Franklin Strategic Mortgage Portfolio

Important Legal Information

• For investors subject to the alternative minimum tax, a small portion of fund dividends may be taxable. Distributions of capital gains are generally taxable. To avoid the imposition of 28% backup withholding on all fund distributions and redemption proceeds, U.S. investors must be properly certified on Form W-9 and non-U.S. investors on Form W-8BEN.
• All investments involve risks, including possible loss of principal. The share price and yield of Franklin Strategic Mortgage Portfolio will be affected by interest rate movements and mortgage prepayments. During periods of declining interest rates, principal prepayments tend to increase as borrowers refinance their mortgages at lower rates; therefore the fund may be forced to reinvest returned principal at lower interest rates, reducing income. Bond prices generally move in the opposite direction of interest rates. Thus, as the prices of bonds in the fund adjust to a rise in interest rates, the fund's share price may decline. The fund may be affected by issuers that fail to make interest payments and repay principal when due. Changes in the financial strength of a bond issuer or in a bond's credit rating may affect its value. The fund is actively managed but there is no guarantee that the manager's investment decisions will produce the desired results. These and other risk considerations are discussed in the fund's prospectus.
• Most Franklin Templeton funds offer multiple share classes. Share classes are subject to different fees and expenses, which will affect their performance. In general, Class A/A1 have a maximum initial sales charge; Class C/C1 shares have a 1% contingent deferred sales charge; Class Z, Advisor Class and Class R6 shares have no sales charges nor Rule 12b-1 fees; Class R shares have no sales charges, but do have a Rule 12b-1 fee.
• Total Returns include change in share price, assume reinvestment of all distributions, and reflect the deduction of fund expenses and applicable fees. Total Returns With Sales Charge: returns reflect the deduction of the stated sales charge. Total returns, distribution rate, and yields reflect any applicable expense reductions, without which the results for those impacted funds would have been lower.
• For more information on any of our funds, contact your financial professional or download a prospectus. Investors should carefully consider a fund's investment goals, risks, sales charges and expenses before investing. The prospectus contains this and other information. Please read the prospectus carefully before investing or sending money.
• Class R6 shares are only offered to certain eligible investors as stated in the prospectus. They are offered without sales charges or Rule 12b-1 fees.
• Advisor Class, Class R, Class R6 and Class Z shares are only offered to certain eligible investors as stated in the prospectus. The fund offers multiple share classes, which are subject to different fees and expenses that will affect their performance. Please see the prospectus for details. Change the share class selection in the dropdown at the top of this page in order to see its performance details.

Footnotes

1. Portfolio holdings are subject to change.
2. Portfolio holdings are subject to change.
3. A statistical measurement of the range of a fund's total returns. In general, a higher standard deviation means greater volatility. Based on the fund's monthly returns over the 3-year period ended as of the date of the calculation.
4. A statistical measurement of a fund's historical risk-adjusted performance. It is calculated by taking a fund's excess return over that of the three-month Treasury bill divided by its standard deviation. Higher values generally indicate better historical risk-adjusted performance. Based on the 3 years ended as of the date of the calculation.
5. The fund's 30-Day Standardized Yield is calculated using the net income (interest and dividends) per share earned over a trailing 30-day period (annualized), divided by the fund's share price at the end of that period. It may not equal the fund's actual income distribution rate, which reflects the fund's past dividends paid to shareholders.
6. Public Offering Price — Purchase price for each share of the fund on a given day. It includes the maximum initial sales charge, if any.
7. Net Asset Value — The amount per share you would receive if you sold shares that day.
8. Source: Morningstar®. For each mutual fund and exchange traded fund with at least a 3-year history, Morningstar calculates a Morningstar Rating based on how a fund ranks on a Morningstar Risk-Adjusted Return measure against other funds in the same category. This measure takes into account variations in a fund's monthly performance, and does not take into account the effects of sales charges and loads, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. The weights are: 100% 3-year rating for 36-59 months of total returns, 60% 5-year rating/40% 3-year rating for 60-119 months of total returns, and 50% 10-year rating/30% 5-year rating/20% 3-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent 3-year period actually has the greatest impact because it is included in all three rating periods. Morningstar Rating is for the named share class only; other classes may have different performance characteristics. Past performance is not an indicator or a guarantee of future performance.
9. ©2020 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.
10. Effective August 1, 2017, the fund began offering Class R6 shares. Performance quotations have been calculated as follows: (a) for periods prior to August 1, 2017, a restated figure is used based on the fund's Advisor Class/Class Z performance, adjusted to take into account differences in class specific operating expenses and (b) for periods after August 1, 2017, actual Class R6 performance is used, reflecting all charges and fees applicable to that class.
11. The Gross Expense Ratio does not include an expense reduction or fee waiver related to the Fund's investment in a Franklin Templeton money fund and/or other Franklin Templeton fund, contractually guaranteed through 1/31/20. Fund investment results reflect the fee reduction; without this reduction, the results would have been lower. Please see the prospectus for additional information.
12. Interest Rate Derivatives sector consists of Treasury, interest rate and other derivatives that are primarily used for duration management; a negative number indicates that we are seeking to hedge interest rate risk.
13. Interest Rate Derivatives sector consists of Treasury, interest rate and other derivatives that are primarily used for duration management; a negative number indicates that we are seeking to hedge interest rate risk.
14. Securities, except for those labeled Not Rated ("NR"), are assigned ratings by one or more Nationally Recognized Statistical Rating Organizations ("NRSRO"), such as Standard & Poor's, Moody's and Fitch, that can be considered by the investment manager as part of its independent security analysis. When ratings from multiple agencies are available, the highest is used, consistent with the portfolio investment process. Ratings reflect an NRSRO's opinion of an issuer's creditworthiness and typically range from SP-1 (highest) to SP-3 (lowest) and long-term ratings typically ranging from AAA (highest) to D (lowest). The Refunded category consists of refunded bonds secured by U.S. government or other high-quality securities and not rerated by an NRSRO. The Not Rated category consists of ratable securities that have not been rated by an NRSRO. Cash Includes equivalents, which may be rated.
15. Securities, except for those labeled Not Rated ("NR"), are assigned ratings by one or more Nationally Recognized Statistical Rating Organizations ("NRSRO"), such as Standard & Poor's, Moody's and Fitch, that can be considered by the investment manager as part of its independent security analysis. When ratings from multiple agencies are available, the highest is used, consistent with the portfolio investment process. Ratings reflect an NRSRO's opinion of an issuer's creditworthiness and typically range from SP-1 (highest) to SP-3 (lowest) and long-term ratings typically ranging from AAA (highest) to D (lowest). The Refunded category consists of refunded bonds secured by U.S. government or other high-quality securities and not rerated by an NRSRO. The Not Rated category consists of ratable securities that have not been rated by an NRSRO. Cash Includes equivalents, which may be rated.
16. Indices are unmanaged and one cannot invest directly in them. Index returns do not reflect any fees, expenses or sales charges.
17. For performance reporting purposes, the inception date for Classes A/A1, R, R6, Z, and Advisor Class shares of all Franklin Templeton Funds is the date of effectiveness of the fund's registration statement or the first day the fund commenced operations. For Class C shares, generally the inception date is the first day the fund commenced offering such shares. Exceptions: Templeton Global Balanced Fund Classes A and C use the inception date of the old Class A and C shares, renamed Class A1 and Class C1. For Franklin Mutual Series Funds and Franklin International Small Cap Growth Fund, the inception date for Classes A, C, R and R6 shares is the funds' oldest class', Z or Advisor, inception date. Franklin U.S. Government Money Fund Class R6 inception date is the first day it commenced offering such shares.