estate or interests therein, and (ii) making, purchasing or selling real estate mortgage loans. (FUNDAMENTAL) The Funds may not invest in The Fund may not purchase or physical commodities or contracts sell physical commodities, on physical commodities. unless acquired as a result of (FUNDAMENTAL) ownership of securities or other instruments and provided that this restriction does not prevent the Fund from (i) engaging in transactions involving currencies and futures contracts and options thereon or (ii) investing in securities or other instruments that are secured by physical commodities. (FUNDAMENTAL) The Funds may not issue senior The Fund may not issue senior securities, except as permitted securities, except to the extent under the 1940 Act. permitted by the 1940 Act or any (FUNDAMENTAL) rules, exemptions or interpretations thereunder that may be adopted, granted or issued by the SEC. (FUNDAMENTAL) The Funds may not with respect to The Fund may not purchase the 75% of its assets, purchase a securities of any one issuer security if, as a result, it would (other than the U.S. government hold more than 10% (taken at the or any of its agencies or time of such investment) of the instrumentalities or securities outstanding voting securities of of other investment companies, any issuer. The Funds may not whether registered or excluded with respect to 75% of its assets, from registration under Section purchase securities of any issuer 3(c) of the 1940 Act) if if, as the result, more than 5% of immediately after such the Portfolio's (Fund's) total investment (i) more than 5% of assets, taken at market value at the value of the Fund's total the time of such investment, would assets would be invested in such be invested in the securities of issuer or (ii) more than 10% of such issuer, except that this the outstanding voting restriction does not apply to securities of such issuer would securities issued or guaranteed by be owned by the Fund, except the U.S. Government or its that up to 25% of the value of agencies or instrumentalities. the Fund's total assets may be (FUNDAMENTAL) invested without regard to such 5% and 10% limitations. (FUNDAMENTAL) The Funds may not acquire any The Fund may not concentrate securities of companies within one (invest more than 25% of its industry if as a result of such total assets) in securities of acquisition, more than 25% of the issuers in a particular industry value of the Portfolio's (Fund's) (other than securities issued or total assets would be invested in guaranteed by the U.S. securities of companies within government or any of its such industry; provided, however, agencies or instrumentalities). that there shall be no limitation (FUNDAMENTAL) on the purchase of obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities, when the Portfolio (Fund) adopts a temporary defensive position; and provided further that mortgage-backed securities shall not be considered a single industry for the purposes of this investment restriction. (FUNDAMENTAL) The Funds may not borrow money The Fund does not borrow money, (including from a bank or through except that the Fund may borrow reverse repurchase agreements or for temporary or emergency forward dollar roll transactions purposes in an amount not to involving mortgage-backed exceed 30% of its total assets securities or similar investment (including the amount techniques entered into for borrowed). As a matter of leveraging purposes), except that non-fundamental policy, the Fund the Portfolio (Fund) may borrow as does not consider the purchase a temporary measure to satisfy and/or sale of a mortgage dollar redemption requests or for roll to be a borrowing. extraordinary or emergency (NON-FUNDAMENTAL) purposes, provided that the Portfolio (Fund) maintains asset coverage of at least 300% for all such borrowings. (FUNDAMENTAL) The Fund may not sell securities The Fund may invest, buy or short, unless it owns or has the engage in: right to obtain securities o asset-backed securities. equivalent in kind and amount to o income-producing floating the securities sold short, and interest rate corporate loans. provided that transactions in o collateralized debt options and futures contracts are obligations. not deemed to constitute short o convertible securities. sales of securities. o securities rated below (NON-FUNDAMENTAL) investment grade. o a portion of its assets in The Fund may not invest in municipal securities. securities of any registered o credit-linked securities. investment company except to the o call and put options on extent permitted under the 1940 securities and currencies. Act generally or in accordance o futures contracts on with any exemptive order granted securities and options on these to the Trust by the SEC. contracts. (NON-FUNDAMENTAL) o interest rate, total return, currency and credit default The Fund may not invest in futures swaps. and/or options on futures to the o up to 20% of assets in forward extent that its outstanding contracts including currency obligations to purchase securities forwards, cross currency under any future contracts in forwards, options on currencies combination with its outstanding or financial and index futures obligations with respect to contracts. options transactions would exceed o a portion of its assets in 35% of its total assets. securities of issuers in any (NON-FUNDAMENTAL) foreign country, developed or developing, and may buy foreign The Fund may not enter into securities that are traded in repurchase agreements exceeding in the U.S. or securities of U.S. the aggregate 15% of the market issuers that are denominated in value of its total assets. a foreign currency. (NON-FUNDAMENTAL - HSBC INVESTOR o hybrid securities. CORE PLUS FIXED INCOME FUND ONLY) o up to 15% of its net assets in illiquid securities. o savings deposits. o lending of portfolio securities up to 33 1/3% of the value of its total assets, measured at the time of the most recent loan. o mortgage-backed securities issued or guaranteed by foreign governments and private institutions. o stripped mortgage securities and net interest margin securities. o reverse mortgages, either directly or through investments in mortgage-backed securities. o short selling. o fixed and adjustable rate mortgage-backed securities, including those issued or guaranteed by Ginnie Mae, Fannie Mae and Freddie Mac. o certain debt obligations that are collateralized by mortgage loans or mortgage pass-through securities known as CMOs, which are derivative multi-class mortgage securities, and in mortgage dollar rolls. o a portion of its assets in securities of other investment companies. o repurchase agreements. o obligations of the U.S. government or of corporations chartered by Congress as federal government instrumentalities. o securities on a "when-issued" or "delayed-delivery" basis. (NON-FUNDAMENTAL) The Fund may not purchase on No corresponding policy or margin, except for use of limitation. short-term credit as may be necessary for the clearance of purchases and sales of securities, but it may make margin deposits in connection with transactions in options, futures, and options on futures. (NON-FUNDAMENTAL) The Fund may not invest in No corresponding policy or warrants, valued at the lower of limitation. cost or market, in excess of 5% of the value of its total assets, except that this limitation does not apply to warrants acquired in units or attached to securities. (NON-FUNDAMENTAL) HSBC INVESTOR NEW YORK TAX-FREE FRANKLIN NEW YORK BOND FUND INTERMEDIATE-TERM TAX-FREE INCOME FUND ---------------------------------------------------------------------- The Fund may not borrow money or The Fund may not borrow money, pledge, mortgage or hypothecate except to the extent permitted assets of the Fund, except that as by the 1940 Act, or any rules, a temporary measure for exemptions or interpretations extraordinary or emergency thereunder that may be adopted, purposes it may borrow in an granted or issued by the SEC. amount not to exceed 1/3 of the (FUNDAMENTAL) value of the net assets of the Fund, including the amount borrowed, and may pledge, mortgage or hypothecate not more than 1/3 of such assets to secure such borrowings (it is intended that money would be borrowed only from banks and only to accommodate requests for the redemption of shares of the Fund while effecting an orderly liquidation of portfolio securities), provided that collateral arrangements with respect to futures contracts, including deposits of initial and variation margin, are not considered a pledge of assets for purposes of this Investment Restriction. (FUNDAMENTAL) The Fund may not underwrite The Fund may not act as an securities issued by other underwriter except to the extent persons, except insofar as the the Fund may be deemed to be an Trust may technically be deemed an underwriter when disposing of underwriter under the 1933 Act, in securities it owns or when selling a portfolio security for selling its own shares. the Fund. (FUNDAMENTAL) (FUNDAMENTAL) The Fund may not make loans to The Fund may not make loans if, other persons except (a) through as a result, more than 331/3% of the lending of securities held by its total assets would be lent the Fund, but not in excess of 1/3 to other persons, including of the Fund's net assets taken at other investment companies to market value, (b) through the use the extent permitted by the 1940 of fixed time deposits or Act or any rules, exemptions or repurchase agreements or the interpretations thereunder that purchase of short-term may be adopted, granted or obligations, (c) by purchasing all issued by the SEC. This or a portion of an issue of debt limitation does not apply to (i) securities of types commonly the lending of portfolio distributed privately to financial securities, (ii) the purchase of institutions; for purposes of this debt securities, other debt Investment Restriction the instruments, loan participations purchase of short-term commercial and/or engaging in direct paper or a portion of an issue of corporate loans in accordance debt securities which are part of with its investment goals and an issue to the public shall not policies, and (iii) repurchase be considered the making of a loan. agreements to the extent the (FUNDAMENTAL) entry into a repurchase agreement is deemed to be a loan. (FUNDAMENTAL) The Fund may not purchase or sell The Fund may not purchase or real estate (including limited sell real estate unless acquired partnership interests but as a result of ownership of excluding securities secured by securities or other instruments real estate or interests therein), and provided that this interests in oil, gas or mineral restriction does not prevent the leases, commodities or commodity Fund from (i) purchasing or contracts in the ordinary course selling securities or of business (the Trust reserves instruments secured by real the freedom of action to hold and estate or interests therein, to sell for the Fund real estate securities or instruments acquired as a result of its representing interests in real ownership of securities). estate or securities or (FUNDAMENTAL) instruments of issuers that invest, deal or otherwise engage in transactions in real estate No corresponding policy or or interests therein, and (ii) limitation. making, purchasing or selling real estate mortgage loans. The Fund may not purchase or sell physical commodities, unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent the Fund from (i) engaging in transactions involving currencies and futures contracts and options thereon or (ii) investing in securities or other instruments that are secured by physical commodities. (FUNDAMENTAL) The Fund may not issue any senior The Fund may not issue senior security (as that term is defined securities, except to the extent in the 1940 Act) if such issuance permitted by the 1940 Act or any is specifically prohibited by the rules, exemptions or 1940 Act or the rules and interpretations thereunder that regulations promulgated may be adopted, granted or thereunder, except as appropriate issued by the SEC. to evidence a debt incurred (FUNDAMENTAL) without violating Investment Restriction (1) above, and provided that collateral arrangements with respect to futures contracts, including deposits of initial and variation margin, are not considered to be the issuance of a senior security for purposes of this Investment Restriction. (FUNDAMENTAL) The Fund may not concentrate its The Fund may not invest more investments in any particular than 25% of the Fund's net industry, but if it is deemed assets in securities of issuers appropriate for the achievement of in any one industry (other than the Fund's investment objective, securities issued or guaranteed up to 25% of the assets of the by the U.S. government or any of Fund (taken at market value at the its agencies or time of each investment) may be instrumentalities or securities invested in any one industry, of other investment companies. except that positions in futures (FUNDAMENTAL) contracts shall not be subject to this Investment Restriction and except that the Trust may invest all or substantially all of the Fund's assets in another registered investment company having the same investment objective and policies and substantially the same investment restrictions as those with respect to the Fund. (FUNDAMENTAL) The Fund may not purchase The Fund may not purchase the securities of any issuer if such securities of any one issuer purchase at the time thereof would (other than the U.S. government cause more than 10% of the voting or any of its agencies or securities of such issuer to be instrumentalities or securities held for the Fund, except that the of other investment companies, Trust may invest all or whether registered or excluded substantially all of the Fund's registration under Section assets in another registered 3(c) of the 1940 Act) if investment company having the same immediately after such investment objective and policies investment (i) more than 5% of and substantially the same the value of the Fund's total investment restrictions as those assets would be invested in such with respect to the Fund. issuer or (ii) more than 10% of (FUNDAMENTAL) the outstanding voting securities of such issuer would be owned by the Fund, except that up to 25% of the value of the Fund's total assets may be invested without regard to such 5% and 10% limitations. (FUNDAMENTAL) Under normal circumstances, at The Fund normally invests at least 80% of the net assets of the least 80% of its total assets in Fund, plus the amount of any securities that pay interest borrowing for investment purposes, free from the personal income will be invested in obligations of taxes of New York City, and at the State of New York and its least 65% of its total assets in authorities, agencies, municipal securities issued by instrumentalities and political the State of New York or its subdivisions, and of Puerto Rico, counties, municipalities, other U.S. territories and their authorities, agencies, or other authorities, agencies, subdivisions. instrumentalities and political (NON-FUNDAMENTAL) subdivisions, the interest on which is exempt from regular federal income tax, and New York State and New York City personal income taxes. (FUNDAMENTAL) The Fund may not purchase any No corresponding policy or security or evidence of interest limitation. therein on margin, except that the Trust may obtain such short-term credit for the Fund as may be necessary for the clearance of purchases and sales of securities and except that deposits of initial and variation margin in connection with the purchase, ownership, holding or sale of futures contracts may be made. (FUNDAMENTAL) The Fund may not write, purchase No corresponding policy or or sell any put or call option or limitation. any combination thereof, provided that this shall not prevent the writing, purchase, ownership, holding or sale of futures contracts. (FUNDAMENTAL) The Fund may not invest in No corresponding policy or securities which are subject to limitation. legal or contractual restrictions on resale (other than fixed time deposits and repurchase agreements maturing in not more than seven days) if, as a result thereof, more than 10% of the net assets of the Fund would be so invested (including fixed time deposits and repurchase agreements maturing in more than seven days); provided, however, that this Investment Restriction shall not apply to (a) any security if the holder thereof is permitted to receive payment upon a specified number of days notice of the unpaid principal balance plus accrued interest either from the issuer or by drawing on a bank letter of credit, a guarantee or an insurance policy issued with respect to such security or by tendering or "putting" such security to a third party, or (b) the investment by the Trust of all or substantially all of the Fund's assets in another registered investment company having the same investment objective and policies and substantially the same investment restrictions as those with respect to the Fund. (FUNDAMENTAL) The Fund may not purchase more No corresponding policy or than 10% of all outstanding debt limitation. obligations of any one issuer (other than obligations issued by the U.S. Government, its agencies or instrumentalities). (FUNDAMENTAL) The Fund may not purchase on No corresponding policy or margin, except for use of limitation. short-term credit as may be necessary for the clearance of purchases and sales of securities, but it may make margin deposits in connection with transactions in options, futures, and options on futures. (NON-FUNDAMENTAL) The Fund may not sell securities No corresponding policy or short, unless it owns or has the limitation. right to obtain securities equivalent in kind and amount to the securities sold short, and provided that transactions in options and futures contracts are not deemed to constitute short sales of securities. (NON-FUNDAMENTAL) The Fund may not invest in No corresponding policy or securities of any registered limitation. investment company except to the extent permitted under the 1940 Act generally or in accordance with any exemptive order granted to the Trust by the SEC. (NON-FUNDAMENTAL) No futures contract will be No corresponding policy or entered into for the New York limitation. Tax-Free Bond Fund if immediately thereafter the amount of margin deposits on all the futures contracts of the Fund would exceed 5% of the market value of the total assets of the Fund. (NON-FUNDAMENTAL) The aggregate market value of the No corresponding policy or futures contracts held for the limitation. Fund not exceed 50% of the market value of the Fund's total assets. (NON-FUNDAMENTAL) Attachment II AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION ("AGREEMENT") is adopted as of this ____ day of June, 2009 by and among (i) HSBC Investor Funds, a Massachusetts business trust ("TRUST"), with its principal place of business at 452 Fifth Avenue, New York, NY 10018, on behalf of its series, HSBC Investor Core Plus Fixed Income Fund ("CPFI FUND"), HSBC Investor Intermediate Duration Fixed Income Fund ("IDFI FUND") and HSBC Investor New York Tax-Free Bond Fund ("NYTFB FUND"); (ii) HSBC Advisor Funds Trust, a Massachusetts business trust ("ADVISOR TRUST"), with its principal place of business at 452 Fifth Avenue, New York, NY 10018, on behalf of its series, HSBC Investor Core Plus Fixed Income Fund ("CPFI ADVISOR FUND"); (iii) HSBC Investor Portfolios, a New York trust ("MASTER TRUST"), with its principal place of business at 452 Fifth Avenue, New York, NY 10018, on behalf of its series, HSBC Investor Core Plus Fixed Income Portfolio ("CPFI PORTFOLIO") and HSBC Investor Intermediate Duration Fixed Income Portfolio ("IDFI Portfolio"); (iv) HSBC Global Asset Management (USA) Inc., a registered investment adviser ("HGAM"), with its principal place of business at 452 Fifth Avenue, New York, NY 10018; (v) Franklin Investors Securities Trust, a Delaware statutory trust ("FRANKLIN TRUST"), with its principal place of business at One Franklin Parkway, San Mateo, CA 94403, on behalf of its series, Franklin Total Return Fund ("FRANKLIN TR FUND"); (vi) Franklin New York Tax Free Trust, a Delaware statutory trust ("FRANKLIN NY TRUST"), with its principal place of business at One Franklin Parkway, San Mateo, CA 94403, on behalf of its series, Franklin New York Intermediate-Term Tax-Free Income Fund ("FRANKLIN NY FUND"); and (vii) Franklin Advisers, Inc, ("FRANKLIN ADVISERS"), with its principal place of business at One Franklin Parkway, San Mateo, CA 94403. WHEREAS, each of the Trust, Advisor Trust, Master Trust, Franklin Trust and Franklin NY Trust is an open-end, registered investment company of the management type; WHEREAS, each of CPFI Fund, CPFI Advisor Fund, IDFI Fund and NYTFB Fund may hereinafter be referred to herein as a "TARGET FUND," and each of Franklin TR Fund and Franklin NY Fund may hereinafter be referred to herein as an "ACQUIRING FUND"; WHEREAS, the parties hereto intend for each Acquiring Fund and its corresponding Target Fund (as set forth in Exhibit A hereto) to enter into a transaction pursuant to which: (i) the Acquiring Fund will acquire the assets of the corresponding Target Fund (subject to the retention by the Target Fund of certain assets to discharge liabilities) in exchange for A, C and Advisor Class shares (as applicable) of the Acquiring Fund of equal value to the net assets of the Target Fund, and (ii) the Target Fund will distribute such shares of each class of the corresponding Acquiring Fund to shareholders of the corresponding class of the Target Fund (as set forth in Exhibit A), in connection with the liquidation of the Target Fund, all upon the terms and conditions hereinafter set forth in this Agreement (each such transaction, a "REORGANIZATION"). WHEREAS, this Agreement is intended to be and is adopted as a plan of reorganization and liquidation with respect to each Reorganization within the meaning of Section 368(a)(1) of the United States Internal Revenue Code of 1986, as amended ("CODE"); WHEREAS, the CPFI Fund, CPFI Advisor Fund and IDFI Fund each own securities, directly or indirectly through investment in CPFI Portfolio and IDFI Portfolio, respectively, and NYTFB Fund owns securities directly, that generally are assets of the character in which its corresponding Acquiring Fund is permitted to invest; WHEREAS, each of CPFI Fund and CPFI Advisor Fund invests all of its investable assets in CPFI Portfolio, and IDFI Fund invests all of its investable assets in IDFI Portfolio, in master-feeder structures; NOW, THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows: 1. DESCRIPTION OF THE REORGANIZATIONS 1.1. It is the intention of the parties hereto that each Reorganization described herein shall be conducted separately of the others, and a party hereto which is not a party to a Reorganization shall incur no obligations, duties or liabilities with respect to such Reorganization by reason of being a party to this Agreement. If any one or more Reorganizations should fail to be consummated hereunder, such failure shall not affect the other Reorganizations in any way. The parties shall cooperate in preparing, and each of Franklin Trust and Franklin NY Trust each shall file, a Registration Statement on Form N-14 under the Securities Act of 1933, as amended, which collectively shall properly register the Acquiring Fund shares to be issued in connection with the Reorganizations with the Securities and Exchange Commission ("COMMISSION") and include a proxy statement with respect to the votes of the shareholders of each Target Fund to approve its Reorganization (collectively, the "REGISTRATION STATEMENT"). 