FRANKLIN INVESTORS SECURITIES TRUST, N-30D, 1997-07-08

FRANKLIN INVESTORS SECURITIES TRUST
N-30D, 1997-07-08

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Table of Contents Page

Letter to Shareholders........................................ 1
Fund Reports
Franklin Global Government
Income Fund .................................................. 3
Franklin Short-Intermediate
U.S. Government Securities Fund .............................. 13
Franklin Convertible
Securities Fund .............................................. 19
Franklin Adjustable U.S.
Government Securities Fund ................................... 27
Franklin Equity Income Fund .................................. 31
Franklin Adjustable Rate
Securities Fund .............................................. 39
Statement of Investments ..................................... 43
Financial Statements ......................................... 61
Notes to Financial Statements ................................ 67

LETTER TO SHAREHOLDERS

June 15, 1997

Dear Shareholder:

We are pleased to bring you the Franklin Investors Securities Trust semi-annual
report for the period ended April 30, 1997.

A growing sense of nervousness from market participants and the Federal Reserve
Board (the Fed) shadowed the stock market's seemingly untethered rise over the
six months under review. The question on everyone's mind: "How high can the
market go?" The Dow Jones(R) Industrial Average (the Dow) gained roughly 1,000
points during the reporting period, from 6029 on November 1, 1996, to 7009 on
April 30, 1997. A variety of factors contributed to this rise, including low
inflation, moderate economic growth and relatively low interest rates.

The Dow peaked during the period at 7085 in early March, two days before sliding
160 points. A quarter-point rate hike by the Fed later in the month, and
subsequent market declines caused concern about the market's short-term
direction.

Analysts may speculate where it will go, but keep in mind that such volatility
is a normal part of investing.

There are several strategies that may help you deal with the ups and downs of
financial markets. First, develop a long-term investment plan based on
reasonable financial goals. With a plan in mind, periodically consult with your
investment representative to make sure your investments match your goals. To
help reduce concern about short-term market volatility, stay focused on your
long-term goals.

Next, consider using an investment technique called Dollar Cost Averaging. By
investing a fixed dollar amount at regular intervals, such as each month, you
automatically buy more shares when prices are low and fewer when prices are
high. This may allow you to significantly reduce your average cost per share.
Although, no investment technique can ensure a profit or completely protect
against loss, Dollar Cost Averaging does provide a simple investment strategy
that may minimize the effects of market volatility and help make the most of
your investment dollars.*

Finally, diversify your investments. Mutual funds offer a level of
diversification that is almost impossible for individual investors to achieve on
their own. Each Franklin Templeton fund has a distinct investment objective, and
our portfolio management team is dedicated to providing shareholders with
careful investment selection and constant professional supervision.

On the pages that follow, you will find detailed discussions of the six funds
included in this report. We welcome your questions, thank you for your support,
and look forward to serving you in the years to come.

Sincerely,

Charles B. Johnson

Chairman

Franklin Investors Securities Trust

*When using this strategy, you should consider your financial ability to
continue purchases through periods of low price levels or changing economic
conditions. For more information on Dollar Cost Averaging, see your investment
representative, or call Franklin Templeton Fund Information, toll free, at
1-800/DIAL BEN (1-800/342-5236).

- Celebrating 50 Years -

This year marks 50 years of business for Franklin Templeton. Over these years,
the mutual fund industry has experienced profound changes in technology,
regulations and customer expectations. As one of the largest mutual fund
families, we're proud to be an innovative industry leader, providing people like
you with an opportunity to invest around the globe. We thank you for your past
support and look forward to serving your investment needs in the years ahead.

FRANKLIN GLOBAL GOVERNMENT INCOME FUND

Your Fund's Objective:
Seeks a high level of current income consistent with preservation of capital,
with capital appreciation as a secondary consideration, through a portfolio of
domestic and foreign debt securities.*

*The risks of investing in a non-diversified global fund, such as currency
fluctuation and increased vulnerability to adverse economic, political or
regulatory developments, are described in the fund's prospectus. We are pleased
to bring you this semi-annual report of the Franklin Global Government Income
Fund, which covers the six months ended April 30, 1997.

