497 1 gofp3062107.txt o GOF P-3 SUPPLEMENT DATED JUNE 21, 2007 TO THE CURRENTLY EFFECTIVE PROSPECTUS OF EACH OF THE LISTED FUNDS FRANKLIN CALIFORNIA TAX-FREE INCOME FUND, INC. FRANKLIN CALIFORNIA TAX-FREE TRUST Franklin California Insured Tax-Free Income Fund Franklin California Intermediate-Term Tax-Free Income Fund Franklin California Limited-Term Tax-Free Income Fund Franklin California Tax-Exempt Money Fund FRANKLIN CAPITAL GROWTH FUND FRANKLIN CUSTODIAN FUNDS, INC. Franklin DynaTech Fund Franklin Growth Fund Franklin Income Fund Franklin U.S. Government Securities Fund Franklin Utilities Fund FRANKLIN FEDERAL TAX-FREE INCOME FUND FRANKLIN GLOBAL TRUST Franklin Global Real Estate Fund FRANKLIN GOLD & PRECIOUS METALS FUND FRANKLIN HIGH INCOME TRUST Franklin's High Income Fund FRANKLIN INVESTORS SECURITIES TRUST Franklin Adjustable U.S. Government Securities Fund Franklin Balanced Fund Franklin Convertible Securities Fund Franklin Equity Income Fund Franklin Floating Rate Daily Access Fund Franklin Limited Maturity U.S. Government Securities Fund Franklin Low Duration Total Return Fund Franklin Real Return Fund Franklin Total Return Fund FRANKLIN MANAGED TRUST Franklin Rising Dividends Fund FRANKLIN MUNICIPAL SECURITIES TRUST Franklin California High Yield Municipal Fund Franklin Tennessee Municipal Bond Fund FRANKLIN MUTUAL RECOVERY FUND FRANKLIN MUTUAL SERIES FUND INC. Mutual Beacon Fund Mutual Discovery Fund Mutual European Fund Mutual Financial Services Fund Mutual Qualified Fund Mutual Shares Fund FRANKLIN NEW YORK TAX-FREE INCOME FUND FRANKLIN NEW YORK TAX-FREE TRUST Franklin New York Insured Tax-Free Income Fund Franklin New York Intermediate-Term Tax-Free Income Fund Franklin New York Limited-Term Tax-Free Income Fund Franklin New York Tax-Exempt Money Fund FRANKLIN REAL ESTATE SECURITIES TRUST Franklin Real Estate Securities Fund FRANKLIN STRATEGIC MORTGAGE PORTFOLIO FRANKLIN STRATEGIC SERIES Franklin Aggressive Growth Fund Franklin Biotechnology Discovery Fund Franklin Flex Cap Growth Fund Franklin Global Communications Fund Franklin Global Health Care Fund Franklin Natural Resources Fund Franklin Small-Mid Cap Growth Fund Franklin Small Cap Growth Fund II Franklin Strategic Income Fund Franklin Technology Fund Franklin U.S. Long-Short Fund FRANKLIN TEMPLETON FUND ALLOCATOR SERIES Franklin Templeton Conservative Target Fund Franklin Templeton Corefolio Allocation Fund Franklin Templeton Founding Funds Allocation Fund Franklin Templeton Growth Target Fund Franklin Templeton Moderate Target Fund Franklin Templeton Perspectives Allocation Fund Franklin Templeton 2015 Retirement Target Fund Franklin Templeton 2025 Retirement Target Fund Franklin Templeton 2035 Retirement Target Fund Franklin Templeton 2045 Retirement Target Fund FRANKLIN TEMPLETON GLOBAL TRUST Franklin Templeton Hard Currency Fund FRANKLIN TEMPLETON INTERNATIONAL TRUST Templeton Foreign Smaller Companies Fund Templeton Global Long-Short Fund FRANKLIN TEMPLETON MONEY FUND TRUST Franklin Templeton Money Fund FRANKLIN VALUE INVESTORS TRUST Franklin All Cap Value Fund Franklin Balance Sheet Investment Fund Franklin Large Cap Value Fund Franklin MicroCap Value Fund Franklin MidCap Value Fund Franklin Small Cap Value Fund INSTITUTIONAL FIDUCIARY TRUST Franklin Cash Reserves Fund TEMPLETON CHINA WORLD FUND TEMPLETON DEVELOPING MARKETS TRUST TEMPLETON FUNDS, INC. Templeton Foreign Fund Templeton World Fund TEMPLETON GLOBAL INVESTMENT TRUST Templeton BRIC Fund Templeton Income Fund Templeton Emerging Markets Small Cap Fund TEMPLETON GLOBAL OPPORTUNITIES TRUST TEMPLETON GLOBAL SMALLER COMPANIES FUND TEMPLETON GROWTH FUND, INC. TEMPLETON INCOME TRUST Templeton Global Bond Fund The prospectus is amended as follows: I. THE "ANNUAL FUND OPERATING EXPENSES" AND, IF APPLICABLE, THE "EXAMPLE" TABLES UNDER THE SECTION "FEES AND EXPENSES" ARE BEING REVISED FOR THE FUNDS LISTED BELOW: (A) FRANKLIN BALANCED FUND FOOTNOTE 5 ON PAGE 11 TO THE "ANNUAL FUND OPERATING EXPENSES" TABLE IS REVISED AS FOLLOWS: 5. The investment manager and administrator have agreed in advance to limit their respective fees and to, if needed, assume as their own expense certain expenses otherwise payable by the Fund (other than certain expenses, including litigation, indemnification or other extraordinary events), so that total annual Fund operating expenses, excluding acquired fund fees and expenses, do not exceed 1.06% for Class A, 1.71% for Class C, 1.21% for Class R and 0.71% for Advisor Class. After February 28, 2009, the manager and administrator may end this