1.2. With respect to the Reorganizations of the CPFI Fund, CPFI Advisor Fund and IDFI Fund, prior to or as of the close of each of the Target Funds' business on the Closing Date (as defined in Paragraph 3.1 hereof) of the Reorganization for that Target Fund, CPFI Portfolio or IDFI Portfolio, as appropriate, shall conduct an in-kind liquidating distribution, and shall deliver to CPFI Fund and CPFI Advisor Fund or IDFI Fund, as appropriate, all of its assets or such pro rata share of its assets as is appropriate given CPFI Fund's and CPFI Advisor Fund's or IDFI Fund's relative ownership of its beneficial interests. 1.3. On or as soon as practicable prior to the Closing Date for a Reorganization, the Target Fund (with the assistance of CPFI Portfolio or IDFI Portfolio, to the extent appropriate), will declare and pay to its shareholders of record one or more dividends and/or other distributions so that it will have distributed substantially all (and in no event less than 98%) of its investment company taxable income (computed without regard to any deduction for dividends paid) and realized net capital gain, if any, for the current taxable year through the Closing Date. 1.4. Provided that all conditions precedent to a Reorganization have been satisfied as of the Closing Date and based on the representations and warranties each party herein provides to the others, the Trust or Advisor Trust and Franklin Trust or Franklin NY Trust, as appropriate, agree to take the following steps with respect to that Reorganization, the parties to which and classes of shares to be issued in connection with which as set forth in Exhibit A: (a) The Target Fund shall transfer all of its Assets, as defined and set forth in Paragraph 1.4(b), to the corresponding Acquiring Fund, and the Acquiring Fund in exchange therefore shall deliver to the Target Fund the number of full and fractional Acquiring Fund shares, determined in the manner and as of the time on the Closing Date set forth in Paragraph 2. (b) The assets of the Target Fund to be acquired by the Acquiring Fund shall consist of all assets and property, including, without limitation, all cash, securities, commodities and futures interests, claims (whether absolute or contingent, known or unknown, accrued or unaccrued and including, without limitation, any interest in pending or future legal claims in connection with past or present portfolio holdings, whether in the form of class action claims, opt-out or other direct litigation claims, or regulator or government-established investor recovery fund claims, and any and all resulting recoveries) and dividends or interest receivable that are owned by the Target Fund and any deferred or prepaid expenses shown as an asset on the books of the Target Fund on the Closing Date, except for cash, bank deposits or cash equivalent securities in an estimated amount necessary to (i) discharge the Target Fund's unpaid liabilities on the Target Fund's books at the Closing Date and (ii) pay such contingent liabilities, if any, as the Board of Trustees of the Trust or Advisor Trust, as applicable, shall reasonably deem to exist against the Target Fund at the Closing Date, for which contingent and other appropriate liability reserves shall be established on the Target Fund's books (collectively, "ASSETS"). ------ (c) The Target Fund will use commercially reasonable efforts to discharge all of its known liabilities and obligations prior to the Closing Date. Neither the Acquiring Fund nor the Franklin Trust or Franklin NY Trust, as applicable, shall assume any of the liabilities of the Target Fund, whether accrued or contingent, known or unknown, existing at the Closing Date (collectively, "LIABILITIES") and the Acquiring Fund and the Franklin Trust or the Franklin NY Trust, as appropriate, specifically disclaim the assumption of any such Liabilities. (d) Immediately after the transfer of Assets provided for in this Paragraph, the Target Fund will distribute to its shareholders of record ("TARGE FUND SHAREHOLDERS") with respect to each class of shares, as set forth in Exhibit A, the shares of the Acquiring Fund of the corresponding class received by the Target Fund pursuant to Paragraph 1.4(a), determined as of immediately after the close of business on the Closing Date, on a pro rata basis within that class, and will completely liquidate (except as to the contingent liability reserve provided for in Paragraph 1.4(b) herein). Such distribution and liquidation will be accomplished, with respect to each class of the Target Fund's shares, by the transfer of the Acquiring Fund shares of the corresponding class then credited to the account of the Target Fund on the books of the Acquiring Fund to open accounts on the share records of the Acquiring Fund in the names of the Target Fund Shareholders of the class. The aggregate net asset value of each class of shares of the Acquiring Fund to be so credited to the corresponding class or classes of Target Fund Shareholders shall be equal to the aggregate net asset value of the Target Fund's shares of the corresponding class or classes owned by the Target Fund Shareholders on the Closing Date (as set forth in Exhibit A). All issued and outstanding shares of the Target Fund will simultaneously be canceled on the books of the Target Fund. The Acquiring Fund shall not issue certificates representing shares in connection with such exchange. (e) Ownership of Acquiring Fund shares will be shown on its books, as such are maintained by the Acquiring Fund's Transfer Agent, as defined in Paragraph 3.2. (f) Any reporting responsibility of the Target Fund, including, but not limited to, the responsibility for filing regulatory reports, tax returns, or other documents with the Commission, any state securities commission, and any Federal, state or local tax authorities or any other relevant regulatory authority, is and shall remain the responsibility of the Target Fund. 2. VALUATION 2.1. With respect to each Reorganization: (a) The value of the Target Fund's Assets shall be the value of such Assets computed as of immediately after the close of business of the New York Stock Exchange and after the declaration of any dividends on the Closing Date, using the valuation procedures set forth in then-current prospectus and statement of additional information with respect to the Acquiring Fund, and valuation procedures established by the Acquiring Fund's Board of Trustees and provided to the Target Fund prior to the Closing Date. (b) The net asset value of each class of Acquiring Fund shares issued in connection with the Reorganization shall be the net asset value per share computed with respect to that class as of the Closing Date, using the valuation procedures set forth in the Acquiring Fund's then-current prospectus and statement of additional information, and valuation procedures established by the Acquiring Fund's Board of Trustees. (c) The number of each class of Acquiring Fund shares issued (including fractional shares, if any) in exchange for the Target Fund's Assets shall be determined by dividing the value of the net assets with respect to each class of shares of the Target Fund determined using the same valuation procedures referred to in Paragraph 2.1(a), by the net asset value of an Acquiring Fund share of the corresponding class, as set forth in Exhibit A, determined in accordance with Paragraph 2.1(b). (d) All computations of value shall be made by the Target Fund's designated recordkeeping agent and shall be subject to review by the Acquiring Fund's recordkeeping agent and by each of the Target Fund's and Acquiring Fund's respective independent registered public accountants. 3. CLOSING AND CLOSING DATE 3.1. Each Reorganization shall close on August 28, 2009 or such other date as the parties may agree with respect to any or all Reorganizations (the "CLOSING DATE"). All acts taking place at the closing of the Reorganizations ("CLOSING") shall be deemed to take place simultaneously as of immediately after the close of business on the Closing Date unless otherwise agreed to by the parties. The close of business on the Closing Date shall be as of 4:00 p.m., Eastern Time. The Closing shall be held by facsimile, email or such other communication means as the parties may reasonably agree. 3.2. With respect to each Reorganization: (a) The Trust or Advisor Trust, as appropriate, shall direct the custodian for the Target Fund ("CUSTODIAN"), to deliver, at the Closing, a certificate of an authorized officer stating that (i) except as permitted by Paragraphs 1.4(b) and 3.2(b) hereunder, the Assets shall have been delivered in proper form to the corresponding Acquiring Fund no later than as of the close of business on the Closing Date, and (ii) all necessary taxes in connection with the delivery of the Assets, including all applicable Federal and state stock transfer stamps, if any, have been paid or provision for payment has been made. (b) The Target Fund's portfolio securities represented by a certificate or other written instrument shall be transferred and delivered by the Target Fund as of the Closing Date for the account of the corresponding Acquiring Fund duly endorsed in proper form for transfer and in such condition as to constitute good delivery thereof. The Target Fund shall direct the Custodian to deliver as of the Closing Date by book entry, in accordance with the customary practices of the Custodian and any securities depository, as defined in Rule 17f-4 under the Investment Company Act of 1940, as amended (the "1940 ACT"), in which the Assets are deposited, the Target Fund's portfolio securities and instruments so held. The cash to be transferred by a Target Fund shall be delivered by wire transfer of federal funds on the Closing Date. If, on the Closing Date, the Target Fund is unable to make delivery in the manner contemplated by this Paragraph of securities held by the Target Fund for the reason that any of such securities purchased prior to the Closing Date have not yet been delivered to the Target Fund or its broker, then the corresponding Acquiring Fund may, in its sole discretion, waive the delivery requirements of this Paragraph with respect to said undelivered securities if the Target Fund has delivered to the Acquiring Fund or its custodian by or on the Closing Date, and with respect to said undelivered securities, executed copies of an agreement of assignment and escrow and due bills executed on behalf of said broker or brokers, together with such other documents as may be required by the Acquiring Fund or its custodian, including brokers' confirmation slips. (c) At such time prior to the Closing Date as the parties mutually agree, the Target Fund shall provide (i) instructions and related information to the Acquiring Fund or its transfer agent with respect to the shares of each class of the Acquiring Fund to be issued to the Target Fund Shareholders, including names, addresses and tax withholding status of the Target Fund Shareholders as of the date agreed upon (such information to be updated as of the Closing Date, as necessary) and (ii) the information and documentation maintained by the Target Fund or its agents relating to the identification and verification of the Target Fund Shareholders under the USA PATRIOT ACT and other applicable anti-money laundering laws, rules and regulations (the "AML Documentation") and such other information as the Acquiring Fund may reasonably request. The Acquiring Fund and its transfer agent shall have no obligation to inquire as to the validity, propriety or correctness of any such instruction, information or documentation, but shall, in each case, assume that such instruction, information or documentation is valid, proper, correct and complete. (d) The Trust or Advisor Trust, as appropriate, shall direct Citi Fund Services Ohio, Inc., in its capacity as transfer agent for the Target Fund ("TRANSFER AGENT"), to deliver to Franklin Trust or Franklin NY Trust, as appropriate, at the Closing a certificate of an authorized officer stating that its records contain the names and addresses of the Target Fund Shareholders and the number and percentage ownership of outstanding shares of each class owned by each such shareholder immediately prior to the Closing. The Acquiring Fund shall issue and deliver a confirmation evidencing the Acquiring Fund shares to be credited on the Closing Date to the Secretary of the Target Fund, or provide other evidence satisfactory to the Trust that such Acquiring Fund shares have been credited to the Target Fund Shareholders' accounts on the books of the Acquiring Fund. At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, certificates, if any, receipts or other documents as such other party or its counsel may reasonably request. (e) In the event that on the Closing Date (a) the New York Stock Exchange or another primary trading market for portfolio securities of the Acquiring Fund or the Target Fund (each, an "EXCHANGE") shall be closed to trading or trading thereupon shall be restricted, or (b) trading or the reporting of trading on such Exchange or elsewhere shall be disrupted so that, in the judgment of the Board of Trustees of the Trust or Advisor Trust or, as applicable, Franklin Trust or Franklin NY Trust, accurate appraisal of the value of the net assets of the Acquiring Fund or the Target Fund, respectively, is impracticable, the Closing Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored. 4. REPRESENTATIONS AND WARRANTIES 4.1. With respect to each Reorganization, the Trust or Advisor Trust, as applicable, on behalf of the Target Fund, represents and warrants to the corresponding Acquiring Fund, as follows: (a) The Target Fund is duly organized as a series of the Trust or Advisor Trust, as appropriate, which is a business trust validly existing and in good standing under the laws of the Commonwealth of Massachusetts, with power under the Trust's or Advisor Trust's Declaration of Trust, as amended from time to time, to own all of its Assets, to carry on its business as it is now being conducted and to enter into this Agreement and perform its obligations hereunder; (b) The Trust or Advisor Trust, as appropriate, is a registered investment company classified as a management company of the open-end type, and its registration with the Commission as an investment company under the 1940 Act, and the registration of the shares of the Target Fund under the Securities Act of 1933, as amended ("1933 ACT"), is in full force and effect; (c) No consent, approval, authorization, or order of any court or governmental authority or the Financial Industry Regulatory Authority ("FINRA") is required for the consummation by the Target Fund of the transactions contemplated herein, except such as have been obtained under the 1933 Act, the Securities Exchange Act of 1934, as amended ("1934 ACT"), the 1940 Act and state securities laws; (d) The current prospectus and statement of additional information of the Target Fund and each prospectus and statement of additional information of the Target Fund used at all times prior to the date of this Agreement conforms or conformed at the time of its use in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the Commission thereunder and does not or did not at the time of its use include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not materially misleading; (e) Except as otherwise disclosed in writing to and accepted by or on behalf of the Acquiring Fund, on the Closing Date, the Target Fund will have good and marketable title to the Assets and full right, power, and authority to sell, assign, transfer and deliver such Assets hereunder free of any liens or other encumbrances, and upon delivery and payment for such Assets, the Acquiring Fund will acquire good and marketable title thereto, subject to no restrictions on the full transfer thereof, including such restrictions as might arise under the 1933 Act; (f) The Target Fund is not engaged currently, and the execution, delivery and performance of this Agreement will not result, in (i) a material violation of the Trust's or Advisor Trust's, as appropriate, or the Master Trust's, Declaration of Trust or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Target Fund is a party or by which it is bound, or (ii) the acceleration of any obligation, or the imposition of any lien, encumbrance, penalty or additional fee under any agreement, indenture, instrument, contract, lease, judgment or decree to which the Target Fund, the Trust, the Advisor Trust or the Master Trust, is a party or by which it is bound; (g) All material contracts or other commitments of the Target Fund (other than this Agreement and certain investment contracts, including options, futures, and forward contracts) will terminate with respect to the Target Fund without liability to the Target Fund on or prior to the Closing Date; (h) Except as otherwise disclosed in writing to and accepted by or on behalf of the Acquiring Fund, (i) no litigation or administrative proceeding or investigation of or before any court, tribunal, arbitrator, governmental body or FINRA is presently pending or, to the Target Fund's knowledge, threatened against the Target Fund that, if adversely determined, would materially and adversely affect the Target Fund's financial condition or the conduct of its business, and (ii) without any special investigation or inquiry, to the knowledge of the portfolio managers of the Target Fund as identified in the Target Fund's prospectus (the "Target Fund Portfolio Managers"), no litigation or administrative proceeding or investigation of or before any court, tribunal, arbitrator, governmental body or FINRA is presently pending or threatened against any of the Target Fund's properties or assets, that, if adversely determined, would materially and adversely affect the Target Fund's financial condition or the conduct of its business. The Target Fund and, with respect to the Target Fund's properties or assets, the Target Fund Portfolio Managers, without any special investigation or inquiry, know of no facts that might form the basis for the institution of such proceedings and the Target Fund is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body that materially and adversely affects its business or its ability to consummate the transactions herein contemplated; (i) The financial statements