General Economic Overview

During the period under review, interest rates fell in almost all global bond
markets, increasing the value of most fixed-income securities. At the same time,
however, the U.S. dollar rose against most foreign currencies, reducing returns
for U.S. holders of foreign bonds. Since these events affected markets
differently, market selection and currency management were two key factors
impacting the fund's performance. As discussed in the Performance Summary on
page 7, the fund provided a six-month total return of +0.78%.

U.S. Interest Rate Environment

During the summer of 1996, many bond investors feared that strong economic
growth, especially in the U.S., would lead to higher interest rates. However,
the U.S. Federal Reserve Board did not raise interest rates at its September
meeting, signaling confidence in the economy's ability to expand without
significant inflation. Reports released later indicated that U.S. economic
growth had, in fact, slowed during the third quarter of 1996. This boosted
investors' expectations for bonds, and from September 1 to the end of February,
U.S. bond prices rose as rates declined.

This decline, however, was short-lived. In March, the Federal Reserve grew
concerned that strong economic growth could lead to higher inflation and they
increased short-term interest rates by 25 basis points, from 5.25% to 5.50%.
This action caused U.S.
bond prices to fall.

Foreign Interest Rates

In most foreign markets, interest rates fell during the period. Attempting to
meet requirements for membership in the European Monetary Union, the French,
Italian, and Spanish governments cut their budgets aggressively, leading to a
significant interest-rate drop in Europe. Italian 10-year government bond yields
declined, from 8.14% to 7.59%, while the equivalent bond yields in France fell,
from 5.97% to 5.76%. Rates in most other European countries decreased by a
comparable amount.

Currency Movements

Although the interest-rate environment was generally beneficial for U.S.
investors in global bonds, the foreign exchange market was decidedly less so.
Because interest rates fell by a greater amount in almost all of the industrial
world than in the United States throughout the period, the value of the dollar
rose. The strength of the U.S. economy also enhanced the appeal of the dollar,
and the currencies of all major industrial countries declined, sometimes
significantly, versus the dollar. For example, the German mark fell 12.30%, the
Japanese yen 10.26%, and the Italian lira 11.21%.+

+Source: Micropal, for the six month period ended April 30, 1997.

Emerging Markets

The above factors had a significant impact on the debt securities of emerging
market nations.

Their higher yields were extremely attractive to investors, and in an
environment of foreign currency depreciation, their denomination in U.S. dollars
made these securities even more appealing. As a result, bond markets in emerging
market countries performed extremely well.

Portfolio Notes

Responding to these conditions, we maintained our holdings of emerging market
debt, while reducing the fund's exposure to depreciating foreign currencies.
Holdings of U.S. securities grew, from 24.7% to 31.2% of total net assets for
the period. We also made extensive use of currency hedges to increase our
exposure to the U.S. dollar. By the end of the period, our total exposure to the
U.S. dollar represented 75.9% of total net assets, up from 58.6% at the end of
October 1996. In an environment of major foreign currencies depreciating against
the U.S. dollar, this large exposure to the dollar should benefit the fund.

Franklin Global Government Income Fund
Country Distribution

As a Percentage of Total Net Assets

Country 10/31/96 4/30/97

United States 24.7% 31.2%

Germany 2.2% 17.2%

Italy 12.4% 9.7%

United Kingdom 7.5% 8.0%

Canada 11.9% 6.8%

Spain 7.4% 5.8%

Argentina 4.9% 4.8%

Japan 0.0% 4.8%

Mexico 4.5% 4.6%

Australia 9.5% 4.3%

Brazil 3.1% 1.2%

Sweden 3.0% 1.0%

Panama 0.0% 0.6%

Denmark 4.2% 0.0%

Irish Republic 1.2% 0.0%

New Zealand 3.1% 0.0%

South Africa 0.4% 0.0%

Believing that Germany's economy represented a better prospect for meeting
investors' expectations than many of Europe's other economies, we substantially
increased our investment in German bonds, from 2.2% at the beginning of the
period, to 17.2% at the end. Our purchases of German bonds were funded primarily
through decreasing our other European holdings: in Spain, from 7.4% to 5.8%; in
Italy, from 12.4% to 9.7%; and in Sweden, from 3.0% to 1.0%. We completely
eliminated our positions in Denmark and the Irish Republic, while slightly
increasing our position in the U.K., from 7.5% to 8.0%. This shift in portfolio
holdings placed the fund in a stronger position to take advantage of our
expectations for the German bond market to outperform other European markets.