arrangement at any time upon notice to the board of trustees. The manager, however, is required by the Fund's board of trustees and an exemptive order by the Securities and Exchange Commission to reduce its fee if the Fund invests in a Franklin Templeton money fund. (B) FRANKLIN CALIFORNIA LIMITED-TERM TAX-FREE INCOME FUND ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) Management fees(4) 0.50% Distribution and service (12b-1) fees 0.15% Other expenses (including administration fees) 0.45% ------------------------- ------------------------- Total annual Fund operating expenses(4) 1.10% Management and administration fee reduction(4) -0.60% ------------------------- ------------------------- NET ANNUAL FUND OPERATING EXPENSES(4) 0.50% 4. The investment manager and administrator agreed in advance to waive or limit their respective fees and to assume as their own expense certain expenses otherwise payable by the Fund so that total annual Fund operating expenses do not exceed 0.50% (other than certain expenses, including litigation, indemnification or other extraordinary events). With these reductions, the Fund paid management fees of 0.10% and net annual Fund operating expenses were 0.50% for the fiscal year ended June 30, 2006. After October 31, 2008, the manager and administrator may end this arrangement at any time upon notice to the Fund's board of trustees. EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS ---------------------------------------------- $275(1) $509 $761 $1,482 1. Assumes a contingent deferred sales charge (CDSC) will not apply. UNDER THE "MANAGEMENT" SECTION ON PAGE 40, THE SENTENCE IN THE SEVENTH PARAGRAPH THAT READS, "THE MANAGER MAY END THIS ARRANGEMENT AT ANY TIME UPON NOTICE TO THE FUND'S BOARD OF TRUSTEES," IS REPLACED WITH THE FOLLOWING: After October 31, 2008, the manager may end this arrangement at any time upon notice to the Fund's board of trustees. (C) FRANKLIN CASH RESERVES FUND ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)(1) Management fees(2) 0.40% Distribution and service (12b-1) fees 0.21% Other expenses(2) 0.23% ------------- ------------- Total annual Fund operating expenses(2) 0.84% Management fee reduction(2) -0.03% ------------- ------------- NET ANNUAL FUND OPERATING EXPENSES(2) 0.81% ------------- 1. The annual Fund operating expenses shown and included in the example below reflect the expenses of both the Fund and the Portfolio. 2. The administrator agreed in advance to limit its fees and to assume as its own expense certain expenses otherwise payable by the Fund (other than certain non-routine expenses or costs, including those relating to litigation and indemnification, reorganizations and liquidations) so that total annual Fund operating expenses do not exceed 0.81%. With this limitation, management fees, including administration fees, were 0.37% and net annual Fund operating expenses were 0.81% for the fiscal year ended June 30, 2006. After October 31, 2008, the administrator may end this arrangement at any time upon notice to the Fund's board of trustees. EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS ---------------------------------------------- $83 $265 $463 $1,034 (D) FRANKLIN GLOBAL REAL ESTATE FUND FOOTNOTE 5 ON PAGE 12 TO THE "ANNUAL FUND OPERATING EXPENSES" TABLE IS REVISED AS FOLLOWS: 5. The investment manager and administrator agreed in advance to waive or limit their respective fees and to assume, if needed, as their own expense certain expenses otherwise payable by the Fund (other than certain non-routine expenses or costs, including those relating to litigation and indemnification, reorganizations and liquidations) so that total annual Fund operating expenses do not exceed 1.40%, 2.05% and 1.05% for Class A, Class C and Advisor Class, respectively. After November 30, 2008, the manager and administrator may end this arrangement at any time upon notice to the Fund's board of trustees. (E) FRANKLIN LOW DURATION TOTAL RETURN FUND ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) CLASS A ------------------------------------------------------------- Management fees(4) 0.43% Distribution and service (12b-1) fees 0.25% Other expenses (including administration fees) 0.71% Acquired fund fees and expenses(5) 0.02% ----------- ----------- Total annual Fund operating expenses(4) 1.41% Management and administration fee reduction(4) -0.49% ----------- ----------- NET ANNUAL FUND OPERATING EXPENSES(4,5) 0.92% 4. The investment manager and administrator agreed in advance to waive or limit their respective fees