of the Target Fund as of and for the year ended October 31, 2008 have been audited by KPMG LLP, independent registered public accounting firm. Such statements, as well as the unaudited, semi-annual financial statements for the semi-annual period ended April 30, 2009, are in accordance with accounting principles generally accepted in the United States of America ("GAAP") consistently applied, ---- and such statements (copies of which have been furnished to the Acquiring Fund) present fairly, in all material respects, the financial condition of the Target Fund as of such date in accordance with GAAP, and there are no known contingent liabilities of the Target Fund required to be reflected on a balance sheet (including the notes thereto) in accordance with GAAP as of such date not disclosed therein; (j) Since October 31, 2008, there has not been any material adverse change in the Target Fund's financial condition, assets, liabilities or business, other than changes occurring in the ordinary course of business, except as otherwise disclosed to and accepted by the Acquiring Fund in writing. For the purposes of this subparagraph (j), a decline in net asset value per share of Target Fund shares due to declines in market values of securities held by the Target Fund, the discharge of the Target Fund's ordinary course liabilities, or the redemption of the Target Fund's shares by shareholders of the Target Fund shall not constitute a material adverse change; (k) On the Closing Date, Trust or Advisor Trust, as appropriate, has duly and timely filed, on behalf of Target Fund, all Tax (as defined below) returns and reports (including information returns), which are required to be filed by such Target Fund, and all such returns and reports accurately state the amount of Tax owed for the periods covered by the returns, or, in the case of information returns, the amount and character of income required to be reported by such Target Fund. On behalf of Target Fund, Trust or Advisor Trust, as appropriate, has paid or made provision and properly accounted for all Taxes (as defined below) due or properly shown to be due on such returns and reports. The amounts set up as provisions for Taxes in the books and records of Target Fund as of the close of business on the Closing Date will, to the extent required by GAAP, be sufficient for the payment of all Taxes of any kind, whether accrued, due, absolute, contingent or otherwise, which were or which may be payable by Target Fund for any periods or fiscal years prior to and including the close of business on the Closing Date, including all Taxes imposed before or after the close of business on the Closing Date that are attributable to any such period or fiscal year. No return filed by Target Fund is currently being audited by the Internal Revenue Service or by any state or local taxing authority. As used in this Agreement, "TAX" or "TAXES" means all federal, state, local --- ----- and foreign (whether imposed by a country or political subdivision or authority thereunder) income, gross receipts, excise, sales, use, value added, employment, franchise, profits, property, ad valorem or other taxes, stamp taxes and duties, fees, assessments or charges, whether payable directly or by withholding, together with any interest and any penalties, additions to tax or additional amounts imposed by any taxing authority (foreign or domestic) with respect thereto. To its knowledge, there are no levies, liens or encumbrances relating to Taxes existing, threatened or pending with respect to the assets of Target Fund. There are no known actual or proposed deficiency assessments with respect to any Taxes payable by it; (l) For each taxable year of its operation (including the taxable year ending on the Closing Date), the Target Fund has met (or will meet) the requirements of Subchapter M of the Code for qualification as a regulated investment company ("RIC"), has been (or will be) eligible to --- and has computed (or will compute) its Federal income tax under Section 852 of the Code, and will have distributed all of its investment company taxable income and net capital gain (as defined in the Code) that has accrued through the Closing Date, and before the Closing Date will have declared dividends sufficient to distribute all of its investment company taxable income and net capital gain for the period ending on the Closing Date. Consummation of the transactions contemplated by this Agreement will not cause the Target Fund to fail to be qualified as a RIC as of the Closing Date; (m) All issued and outstanding shares of the Target Fund are, and on the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable by the Trust or the Advisor Trust, as appropriate, and, in every state where offered or sold, such offers and sales have been in compliance in all material respects with applicable registration requirements of the 1933 Act and state and District of Columbia securities laws. All of the issued and outstanding shares of the Target Fund will, at the time of Closing, be held by the persons and in the amounts set forth in the records of the Transfer Agent, on behalf of the Target Fund, as provided in Paragraph 3.2(d). The Target Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of the shares of the Target Fund, nor is there outstanding any security convertible into any of the Target Fund's shares, except for the automatic conversion right of Class B shareholders of the Target Fund to convert to Class A shares in accordance with the terms set forth in the Target Fund's prospectus and statement of additional information; (n) The execution, delivery and performance of this Agreement will have been duly authorized prior to the Closing Date by all necessary action, if any, on the part of the Trustees of the Trust or Advisor Trust, as appropriate, and subject to the approval of the shareholders of the Target Fund, this Agreement will constitute a valid and binding obligation of the Target Fund, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights and to general equity principles; (o) The information to be furnished by the Target Fund for use in the Registration Statement and other documents filed or to be filed with any Federal, state or local regulatory authority (including the Financial Industry Regulatory Authority), which may be necessary in connection with the transactions contemplated hereby, shall be accurate and complete in all material respects and shall comply in all material respects with Federal securities and other laws and regulations thereunder applicable thereto; (p) The books and records of Target Fund, including, without limitation, FIN 48 work papers and supporting statements, made available to Acquiring Fund and/or its counsel and authorized agents are true and correct in all material respects and contain no material omissions with respect to the business and operations of Target Fund; (q) The Trust or Advisor Trust, as appropriate, is not under the jurisdiction of a court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code; (r) The Target Fund has no unamortized or unpaid organizational fees or expenses; and (s) The Target Fund shall waive any contingent deferred sales charge to which Target Fund Shareholders holding Class B shares may be subject as a result of the Reorganization. 4.2. With respect to each Reorganization, the Franklin Trust or Franklin NY Trust, as appropriate, on behalf of the Acquiring Fund, represents and warrants to the corresponding Target Fund as follows: (a) The Acquiring Fund is duly organized as a series of the Franklin Trust or Franklin NY Trust, as appropriate, which is a statutory trust duly organized, validly existing, and in good standing under the laws of the State of Delaware, with power under its Agreement and Declaration of Trust, as amended from time to time, to own all of its properties and assets and to carry on its business as it is now being conducted; (b) The Franklin Trust or the Franklin NY Trust, as appropriate, is a registered investment company classified as a management company of the open-end type, and its registration with the Commission as an investment company under the 1940 Act and the registration of shares of the Acquiring Fund under the 1933 Act, is in full force and effect; (c) No consent, approval, authorization, or order of any court, governmental authority or FINRA is required for the consummation by the Acquiring Fund of the transactions contemplated herein, except such as have been or will be (at or prior to the Closing Date) obtained under the 1933 Act, the 1934 Act, the 1940 Act and state securities laws; (d) The current prospectus and statement of additional information of the Acquiring Fund and each prospectus and statement of additional information of the Acquiring Fund used at all times prior to the date of this Agreement conforms or conformed at the time of its use in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the Commission thereunder and does not or did not at the time of its use include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not materially misleading; (e) On the Closing Date, the Acquiring Fund will have good and marketable title to the Acquiring Fund's assets, free of any liens or other encumbrances, except those liens or encumbrances that have been incurred in the ordinary course of business of the Acquiring Fund, including without limitation, those that have arisen under (i) the Term Asset-Backed Securities Loan Facility operated by the Federal Reserve Bank of New York or (ii) International Swaps and Derivatives Association, Inc. (ISDA) agreements, or as to which the Target Fund has received notice and necessary documentation at or prior to the Closing; (f) The Acquiring Fund is not engaged currently, and the execution, delivery and performance of this Agreement will not result, in (i) a material violation of, as appropriate, the Franklin Trust's or Franklin NY Trust's Agreement and Declaration of Trust or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquiring Fund is a party or by which it is bound, or (ii) the acceleration of any obligation, or the imposition of any lien, encumbrance, penalty, or additional fee under any agreement, indenture, instrument, contract, lease, judgment or decree to which the Acquiring Fund, the Franklin Trust or the Franklin NY Trust is a party or by which it is bound; (g) Except as otherwise disclosed in writing to and accepted by or on behalf of the Target Fund, (i) no litigation or administrative proceeding or investigation of or before any court, tribunal, arbitrator, governmental body or FINRA is presently pending or, to the Acquiring Fund's knowledge, threatened against the Acquiring Fund that, if adversely determined, would materially and adversely affect the Acquiring Fund's financial condition or the conduct of its business, and (ii) without any special investigation or inquiry, to the knowledge of the portfolio managers of the Acquiring Fund as identified in the Acquiring Fund's prospectus (the "Acquiring Fund Portfolio Managers"), no litigation or administrative proceeding or investigation of or before any court, tribunal, arbitrator, governmental body or FINRA is presently pending or threatened against any of the Acquiring Fund's properties or assets, that, if adversely determined, would materially and adversely affect the Acquiring Fund's financial condition or the conduct of its business. The Acquiring Fund and, with respect to the Acquiring Fund's properties or assets, the Acquiring Fund Portfolio Managers, without any special investigation or inquiry, know of no facts that might form the basis for the institution of such proceedings and the Acquiring Fund is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body that materially and adversely affects its business or its ability to consummate the transactions herein contemplated; (h) The financial statements of the Acquiring Fund as of and for the year ended October 31, 2008 (if a series of Franklin Trust) or September 30, 2008 (if a series of Franklin NY Trust) have been audited by PricewaterhouseCoopers LLP, independent registered public accounting firm. Such statements, as well as the unaudited, semi-annual financial statements of the Acquiring Fund for the semi-annual period ended April 30, 2009 (if a series of Franklin Trust) or March 31, 2009 (if a series of Franklin NY Trust), are in accordance with GAAP consistently applied, and such statements (copies of which have been furnished to the Target Fund) present fairly, in all material respects, the financial condition of the Acquiring Fund as of such date in accordance with GAAP, and there are no known contingent liabilities of the Acquiring Fund required to be reflected on a balance sheet (including the notes thereto) in accordance with GAAP as of such date not disclosed therein; (i) Since October 31, 2008 (if the Acquiring Fund is a series of Franklin Trust) or September 30, 2008 (if the Acquiring Fund is a series of Franklin NY Trust), there has not been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities or business, other than changes occurring in the ordinary course of business, except as otherwise disclosed to and accepted by the Target Fund in writing. For purposes of this subparagraph (i), a decline in net asset value per share of the Acquiring Fund's shares due to declines in market values of securities held by the Acquiring Fund, the discharge of the Acquiring Fund's ordinary course liabilities, or the redemption of the Acquiring Fund's shares by shareholders of the Acquiring Fund, shall not constitute a material adverse change; (j) On the Closing Date, it has duly and timely filed, on behalf of the Acquiring Fund, all Tax (as defined below) returns and reports (including information returns), which are required to be filed by such Acquiring Fund, and all such returns and reports accurately state the amount of Tax owed for the periods covered by the returns, or, in the case of information returns, the amount and character of income required to be reported by such Acquiring Fund. On behalf of Acquiring Fund, Franklin Trust or Franklin NY Trust, as appropriate, has paid or made provision and properly accounted for all Taxes due or properly shown to be due on such returns and reports. The amounts set up as provisions for Taxes in the books and records of Acquiring Fund as of the close of business on the Closing Date will, to the extent required by generally accepted accounting principles, be sufficient for the payment of all Taxes of any kind, whether accrued, due, absolute, contingent or otherwise, which were or which may be payable by Acquiring Fund for any periods or fiscal years prior to and including the close of business on the Closing Date, including all Taxes imposed before or after the close of business on the Closing Date that are attributable to any such period or fiscal year. No return filed by Acquiring Fund is currently being audited by the Internal Revenue Service or by any state or local taxing authority. To its knowledge, there are no levies, liens or encumbrances relating to Taxes existing, threatened or pending with respect to the assets of Acquiring Fund. There are no known actual or proposed deficiency assessments with respect to any Taxes payable by it; (k) For each taxable year of its operation (including the taxable year that includes the Closing Date), the Acquiring Fund has met (or will meet) the requirements of Subchapter M of the Code for qualification as a RIC, has been eligible to (or will be eligible to) and has computed (or will compute) its Federal income tax under Section 852 of the Code, and has distributed all of its investment company taxable income and net capital gain (as defined in the Code) for periods ending prior to the Closing Date. Consummation of the transactions contemplated by this Agreement will not cause the Acquiring Fund to fail to be qualified as a RIC as of the Closing; (l) All issued and outstanding Acquiring Fund shares are, and on the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable by the Franklin Trust and Franklin NY Trust, as appropriate, and, in every state where offered or sold, all offers and sales have been in compliance in all material respects with applicable registration requirements of the 1933 Act and state and District of Columbia securities laws. The Acquiring Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any Acquiring Fund shares, nor is there outstanding any security convertible into any Acquiring Fund shares, except for the automatic conversion right of Class B shareholders of the Acquiring Fund to convert to Class A shares in accordance with the terms set forth in the Acquiring Fund's prospectus and statement of additional information; (m) The execution, delivery and performance of this Agreement will have been duly authorized prior to the Closing Date by all necessary action, if any, on the part of the Trustees of the Franklin Trust or Franklin NY Trust, as appropriate, on behalf of the Acquiring Fund, and this Agreement will constitute a valid and binding obligation of the Acquiring Fund, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights and to general equity principles; (n) The shares of the Acquiring Fund to be issued and delivered to the Target Fund, for the account of the Target Fund Shareholders, pursuant to the terms of this Agreement, as set forth in Exhibit A, will on the Closing Date have been duly authorized and, when so issued and delivered, will be duly and validly issued Acquiring Fund shares, and will be fully paid and non-assessable by the Acquiring Fund; and (o) The information to be furnished by the Acquiring Fund for use in the Registration Statement and other documents that may be necessary in connection with the transactions contemplated hereby shall be accurate and complete in all material respects and shall comply in all material respects with federal securities and other laws and regulations applicable thereto, and, insofar as it relates to the Franklin Trust or Franklin NY Trust (as applicable) and the Acquiring Fund, the Registration Statement, and any amendment or supplement to the foregoing will, from the effective date of the Registration Statement through the date of the meeting of shareholders of the Target Fund contemplated therein and on the Closing Date (i) not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not materially misleading, provided, however, that the representations and warranties of this subparagraph (o) shall not apply to statements in or omissions from the Registration Statement made in reliance upon and in conformity with information that was furnished by the Target Fund for use therein, and (ii) comply in all material respects with the provisions of the 1933 Act, the 1934 Act, and the 1940 Act and the rules and regulations thereunder. (p) The Franklin Trust or Franklin NY Trust, as appropriate, is not under the jurisdiction of a court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code; (q) The Acquiring Fund has no unamortized or unpaid organizational fees or expenses. 