We perceive further currency depreciation as a very real risk in Europe, and
will continue hedging the fund's currency holdings, seeking to protect the
dollar value of the portfolio. Our exposure to interest-rate risk has remained
roughly constant over the period, with the fund's average bond maturity
remaining relatively short, at 4.6 years.

This discussion reflects the strategies we employed for the fund during the six
months under review, and includes our opinions as of the close of the period.
Since economic and market conditions are constantly changing, our strategies,
and our evaluations, conclusions and decisions regarding portfolio holdings may
change as new circumstances arise. Although past performance of a specific
investment or sector cannot guarantee future performance, such information can
be useful in analyzing securities we purchase or sell for the fund.

As always, we remind you that there are special risks involved with global
investing related to market, currency, economic, political, and other factors,
in addition to the heightened risks associated with the relatively small size
and lesser liquidity of developing markets.

Performance Summary

Class I

The Franklin Global Government Income Fund's Class I share price, as measured by
net asset value, declined 25 cents, from $8.65 on October 31, 1996, to $8.40 on
April 30, 1997.

At the end of this reporting period, the distribution rate of the fund's Class I
shares was 6.84%, based on an annualization of the current, monthly dividend of
5.0 cents ($0.05) per share and the offering price of $8.77 per share on April
30, 1997.

The Franklin Global Government Income Fund's Class I shares recorded a
cumulative total return of 0.78% for the six months ended April 30, 1997.
Cumulative total return measures the change in value of an investment over the
period indicated, assuming reinvestment of dividends and any capital gains. It
excludes the maximum initial sales charge, and past performance is not
predictive of future results.

Franklin Global Government Income Fund
Class I

Dividend Distributions 11/1/96 - 4/30/97*

Dividend

Month per Share

November 5.0 cents

December 7.0 cents++

January 5.0 cents

February 5.0 cents

March 5.0 cents

April 5.0 cents

Total 32.0 cents

*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the day
you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period.

++The December distribution consists of a regular dividend of 5.0 cents and a
special 1996 year-end income distribution of 2.0 cents.

Franklin Global Government Income Fund

Class I

Periods ended April 30, 1997

Since
Inception
1-Year 5-Year (3/15/88)
Cumulative Total Return1 8.58% 39.01% 96.29%
Average Annual Total Return2 3.97% 5.89% 7.16%
Distribution Rate3 6.84%
30-Day Standardized Yield4 4.80%

1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the initial sales charge. See Note
below.

2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current maximum 4.25%
initial sales charge. See Note below.

3. Based on an annualization of the current 5.0 cents per share monthly dividend
and the maximum offering price of $8.77 on April 30, 1997.

4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended April 30, 1997.

Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge with dividends reinvested at the offering price. Thus, actual total
returns for purchasers of shares during that period would have been somewhat
different than noted above. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a plan of distribution under Rule
12b-1, which affects subsequent performance. All total return calculations
assume reinvestment of dividends and capital gains at net asset value, and 12b-1
fees from the date of the plan's implementation. Your investment return and
principal value will fluctuate with market conditions, and you may have a gain
or loss when you sell your shares. Past performance is not predictive of future
results. Past expense reductions by the fund's manager increased the fund's
total returns.

Performance Summary

Class II

The Franklin Global Government Income Fund's Class II share price, as measured
by net asset value, declined 25 cents from $8.65 on October 31, 1996, to $8.40
on April 30, 1997.

At the end of this reporting period, the distribution rate of the fund's Class
II shares was 6.48%, based on an annualization of the current monthly dividend
of 4.58 cents ($0.0458) per share and the maximum offering price of $8.48 on
April 30, 1997.

The Franklin Global Government Income Fund's Class II shares recorded a
cumulative total return of 0.51% for the six months ended April 30, 1997.
Cumulative total return measures the change in value of an investment over the
period indicated, assuming reinvestment of dividends and any capital gains. It
excludes the maximum initial sales charge, and past performance is not
predictive of future results.