and to assume as their own expense certain expenses otherwise payable by the Fund so that total annual Fund operating expenses, excluding acquired fund fees and expenses, do not exceed 0.90% (other than certain non-routine expenses or costs, including those relating to litigation and indemnification, reorganizations and liquidations). With these reductions, the Fund paid management fees of 0.14% and net annual Fund operating expenses, excluding acquired fund fees and expenses, were 0.90% for the fiscal year ended October 31, 2006. After February 28, 2009, the manager and administrator may end this arrangement at any time upon notice to the Fund's board of trustees. The manager, however, is required by the Fund's board of trustees and an exemptive order by the Securities and Exchange Commission to reduce its fee if the Fund invests in a Franklin Templeton money fund. 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. EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS -------------------------------------------------------------------------------- CLASS A $317(1) $610 $925 $1,816 1. Assumes a contingent deferred sales charge (CDSC) will not apply. UNDER THE "MANAGEMENT" SECTION ON PAGE 50, THE SENTENCE IN THE FIRST PARAGRAPH THAT READS, "THE MANAGER MAY END THIS ARRANGEMENT AT ANY TIME UPON NOTICE TO THE FUND'S BOARD OF TRUSTEES," IS REPLACED WITH THE FOLLOWING: After February 28, 2009, the manager and administrator may end this arrangement at any time upon notice to the Fund's board of trustees. (F) FRANKLIN MIDCAP VALUE FUND ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) ADVISOR CLASS A CLASS C CLASS R CLASS --------------------------------------------- Management fees(4) 0.75% 0.75% 0.75% 0.75% Distribution and service 0.35% 0.98% 0.50% None (12b-1) fees Other expenses (including 0.89% 0.89% 0.89% 0.89% administration fees) Acquired fund fees and 0.02% 0.02% 0.02% 0.02% expenses(5) --------------------------------------------- --------------------------------------------- Total annual Fund operating 2.01% 2.64% 2.16% 1.66% expenses(4) Management and administration -0.59% -0.59% -0.59% -0.59% fee reduction(4) --------------------------------------------- --------------------------------------------- NET ANNUAL FUND OPERATING 1.42% 2.05% 1.57% 1.07% EXPENSES(4,5) 4. The investment manager and administrator agreed in advance to waive or limit their respective fees and to assume as their own expense certain expenses otherwise payable by the Fund so that total annual Fund operating expenses, excluding acquired fund fees and expenses, do not exceed 1.40% for Class A, 2.03% for Class C, 1.55% for Class R and 1.05% for Advisor Class (other than certain non-routine expenses or costs, including those relating to litigation and indemnification, reorganizations and liquidations). With these reductions, the Fund paid management fees of 0.35% and net annual Fund operating expenses, excluding acquired fund fees and expenses, were 1.40% for Class A, 2.03% for Class C, 1.55% for Class R and 1.05% for Advisor Class for the fiscal year ended October 31, 2006. After February 28, 2009, the manager and administrator may end this arrangement at any time upon notice to the Fund's board of trustees. The manager, however, is required by the Fund's board of trustees and an exemptive order by the Securities and Exchange Commission to reduce its fee if the Fund invests in a Franklin Templeton money fund. 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. EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS -------------------------------------------------------------------------------- If you sell your shares at the end of the period: CLASS A $711(1) $1,112 $1,536 $2,715 CLASS C $308 $760 $1,339 $2,912 CLASS R $160 $615 $1,097 $2,427 ADVISOR CLASS $109 $462 $838 $1,896 If you do not sell your shares: CLASS C $208 $760 $1,339 $2,912 1. Assumes a contingent deferred sales charge (CDSC) will not apply. UNDER THE "MANAGEMENT" SECTION ON PAGE 52, THE SENTENCE IN THE FOURTH PARAGRAPH THAT READS, "AFTER OCTOBER 31, 2007, THE MANAGER MAY END THIS ARRANGEMENT AT ANY TIME UPON NOTICE TO THE FUND'S BOARD OF TRUSTEES" IS REPLACED WITH THE FOLLOWING: After February 28, 2009, the manager may end this arrangement at any time upon notice to the Fund's board of trustees. (G) FRANKLIN NEW YORK LIMITED-TERM TAX-FREE INCOME FUND ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) CLASS A ------------------------------------------------------------------------- Management fees(4) 0.50% Distribution and service (12b-1) fees 0.15% Other expenses (including administration fees) 0.66% ----------------- ----------------- Total annual Fund operating expenses(4) 1.31% Management and administration fee reduction and expense limitation(4) -0.81% ----------------- ----------------- NET ANNUAL FUND OPERATING EXPENSES(4) 0.50% 4. The investment manager and administrator agreed in advance to waive or limit their respective fees and to assume as their own expense certain expenses otherwise payable by the Fund so that total annual Fund operating expenses do not exceed 0.50% (other than certain non-routine expenses or costs, including those relating to litigation and indemnification, reorganizations and liquidations). With these reductions, the Fund paid no management or administration fees and net annual Fund operating expenses were 0.50% for the fiscal year ended September 30, 2006. After January 31, 2009, the manager and administrator may end this arrangement at any time upon notice to the Fund's board of trustees. EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS -------------------------------------------------------------------------- If you sell your shares at the end of the period $275(1) $553 $851 $1,699 1. Assumes a contingent deferred sales charge (CDSC) will not apply. UNDER THE "MANAGEMENT" SECTION ON PAGE 40, THE SENTENCE IN THE SEVENTH PARAGRAPH THAT READS, "THE MANAGER MAY END THIS ARRANGEMENT AT ANY TIME UPON NOTICE TO THE FUND'S BOARD OF TRUSTEES," IS REPLACED WITH THE FOLLOWING: After January 31, 2009, the manager and administrator may end this arrangement at any time upon notice to the Fund's board of trustees. (H) FRANKLIN NEW YORK TAX-EXEMPT MONEY FUND ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) Management fees(1) 0.63% Other expenses 0.16% ------------------ ------------------ Total annual Fund operating expenses(1) 0.79% Management and administration fee reduction(1) -0.15% ------------------ ------------------ NET ANNUAL FUND OPERATING EXPENSES(1) 0.64% 1. The investment manager agreed in advance to limit its fee and to assume as its own expense certain expenses otherwise payable by the Fund so that total annual Fund operating expenses do not exceed 0.64% (other than certain non-routine expenses or costs, including those relating to litigation and indemnification, reorganizations and liquidations). With these reductions, the Fund paid management fees of 0.48% and net annual Fund operating expenses were 0.64% for the fiscal year ended September 30, 2006. After January 31, 2009, the manager and administrator may end this arrangement at any time upon notice to the Fund's board of trustees. EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------------------------------------------------- $65 $237 $424 $964 UNDER THE "MANAGEMENT" SECTION ON PAGE 49, THE SENTENCE IN THE SECOND PARAGRAPH THAT READS, "THE MANAGER MAY END THIS AGREEMENT AT ANY TIME UPON NOTICE TO THE FUND'S BOARD OF TRUSTEES," IS REPLACED WITH THE FOLLOWING: After January 31, 2009, the manager and administrator may end this arrangement at any time upon notice to the Fund's board of trustees. (I) FRANKLIN REAL RETURN FUND ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) ADVISOR CLASS A CLASS --------------------------------------------------------------------------- Management fees(4) 0.42% 0.42% Distribution and service (12b-1) fees 0.25% None Other expenses (including administration fees) 0.45% 0.45% ---------------------- ---------------------- Total annual Fund operating expenses(4) 1.12% 0.87% Management and administration fee reduction(4) -0.22% -0.22% ---------------------- ---------------------- NET ANNUAL FUND OPERATING EXPENSES(4) 0.90% 0.65% 4. The investment manager and administrator agreed in advance to waive or limit their respective fees and to assume as their own expense certain expenses otherwise payable by the Fund so that total annual Fund operating expenses do not exceed 0.90% for Class A and 0.65% for Advisor Class (other than certain non-routine expenses or costs, including those relating to litigation and indemnification, reorganizations and liquidations). With these reductions, the Fund paid management fees of 0.40% and net annual Fund operating expenses were 0.90% for Class A, and 0.65% for Advisor Class for the fiscal year ended October 31, 2006. After February 28, 2009, the manager and administrator may end this arrangement at any time upon notice to the Fund's board of trustees. EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS -------------------------------------------------------------------- CLASS