5. COVENANTS OF THE ACQUIRING FUND AND THE TARGET FUND 5.1. With respect to each Reorganization: (a) The Acquiring Fund and the Target Fund each: (i) will operate its business in the ordinary course and substantially in accordance with past practices between the date hereof and the Closing Date for the Reorganization, it being understood that such ordinary course of business will include changes to the composition of the portfolio of the Target Fund in anticipation of the Reorganization and the declaration and payment of customary dividends and distributions, and any other distribution that may be advisable, and (ii) shall use its reasonable best efforts to preserve intact its business organization and material assets and maintain the rights, franchises and business and customer relations necessary to conduct the business operations of the Acquiring Fund or the Target Fund, as appropriate, in the ordinary course in all material respects. (b) The Trust or Advisor Trust, as appropriate, will call a meeting of the shareholders of the Target Fund to consider and act upon this Agreement and to take all other action necessary to obtain approval of the transactions contemplated herein. Trust and Advisor Trust, as appropriate, shall, through its Board of Trustees, recommend to the shareholders of Target Fund approval of this Agreement. (c) The Target Fund covenants that the Class A, C and Advisor Acquiring Fund shares to be issued hereunder (as set forth in Exhibit A) are not being acquired for the purpose of making any distribution thereof, other than in accordance with the terms of this Agreement. (d) The Target Fund will assist the Acquiring Fund in obtaining such information as the Acquiring Fund reasonably requests concerning the beneficial ownership of the Target Fund's shares. (e) The Trust or Advisor Trust, as appropriate, will at the Closing (or, with respect to delivery of the tax basis of a Target Fund's investments to be transferred as provided in clause (1) below, will within five business days after the Closing Date in the case of CPFI Fund and IDFI Fund and within one business day after the Closing Date in the case of NYTFB Fund) provide the Acquiring Fund with (1) a statement of the respective tax basis of all investments to be transferred by the Target Fund to the Acquiring Fund, (2) a copy (which may be in electronic form) of the shareholder ledger accounts including, without limitation, the name, address and taxpayer identification number of each shareholder of record, the number of shares of beneficial interest held by each shareholder, the dividend reinvestment elections applicable to each shareholder, and the backup withholding and nonresident alien withholding certifications, notices or records on file with the Target Fund with respect to each shareholder, for all of the shareholders of record of the Target Fund as of the close of business on the Closing Date, who are to become holders of the Acquiring Fund as a result of the transfer of assets that is the subject of this Agreement (the "TARGET FUND SHAREHOLDER DOCUMENTATION"), certified by its transfer agent or its President or its Vice-President to the best of their knowledge and belief, and (3) all FIN 48 work papers and supporting statements pertaining to the Target Fund (the "FIN 48 WORKPAPERS"). (f) Subject to the provisions of this Agreement, the Acquiring Fund and the Target Fund will each take, or cause to be taken, all action, and do or cause to be done all things, reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement. (g) As soon as is reasonably practicable after the Closing, the Target Fund will make a liquidating distribution to its shareholders consisting of the Class A, C and Advisor Acquiring Fund shares received at the Closing, as set forth in Paragraph 1.4(d) hereof. (h) The Acquiring Fund and the Target Fund shall each use their reasonable best efforts to fulfill or obtain the fulfillment of the conditions precedent to effect the transactions contemplated by this Agreement as promptly as practicable. (i) The Target Fund shall, from time to time, as and when reasonably requested by the Acquiring Fund, execute and deliver or cause to be executed and delivered all such assignments and other instruments, and will take or cause to be taken such further action as the Acquiring Fund may reasonably deem necessary or desirable in order to vest in and confirm the Acquiring Fund's title to and possession of all the Assets and otherwise to carry out the intent and purpose of this Agreement. (j) The Acquiring Fund will use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act and such of the state blue sky or securities laws as may be necessary in order to continue its operations after the Closing Date. (k) As promptly as practicable, but in any case within sixty days after the Closing Date, each Target Fund shall furnish the corresponding Acquiring Fund, in such form as is reasonably satisfactory to such Acquiring Fund, a statement of the earnings and profits of such Target Fund for federal income tax purposes that will be carried over by such Acquiring Fund as a result of Section 381 of the Code, which will be reviewed by KPMG, LLP and certified by such Target Fund's President and Treasurer or Chief Financial Officer. (l) It is the intention of the parties that the transaction will qualify as a reorganization with the meaning of Section 368(a) of the Code. None of the parties to this Agreement shall take any action or cause any action to be taken (including, without limitation the filing of any tax return) that is inconsistent with such treatment or results in the failure of the transaction to qualify as a reorganization with the meaning of Section 368(a) of the Code. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TARGET FUND 6.1. With respect to each Reorganization, the obligations of the Target Fund to consummate the transactions provided for herein shall be subject, at the Target Fund's election, to the performance by the Acquiring Fund of all the obligations to be performed by it hereunder on or before the Closing Date, and, in addition thereto, the following further conditions: (a) All representations and warranties of the Acquiring Fund and the Franklin Trust or Franklin NY Trust, as appropriate, contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date, with the same force and effect as if made on and as of the Closing Date; (b) The Franklin Trust or Franklin NY Trust, as appropriate, shall have delivered to the Trust or Advisor Trust, as appropriate, on the Closing Date a certificate executed in its name by its Chief Executive Officer and Treasurer, in form and substance reasonably satisfactory to Target Fund and dated as of the Closing Date, to the effect that the representations and warranties of or with respect to the Acquiring Fund made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Target Fund shall reasonably request; (c) The Franklin Trust or Franklin NY Trust, as appropriate, and the Acquiring Fund shall have performed all of the covenants and complied with all of the provisions required by this Agreement to be performed or complied with by the Franklin Trust or Franklin NY Trust and the Acquiring Fund, on or before the Closing Date; (d) The Target Fund and the Acquiring Fund shall have agreed on the number of full and fractional Class A, C and Advisor shares of the Acquiring Fund to be issued in connection with the Reorganization after such number has been calculated in accordance with Paragraph 1.4 hereto; (e) The Trust or Advisor Trust, as appropriate, shall have received on the Closing Date the opinion of Stradley Ronon Stevens & Young, LLP, counsel to the Franklin Trust or Franklin NY Trust, as appropriate, (which may rely as to matters governed by the laws of the State of Delaware on an opinion of Delaware counsel and/or certificates of officers or Trustees of the Franklin Trust or Franklin NY Trust), dated as of the Closing Date, covering the following points: (i) The Franklin Trust or Franklin NY Trust, as appropriate, is a statutory trust duly organized, validly existing and in good standing under the laws of the State of Delaware and has the trust power to own all of the Acquiring Funds' properties and assets and to carry on its business, including that of the Acquiring Fund, as a registered investment company; (ii) The Agreement has been duly authorized by the Franklin Trust or Franklin NY Trust, as appropriate, on behalf of the Acquiring Fund and, assuming due authorization, execution and delivery of the Agreement by the Trust, Advisor Trust, as appropriate, Master Trust and HGAM, is a valid and binding obligation of the Franklin Trust or Franklin NY Trust, as appropriate, on behalf of the Acquiring Fund enforceable against it in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and to general equity principles; (iii)The Acquiring Fund shares to be issued to the Target Fund Shareholders as provided by this Agreement are duly authorized, upon such delivery will be validly issued and outstanding, and will be fully paid and non-assessable by the Franklin Trust or Franklin NY Trust, as appropriate, and no shareholder of an Acquiring Fund has any preemptive rights to subscription or purchase in respect thereof; (iv) The execution and delivery of the Agreement did not, and the consummation of the transactions contemplated hereby will not, result in a material violation of, as appropriate, the Franklin Trust's or Franklin NY Trust's Agreement and Declaration of Trust or By-Laws or any provision of any agreement (known to such counsel) to which the Franklin Trust or Franklin NY Trust is a party or by which it is bound or, to the knowledge of such counsel, result in the acceleration of any obligation or the imposition of any penalty under any agreement, judgment or decree to which the Franklin Trust or Franklin NY Trust is a party or by which it is bound; (v) To the knowledge of such counsel, no consent, approval, authorization or order of any court or governmental authority of the United States or the State of Delaware is required to be obtained by the Franklin Trust or Franklin NY Trust in order to consummate the transactions contemplated herein, except such as have been obtained under the 1933 Act, the 1934 Act and the 1940 Act, and such as may be required under state securities laws; (vi) The Franklin Trust or Franklin NY Trust, as appropriate, is a registered investment company classified as a management company of the open-end type with respect to each series of shares it offers, including those of the Acquiring Fund, under the 1940 Act, and its registration with the Commission as an investment company under the 1940 Act is in full force and effect; and (vii)To the knowledge of such counsel, and except as otherwise disclosed to the Trust or Advisor Trust pursuant to Paragraph 4.2(g) hereunder, no litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or threatened as to the Franklin Trust or Franklin NY Trust or the Acquiring Fund and neither the Franklin Trust or Franklin NY Trust, as appropriate, nor the Acquiring Fund is a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business. 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND 7.1. With respect to each Reorganization, the obligations of the Acquiring Fund to complete the transactions provided for herein shall be subject, at the Acquiring Fund's election, to the performance by the Target Fund of all of the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions: (a) All representations and warranties of the Trust or Advisor Trust, as appropriate, and the Target Fund, contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date, with the same force and effect as if made on and as of the Closing Date; (b) The Trust or Advisor Trust, as appropriate, on behalf of the Target Fund, shall have delivered to the Franklin Trust or Franklin NY Trust, as appropriate, on the Closing Date (i) a statement of the Target Fund's assets, together with a list of portfolio securities of the Target Fund showing the tax costs of such securities by lot and the holding periods of such securities, as of the Closing Date, certified by the Treasurer of the Trust or Advisor Trust, as appropriate, (ii) the Target Fund Shareholder Documentation, (iii) the AML Documentation and (iv) the FIN 48 Workpapers; (c) The Trust or Advisor Trust, as appropriate, shall have delivered to the Franklin Trust or Franklin NY Trust, as appropriate, on the Closing Date a certificate executed in its name by its President and Treasurer, in form and substance satisfactory to the Acquiring Fund and dated as of the Closing Date, to the effect that the representations and warranties of or with respect to the Target Fund made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Acquiring Fund shall reasonably request; (d) The Trust or Advisor Trust, as appropriate, and the Target Fund shall have performed all of the covenants and complied with all of the provisions required by this Agreement to be performed or complied with by the Trust or Advisor Trust, as appropriate, and the Target Fund, on or before the Closing Date; (e) The Target Fund and the Acquiring Fund shall have agreed on the number of full and fractional Class A, C and Advisor shares of the Acquiring Fund to be issued in connection with the Reorganization after such number has been calculated in accordance with Paragraph 1.4 hereto; (f) The Target Fund shall have declared and paid a distribution or distributions prior to the Closing that, together with all previous distributions, shall have the effect of distributing to its shareholders (i) all of its investment company taxable income and all of its net realized capital gains, if any, for the period from the close of its last fiscal year to 4:00 p.m. Eastern time on the Closing Date; and (ii) any undistributed investment company taxable income and net realized capital gains from any period to the extent not otherwise already distributed; (g) The Franklin Trust or Franklin NY Trust, as appropriate, shall have received on the Closing Date the opinion of Dechert LLP, counsel to the Trust or Advisor Trust, as appropriate, (which may rely on certificates of officers or Trustees of the Trust or Advisor Trust), covering the following points: (i) The Trust or Advisor Trust, as appropriate, is a business trust duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts and has the trust power to own all of Target Fund's properties and assets, and to carry on its business, including that of the Target Fund, as presently conducted; (ii) The Agreement has been duly authorized by the Trust or Advisor Trust, as appropriate, on behalf of the Target Fund, and, assuming due authorization, execution and delivery of the Agreement by the Franklin Trust or Franklin NY Trust, as applicable, is a valid and binding obligation of the Trust or Advisor Trust, on behalf of the Target Fund, enforceable against the Trust or Advisor Trust in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and to general equity principles; (iii) The execution and delivery of the Agreement did not, and the consummation of the transactions contemplated hereby will not, result in a material violation of, as appropriate, the Trust's or Advisor Trust's Declaration of Trust or By-Laws or any provision of any agreement (known to such counsel) to which the Trust or Advisor Trust is a party or by which it is bound or, to the knowledge of such counsel, result in the acceleration of any obligation or the imposition of any penalty under any agreement, judgment or decree to which the Trust or Advisor Trust is a party or by which it is bound; (iv) To the knowledge of such counsel, no consent, approval, authorization or order of any court or governmental authority of the United States or the Commonwealth of Massachusetts is required to be obtained by the Trust or Advisor Trust in order to consummate the transactions contemplated herein, except such as have been obtained under the 1933 Act, the 1934 Act and the 1940 Act, and such as may be required under state securities laws; (v) The Trust or Advisor Trust, as appropriate, is a registered investment company classified as a management company of the open-end type with respect to each series of shares it offers, including those of the Target Fund, under the 1940 Act and its registration with the Commission as an investment company under the 1940 Act is in full force and effect; (vi) The outstanding shares of the Target Fund are registered under the 1933 Act, and such registration is in full force and effect; and (vii) To the knowledge of such counsel, no litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or threatened as to the Trust or Advisor Trust or Target Fund and neither the Trust or Advisor Trust nor the Target Fund is a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business. 8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE TARGET FUND With respect to each Reorganization, if any of the conditions set forth below have not been satisfied on or before the Closing Date with respect to the Target Fund or the Acquiring Fund, the other party to this Agreement shall, at its option, not be required to consummate the transactions contemplated by this Agreement: 8.1. The Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding shares of the Target Fund in accordance with the provisions of the Trust's or Advisor Trust's, as appropriate, Declaration of Trust and By-Laws, applicable Massachusetts law and the 1940 Act, and certified copies of the resolutions evidencing such approval shall have been delivered to the Acquiring Fund. Notwithstanding anything herein to the contrary, neither the Target Fund nor the Acquiring Fund may waive the conditions set forth in this Paragraph 8.1; 8.2. The Agreement and transactions contemplated herein shall have been approved by the Board of Trustees of the Trust and Advisor Trust, as appropriate, and Franklin Trust or Franklin NY Trust, as appropriate, and each party shall have delivered a copy to the other of the resolutions approving this Agreement and the transactions contemplated in connection herewith adopted by the other party's Board of Trustees, certified by the Secretary or equivalent officer. Notwithstanding anything herein to the contrary, neither the Target Fund nor the Acquiring Fund may waive the conditions set forth in this Paragraph 8.2; 8.3. On the Closing Date no action, suit or other proceeding shall be pending or, to, as applicable, the Trust's or Advisor Trust's and, as applicable, Franklin Trust or Franklin NY Trust's knowledge, threatened before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or the transactions contemplated herein; 8.4. All consents of other parties and all other consents, orders and permits of Federal, state and local regulatory authorities deemed necessary by the Acquiring Fund or Target Fund to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not involve a risk of a material adverse effect on the assets or properties of the Acquiring Fund or the Target Fund, provided that either party hereto may for itself waive any of such conditions; 8.5. The Registration Statement shall have become effective under the 1933 Act and no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act; and 8.6. Dechert LLP shall deliver an opinion addressed to the Trust or Advisor Trust, as applicable, and Franklin Trust or Franklin NY Trust, as applicable, substantially to the effect that, based upon certain facts, assumptions, and representations, the transaction contemplated by this Agreement shall constitute a tax-free reorganization for Federal income tax purposes, unless, based on circumstances existing at the time of Closing, Dechert LLP determines that the transaction contemplated by this Agreement does not qualify as such. The delivery of such opinion is conditioned upon receipt by Dechert LLP of representations it shall request of the parties. Notwithstanding anything herein to the contrary, no party may waive the condition set forth in this Paragraph 8.6. 9. BROKERAGE FEES AND EXPENSES 9.1. The parties hereto represent and warrant to each other that there are no brokers or finders entitled to receive any payments in connection with the transactions provided for herein. 9.2. Each of Franklin Advisers and HSBC agrees to bear or arrange for an entity under common ownership to bear the expenses relating to the Reorganizations, allocated among Franklin Advisers and HSBC as set forth in a Letter Agreement dated as of the date hereof. The costs of the Reorganizations shall include, but not be limited to, costs associated with obtaining any necessary order of exemption from the 1940 Act, if any, preparation, printing and distribution of the Registration Statement, legal fees, accounting fees, and expenses of holding shareholders' meetings. Notwithstanding any of the foregoing, expenses will in any event be paid by the party directly incurring such expenses if and to the extent that the payment by another person of such expenses would result in the disqualification of such party as a "regulated investment company" within the meaning of Section 851 of the Code. 10. FINAL TAX RETURNS AND FORMS 1099 OF TARGET FUND 10.1.After the Closing of a Reorganization, Trust or Advisor Trust, as appropriate, shall or shall cause its agents to prepare any federal, state or local Tax returns, including any Forms 1099, required to be filed by Trust or Advisor Trust, as appropriate, with respect to the Target Fund's final taxable year ending with its complete liquidation and for any prior periods or taxable years and shall further cause such Tax returns and Forms 1099 to be duly filed with the appropriate taxing authorities. 10.2.Notwithstanding the provisions of Paragraph 9 hereof, any expenses incurred by Trust, Advisor Trust or Target Fund (other than for payment of Taxes) in connection with the preparation and filing of said Tax returns and Forms 1099 after the Closing, shall be borne by Target Fund. 11. COOPERATION AND EXCHANGE OF INFORMATION Trust, Advisor Trust, Franklin Trust, and Franklin NY Trust will provide each other and their respective representatives with such cooperation, assistance and information as any of them reasonably may request of the others in filing any Tax returns, amended returns or claims for refunds, determining a liability for Taxes, or in determining the financial reporting of any tax position, or a right to a refund of Taxes or participating in or conducting any audit or other proceeding in respect of Taxes. Each party or their respective agents will retain for a period of six (6) years following the Closing all returns, schedules and work papers and all material records or other documents relating to Tax matters and financial reporting of tax positions of the Target Fund and the Acquiring Fund for its taxable period first ending after the Closing of the applicable Reorganization and for all prior taxable periods. 