A $513(1) $745 $995 $1,711 ADVISOR CLASS $65 $239 $414 $850 1. Assumes a contingent deferred sales charge (CDSC) will not apply. UNDER THE "MANAGEMENT" SECTION ON PAGE 78, THE FOLLOWING IS ADDED TO THE LAST PARAGRAPH: After February 28, 2009, the manager and administrator may end this arrangement at any time upon notice to the Fund's board of trustees. (J) FRANKLIN TEMPLETON MONEY FUND TRUST ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)(1) CLASS A(3) CLASS B CLASS C CLASS R -------------------------------------------------------------------------------- Management fees(2) 0.60% 0.60% 0.60% 0.60% Distribution and service (12b-1) fees None 0.64% 0.59% 0.50% Other expenses 0.27% 0.27% 0.27% 0.27% ---------------------------------- ---------------------------------- Total annual Fund operating expenses(2) 0.87% 1.51% 1.46% 1.37% Management fee reduction(2) -0.27% -0.27% -0.27% -0.27% ---------------------------------- ---------------------------------- NET ANNUAL FUND OPERATING EXPENSES(2) 0.60% 1.24% 1.19% 1.10% 1. The annual Fund operating expenses shown and included in the example below reflect the expenses of both the Fund and the Portfolio. 2. The administrator agreed in advance to limit its fees and to assume as its own expense certain expenses otherwise payable by the Fund so that total annual Fund operating expenses do not exceed 0.60% for Class A, 1.24% for Class B, 1.19% for Class C and 1.10% for Class R (other than certain non-routine expenses or costs, including those relating to litigation and indemnification, reorganizations and liquidations). With these reductions, management fees, including administration fees, were 0.34% and net annual Fund operating expenses were 1.24% for Class B, 1.19% for Class C, 1.10% for Class R and would have been 0.60% for Class A for the fiscal year ended June 30, 2006. After October 31, 2008, the administrator may end this arrangement at any time upon notice to the Fund's board of trustees. 3. The Fund began offering Class A shares on December 15, 2006. Annual Fund operating expenses for Class A are based on the expenses for B, C and R shares for the fiscal year ended June 30, 2006. There are no distribution and service (12b-1) fees for Class A shares. EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS -------------------------------------------------------------------------------- If you sell your shares at the end of the period: CLASS A $61 $251 $456 $1,048 CLASS B $526 $751 $998 $1,781 CLASS C $221 $435 $772 $1,723 CLASS R $112 $407 $724 $1,623 If you do not sell your shares: CLASS B $126 $451 $798 $1,781 CLASS C $121 $435 $772 $1,723 (K) FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND, FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND, FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND AND FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND FOOTNOTE 5, ON PAGE 32, TO THE "ANNUAL FUND OPERATING EXPENSES" TABLE IS REVISED AS FOLLOWS: 4. The investment manager had agreed in advance to waive its asset allocation fees and to assume as its own expense certain expenses otherwise payable by the Fund so that total annual operating expenses, excluding acquired fund fees and expenses, do not exceed 0.50% for Class A, 1.15% for Class C, 0.65% for Class R and 0.15% for Advisor Class, respectively (other than certain non-routine expenses or costs, including those relating to litigation and indemnification, reorganizations and liquidations). The manager also had agreed in advance to reduce its fee to reflect reduced services resulting from the Fund's investment in a Franklin Templeton money fund. After April 30, 2009, the manager may end this arrangement at any time upon notice to the board of the trustees. The manager, however, is required by the Fund's board of trustees and an exemptive order by the Securities and Exchange Commission to reduce its fee if the Fund invests in a Franklin Templeton money fund. UNDER THE "MANAGEMENT" SECTION ON PAGE 35, THE SENTENCE IN THE FIRST PARAGRAPH THAT READS, "AFTER APRIL 30, 2008, THE MANAGER MAY END THIS AGREEMENT AT ANY TIME UPON NOTICE TO THE FUND'S BOARD OF TRUSTEES," IS REPLACED WITH THE FOLLOWING: After April 30, 2009, the manager may end this arrangement at any time upon notice to the Fund's board of trustees. (L) FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND, FRANKLIN TEMPLETON MODERATE TARGET FUND AND FRANKLIN TEMPLETON GROWTH TARGET FUND FOOTNOTES 6, 7 AND 8, BEGINNING ON PAGE 39, TO THE "ANNUAL FUND OPERATING EXPENSES" TABLE ARE REVISED