12. INDEMNIFICATION 12.1. With respect to each Reorganization, the Franklin Trust or Franklin NY Trust, as appropriate, agrees to indemnify out of the assets of the Acquiring Fund and hold harmless the Trust or Advisor Trust, as appropriate, and, as appropriate, each of the Trust's or Advisor Trust's officers and Trustees from and against any and all losses, claims, damages, liabilities or expenses (including, without limitation, the payment of reasonable legal fees and reasonable costs of investigation) to which jointly and severally, the Trust or Advisor Trust, as appropriate, or any of its Trustees or officers may become subject, insofar as such loss, claim, damage, liability or expense (or actions with respect thereto) arises out of or is based on any breach by the Franklin Trust or Franklin NY Trust, as appropriate, of any of its representations, warranties, covenants or agreements set forth in this Agreement. This indemnification obligation shall survive the termination of this Agreement and the closing of the Reorganizations. 12.2. With respect to each Reorganization, the Trust or Adviser Trust, as appropriate, agrees to indemnify and hold harmless the Franklin Trust or Franklin NY Trust, as appropriate, and, as appropriate, each of the Franklin Trust's or Franklin NY Trust's officers and Trustees from and against any and all losses, claims, damages, liabilities or expenses (including, without limitation, the payment of reasonable legal fees and reasonable costs of investigation) to which jointly and severally, the Franklin Trust or Franklin NY Trust, as appropriate, or any of its Trustees or officers may become subject, insofar as such loss, claim, damage, liability or expense (or actions with respect thereto) arises out of or is based on any breach by the Trust or Advisor Trust, as appropriate, of any of its representations, warranties, covenants or agreements set forth in this Agreement and provided that the obligation to so indemnify is limited as set forth in Paragraph 17.5 hereof. This indemnification obligation shall survive the termination of this Agreement and the closing of the Reorganizations. 12.3. With respect to each Reorganization, HGAM agrees to indemnify and hold harmless the Franklin Trust or Franklin NY Trust, as appropriate, and, as appropriate, each of the Franklin Trust's or Franklin NY Trust's officers and Trustees from and against any and all losses, claims, damages, liabilities or expenses (including, without limitation, the payment of reasonable legal fees and reasonable costs of investigation) to which jointly and severally, the Franklin Trust or Franklin NY Trust or any of its Trustees or officers may become subject, insofar as (and only to the extent that) such loss, claim, damage, liability or expense (or actions with respect thereto) arises out of the negligence or intentional misconduct by HGAM in performing its obligations as investment adviser or administrator, or by Halbis Capital Management (USA) Inc. in performing its obligations as sub-adviser, of the Target Funds. This indemnification obligation shall survive the termination of this Agreement and the closing of the Reorganizations. 13. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES 13.1. Each party agrees that no party has made any representation, warranty or covenant not set forth herein and that this Agreement constitutes the entire agreement between the parties. 13.2. The representations, warranties and covenants contained in this Agreement or in any document delivered pursuant hereto or in connection herewith shall survive the consummation of the transactions contemplated hereunder. The covenants to be performed after the Closing shall survive the Closing. 14. TERMINATION This Agreement may be terminated and the transactions contemplated hereby may be abandoned with respect to one or more (or all) Reorganizations by (i) mutual agreement of the parties; (ii) by either party to a Reorganization, if the Board of Trustees of the terminating party determines that it cannot permit the party to consummate the Reorganization in light of the Board of Trustees' fiduciary obligations to the party's shareholders; (iii) by either party with respect to a Reorganization if the Closing of the Reorganization shall not have occurred on or before December 31, 2009, unless such date is extended by mutual agreement of the parties; or (iv) by either party with respect to a Reorganization if the other party shall have materially breached its obligations under this Agreement or made a material and intentional misrepresentation herein or in connection herewith. In the event of any such termination, this Agreement shall become void with respect to the Reorganization or Reorganizations terminated and there shall be no liability hereunder on the part of any party or their respective Trustees or Trustees or officers, except for any such material breach or intentional misrepresentation, as to each of which all remedies at law or in equity of the party adversely affected shall survive. This Agreement shall be terminated in its entirety if it is terminated with respect to all of the Reorganizations. 15. AMENDMENTS This Agreement may be amended, modified or supplemented in a writing signed by the parties hereto to be bound by such Amendment; provided, however, that with respect to each Reorganization, following the meeting of the shareholders of the Target Fund called by the Trust, pursuant to Paragraph 5.1(b) of this Agreement, no such amendment may have the effect of changing the provisions for determining the number of Class A, C and Advisor Acquiring Fund shares to be issued to the Target Fund under this Agreement to the detriment of any or all Target Fund shareholders, without their further approval. 16. NOTICES Any notice, report, statement or demand required or permitted by any provisions of this Agreement shall be in writing and shall be given by facsimile, personal service or prepaid or certified mail addressed to: For the Trust, Advisor Trust, Master Trust and HGAM: Richard A. Fabietti HSBC Global Asset Management (USA) Inc. 452 Fifth Avenue New York, NY 10018 Fax: (212) 525-1032 With a copy to: David J. Harris Dechert LLP 1775 I Street, NW Washington, DC 20006 Fax: (202) 261-3333 For Franklin Trust, Franklin NY Trust and Franklin Advisers: Karen L. Skidmore Franklin Templeton Investments One Franklin Parkway San Mateo, CA 94403 Fax: (650) 525-7141 with a copy to: Bruce G. Leto Stradley Ronon Stevens & Young, LLP 2600 One Commerce Square Philadelphia, PA 19103-7098 Fax: (215) 564-8120 17. HEADINGS; GOVERNING LAW; COUNTERPARTS; ASSIGNMENT; LIMITATION OF LIABILITY 17.1. The Article and Paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 17.2. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware and applicable Federal law, without regard to its principles of conflicts of laws. 17.3. This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party without the written consent of the other parties. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement. 17.4. This agreement may be executed in any number of counterparts, each of which shall be considered an original. 17.5. It is expressly agreed that the obligations of the parties hereunder shall not be binding upon any of their respective Trustees, shareholders, nominees, officers, agents, or employees personally, but, except as provided in Sections 12.3 and 9.2 hereof, shall bind only the property of the Target Funds or the Acquiring Funds as provided in the Declaration of Trust of the Trust or Advisor Trust or the Agreement and Declaration of Trust of the Franklin Trust or Franklin NY Trust, respectively. The execution and delivery by such officers shall not be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the property of such party. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be approved on behalf of each of the Acquiring Funds and Target Funds. FRANKLIN INVESTOR SECURITIES TRUST HSBC INVESTOR FUNDS By: By: _________________________________ _________________________________ Name: Name: Richard A. Fabietti Title: Title: President FRANKLIN NEW YORK TAX-FREE TRUST HSBC ADVISOR FUNDS TRUST By: By: _________________________________ _________________________________ Name: Name: Richard A. Fabietti Title: Title: President FRANKLIN ADVISERS, INC. HSBC INVESTOR PORTFOLIOS By: _________________________________ By: Name: _________________________________ Title: Name: Richard A. Fabietti Title: President HSBC GLOBAL ASSET MANAGEMENT (USA) INC. By: _________________________________ Name: Title: EXHIBIT A CHART OF REORGANIZATIONS ---------------------------------------------------------------------- ACQUIRING FUND CORRESPONDING TARGET FUND ---------------------------------------------------------------------- Franklin Total Return Fund HSBC Investor Core Plus Fixed Income Fund (HSBC Investor Funds) ---------------------------------------------------------------------- Class A Class A ---------------------------------------------------------------------- Class A Class B ---------------------------------------------------------------------- Class C Class C ---------------------------------------------------------------------- Franklin Total Return Fund HSBC Investor Core Plus Fixed Income Fund (HSBC Advisor Funds Trust) ---------------------------------------------------------------------- Advisor Class Class I ---------------------------------------------------------------------- ---------------------------------------------------------------------- Franklin Total Return Fund HSBC Investor Intermediate Duration Fixed Income Fund ---------------------------------------------------------------------- Class A Class A ---------------------------------------------------------------------- Class A Class B ---------------------------------------------------------------------- Class C Class C ---------------------------------------------------------------------- Advisor Class Class I ---------------------------------------------------------------------- Franklin New York HSBC Investor New York Tax-Free Intermediate-Term Bond Fund Tax-Free Income Fund ---------------------------------------------------------------------- Class A Class A ---------------------------------------------------------------------- Class A Class B ---------------------------------------------------------------------- Class C Class C ---------------------------------------------------------------------- Advisor Class Class I ---------------------------------------------------------------------- EVERY SHAREHOLDER'S VOTE IS IMPORTANT PLEASE SIGN, DATE AND RETURN YOUR PROXY TODAY PROXY PROXY SPECIAL MEETING OF SHAREHOLDERS HSBC INVESTOR CORE PLUS FIXED INCOME FUND, A SERIES OF HSBC INVESTOR FUNDS AUGUST 24, 2009 The undersigned hereby revokes all previous proxies for his/her shares of HSBC Investor Core Plus Fixed Income Fund ("Core Plus Fixed Income Fund") and appoints [Insert names], and each of them, proxies of the undersigned with full power of substitution to vote all shares of Core Plus Fixed Income Fund that the undersigned is entitled to vote at Core Plus Fixed Income Fund's Special Meeting of Shareholders ("Special Meeting") to be held at the offices of Citi Fund Services Ohio, Inc. at 100 Summer Street, Suite 1500, Boston, Massachusetts 02110, at 10:00 a.m., Eastern Time on August 24, 2009, including any postponements or adjournments thereof, upon the matter set forth below and instructs them to vote upon any other matters that may properly be acted upon at the Special Meeting. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF HSBC INVESTOR FUNDS (THE "TRUST") ON BEHALF OF CORE PLUS FIXED INCOME FUND. IT WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY SHALL BE VOTED FOR THE PROPOSAL REGARDING THE REORGANIZATION OF CORE PLUS FIXED INCOME FUND INTO FRANKLIN TOTAL RETURN FUND PURSUANT TO AN AGREEMENT AND PLAN OF REORGANIZATION. IF ANY OTHER MATTERS PROPERLY COME BEFORE THE SPECIAL MEETING TO BE VOTED ON, THE PROXY HOLDERS WILL VOTE, ACT AND CONSENT ON THOSE MATTERS IN ACCORDANCE WITH THE VIEWS OF MANAGEMENT. IMPORTANT: PLEASE SEND IN YOUR PROXY TODAY. YOU ARE URGED TO DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY. THIS WILL SAVE THE EXPENSE OF FOLLOW-UP LETTERS TO SHAREHOLDERS WHO HAVE NOT RESPONDED. VOTE VIA TELEPHONE: [INSERT TELEPHONE NUMBER] CONTROL NUMBER: [INSERT CONTROL NUMBER] Note: Please sign exactly as your name appears on the proxy. If signing for estates, trusts or corporations, your title or capacity should be stated. If shares are held jointly, one or more joint owners should sign personally. ------------------------------------------------------------ Signature ------------------------------------------------------------ Signature , 2009 --------------------------------------------------- Date (Please see reverse side) EVERY SHAREHOLDER'S VOTE IS IMPORTANT PLEASE SIGN, DATE AND RETURN YOUR PROXY TODAY THE BOARD OF TRUSTEES OF HSBC INVESTOR FUNDS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF PROPOSAL 1(A). FOR AGAINST ABSTAIN PROPOSAL 1(A). To approve an Agreement and Plan of [] [] [] Reorganization providing for the (i) transfer of substantially all of the assets of the HSBC Investor Core Plus Fixed Income Fund, a series of HSBC Investor Funds, to the Franklin Total Return Fund (subject to the retention of certain assets to discharge liabilities) in exchange solely for Class A and Class C shares of beneficial interest of the Franklin Total Return Fund, and (ii) distribution of such shares to Class A, Class B, and Class C shareholders of the HSBC Investor Core Plus Fixed Income Fund in connection with its liquidation. IMPORTANT: PLEASE SIGN AND MAIL IN YOUR PROXY...TODAY PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE U.S. EVERY SHAREHOLDER'S VOTE IS IMPORTANT PLEASE SIGN, DATE AND RETURN YOUR PROXY TODAY PROXY PROXY SPECIAL MEETING OF SHAREHOLDERS HSBC INVESTOR CORE PLUS FIXED INCOME FUND, A SERIES OF HSBC ADVISOR FUNDS TRUST AUGUST 24, 2009 The undersigned hereby revokes all previous proxies for his/her shares of HSBC Investor Core Plus Fixed Income Fund ("Core Plus Fixed Income Fund") and appoints [Insert names], and each of them, proxies of the undersigned with full power of substitution to vote all shares of Core Plus Fixed Income Fund that the undersigned is entitled to vote at Core Plus Fixed Income Fund's Special Meeting of Shareholders ("Special Meeting") to be held at the offices of Citi Fund Services Ohio, Inc. at 100 Summer Street, Suite 1500, Boston, Massachusetts 02110, at 10:00 a.m., Eastern Time on August 24, 2009, including any postponements or adjournments thereof, upon the matter set forth below and instructs them to vote upon any other matters that may properly be acted upon at the Special Meeting. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF HSBC ADVISOR FUNDS TRUST (THE "TRUST") ON BEHALF OF CORE PLUS FIXED INCOME FUND. IT WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY SHALL BE VOTED FOR THE PROPOSAL REGARDING THE REORGANIZATION OF CORE PLUS FIXED INCOME FUND PURSUANT TO THE AGREEMENT AND PLAN OF REORGANIZATION WITH FRANKLIN TOTAL RETURN FUND. IF ANY OTHER MATTERS PROPERLY COME BEFORE THE SPECIAL MEETING TO BE VOTED ON, THE PROXY HOLDERS WILL VOTE, ACT AND CONSENT ON THOSE MATTERS IN ACCORDANCE WITH THE VIEWS OF MANAGEMENT. IMPORTANT: PLEASE SEND IN YOUR PROXY TODAY. YOU ARE URGED TO DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY. THIS WILL SAVE THE EXPENSE OF FOLLOW-UP LETTERS TO SHAREHOLDERS WHO HAVE NOT RESPONDED. VOTE VIA THE INTERNET: [INSERT WEBSITE ADDRESS] VOTE VIA TELEPHONE: [INSERT TELEPHONE NUMBER] CONTROL NUMBER: [INSERT CONTROL NUMBER] Note: Please sign exactly as your name appears on the proxy. If signing for estates, trusts or corporations, your title or capacity should be stated. If shares are held jointly, one or more joint owners should sign personally. ------------------------------------------------------------ Signature ------------------------------------------------------------ Signature , 2009 --------------------------------------------------- Date (Please see reverse side) EVERY SHAREHOLDER'S VOTE IS IMPORTANT PLEASE SIGN, DATE AND RETURN YOUR PROXY TODAY THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF PROPOSAL 1(B). FOR AGAINST ABSTAIN PROPOSAL 1(B). To approve an Agreement and Plan of [] [] [] Reorganization providing for the (i) transfer of substantially all of the assets of the HSBC Investor Core Plus Fixed Income Fund (Advisor), a series of HSBC Advisor Funds Trust, to the Franklin Total Return Fund (subject to the retention of certain assets to discharge liabilities) in exchange solely for Advisor Class shares of beneficial interest of the Franklin Total Return Fund, and (ii) distribution of such shares to Class I shareholders of the HSBC Investor Core Plus Fixed Income Fund (Advisor) in connection with its liquidation. IMPORTANT: PLEASE SIGN AND MAIL IN YOUR PROXY...TODAY PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE U.S. EVERY SHAREHOLDER'S VOTE IS IMPORTANT PLEASE SIGN, DATE AND RETURN YOUR PROXY TODAY PROXY PROXY SPECIAL MEETING OF SHAREHOLDERS HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME FUND AUGUST 24, 2009 The undersigned hereby revokes all previous proxies for his/her shares of HSBC Investor Intermediate Duration Fixed Income Fund ("Intermediate Duration Fixed Income Fund") and appoints [Insert names], and each of them, proxies of the undersigned with full power of substitution to vote all shares of Intermediate Duration Fixed Income Fund that the undersigned is entitled to vote at Intermediate Duration Fixed Income Fund's Special Meeting of Shareholders ("Special Meeting") to be held at the offices of Citi Fund Services Ohio, Inc. at 100 Summer Street, Suite 1500, Boston, Massachusetts 02110, at 10:00 a.m., Eastern Time on August 24, 2009, including any postponements or adjournments thereof, upon the matter set forth below and instructs them to vote upon any other matters that may properly be acted upon at the Special Meeting. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF HSBC INVESTOR FUNDS (THE "TRUST") ON BEHALF OF INTERMEDIATE DURATION FIXED INCOME FUND. IT WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY SHALL BE VOTED FOR THE PROPOSAL REGARDING THE REORGANIZATION OF INTERMEDIATE DURATION FIXED INCOME FUND PURSUANT TO THE AGREEMENT AND PLAN OF REORGANIZATION WITH FRANKLIN TOTAL RETURN FUND. IF ANY OTHER MATTERS PROPERLY COME BEFORE THE SPECIAL MEETING TO BE VOTED ON, THE PROXY HOLDERS WILL VOTE, ACT AND CONSENT ON THOSE MATTERS IN ACCORDANCE WITH THE VIEWS OF MANAGEMENT. IMPORTANT: PLEASE SEND IN YOUR PROXY TODAY. YOU ARE URGED TO DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY. THIS WILL SAVE THE EXPENSE OF FOLLOW-UP LETTERS TO SHAREHOLDERS WHO HAVE NOT RESPONDED. VOTE VIA THE INTERNET: [INSERT WEBSITE ADDRESS] VOTE VIA TELEPHONE: [INSERT TELEPHONE NUMBER] CONTROL NUMBER: [INSERT CONTROL NUMBER] Note: Please sign exactly as your name appears on the proxy. If signing for estates, trusts or corporations, your title or capacity should be stated. If shares are held jointly, one or more joint owners should sign personally. ------------------------------------------------------------ Signature ------------------------------------------------------------ Signature , 2009 --------------------------------------------------- Date (Please see reverse side) EVERY SHAREHOLDER'S VOTE IS IMPORTANT PLEASE SIGN, DATE AND RETURN YOUR PROXY TODAY THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF PROPOSAL 2. FOR AGAINST ABSTAIN PROPOSAL 2. To approve an Agreement and Plan of [] [] [] Reorganization providing for the (i) transfer of substantially all of the assets of the HSBC Investor Intermediate Duration Fixed Income Fund to the Franklin Total Return Fund (subject to the retention of certain assets to discharge liabilities) in exchange solely for Class A and C and Advisor Class shares of beneficial interest of the Franklin Total Return Fund, and (ii) distribution of such shares to shareholders of the HSBC Investor Intermediate Duration Fixed Income Fund in connection with its liquidation. IMPORTANT: PLEASE SIGN AND MAIL IN YOUR PROXY...TODAY PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE U.S. PART B STATEMENT OF ADDITIONAL INFORMATION DATED JULY 20, 2009 FOR FRANKLIN TOTAL RETURN FUND AND FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND ACQUISITION OF SUBSTANTIALLY ALL OF THE ASSETS OF HSBC INVESTOR CORE PLUS FIXED INCOME FUND HSBC INVESTOR CORE PLUS FIXED INCOME FUND (ADVISOR) HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME FUND BY AND IN EXCHANGE FOR SHARES OF FRANKLIN TOTAL RETURN FUND AND ACQUISITION OF SUBSTANTIALLY ALL OF THE ASSETS OF HSBC INVESTOR NEW YORK TAX-FREE BOND FUND BY AND IN EXCHANGE FOR SHARES OF FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND This Statement of Additional Information ("SAI") relates specifically to the proposed acquisition of substantially all of the assets of HSBC Investor Core Plus Fixed Income, HSBC Investor Core Plus Fixed Income (Advisor), HSBC Investor Intermediate Duration Fixed Income and HSBC Investor New-York Tax-Free Bond Funds (each a "Target Fund") by and in exchange for shares of Franklin Total Return and Franklin New York Intermediate-Term Tax-Free Income Funds (each an "Acquiring Fund") as indicated below: ----------------------------------------------------------------------- TARGET FUND ACQUIRING FUND ----------------------------------------------------------------------- HSBC Investor Core Plus Fixed Income Franklin Total Return Fund Fund (HSBC Investor Funds) ----------------------------------------------------------------------- Class A Shares Class A Shares ----------------------------------------------------------------------- Class B Shares Class A Shares ----------------------------------------------------------------------- Class C Shares Class C Shares ----------------------------------------------------------------------- HSBC Investor Core Plus Fixed Income Franklin Total Return Fund Fund (HSBC Advisor Funds Trust) ----------------------------------------------------------------------- Class I Shares Advisor Class Shares ----------------------------------------------------------------------- HSBC Investor Intermediate Duration Franklin Total Return Fund Fixed Income Fund ----------------------------------------------------------------------- Class A Shares Class A Shares ----------------------------------------------------------------------- Class B Shares Class A Shares ----------------------------------------------------------------------- Class C Shares Class C Shares ----------------------------------------------------------------------- Class I Shares Advisor Class Shares ----------------------------------------------------------------------- HSBC Investor New York Tax-Free Bond Franklin New York Fund Intermediate-Term Tax-Free Income Fund ----------------------------------------------------------------------- Class A Shares Class A Shares ----------------------------------------------------------------------- Class B Shares Class A Shares ----------------------------------------------------------------------- Class C Shares Class C Shares ----------------------------------------------------------------------- Class I Shares Advisor Class Shares ----------------------------------------------------------------------- This SAI consists of this Cover Page and the following documents, each of which was filed electronically with the Securities and Exchange Commission and is incorporated by reference herein (is legally considered to be part of this SAI): 1. Statement of Additional Information of Franklin Total Return Fund dated March 1, 2009 as previously filed via EDGAR is incorporated herein by reference to Franklin Investors Securities Trust's filing under Rule 485(b) [Accession No. 0000809707-09-000004] filed February 26, 2009 and will be mailed to any shareholder who requests this SAI. 2. Statement of Additional Information of Franklin New York Intermediate-Term Tax-Free Income Fund dated February 1, 2009 as previously filed via EDGAR is incorporated herein by reference to Franklin New York Tax-Free Trust's filing under Rule 485(b) [Accession No. 0000798523-09-000004] filed January 27, 2009 and will be mailed to any shareholder who requests this SAI. 3. Supplement dated April 1, 2009, to the Statement of Additional Information of Franklin Total Return Fund dated March 1, 2009, as previously filed via EDGAR is incorporated herein by reference to Franklin Investors Securities Trust's filing under Rule 497 [Accession No. 0000225375-09-000007] filed April 1, 2009 and will be mailed to any shareholder who requests this SAI. 4. Supplement dated April 1, 2009, to the Statement of Additional Information of Franklin New York Intermediate-Term Tax-Free Income Fund dated February 1, 2009, as previously filed via EDGAR is incorporated herein by reference to Franklin New York Tax-Free Trust's filing under Rule 497 [Accession No. 0000225375-09-000007] filed April 1, 2009 and will be mailed to any shareholder who requests this SAI. 5. Annual Report of Franklin Total Return Fund for the fiscal year ended October 31, 2008 as previously filed via EDGAR is incorporated herein by reference to Franklin Investors Securities Trust's Form N-CSR [Accession No. 0000809707-08-000049] filed December 31, 2008 and will be mailed to any shareholder who requests this SAI. 6. Annual Report of Franklin New York Intermediate-Term Tax-Free Income Fund for the fiscal year ended September 30, 2008 as previously filed via EDGAR is incorporated herein by reference to Franklin New York Tax-Free Trust's N-CSR [Accession No. 0000798523-08-000038] filed December 2, 2008 and will be mailed to any shareholder who requests this SAI. 7. Semi-Annual Report of Franklin Total Return Fund for the period ended April 30, 2009 to be incorporated herein by reference by Post-Effective Amendment upon filing via EDGAR to Franklin Investors Securities Trust's Form N-CSR [Accession No. [TBP] filed [TBP], 2009 and will be mailed to any shareholder who requests this SAI. 8. Semi-Annual Report of Franklin New York Intermediate-Term Tax-Free Income Fund for the period ended March 31, 2009 as previously filed via EDGAR is incorporated herein by reference to Franklin New York Tax-Free Trust's N-CSR [Accession No. Acc-no: 0000798523-09-000012] filed May 29, 2009 and will be mailed to any shareholder who requests this SAI. 9. Annual Report of HSBC Investor Core Plus Fixed Income Fund, HSBC Investor Intermediate Duration Fixed Income Fund and HSBC Investor New-York Tax-Free Bond Fund for the fiscal year ended October 31, 2008 as previously filed via EDGAR is incorporated herein by reference to HSBC Investor Funds' N-CSR [Accession No. 0000930413-09-000202] filed January 9, 2009 and will be mailed to any shareholder who requests this SAI. 10. Annual Report of HSBC Investor Core Plus Fixed Income Fund for the fiscal year ended October 31, 2008 as previously filed via EDGAR is incorporated herein by reference to HSBC Advisor Funds Trust's N-CSR [Accession No. 0000930413-09-000200] filed January 9, 2009 and will be mailed to any shareholder who requests this SAI. 11. Semi-Annual Report of HSBC Investor Core Plus Fixed Income Fund, HSBC Investor Intermediate Duration Fixed Income Fund and HSBC Investor New-York Tax-Free Bond Fund for the period ended April 30, 2009 to be incorporated herein by reference by Post-Effective Amendment upon filing via EDGAR to HSBC Investor Funds' N-CSR [Accession No. [TBP] filed [TBP], 2009 and will be mailed to any shareholder who requests this SAI. 12. Semi-annual Report of HSBC Investor Core Plus Fixed Income Fund for the period ended April 30, 2009 to be incorporated herein by reference by Post-Effective Amendment upon filing via EDGAR to HSBC Advisor Funds Trust's N-CSR [Accession No. [TBP] filed [TBP], 2009 and will be mailed to any shareholder who requests this SAI. Pro Forma Financial Statements for the Franklin New York Intermediate-Term Tax-Free Income Fund are attached hereto as Appendix I. Pro Forma Financial Statements for the Reorganization of each of the Target Funds except the HSBC Investor New York Tax-Free Bond Fund into the corresponding Acquiring Funds required by Rule 11-01 of Regulation S-X have not been prepared and included in this Form N-14 are not included since, as of May 20, 2009 the net asset value of each such Target Fund did not exceed ten percent of its respective Acquiring Funds' net asset value. This SAI is not a Prospectus; you should read this SAI in conjunction with the Prospectus/Proxy Statement dated July 20, 2009, relating to the above- referenced transactions. You can request a copy of the Prospectus/Proxy Statement by calling 1-800/DIAL BEN(R) or by writing to the Acquiring Funds at P.O. Box 997151, Sacramento, CA 95899-7151. APPENDIX I TO THE STATEMENT OF ADDITIONAL INFORMATION DATED JULY 20, 2009 FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND HSBC NEW YORK TAX-FREE BOND FUND PRO FORMA COMBINING STATEMENTS, MARCH 31, 2009 (UNAUDITED) The following unaudited Pro Forma Combining Statements give effect to the proposed Reorganization, accounted as if the Reorganization had occurred as of April 1, 2008. Each Pro Forma Combining Statement has been prepared based upon the proposed fee and expense structure after the Reorganization, as discussed in the combined proxy statement/prospectus. The unaudited Pro Forma Combining Statements should be read in conjunction with the historical financial statements and notes thereto of the HSBC New York Tax-Free Bond Fund and Franklin New York Intermediate-Term Tax-Free Income Fund which are incorporated by reference in this Statement of Additional Information. The Reorganization will be accounted for as a tax-free reorganization. FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND HSBC NEW YORK TAX-FREE BOND FUND CAPITALIZATION SCHEDULE Franklin New Franklin New York York Intermediate-Term Intermediate- Tax-Free Term Tax-Free Income Fund HSBC New York Income Fund After Tax-Free Bond (unaudited) Transaction Fund ----------- (1) (unaudited) (unaudited) ---------- ----------- Net assets (all classes) $42,088,067 $350,775,531 $392,863,598 Shares outstanding (all classes) 3,934,895 32,973,456 36,929,017 Class A net assets $23,258,382 $321,384,897 $348,559,371 Class A shares outstanding 2,174,452 30,215,834 32,769,826 Class A net asset value per share $10.70 $10.64 $10.64 Class B net assets $3,916,092 - - Class B shares outstanding 366,455 - - Class B net asset value per share $10.69 - - Class C net assets $477,309 $29,093,667 $29,570,976 Class C shares outstanding 44,482 2,729,706 2,774,482 Class C net asset value per share $10.73 $10.66 $10.66 Class I net assets $14,436,284 - - Class I shares outstanding 1,349,506 - - Class I net asset value per share $10.70 - - Advisor Class net assets - $296,967 $14,733,251 Advisor Class shares outstanding - 27,916 $1,384,710 Advisor Class net asset value per share - $10.64 $10.64 ------------------------------------------------------------------------------- (1) HSBC New York Tax-Free Bond Fund's Class B will be acquired by Franklin New York Intermediate-Term Fund's Class A and HSBC New York Tax-Free Bond Fund's Class I will be acquired by Franklin New York Intermediate-Term Fund's Advisor Class. FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND HSBC NEW YORK TAX-FREE BOND FUND PRO FORMA COMBINING STATEMENTS, MARCH 31, 2009 (UNAUDITED) The following unaudited Pro Forma Combining Statements give effect to the proposed Reorganization, accounted as if the Reorganization had occurred as of April 1, 2008. Each Pro Forma Combining Statement has been prepared based upon the proposed fee and expense structure after the Reorganization, as discussed in the combined proxy statement/prospectus. The unaudited Pro Forma Combining Statements should be read in conjunction with the historical financial statements and notes thereto of the HSBC New York Tax-Free Bond Fund and Franklin New York Intermediate-Term Tax-Free Income Fund which are incorporated by reference in this Statement of Additional Information. The Reorganization will be accounted for as a tax-free reorganization. FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND HSBC NEW YORK TAX-FREE BOND FUND CAPITALIZATION SCHEDULE
FRANKLIN NEW YORK INTERMEDIATE-TERM FRANKLIN NEW YORK TAX-FREE INCOME HSBC NEW YORK TAX- INTERMEDIATE-TERM FUND AFTER FREE BOND FUND TAX-FREE INCOME FUND TRANSACTION (1) (UNAUDITED) (UNAUDITED) (UNAUDITED) ------------------ -------------------- ----------------- Net assets (all classes) $42,088,067 $350,775,531 $392,863,598 Shares outstanding (all classes) 3,934,895 32,973,456 36,929,017 Class A net assets $23,258,382 $321,384,897 $348,559,371 Class A shares outstanding 2,174,452 30,215,834 32,769,826 Class A net asset value per share $ 10.70 $ 10.64 $ 10.64 Class B net assets $ 3,916,092 Class B shares outstanding 366,455 Class B net asset value per share $ 10.69 Class C net assets $ 477,309 $ 29,093,667 $ 29,570,976 Class C shares outstanding 44,482 2,729,706 2,774,482 Class C net asset value per share $ 10.73 $ 10.66 $ 10.66 Class I net assets $14,436,284 Class I shares outstanding 1,349,506 Class I net asset value per share $ 10.70 Advisor Class net assets $ 296,967 $ 14,733,251 Advisor Class shares outstanding 27,916 1,384,710 Advisor Class net asset value per share $ 10.64 $ 10.64
(1) HSBC New York Tax-Free Bond Fund's Class B will be acquired by Franklin New York Intermediate-Term Fund's Class A and HSBC New York Tax-Free Bond Fund's Class I will be acquired by Franklin New York Intermediate-Term Fund's Advisor Class. FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND HSBC NEW YORK TAX-FREE BOND FUND PRO FORMA COMBINING STATEMENTS OF INVESTMENTS, MARCH 31, 2009 (UNAUDITED)
FRANKLIN NEW YORK FRANKLIN NEW YORK INTERMEDIATE-TERM INTERMEDIATE-TERM TAX-FREE HSBC NEW YORK TAX-FREE INCOME FUND INCOME FUND TAX-FREE BOND FUND PRO FORMA COMBINED (UNAUDITED) (UNAUDITED) (UNAUDITED) --------------------------- ----------------------- -------------------------- PRINCIPAL PRINCIPAL PRINCIPAL AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE ----------- ------------- --------- ----------- ----------- ------------ MUNICIPAL BONDS 98.1% NEW YORK 88.7% Albany County Airport Authority Revenue, Series B, FSA Insured, 4.75%, 12/15/13 $ 1,850,000 $ 1,876,326 $ 1,850,000 $ 1,876,326 Albany IDA Civic Facility Revenue, Albany Medical Center Project, 5.75%, 5/01/09 275,000 274,706 275,000 274,706 St. Peter's Hospital Project, Series A, 5.75%, 11/15/22 4,090,000 3,722,309 4,090,000 3,722,309 St. Rose Project, Series A, AMBAC Insured, Pre-Refunded, 5.00%, 7/01/12 420,000 462,189 420,000 462,189 Amherst IDA Civic Facility Revenue, Mandatory Put 10/01/11, Refunding, Series A, Radian Insured, 4.20%, 10/01/31 4,145,000 4,062,349 4,145,000 4,062,349 University of Buffalo Foundation, Student Housing, Creekside Project, Series A, AMBAC Insured, 4.625%, 8/01/16 1,030,000 1,089,235 1,030,000 1,089,235 Bath Central School District GO, FSA Insured, Pre-Refunded, 5.10%, 6/15/13 775,000 782,394 775,000 782,394 Refunding, FGIC Insured, 4.00%, 6/15/19 1,850,000 1,855,975 1,850,000 1,855,975 Buffalo GO, Refunding, Series C, FGIC Insured, 5.25%, 12/01/15 1,225,000 1,286,924 1,225,000 1,286,924 Series E, FSA Insured, Pre-Refunded, 5.35%, 12/01/12 880,000 917,682 880,000 917,682 Byram Hills Central School District GO, ETM, 4.00%, 11/15/10 1,375,000 1,446,665 1,375,000 1,446,665 Canisteo Central School District GO, Refunding, FSA Insured, 4.25%, 6/15/14 1,080,000 1,140,815 1,080,000 1,140,815 Clarence Central School District GO, Refunding, FSA Insured, 4.75%, 5/15/15 2,390,000 2,535,455 2,390,000 2,535,455 Connetquot Central School District Islip GO, Series B, FSA Insured, 4.40%, 6/15/16 1,000,000 1,027,070 1,000,000 1,027,070 Dansville Central School District GO, Refunding, Series B, FGIC Insured, 4.25%, 6/15/11 930,000 984,712 930,000 984,712 4.35%, 6/15/12 870,000 933,049 870,000 933,049 4.45%, 6/15/13 995,000 1,059,655 995,000 1,059,655 Erie County GO, FGIC Insured, 4.70%, 11/01/12 585,000 591,768 585,000 591,768 Public Improvement, Series A, FGIC Insured, 5.625%, 10/01/12 1,000,000 1,025,640 1,000,000 1,025,640 Erie County Water Authority Water Revenue, Refunding, 5.00%, 12/01/17 1,935,000 2,173,218 1,935,000 2,173,218 Fayetteville-Manlius Central School District GO, Refunding, FGIC Insured, 4.50%, 6/15/15 1,095,000 1,156,736 1,095,000 1,156,736 Fredonia Central School District GO, FGIC Insured, ETM, 4.125%, 6/01/09 1,000,000 1,006,040 1,000,000 1,006,040 Guilderland Central School District, Refunding, Series A, FSA Insured, 4.00%, 5/15/10 1,260,000 1,306,015 1,260,000 1,306,015 Harborfields Central School District Greenlawn GO, FSA Insured, Pre-Refunded, 5.00%, 6/01/17 2,105,000 2,291,166 2,105,000 2,291,166 Highland Central School District GO, Refunding, FSA Insured, 4.125%, 6/15/16 1,080,000 1,119,442 1,080,000 1,119,442 Holland Patent Central School District GO, MBIA Insured, ETM, 4.25%, 6/15/09 1,125,000 1,133,831 1,125,000 1,133,831 6/15/10 1,125,000 1,176,795 1,125,000 1,176,795 Huntington GO, Public Improvement, 4.20%, 9/01/13 1,230,000 1,266,051 1,230,000 1,266,051 Islip Union Free School District No. 002 GO, Refunding, FGIC Insured, 5.00%, 7/01/18 2,215,000 2,381,789 2,215,000 2,381,789 Long Island Power Authority Electric System Revenue, General, Refunding, Series A, FGIC Insured, 5.00%, 12/01/19 5,000,000 5,160,550 5,000,000 5,160,550 Refunding, Series 8, AMBAC Insured, 5.25%, 4/01/09 2,000,000 2,000,000 2,000,000 2,000,000 Long Island Power Authority Electrical Systems Revenue, 5.00%, 12/1/22, Callable 12/1/16 @ 100 500,000 499,720 500,000 499,720 Madison County IDA Civic Facility Revenue, Morrisville State College Foundation, Series A, CIFG Insured, 5.00%, 6/01/15 1,000,000 1,082,440 1,000,000 1,082,440 Metropolitan Transportation Authority Revenue, 5.50%, 1/1/19, (MBIA Insured), Callable 7/1/12 @ 100 480,000 495,058 480,000 495,058 5.00%, 11/15/32, (FSA Insured), Callable 11/15/12 @ 100 1,625,000 1,570,270 1,625,000 1,570,270 Middle Country Central School District at Centereach GO, FSA Insured, 4.75%, 6/01/17 1,650,000 1,694,946 1,650,000 1,694,946 Monroe County Airport Authority Revenue, 5.63%, 1/1/10, AMT, (MBIA Insured) 1,240,000 1,261,018 1,240,000 1,261,018 5.75%, 1/1/14, AMT, (MBIA Insured) 750,000 761,423 750,000 761,423 Monroe County GO, Public Improvement, FGIC Insured, 4.30%, 3/01/13 3,015,000 3,071,079 3,015,000 3,071,079 Montgomery Otsego Schoharie Counties Solid Waste Management Authority Revenue, Refunding, MBIA Insured, 4.00%, 1/01/13 1,920,000 2,057,107 1,920,000 2,057,107 MTA Service Contract Revenue, Refunding, Series A, 5.50%, 7/01/15 5,000,000 5,468,250 5,000,000 5,468,250 MTA Transit Facilities Revenue, Series A, Pre-Refunded, 6.00%, 7/01/15 1,500,000 1,520,790 1,500,000 1,520,790
Series C, FSA Insured, Pre-Refunded, 4.75%, 7/01/16 1,370,000 1,525,673 1,370,000 1,525,673 Series C, FSA Insured, Pre-Refunded, 4.75%, 7/01/16 545,000 597,538 545,000 597,538 Nassau County GO, Refunding, Series A, FGIC Insured, 6.00%, 7/01/11 1,000,000 1,090,560 1,000,000 1,090,560 Nassau County Interim Finance Authority Revenue, Sales Tax Secured, Refunding, Series H, AMBAC Insured, 5.25%, 11/15/17 1,500,000 1,653,645 1,500,000 1,653,645 Nassau Health Care Corp. Health System Revenue, Nassau County Guaranteed, FSA Insured, Pre-Refunded, 6.00%, 8/01/10 1,000,000 1,037,370 1,000,000 1,037,370 New York Bridge Authority Revenue, General, 4.125%, 1/01/13 4,000,000 4,200,600 4,000,000 4,200,600 New York City GO, 5.00%, 8/1/14 200,000 215,814 200,000 215,814 5.00%, 8/1/15 325,000 347,188 325,000 347,188 5.00%, 8/1/17 500,000 530,740 500,000 530,740 Refunding, Series F, 5.25%, 8/01/13 1,095,000 1,147,823 1,095,000 1,147,823 Refunding, Series G, XLCA Insured, 5.50%, 8/01/12 2,000,000 2,186,360 2,000,000 2,186,360 Series C, 5.00%, 8/1/16, (MBIA Insured), Callable 8/1/15 @ 100 500,000 529,570 500,000 529,570 Series E, 5.00%, 8/01/19 3,000,000 3,109,380 3,000,000 3,109,380 Series H, 4.125%, 8/01/11 1,560,000 1,625,567 1,560,000 1,625,567 Sub Series L-1, 5.00%, 4/01/23 10,000,000 10,050,300 10,000,000 10,050,300 New York City Health and Hospital Corp. Revenue, Health System, Refunding, Series A, AMBAC Insured, 4.60%, 2/15/12 1,000,000 1,009,410 1,000,000 1,009,410 Series A, FSA Insured, 4.15%, 2/15/12 750,000 786,983 750,000 786,983 Series A, FSA Insured, 4.30%, 2/15/13 1,000,000 1,042,420 1,000,000 1,042,420 New York City Housing Development Corp. Revenue, 5.60%, 11/1/19, AMT, Callable 11/1/09 @ 101 100,000 101,442 100,000 101,442 New York City IDA Civic Facility Revenue, Institute of International Education Inc. Project, 5.125%, 9/01/16 2,320,000 2,416,187 2,320,000 2,416,187 USTA National Tennis Center, 5.00%, 11/15/19, (FSA Insured), Callable 5/1/13 @ 100 1,000,000 1,056,520 1,000,000 1,056,520 New York City IDAR, Capital Appreciation, Yankee Stadium, Pilot, Assured Guaranty, zero cpn., 3/01/21 10,150,000 5,136,915 10,150,000 5,136,915 Queens Baseball Stadium, 5.00%, 1/1/18, (AMBAC Insured), Callable 1/1/17 @ 100 550,000 527,368 550,000 527,368 New York City Municipal Water Finance Authority, 5.13%, 6/15/30, Callable 6/15/18 @ 100 1,000,000 999,280 1,000,000 999,280 5.00%, 6/15/34, Callable 6/15/13 @ 100 1,250,000 1,218,437 1,250,000 1,218,437 5.00%, 6/15/36, Callable 12/15/14 @ 100 1,000,000 970,980 1,000,000 970,980 New York City Transitional Finance Authority Building Aid Revenue, 5.00%, 7/15/18, (FGIC Insured), Callable 1/15/17 @ 100 550,000 569,547 550,000 569,547 5.00%, 7/15/36, (FGIC Insured), Callable 1/15/17 @ 100 1,000,000 943,150 1,000,000 943,150 Fiscal 2009, Series S-3, 5.00%, 1/15/22 11,865,000 11,853,016 11,865,000 11,853,016 New York City Transitional Finance Authority Revenue, 5.25%, 5/1/17, Callable 5/1/11 @ 100 400,000 424,844 400,000 424,844 5.00%, 11/1/22, Callable 5/1/17 @ 100 160,000 166,774 160,000 166,774 5.25%, 2/1/29, Callable 2/1/11 @ 100 1,540,000 1,594,870 1,540,000 1,594,870 Future Tax Secured, Series A, 4.75%, 11/15/13 1,000,000 1,012,860 1,000,000 1,012,860 Future Tax Secured, Series B, 4.75%, 11/01/16 2,200,000 2,224,794 2,200,000 2,224,794 Future Tax Secured, Series B, Pre-Refunded, 6.00%, 11/15/13 1,000,000 1,071,690 1,000,000 1,071,690 sub. bond, Future Tax Secured, Refunding, Series B, 5.00%, 11/01/23 5,000,000 5,208,850 5,000,000 5,208,850 New York Convention Center Development Corp. Revenue, Hotel Unit Fee Secured, AMBAC Insured, 5.00%, 11/15/20 5,775,000 5,958,356 5,775,000 5,958,356 New York State Dormitory Authority Lease Revenue, Delaware Chenango Madison Otsego Board of Cooperative Education Services, XLCA Insured, 5.00%, 8/15/21 5,340,000 5,650,094 5,340,000 5,650,094 State University Dormitory Facilities, Series A, Pre-Refunded, 5.50%, 7/01/12 1,815,000 1,946,660 1,815,000 1,946,660 New York State Dormitory Authority Revenue, Department of Health, 5.25%, 7/1/16, Callable 7/1/14 @ 100 500,000 524,710 500,000 524,710 Fashion Institute, 5.25%, 7/1/22, (FGIC Insured) 1,250,000 1,259,400 1,250,000 1,259,400 Master Boces PG, 5.25%, 8/15/19, (FSA Insured), Callable 8/15/12 @ 100 1,000,000 1,066,980 1,000,000 1,066,980 Mental Health, 5.00%, 2/15/15, (FGIC Insured) 1,245,000 1,315,405 1,245,000 1,315,405 Mount St. Mary College, Radian Insured, 4.00%, 7/01/12 2,080,000 2,002,624 2,080,000 2,002,624 New York University, 5.50%, 7/1/18, (AMBAC Insured) 500,000 568,250 500,000 568,250 NYSARC, Inc., 5.25%, 7/1/18, (FSA Insured), Callable 7/1/12 @ 101 1,460,000 1,567,602 1,460,000 1,567,602 Sloan Kettering Institute, 5.50%, 7/1/23, (MBIA Insured) 1,300,000 1,395,823 1,300,000 1,395,823 St. Johns University, 5.00%, 7/1/24, (MBIA Insured), Callable 7/1/17 @ 100 1,000,000 1,009,350 1,000,000 1,009,350 State Personal Income Tax Revenue, 5.00%, 3/15/23, Callable 3/15/15 @ 100 1,000,000 1,029,210 1,000,000 1,029,210 Teachers College, MBIA Insured, 4.00%, 7/01/12 1,000,000 1,077,870 1,000,000 1,077,870 University of Rochester, 5.00%, 7/1/22, Callable 1/1/17 @100 500,000 504,440 500,000 504,440 New York State Dormitory Authority Revenues, City University, Refunding, Series F, FGIC Insured, 5.75%, 7/01/09 450,000 454,689 450,000 454,689 Department of Health, Refunding, Series 2, 5.00%, 7/01/19 3,740,000 3,800,027 3,740,000 3,800,027