AS FOLLOWS: 6. The investment manager had agreed in advance to limit its asset allocation fees and to assume as its own expense certain expenses otherwise payable by the Fund so that total annual operating expenses, excluding acquired fund fees and expenses, do not exceed 0.50% for Class A, 1.25% for Class B, 1.25% for Class C, 0.75% for Class R and 0.25% for Advisor Class, respectively (other than certain non-routine expenses or costs, including those relating to litigation and indemnification, reorganizations and liquidations). The manager also had agreed in advance to reduce its fees to reflect reduced services resulting from the Fund's investment in a Franklin Templeton money fund. After April 30, 2009, the manager may end this arrangement at any time upon notice to the Fund's board of trustees. The manager, however, is required by the Fund's board of trustees and an exemptive order by the Securities and Exchange Commission to reduce its fee if the Fund invests in a Franklin Templeton money fund. 7. The investment manager had agreed in advance to limit its asset allocation fees and to assume as its own expense certain expenses otherwise payable by the Fund so that total annual operating expenses, excluding acquired fund fees and expenses, do not exceed 0.50% for Class A, 1.25% for Class B, 1.25% for Class C, 0.75% for Class R and 0.25% for Advisor Class, respectively (other than certain non-routine expenses or costs, including those relating to litigation and indemnification, reorganizations and liquidations). The manager also had agreed in advance to reduce its fees to reflect reduced services resulting from the Fund's investment in a Franklin Templeton money fund. After April 30, 2009, the manager may end this arrangement at any time upon notice to the Fund's board of trustees. The manager, however, is required by the Fund's board of trustees and an exemptive order by the Securities and Exchange Commission to reduce its fee if the Fund invests in a Franklin Templeton money fund. 8. The investment manager had agreed in advance to waive its asset allocation fees and to assume as its own expense certain expenses otherwise payable by the Fund so that total annual operating expenses, excluding acquired fund fees and expenses, do not exceed 0.50% for Class A, 1.25% for Class B, 1.25% for Class C, 0.75% for Class R and 0.25% for Advisor Class, respectively (other than certain non-routine expenses or costs, including those relating to litigation and indemnification, reorganizations and liquidations). The manager also had agreed in advance to reduce its fees to reflect reduced services resulting from the Fund's investment in a Franklin Templeton money fund. After April 30, 2009, the manager may end this arrangement at any time upon notice to the Fund's board of trustees. The manager, however, is required by the Fund's board of trustees and an exemptive order by the Securities and Exchange Commission to reduce its fee if the Fund invests in a Franklin Templeton money fund. UNDER THE "MANAGEMENT" SECTION ON PAGE 44, THE SENTENCE IN THE FIRST PARAGRAPH THAT READS, "AFTER APRIL 30, 2008, THE MANAGER MAY END THIS AGREEMENT AT ANY TIME UPON NOTICE TO THE FUND'S BOARD OF TRUSTEES," IS REPLACED WITH THE FOLLOWING: After April 30, 2009, the manager may end this arrangement at any time upon notice to the Fund's board of trustees. (M) FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND, FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND AND FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND FOOTNOTES 6, 7 AND 8, ON PAGE 25, TO THE "ANNUAL FUND OPERATING EXPENSES" TABLE ARE REVISED AS FOLLOWS: 6. The Fund's administrator had agreed in advance to limit its administration fees and to assume as its own expense certain expenses otherwise payable by the Fund so that total annual operating expenses, excluding acquired fund fees and expenses, do not exceed 0.50% for Class A, 1.15% for Class B, 1.15% for Class C, 0.65% for Class R and 0.15% for Advisor Class, respectively (other than certain non-routine expenses or costs, including those relating to litigation and indemnification, reorganizations and liquidations). The administrator also had agreed in advance to reduce its fees to reflect reduced services resulting from the Fund's investment in a Franklin Templeton money fund. After April 30, 2008, the administrator may end this arrangement at any time upon notice to the Funds' board of trustees. The administrator, however, is required by the Fund's board of trustees and an exemptive order by the