Department of Health, Refunding, Sub Series 2, FGIC Insured, 5.00%, 7/01/18 5,000,000 5,260,700 5,000,000 5,260,700 Hospital, Insured, Mortgage, Series A, FSA Insured, 5.25%, 8/15/15 5,000,000 5,455,200 5,000,000 5,455,200 Hospital, Maimonides, MBIA Insured, 5.00%, 8/01/17, 1,720,000 1,827,139 1,720,000 1,827,139 Hospital, Maimonides, MBIA Insured, 5.00%, 8/01/19, 1,895,000 1,974,855 1,895,000 1,974,855 Mandatory Put 5/15/12, Refunding, Series B, 5.25%, 11/15/23 2,000,000 2,112,100 2,000,000 2,112,100 Montefiore Hospital, FGIC Insured, 5.00%, 2/01/18 2,975,000 3,142,373 2,975,000 3,142,373 New York State Department of Health, Refunding, 5.25%, 7/01/17 5,000,000 5,232,500 5,000,000 5,232,500 Non-State Supported Debt, Bishop Henry B. Hucles Nursing, 5.00%, 7/01/24 4,765,000 4,526,512 4,765,000 4,526,512 Non-State Supported Debt, Mount Sinai School Medical New York University, Refunding, MBIA Insured, 5.00%, 7/01/19 2,500,000 2,683,025 2,500,000 2,683,025 Non-State Supported Debt, Mount Sinai School Medical New York University, Refunding, MBIA Insured, 5.00%, 7/01/20 3,670,000 3,898,861 3,670,000 3,898,861 Non-State Supported Debt, Municipal Health Facilities, Lease, Refunding, Sub Series 2-2, 5.00%, 1/15/21 6,675,000 7,063,485 6,675,000 7,063,485 Non-State Supported Debt, New York University, Series A, AMBAC Insured, 5.00%, 7/01/23 2,000,000 2,077,880 2,000,000 2,077,880 Non-State Supported Debt, North Shore L.I. Jewish Obligation Group, Series A, 5.00%, 5/01/23 2,000,000 1,798,240 2,000,000 1,798,240 Non-State Supported Debt, School District Bond Financing Program, Series C, Assured Guaranty, 7.25%, 10/01/28 7,615,000 8,730,064 7,615,000 8,730,064 (a) Non-State Supported Debt, School Districts, Financing Program, Series A, Assured Guaranty, 5.00%, 10/01/24 5,000,000 5,044,700 5,000,000 5,044,700 Office of General Services, MBIA Insured, Pre-Refunded, 5.00%, 4/01/18 2,000,000 2,020,000 2,000,000 2,020,000 Secured Hospital, Catskill Regional, Refunding, FGIC Insured, 5.25%, 2/15/18 2,300,000 2,465,048 2,300,000 2,465,048 St. John's University, Series A, MBIA Insured, 5.00%, 7/01/14 750,000 800,468 750,000 800,468 State Supported Debt, FSA Insured, 5.00%, 2/15/19 5,470,000 5,672,663 5,470,000 5,672,663 State Supported Debt, FSA Insured, 5.00%, 2/15/20 3,500,000 3,594,640 3,500,000 3,594,640 State Supported Debt, FSA Insured, 5.00%, 2/15/21 5,475,000 5,560,629 5,475,000 5,560,629 State Supported Debt, Lease, State University Dormitory Facilities, Series A, MBIA Insured, 5.00%, 7/01/21 1,980,000 2,009,898 1,980,000 2,009,898 State Supported Debt, Lease, State University Dormitory Facilities, Series A, MBIA Insured, 5.00%, 7/01/22 1,730,000 1,744,515 1,730,000 1,744,515 State University Educational Facilities, Third General Resolution, Refunding, Series A, MBIA Insured, 5.50%, 5/15/21 7,000,000 7,479,080 7,000,000 7,479,080 University of Rochester, Series A, Pre-Refunded, 5.25%, 7/01/21 500,000 579,425 500,000 579,425 New York State Dormitory Authority State Personal Income Tax Revenue, Education, Series D, 5.00%, 3/15/14 1,000,000 1,109,800 1,000,000 1,109,800 New York State Energy Research and Development Authority PCR, New York State Electric and Gas Corp. Project, MBIA Insured, 4.10%, 3/15/15 2,000,000 2,015,260 2,000,000 2,015,260 Series B, MBIA Insured, 4.00%, 10/15/15 5,000,000 5,056,650 5,000,000 5,056,650 Series D, MBIA Insured, 4.10%, 12/01/15 2,000,000 2,024,020 2,000,000 2,024,020 New York State Environmental Facilities Corp., 5.70%, 1/15/14, Callable 7/15/09 @ 101 415,000 424,084 415,000 424,084 5.70%, 1/15/14, Pre-refunded 7/15/09 @ 101 15,000 15,382 15,000 15,382 New York State Environmental Facilities Corp. State Clean Water and Drinking Revenue, Revolving Funds, Series B, 5.80%, 1/15/16 1,010,000 1,029,756 1,010,000 1,029,756 Pre-Refunded, 5.80%, 1/15/16 1,490,000 1,527,980 1,490,000 1,527,980 New York State Mortgage Agency Revenue, 5.60%, 10/1/14, AMT, Callable 9/1/09 @ 100.75 1,000,000 1,005,210 1,000,000 1,005,210 New York State Municipal Bond Bank Revenue, 5.50%, 12/1/12 850,000 935,518 850,000 935,518 New York State Thruway Authority General Revenue, Series F, AMBAC Insured, 5.00%, 1/01/22 6,535,000 6,735,036 6,535,000 6,735,036 New York State Thruway Authority Highway and Bridge Trust Fund Revenue, General, Second, Refunding, Series B, AMBAC Insured, 5.00%, 4/01/21 5,000,000 5,196,500 5,000,000 5,196,500 General, Second, Series B, 5.00%, 4/01/18 5,000,000 5,413,250 5,000,000 5,413,250 Series A, FSA Insured, 5.25%, 4/01/12 1,620,000 1,779,732 1,620,000 1,779,732 New York State Thruway Authority Revenue, Personal Income Tax Revenue, 5.00%, 3/15/21, (MBIA Insured), Callable 3/15/13 @ 100 500,000 518,690 500,000 518,690 Second General Highway & Bridge, 5.00%, 4/1/22, (MBIA Insured), Callable 4/1/14 @ 100 1,000,000 1,042,800 1,000,000 1,042,800 New York State Urban Development Corp. Revenue, 5.00%, 3/15/21, (FSA Insured), Callable 3/15/15 @ 100 1,000,000 1,054,350 1,000,000 1,054,350 5.13%, 1/1/22, Callable 7/1/14 @ 100 885,000 897,735 885,000 897,735 5.75%, 4/1/12 500,000 551,410 500,000 551,410 State Personal Income Tax, Series A-1, 5.00%, 12/15/22 1,500,000 1,587,345 1,500,000 1,587,345 State Personal Income Tax, Series A-1, 5.00%, 12/15/23 2,500,000 2,621,275 2,500,000 2,621,275 State Personal Income Tax, Series C-1, Empire State, 4.125%, 12/15/16 1,490,000 1,551,626 1,490,000 1,551,626 State Personal Income Tax, Series C-1, Empire State, 4.25%, 12/15/17 1,955,000 2,026,533 1,955,000 2,026,533 North Hempstead GO, FGIC Insured, Pre-Refunded, 6.00%, 7/15/14 1,715,000 1,759,436 1,715,000 1,759,436 Olean City School District GO, Refunding, FGIC Insured, 4.375%, 6/15/17 1,335,000 1,371,646 1,335,000 1,371,646 Onondaga County, Water Authority Revenue, 5.00%, 9/15/14, (FSA Insured), Callable 9/15/10 @ 101 300,000 317,367 300,000 317,367 9/15/15, (FSA Insured), Callable 9/15/10 @ 101 665,000 702,007 665,000 702,007 Port Authority of New York & New Jersey Revenue, 5.00%, 9/1/27, Callable 9/1/13 @ 100 795,000 801,909 795,000 801,909 5.38%, 3/1/28 1,100,000 1,144,264 1,100,000 1,144,264 Port Authority of New York & New Jersey Special Obligation Revenue, 5.75%, 12/1/22, AMT, (MBIA Insured), Callable 12/1/09 @ 101 500,000 397,565 500,000 397,565
Rochester GO, MBIA Insured, ETM, 4.125%, 2/15/10 520,000 536,739 520,000 536,739 Refunding, MBIA Insured, 4.125%, 2/15/10 490,000 502,402 490,000 502,402 Sales Tax Asset Receivable Corp. Revenue, Series A, MBIA Insured, 5.25%, 10/15/18 5,000,000 5,486,700 5,000,000 5,486,700 Saratoga Springs City School District GO, Series A, FSA Insured, 4.50%, 6/15/15 1,025,000 1,072,878 1,025,000 1,072,878 Schenectady Metroplex Development Authority Revenue, FGIC Insured, 4.50%, 9/15/21 1,720,000 1,746,987 1,720,000 1,746,987 Suffolk County Judicial Facilities Agency Service Agreement Revenue, John P. Cohalan Complex, AMBAC Insured, 5.25%, 10/15/14 1,435,000 1,468,608 1,435,000 1,468,608 5.00%, 4/15/16 1,000,000 1,019,690 1,000,000 1,019,690 Suffolk County, New York GO, 5.25%, 5/1/15, (FSA Insured) 100,000 114,535 100,000 114,535 Suffolk County Water Authority Waterworks Revenue, sub. lien, Refunding, MBIA Insured, 5.10%, 6/01/13 2,000,000 2,241,220 2,000,000 2,241,220 Syracuse Industrial Development Agency Revenue, 5.00%, 1/1/36, AMT, (XLCA Insured), Callable 1/1/17 @ 100 1,000,000 793,850 1,000,000 793,850 Tobacco Settlement Financing Corp., 5.50%, 6/1/21, Callable 6/1/13 @ 100 1,000,000 1,008,690 1,000,000 1,008,690 Tobacco Settlement Financing Corp. Revenue, Asset-Backed, Series A-1, 5.10%, 6/01/19 5,000,000 5,083,100 5,000,000 5,083,100 AMBAC Insured, 5.25%, 6/01/21 4,200,000 4,256,028 4,200,000 4,256,028 Upper Mohawk Valley Regional Water Finance Authority Water System Revenue, AMBAC Insured, 5.75%, 4/01/20 165,000 170,701 165,000 170,701 Pre-Refunded, 5.75%, 4/01/20 835,000 887,605 835,000 887,605 Webster, Central School District GO, 5.00%, 6/15/14, (FSA Insured) 500,000 560,460 500,000 560,460 Western Nassau County Water Authority Water System Revenue, AMBAC Insured, 5.00%, 5/01/19 1,525,000 1,602,318 1,525,000 1,602,318 Yonkers, New York, 5.00%, 12/1/14, (MBIA Insured) 750,000 754,800 750,000 754,800 Yonkers GO, Series A, AMBAC Insured, 5.00%, 12/15/14 1,795,000 1,893,743 1,795,000 1,893,743 Yorktown Central School District GO, MBIA Insured, Pre-Refunded, 4.625%, 6/15/18 1,890,000 1,944,356 1,890,000 1,944,356 ------------- ----------- ------------ 310,492,344 38,065,809 348,558,153 ------------- ----------- ------------ U.S. TERRITORIES 9.4% PUERTO RICO 8.1% Puerto Rico Commonwealth, Highway & Transportation Authority Grant Antic Revenue, 5.00%, 9/15/17, (MBIA Insured), Callable 3/15/14 @ 100 1,000,000 1,054,000 1,000,000 1,054,000 Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Senior Lien, Series A, Assured Guaranty, 5.00%, 7/01/16 5,190,000 5,265,203 5,190,000 5,265,203 Puerto Rico Commonwealth GO, Public Improvement, Assured Guaranty Insured, 5.25%, 7/01/18 1,820,000 1,849,156 1,820,000 1,849,156 Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue, Refunding, Series N, Assured Guaranty, 5.50%, 7/01/21 4,000,000 4,158,840 4,000,000 4,158,840 Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue, Refunding, Series C, BHAC Insured, 5.50%, 7/01/20 11,550,000 13,005,416 11,550,000 13,005,416 Puerto Rico Electric Power Authority Power Revenue, 5.25%, 7/1/22, (MBIA Insured) 1,000,000 894,900 1,000,000 894,900 Puerto Rico Industrial Tourist Educational Medical and Environmental Control Facilities Financing Authority Revenue, Ana G. Mendez University System Project, 5.00%, 3/01/16 2,605,000 2,187,835 2,605,000 2,187,835 3/01/21 2,555,000 1,900,077 2,555,000 1,900,077 Puerto Rico Public Buildings Authority Revenue, 5.25%, 7/1/33, (Commonwealth Guaranteed), Callable 7/1/14 @ 100 690,000 528,927 690,000 528,927 Pre-refunded 7/1/14 @ 100 10,000 11,271 10,000 11,271 Puerto Rico Public Finance Corp. Revenue, 5.25%, 8/1/29, (MBIA Insured), Callable 7/1/10 @ 101 1,000,000 974,310 1,000,000 974,310 ------------- ----------- ------------ 28,366,527 3,463,408 31,829,935 ------------- ----------- ------------ VIRGIN ISLANDS 1.3% Virgin Islands PFAR, Virgin Islands Matching Fund Loan Notes, senior lien, Refunding, Series A, 5.30%, 10/01/11 3,000,000 3,007,620 3,000,000 3,007,620 Virgin Islands Water and Power Authority Electric System Revenue, Refunding, 5.125%, 7/01/13 1,775,000 1,759,203 1,775,000 1,759,203 Virgin Islands Water and Power Authority Water System Revenue, Refunding, 5.00%, 7/01/09 200,000 198,496 200,000 198,496 ------------- ----------- ------------ 4,965,319 4,965,319 ------------- ----------- ------------ TOTAL U.S. TERRITORIES 33,331,846 3,463,408 36,795,254 ------------- ----------- ------------ TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS (COST $383,678,598) 343,824,190 41,529,217 385,353,407 ------------- ----------- ------------ SHORT TERM INVESTMENTS 1.7% MUNICIPAL BONDS 1.6% NEW YORK 1.6% (b) New York City IDAR, Liberty, One Bryant Park LLC, Series B, Daily VRDN and Put, 0.35%, 11/01/39 1,700,000 1,700,000 1,700,000 1,700,000 (b) New York City Municipal Water Finance Authority Water and Sewer System Revenue, Refunding, Series B, Sub Series B-3, Daily VRDN and Put, 0.30%, 6/15/25 3,850,000 3,850,000 3,850,000 3,850,000 Second General Resolution, Refunding, Series CC, Sub Series CC-1, Daily VRDN and Put, 0.30%, 6/15/38 800,000 800,000 800,000 800,000 ------------- ------------ 6,350,000 6,350,000 ------------- ------------ MUTUAL FUNDS 0.1% SHARES SHARES (c) BlackRock Liquidity New York Money Fund, Portfolio Institutional Shares, 0.60% 216,189 216,189 216,189 216,189 (c) Northern Institutional Diversified Assets Portfolio, Shares Class, 0.46% 530 530 530 530 ----------- ------------ 216,719 216,719 ----------- ------------
TOTAL SHORT TERM INVESTMENTS (COST $6,566,719) 6,350,000 216,719 6,566,719 ------------- ----------- ------------ TOTAL INVESTMENTS (COST $390,245,317) 99.8% 350,174,190 41,745,936 391,920,126 OTHER ASSETS, LESS LIABILITIES 0.2% 601,341 342,131 943,472 ------------- ----------- ------------ NET ASSETS 100.0% $ 350,775,531 $42,088,067 $392,863,598 ============= =========== ============
FOOTNOTE LEGEND (a) Security purchased on a when-issued basis. (b) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain a floating or variable interest rate adjustment formula and an unconditional right of demand to receive payment of the principal balance plus accrued interest at specified dates. The coupon rate shown represents the rate at period end. (c) The rate shown is the annualized seven-day yield at period end. ABBREVIATION LEGEND AMBAC - American Municipal Bond Assurance Corp. AMT - Interest on security is subject to federal alternative minimum tax BHAC - Berkshire Hathaway Housing Assurance Corp. CIFG - CDC IXIS Financial Guaranty COP - Certificate of Participation ETM - Escrow to Maturity FGIC - Financial Guaranty Insurance Co. FSA - Financial Security Assurance Inc. GO - General Obligation IDA - Industrial Development Authority/Agency IDAR - Industrial Development Authority Revenue MBIA - Municipal Bond Investors Assurance Corp. MTA - Metropolitan Transit Authority PCR - Pollution Control Revenue PFAR - Public Financing Authority Revenue XLCA - XL Capital Assurance See notes to Pro Forma combining statements FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND HSBC NEW YORK TAX-FREE BOND FUND FINANCIAL STATEMENTS PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 2009 (UNAUDITED)
FRANKLIN NEW YORK INTERMEDIATE- FRANKLIN NEW YORK TERM TAX-FREE INTERMEDIATE-TERM HSBC NEW YORK INCOME FUND TAX-FREE INCOME TAX-FREE BOND PRO FORMA PRO FORMA FUND FUND ADJUSTMENTS COMBINED (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) ----------------- -------------- ------------ -------------- Assets: Investments in securities: Cost $ 348,059,836 $ 42,185,481 $ 390,245,317 ============= ============ ============== Value 350,174,190 41,745,936 391,920,126 Cash 159,430 -- 159,430 Receivables: Capital shares sold 1,730,004 93,168 1,823,172 Dividends 175 175 Interest 4,573,392 514,474 5,087,866 Other Assets 672 7,346 8,018 ------------- ------------ -------------- Total assets 356,637,688 42,361,099 398,998,787 ------------- ------------ -------------- Liabilities: Payables: Investment securities purchased 4,904,850 -- 4,904,850 Capital shares redeemed 274,034 89,120 363,154 Affiliates 235,963 18,509 254,472 Distributions to shareholders 384,540 133,968 518,508 Accrued expenses and other liabilities 62,770 31,435 94,205 ------------- ------------ -------------- Total liabilities 5,862,157 273,032 6,135,189 ------------- ------------ -------------- Net assets, at value $ 350,775,531 $ 42,088,067 $ 392,863,598 ============= ============ ============== Net assets consist of: Paid-in-capital $ 353,522,016 $ 42,513,465 396,035,481 Undistributed net investment income (distributions in excess of net investment income) (68,041) 295 (67,746) Net unrealized appreciation (depreciation) 2,114,354 (439,545) 1,674,809 Accumulated net realized gain (loss) (4,792,798) 13,852 (4,778,946) ------------- ------------ -------------- Net assets, at value $ 350,775,531 $ 42,088,067 $ 392,863,598 ============= ============ ============== CLASS A: Net assets, at value(a) $ 321,384,897 $ 23,258,382 $ 3,916,092 $ 348,559,371 ============= ============ ============ ============== Shares outstanding(a) 30,215,834 2,174,452 379,540 32,769,826 ============= ============ ============ ============== Net asset value per share(b) $ 10.64 $ 10.70 $ 10.64 ============= ============ ============== Maximum offering price per share (net asset value share / 97.75% and 95.25%, respectively) $ 10.88 $ 11.23 $ 10.88 ============= ============ ============== CLASS B: Net assets, at value(a) -- $ 3,916,092 $ (3,916,092) -- ============= ============ ============ ============== Shares outstanding(a) -- 366,455 (366,455) -- ============= ============ ============ ============== Net asset value and maximum offering price per share(b) -- $ 10.69 -- ============= ============ ============== CLASS C: Net assets, at value(a) $ 29,093,667 $ 477,309 $ 29,570,976 ============= ============ ============== Shares outstanding(a) 2,729,706 44,482 294 2,774,482 ============= ============ ============ ============== Net asset value and maximum offering price per share(b) $ 10.66 $ 10.73 $ 10.66 ============= ============ ============== CLASS I: Net assets, at value(a) -- $ 14,436,284 $(14,436,284) -- ============= ============ ============ ============== Shares outstanding(a) -- 1,349,506 (1,349,506) -- ============= ============ ============ ============== Net asset value and maximum offering price per share -- $ 10.70 -- ============= ============ ============== ADVISOR CLASS: Net assets, at value(a) $ 296,967 -- $ 14,436,284 $ 14,733,251 ============= ============ ============ ============== Shares outstanding(a) 27,916 -- 1,356,794 1,384,710 ============= ============ ============ ============== Net asset value and maximum offering price per share $ 10.64 -- $ 10.64 ============= ============ ==============
(a) See note 2 in the accompanying notes to Pro Forma combining statements. (b) Redemption price is equal to the net asset value less contingent sales charges, if applicable. See notes to Pro Forma combining statements FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND HSBC NEW YORK TAX-FREE BOND FUND FINANCIAL STATEMENTS PRO FORMA COMBINING STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 2009 (UNAUDITED)
FRANKLIN NEW YORK FRANKLIN NEW YORK INTERMEDIATE-TERM INTERMEDIATE-TERM HSBC NEW YORK TAX-FREE INCOME TAX-FREE INCOME TAX-FREE BOND PRO FORMA FUND PRO FORMA FUND FUND ADJUSTMENTS COMBINED (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) ----------------- ------------- ----------- ----------------- Investment Income: Dividends $ -- $ 2,284,729 $ -- $ 2,284,729 Interest 14,663,520 18,841 14,682,361 ----------- ----------- ----------- ----------- Total investment income 14,663,520 2,303,570 16,967,090 ----------- ----------- ----------- ----------- Expenses: Management fees 1,764,907 127,888 94,683(a) 1,987,478 Administration 19,841 (19,841)(b) Distribution fees: Class A 301,061 47,415(a) 348,476 Class B -- 38,955 (38,955)(b) Class C 124,003 3,712 (350)(a) 127,365 Transfer agent fees 167,045 140,965 (111,954)(a) 196,056 Custodian fees 4,930 3,651 (2,999)(a) 5,582 Reports to shareholders 27,318 17,820 (16,370)(a) 28,768 Registration and filing fees 39,777 4,311 44,088 Professional fees 32,587 73,404 (70,145)(a) 35,846 Trustees' fees and expenses 24,082 1,558 (1,558)(a) 24,082 Other 51,737 13,341 (13,341)(a) 51,737 ----------- ----------- ----------- ----------- Total expense 2,537,447 445,446 (133,415) 2,849,478 ----------- ----------- ----------- ----------- Net investment income 12,126,073 1,858,124 133,415 14,117,612 ----------- ----------- ----------- ----------- Realized and unrealized gains (losses): Net realized gain (loss) from investments (2,679,847) 138,625 (2,541,222) Net change in unrealized appreciation (depreciation) on investments (1,737,030) (1,420,461) (3,157,491) ----------- ----------- ----------- ----------- Net realized and unrealized gain (loss) (4,416,877) (1,281,836) (5,698,713) ----------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from operations $ 7,709,196 $ 576,288 $ 133,415 $ 8,418,899 =========== =========== =========== ===========
(a) Reflects elimination of duplicative expenses and economies of scale as a result of the proposed Reorganization. (b) Pro Forma adjustment for removal of expense. See notes to Pro Forma combining statements NOTES TO PRO FORMA COMBINING STATEMENTS (UNAUDITED) 1. BASIS OF REORGANIZATION Subject to approval of the proposed Agreement and Plan of Reorganization (the "Plan") by the shareholders of the HSBC New York Tax-Free Bond Fund, the Franklin New York Intermediate-Term Tax-Free Income Fund will acquire substantially all the assets of the HSBC New York Tax-Free Bond Fund (subject to the retention of certain assets to discharge liabilities) in exchange for Class A, C and Advisor Class shares of beneficial interest of the Franklin New York Intermediate-Term Tax-Free Income Fund and the distribution of such shares to shareholders of the HSBC New York Tax-Free Bond Fund in connection with its liquidation. The Reorganization will be accounted for by the method of accounting for tax-free business combinations of investment companies. The accompanying Pro Forma Combining Statements are presented to show the effect of the proposed Reorganization as if such Reorganization had occurred on April 1, 2008. The Pro Forma Combining Statement of Assets and Liabilities and Statement of Investments for the HSBC New York Tax-Free Bond Fund and the Franklin New York Intermediate-Term Tax-Free Income Fund have been combined to reflect balances as of March 31, 2009. The Pro Forma Combining Statement of Operations for the HSBC New York Tax-Free Bond Fund and the Franklin New York Intermediate-Term Tax-Free Income Fund have been combined to reflect twelve months ended March 31, 2009. The Pro Forma Combining Statements are presented for the information of the reader, and should be read in conjunction with the historical financial statements of the funds. 2. SHARES OF BENEFICIAL INTEREST The number of Class A shares issued was calculated by dividing the Class A and Class B net assets of the HSBC New York Tax-Free Bond Fund at March 31, 2009 by the Class A net asset value per share of the Franklin New York Intermediate-Term Tax-Free Income Fund at March 31, 2009. The number of Class C shares issued was calculated by dividing the Class C net assets of the HSBC New York Tax- Free Bond Fund at March 31, 2009 by the Class C net asset value per share of the Franklin New York Intermediate-Term Tax-Free Income Fund at March 31, 2009. The number of Advisor Class shares issued was calculated by dividing the Class I net assets of the HSBC New York Tax-Free Bond Fund at March 31, 2009 by the Advisor Class net asset value per share of the Franklin New York Intermediate-Term Tax-Free Income Fund at March 31, 2009. At the actual closing of the Reorganization, shareholders of the HSBC New York Tax-Free Bond Fund will receive shares of the Franklin New York Intermediate-Term Tax-Free Income Fund based on the relative net asset values of the Fund as of 1:00 p.m., Pacific Time, on the Closing Date. The actual exchange ratios may be higher or lower than those used in these pro forma statements. 3. INVESTMENT RESTRICTIONS None of the securities held by the HSBC New York Tax-Free Bond Fund as of the Closing Date will violate the investment restrictions of the Franklin New York Intermediate-Term Tax-Free Income Fund. 4. ACCOUNTING ESTIMATES The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expenses during the reporting period. Actual results could differ from those estimates. 5. SECURITY VALUATION Municipal securities generally trade in the over-the-counter market rather than on a securities exchange. The Franklin New York Tax-Free Trust (the "Trust") may utilize independent pricing services, quotations from bond dealers, and information with respect to bond and note transactions, to assist in determining a current market value for each security. The Trust's pricing services use valuation models or matrix pricing, which considers information with respect to comparable bond and note transactions, quotations from bond dealers or by reference to other securities that are considered comparable in such characteristics as rating, interest rate and maturity date, to determine current value. The Trust has procedures to determine the fair value of individual securities and other assets for which market prices are not readily available or which may not be reliably priced. Methods for valuing these securities may include: fundamental analysis, matrix pricing, discounts from market prices of similar securities, or discounts applied due to the nature and duration of restrictions on the disposition of the securities. Due to the inherent uncertainty of valuations of such securities, the fair values may differ significantly from the values that would have been used had a ready market for such investments existed. Occasionally, events occur between the time at which trading in a security is completed and the close of the NYSE that might call into question the availability (including the reliability) of the value of a portfolio security held by the fund. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services. All security valuation procedures are approved by the Trust's Board of Trustees. Investments in open-end mutual funds are valued at the closing net asset value. FRANKLIN INVESTORS SECURITIES TRUST N-14 PART C OTHER INFORMATION ITEM 15. INDEMNIFICATION. The Agreement and Declaration of Trust (the "Declaration") of Franklin Investors Securities Trust provides that any person who is or was a Trustee, officer, employee or other agent, including the underwriter, of such Trust shall be liable to such Trust and its shareholders only for (1) any act or omission that constitutes a bad faith violation of the implied contractual covenant of good faith and fair dealing, or (2) the person's own willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person (such conduct referred to herein as Disqualifying Conduct) and for nothing else. Except in these instances, these persons shall not be responsible or liable for any act or omission of any other agent of such Trust or its investment adviser or principal underwriter to the fullest extent that limitations of liability are permitted by the Delaware Statutory Trust Act (the "Delaware Act"). Moreover, except in these instances, none of these persons, when acting in their respective capacity as such, shall be personally liable to any other person, other than such Trust or its shareholders, for any act, omission or obligation of such Trust or any trustee thereof. Franklin Investors Securities Trust shall indemnify, out of its assets, to the fullest extent permitted under applicable law, any of these persons who was or is a party, or is threatened to be made a party, to any Proceeding (as defined in the Declaration) because the person is or was an agent of such Trust. These persons shall be indemnified against any expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with the Proceeding if the person acted in good faith or, in the case of a criminal proceeding, had no reasonable cause to believe that the conduct was unlawful. The termination of any proceeding by judgment, settlement or its equivalent shall not in itself create a presumption that the person did not act in good faith or that the person had reasonable cause to believe that the person's conduct was unlawful. There shall nonetheless be no indemnification for a person's own Disqualifying Conduct. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to Trustees, officers and controlling persons of the Fund pursuant to the foregoing provisions, or otherwise, the Fund has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Fund of expenses incurred or paid by a Trustee, officer or controlling person of the Fund in the successful defense of any action, suit or proceeding) is asserted by such Trustee, officer or controlling person in connection with securities being registered, the Fund may be required, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court or appropriate jurisdiction the question whether such indemnification is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. ITEM 16. EXHIBITS. The following exhibits are incorporated by reference to the Registrant's previously filed registration statements on Form N-1A indicated below, except as noted: (1) Copies of the charter of the Registrant as now in effect. (a) Agreement and Declaration of Trust of Franklin Investors Securities Trust, a Delaware statutory trust dated October 18, 2006 Filing: Post-Effective Amendment No. 43 to Registration Statement on Form N-1A File No. 033-11444 Filing Date: February 26, 2008 (b) Certificate of Amendment of Agreement and Declaration of Trust of Franklin Investors Securities Trust, a Delaware statutory trust, dated October 21, 2008 Filing: Post-Effective Amendment No. 47 to Registration Statement on Form N-1A File No. 033-11444 Filing Date: February 26, 2009 (2) Copies of the existing by-laws or corresponding instruments of the Registrant. (a) By-Laws of Franklin Investors Securities Trust, a Delaware statutory trust effective as of October 18, 2006 Filing: Post-Effective Amendment No. 43 to Registration Statement on Form N-1A File No. 033-11444 Filing Date: February 26, 2008 (3) Copies of any voting trust agreement affecting more than 5 percent of any class of equity securities of the Registrant. Not Applicable. (4) Copies of the agreement of acquisition, reorganization, merger, liquidation and any amendments to it. Form of Agreement and Plan of Reorganization is filed herewith as Attachment II to Part A of this Registration Statement. (5) Copies of all instruments defining the rights of holders of the securities being registered, including copies, where applicable, of the relevant portion of the articles of incorporation or by-laws of the Registrant. Not Applicable. (6) Copies of all investment advisory contracts relating to the management of the assets of the Registrant. (a) Investment Management Agreement dated March 1, 2008 between the Registrant on behalf of Franklin Total Return Fund and Franklin Advisers, Inc. Filing: Post-Effective Amendment No. 47 to Registration Statement on Form N-1A File No. 033-11444 Filing Date: February 26, 2009 (7) Copies of each underwriting or distribution contract between the Registrant and a principal underwriter, and specimens or copies of all agreements between principal underwriters and dealers. (a) Distribution Agreement dated March 1, 2008 between Registrant and Franklin/Templeton Distributors, Inc. Filing: Post-Effective Amendment No. 47 to Registration Statement on Form N-1A File No. 033-11444 Filing Date: February 26, 2009 (b) Form of Selling Agreements between Franklin/Templeton Distributors, Inc., and Securities Dealers dated November 1, 2003 Filing: Post-Effective Amendment No. 36 to Registration Statement on Form N-1A File No. 002-11346 Filing Date: September 3, 2004 (c) Amendment dated May 15, 2007 to form of Selling Agreement between Franklin/Templeton Distributors, Inc., and Securities Dealers dated November 1, 2003 Filing: Post-Effective Amendment No. 43 to Registration Statement on Form N-1A File No. 033-11444 Filing Date: February 26, 2008 (8) Copies of all bonus, profit sharing, pension or other similar contracts or arrangements wholly or partly for the benefit of directors or officers of the Registrant in their capacity as such. Furnish a reasonably detailed description of any plan that is not set forth in a formal document. Not Applicable. (9) Copies of all custodian agreements and depository contracts under Section 17(f) of the 1940 Act [15 U.S.C. 80a-17(f)], for securities and similar investments of the Registrant, including the schedule of remuneration. (a) Master Custodian Agreement between Registrant and Bank of New York dated February 16, 1996 Filing: Post-Effective Amendment No. 11 to Registration Statement on Form N-1A File No. 033-31326 Filing Date: March 8, 1996 (b) Amendment dated May 7, 1997 to Master Custody Agreement between Registrant and Bank of New York dated February 16, 1996 Filing: Post-Effective Amendment No. 17 to Registration Statement on Form N-1A File No. 033-31326 Filing Date: February 27, 1998 (c) Amendment dated February 27, 1998 to Master Custody Agreement between Registrant and Bank of New York dated February 16, 1996 Filing: Post-Effective Amendment No. 21 to Registration Statement on Form N-1A File No. 033-31326 Filing Date: February 27, 2001 (d) Amendment dated May 16, 2001, to the Master Custody Agreement between Registrant and Bank of New York dated February 16, 1996 Filing: Post-Effective Amendment No. 30 to Registration Statement on Form N-1A File No. 033-11444 Filing Date: December 19, 2001 (e) Amendment dated February 11, 2009, to Exhibit A of the Master Custody Agreement between Registrant and Bank of New York dated February 16, 1996 Filing: Post-Effective Amendment No. 47 to Registration Statement on Form N-1A File No. 033-11444 Filing Date: February 26, 2009 (f) Amended and Restated Foreign Custody Manager Agreement between Registrant and Bank of New York as of May 16, 2001 Filing: Post-Effective Amendment No. 30 to Registration Statement on Form N-1A File No. 033-11444 Filing Date: December 19, 2001 (g) Amendment dated February 11, 2009, to Schedule 1 of the Amended and Restated Foreign Custody Manager Agreement between Registrant and Bank of New York made as of May 16, 2001 Filing: Post-Effective Amendment No. 47 to Registration Statement on Form N-1A File No. 033-11444 Filing Date: February 26, 2009 (h) Amendment dated November 14, 2008, to Schedule 2 of the Amended and Restated Foreign Custody Manager Agreement between Registrant and Bank of New York made as of May 16, 2001 Filing: Post-Effective Amendment No. 47 to Registration Statement on Form N-1A File No. 033-11444 Filing Date: February 26, 2009 (i) Terminal Link Agreement between Registrant and Bank of New York dated February 16, 1996 Filing: Post-Effective Amendment No. 11 to Registration Statement on Form N-1A File No. 033-31326 Filing Date: March 8, 1996 (10)Copies of any plan entered into by Registrant pursuant to Rule l2b-1 under the 1940 Act [17 CFR 270.12b-1] and any agreements with any person relating to implementation of the plan, and copies of any plan entered into by Registrant pursuant to Rule 18f-3 under the 1940 Act [17 CFR 270.18f-3], any agreement with any person relating to implementation of the plan, any amendment to the plan, and a copy of the portion of the minutes of the meeting of the Registrant's directors describing any action taken to revoke the plan. (a) Class A Distribution Plan dated March 1, 2008 pursuant to Rule 12b-1 between the Registrant, on behalf of Franklin Total Return Fund, and Franklin/Templeton Distributors, Inc. Filing: Post-Effective Amendment No. 47 to Registration Statement on Form N-1A File No. 033-11444 Filing Date: February 26, 2009 (b) Class C Distribution Plan dated March 1, 2008 pursuant to Rule 12b-1 between the Registrant, on behalf of Franklin Adjustable U.S. Government Securities Fund, Franklin Floating Rate Daily Access Fund and Franklin Total Return Fund, and Franklin/Templeton Distributors, Inc. Filing: Post-Effective Amendment No. 47 to Registration Statement on Form N-1A File No. 033-11444 Filing Date: February 26, 2009 (c) Multiple Class Plan dated October 17, 2006 on behalf of Franklin Total Return Fund Filing: Post-Effective Amendment No. 47 to Registration Statement onForm N-1A File No. 033-11444 Filing Date: February 26, 2009 (11) An opinion and consent of counsel as to the legality of the securities being registered, indicating whether they will, when sold, be legally issued, fully paid and non-assessable. (a) Opinion and Consent of Counsel dated June 17, 2009, filed herewith (12) An opinion, and consent to their use, of counsel or, in lieu of an opinion, a copy of the revenue ruling from the Internal Revenue Service, supporting the tax matters and consequences to shareholders discussed in the prospectus. (a) Opinion and Consent of Counsel to be filed by Post-Effective Amendment to this Registration Statement on Form N-14 (13) Copies of all material contracts of the Registrant not made in the ordinary course of business which are to be performed in whole or in part on or after the date of filing the registration statement. (a) Fund Administration Agreement dated March 1, 2008 between Registrant, on behalf of Franklin Total Return Fund, and Franklin Templeton Services, LLC Filing: Post-Effective Amendment No. 47 to Registration Statement on Form N-1A File No. 033-11444 Filing Date: February 26, 2009 (14) Copies of any other opinions, appraisals or rulings, and consents to their use relied on in preparing the registration statement and required by Section 7 of the 1933 Act [15 U.S.C. 77g]. (a) Consent of Independent Registered Public Accounting Firm dated June 15, 2009 for the Target Funds filed herewith (b) Consent of Independent Registered Public Accounting Firm dated June 18, 2009 for the Acquiring Funds filed herewith (15) All financial statements omitted pursuant to Item 14(a)(l). Not Applicable. (16) anually signed copies of any power of attorney pursuant to which the name of any person has been signed to the registration statement. (a) Powers of Attorney dated May 19, 2009 for Franklin Investors Securities Trust, a Delaware Statutory Trust (17) Any additional exhibits which the registrant may wish to file. Not Applicable. ITEM 17. UNDERTAKINGS. (1) The undersigned registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is a part of this registration statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act, the reoffering prospectus will contain the information called for by the applicable registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The undersigned registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment to the registration statement and will not be used until the amendment is effective, and that, in determining any liability under the 1933 Act, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them. (3) The undersigned registrant agrees to file by Post-Effective Amendment the opinions and consents of counsel regarding the tax consequences of the proposed reorganizations required by Item 16(12) of Form N-14 within a reasonable time after receipt of such opinions. (4) The undersigned registrant agrees to update the Statement of Additional Information to this registration statement by Post-Effective Amendment promptly upon effectiveness to include the Accession Numbers of the Semi-Annual Reports referenced therein that will be filed following the date of filing of this registration statement but before its effective date. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form N-14 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Mateo and the State of California on the 19th day of June, 2009. FRANKLIN INVESTORS SECURITIES TRUST (Registrant) By: /s/ DAVID P. GOSS David P. Goss Vice President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated: EDWARD B. JAMIESON* Chief Executive Officer- Edward B. Jamieson Investment Management Dated: June 19, 2009 LAURA F. FERGERSON* Chief Executive Officer-Finance Laura F. Fergerson and Administration Dated: June 19, 2009 GASTON GARDEY* Chief Financial Officer and Gaston Gardey Chief Accounting Officer Dated: June 19, 2009 HARRIS J. ASHTON* Trustee Harris J. Ashton Dated: June 19, 2009 ROBERT F. CARLSON* Trustee Robert F. Carlson Dated: June 19, 2009 SAM GINN* Trustee Sam Ginn Dated: June 19, 2009 EDITH E. HOLIDAY* Trustee Edith E. Holiday Dated: June 19, 2009 CHARLES B. JOHNSON* Trustee Charles B. Johnson Dated: June 19, 2009 RUPERT H. JOHNSON, JR.* Trustee Rupert H. Johnson, Jr. Dated: June 19, 2009 FRANK W.T. LAHAYE* Trustee Frank W.T. LaHaye Dated: June 19, 2009 FRANK A. OLSON* Trustee Frank A. Olson Dated: June 19, 2009 LARRY D. THOMPSON* Trustee Larry D. Thompson Dated: June 19, 2009 JOHN B. WILSON* Trustee JOHN B. WILSON Dated: June 19, 2009 *By: /s/ DAVID P. GOSS David P. Goss Attorney-in-Fact (Pursuant to Powers of Attorney filed herewith) Exhibit Index 11(a) Opinion and Consent of Counsel dated June 17, 2009 14(a) Consent of Independent Registered Public Accounting Firm dated June 15, 2009 for the Target Funds 14(b) Consent of Independent Registered Public Accounting Firm dated June 18, 2009 for the Acquiring Funds 16(a) Powers of Attorney dated May 19, 2009 for Franklin Investors Securities Trust, a Delaware Statutory Trust