Securities and Exchange Commission to reduce its fee if the Fund invests in a Franklin Templeton money fund. 7. The administrator had agreed in advance to limit its administration fees and to assume as its own expense certain expenses otherwise payable by the Fund so that total annual operating expenses, excluding acquired fund fees and expenses, do not exceed 0.50% for Class A, 1.15% for Class B, 1.15% for Class C, 0.65% for Class R and 0.15% for Advisor Class, respectively (other than certain non-routine expenses or costs, including those relating to litigation and indemnification, reorganizations and liquidations). The administrator also had agreed in advance to reduce its fees to reflect reduced services resulting from the Fund's investment in a Franklin Templeton money fund. After April 30, 2009, the administrator may end this arrangement at any time upon notice to the Fund's board of trustees. The administrator, however, is required by the Fund's board of trustees and an exemptive order by the Securities and Exchange Commission to reduce its fee if the Fund invests in a Franklin Templeton money fund. 8. The administrator had agreed in advance to limit its administration fees and to assume as its own expense certain expenses otherwise payable by the Fund so that total annual operating expenses, excluding acquired fund fees and expenses, do not exceed 0.50% for Class A, 1.15% for Class C, 0.65% for Class R and 0.15% for Advisor Class, respectively (other than certain non-routine expenses or costs, including those relating to litigation and indemnification, reorganizations and liquidations). The administrator also had agreed in advance to reduce its fees to reflect reduced services resulting from the Fund's investment in a Franklin Templeton money fund. After April 30, 2009, the administrator may end this arrangement at any time upon notice to the Fund's board of trustees. The administrator, however, is required by the Fund's board of trustees and an exemptive order by the Securities and Exchange Commission to reduce its fee if the Fund invests in a Franklin Templeton money fund. UNDER THE "ADMINISTRATION" SECTION ON PAGE 28, THE SENTENCE IN THE LAST PARAGRAPH THAT READS, "AFTER APRIL 30, 2008, THE ADMINISTRATOR MAY END THIS AGREEMENT AT ANY TIME UPON NOTICE TO THE FUND'S BOARD OF TRUSTEES," IS REPLACED WITH THE FOLLOWING: After April 30, 2009, the administrator may end this arrangement at any time upon notice to the Fund's board of trustees (N) FRANKLIN TENNESSEE MUNICIPAL BOND FUND ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) Management fees(4) 0.60% Distribution and service (12b-1) fees 0.10% Other expenses 0.07% ------------------------ ------------------------ Total annual Fund operating expenses(4) 0.77% Management fee reduction and expense limitation(4) -0.07% ------------------------ ------------------------ NET ANNUAL FUND OPERATING EXPENSES(4) 0.70% 4. The investment manager agreed in advance to limit its fee and to assume as its own expense certain expenses otherwise payable by the Fund so that total annual Fund operating expenses do not exceed 0.70% (other than certain non-routine expenses or costs, including those relating to litigation and indemnification, reorganizations and liquidations). With these reductions, the Fund paid management fees of 0.53% and net annual Fund operating expenses were 0.70% for the fiscal year ended May 31, 2006. After September 30, 2008, the manager may end this arrangement at any time upon notice to the Fund's board of trustees. EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS ---------------------------------------------- $493(1) $654 $828 $1,332 1. Assumes a contingent deferred sales charge (CDSC) will not apply. UNDER THE "MANAGEMENT" SECTION ON PAGE 28, THE SENTENCE IN THE SIXTH PARAGRAPH THAT READS, "THE MANAGER MAY END THIS ARRANGEMENT AT ANY TIME UPON NOTICE TO THE FUND'S BOARD OF TRUSTEES," IS REPLACED WITH THE FOLLOWING: After September 30, 2008, the manager may end this arrangement at any time upon notice to the Fund's board of trustees. (O) FRANKLIN TOTAL RETURN FUND ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) ADVISOR CLASS A CLASS B(4) CLASS C CLASS R CLASS ------------------------------------------------------------------------------- Management fees(6) 0.41% 0.41% 0.41% 0.41% 0.41% Distribution and service (12b-1) fees 0.25% 0.65% 0.65% 0.50% None Other expenses 0.40% 0.40% 0.40% 0.40% 0.40% Acquired fund fees and expenses(7) 0.03% 0.03% 0.03% 0.03% 0.03% ----------------------------------------------- ----------------------------------------------- Total annual Fund operating expenses(6) 1.09% 1.49% 1.49% 1.34% 0.84% Management and administration -0.21% -0.21% -0.21% -0.21% -0.21% fee reduction and expense limitation(6) ----------------------------------------------- ----------------------------------------------- NET ANNUAL FUND OPERATING EXPENSES(6) 0.88% 1.28% 1.28% 1.13% 0.63% 4. New or additional investments into Class B are no longer permitted. Existing shareholders of Class B shares may continue as Class B shareholders, continue to reinvest dividends into Class B shares and exchange their Class B shares for Class B shares of other Franklin Templeton funds as permitted by the current exchange privileges. 6. The investment manager and administrator agreed in advance to waive or limit their respective fees and to assume as their own expense certain expenses otherwise payable by the Fund so that total annual Fund operating expenses, excluding acquired fund fees and expenses, do not exceed 0.85% for Class A, 1.25% for Class B, 1.25% for Class C, 1.10% for Class R and 0.60% for Advisor Class (other than certain non-routine expenses or costs, including those relating to litigation and indemnification, reorganizations and liquidations). With these reductions, the Fund paid management fees of 0.38% and net annual Fund operating expenses, excluding acquired fund fees and expenses, were 0.85% for Class A, 1.25% for Class B, 1.25% for Class C, 1.10% for Class R and 0.60% for Advisor Class for the fiscal year ended October 31, 2006. After February 28, 2009, the manager and administrator may end this arrangement at any time upon notice to the Fund's board of trustees. The manager, however, is required by the Fund's board of trustees and an exemptive order by the Securities and Exchange Commission to reduce its fee if the Fund invests in a Franklin Templeton money fund. 7. Net annual Fund operating expenses differ from the ratio of expenses to average net assets shown in the Financial Highlights, which reflect the operating expenses of the Fund and do not include acquired fund fees and expenses. EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS -------------------------------------------------------------------------- If you sell your shares at the end of the period: CLASS A $511(1) $731 $968 $1,649 CLASS B $530 $744 $980 $1,732(2) CLASS C $230 $444 $780 $1,731 CLASS R $115 $397 $701 $1,563 ADVISOR CLASS $64 $241 $432 $985 If you do not sell your shares: CLASS B $130 $444 $780 $1,732(2) CLASS C $130 $444 $780 $1,731 1. Assumes a contingent deferred sales charge (CDSC) will not apply. 2. Assumes conversion of Class B shares to Class A shares, after eight years, lowering your annual expenses from that time on. UNDER THE "MANAGEMENT" SECTION, THE SENTENCE IN THE SECOND PARAGRAPH ON PAGE 69 THAT READS, "THE MANAGER MAY END THIS ARRANGEMENT AT ANY TIME UPON NOTICE TO THE FUND'S BOARD OF TRUSTEES," IS REPLACED WITH THE FOLLOWING: After February 28, 2009, the manager may end this arrangement at any time upon notice to the Fund's board of trustees. II. FOR FUNDS THAT OFFER ADVISOR CLASS SHARES, UNDER THE "CHOOSING A SHARE CLASS - QUALIFIED INVESTORS - ADVISOR CLASS" SECTION, THE BULLET POINT THAT BEGINS WITH "SHARES ACQUIRED BY A FINANCIAL INTERMEDIARY THAT THE INTERMEDIARY HOLDS ON BEHALF OF A BENEFICIAL OWNER WHO HAS ENTERED..." IS REPLACED WITH THE FOLLOWING: Shares acquired by a financial intermediary that the intermediary holds on behalf of a beneficial owner who has entered into a comprehensive fee or other advisory fee arrangement with the financial intermediary or an affiliate or associated person of the financial intermediary, provided the financial intermediary has entered into an agreement with Distributors authorizing the sale of Fund shares. No minimum initial investment. III. FOR FUNDS THAT INCLUDE "BROKER-DEALER SPONSORED WRAP ACCOUNT PROGRAMS" IN THE "MINIMUM INVESTMENTS" TABLE UNDER "BUYING SHARES," THE LINE IS REVISED AS FOLLOWS: Broker-dealer sponsored wrap account programs No minimum IV. FOR FRANKLIN TOTAL RETURN FUND, THE SECOND PARAGRAPH ON PAGE 55 IS DELETED. V. FOR THE FRANKLIN TEMPLETON MONEY FUND, UNDER THE "PERFORMANCE" SECTION ON PAGE 6, THE LINE IN THE "AVERAGE ANNUAL TOTAL RETURNS" TABLE, "FRANKLIN TEMPLETON MONEY FUND - CLASS B" IS REVISED AS FOLLOWS: SINCE INCEPTION 1 YEAR 5 YEARS (1/1/99) ----------------------------------------------------------------------------- FRANKLIN TEMPLETON MONEY FUND - CLASS B 2.01% 1.24% 2.20% Please keep this supplement for future reference.