Franklin Global Government Income Fund
Class II

Dividend Distributions 11/1/96 - 4/30/97*

Dividend
Month per Share
November 4.68 cents
December 6.68 cents++
January 4.58 cents
February 4.58 cents
March 4.58 cents
April 4.58 cents
Total 29.68 cents

++The December distribution consists of a regular dividend of 4.68 cents and a
special 1996 year-end income distribution of 2.0 cents.

Franklin Global Government Income Fund

Class II

Periods ended April 30, 1997

Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 8.12% 19.58%
Average Annual Total Return2 6.04% 8.82%
Distribution Rate3 6.48%
30-Day Standardized Yield4 4.42%

1. Cumulative total return measures the change in value of an investment over
the period indicated and does not include the sales charges.

2. Average annual total return represents the average annual change in value of
an investment over the period indicated and includes the 1.0% initial sales
charge and 1.0% contingent deferred sales charge, applicable to shares redeemed
within the first 18 months of investment.

3. Based on an annualization of the 4.58 cents per share monthly dividend and
the offering price of $8.48 on April 30, 1997.

4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended April 30, 1997.

All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Investment return and principal value will fluctuate with
market conditions, and you may have a gain or loss when you sell your shares.
Past performance is not predictive of future results.

Performance Summary

Advisor Class

The Franklin Global Government Income Fund's Advisor Class shares produced an
aggregate total return of -1.13% for the four-month period from inception on
January 1, 1997 through April 30, 1997. The price of the Fund's shares, as
measured by net asset value, decreased 30 cents ($0.30), from $8.71 on January
2, 1997 (first day of commencement of sales), to $8.41 on April 30, 1997. Of
course, past performance is not predictive of future results.

At the end of this reporting period, the distribution rate of the fund's Advisor
Class shares was 7.23%, based on an annualization of the current monthly
dividend of 5.07 cents ($0.0507) per share and the maximum offering price of
$8.41 on April 30, 1997.

Franklin Global Government Income Fund
Advisor Class

Dividend Distributions 1/2/96 - 4/30/97*

Dividend
Month per Share
January 5.07 cents
February 5.07 cents
March 5.07 cents
April 5.07 cents
Total 20.28 cents

Franklin Global Government Income Fund

Advisor Class

Period ended April 30, 1997

Since
Inception
(1/2/97)
Aggregate Total Return1 -1.13%
Distribution Rate2 7.23%
30-Day Standardized Yield3 5.12%

1. Aggregate total return represents the average annual change in value of an
investment over the indicated period. Since Advisor Class shares have been in
existence for less than one year, average annual total returns are not provided.

2. Based on an annualization of the 5.07 cents per share monthly dividend and
the offering price of $8.41 on April 30, 1997.

3. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended April 30, 1997.

FRANKLIN SHORT-INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND

Your Fund's Objective:

Seeks to provide investors with a high level of current income, while seeking to
preserve shareholders' capital, by investing primarily in U.S. government
securities with maturities between two and five years.

Market Update

Despite a difficult investment climate of rising interest rates, the Franklin
Short-Intermediate U.S. Government Securities Fund generated a cumulative total
return of +1.75% for the six-month period ended April 30, 1997, as discussed in
the Performance Summary on page 15.

Interest rates rose as a result of continued, strong U.S. economic growth and
steady employment gains, which typically lead to higher inflation. Two-year
Treasury-bills and five-year Treasury-notes ended the period with yields nearly
50 basis points higher (100 basis points equals 1.0%) than they were on November
30, 1996. Also, average hourly earnings of U.S. workers rose 3.7%, from April
30, 1996, to April 30, 1997, versus an increase of only 3.2% during the prior
one-year period.

Such wage inflation threatens the low-inflation expansion we have enjoyed for
the past seven years. The Federal Reserve Board responded to this situation by
increasing its target for the federal funds rate, from 5.25% to 5.50%, in late
March. However, many investors and analysts believe additional rate increases
may be forthcoming.

Portfolio Notes

Throughout the six-month reporting period, we maintained a cautious investment
stance, especially in relation to the portfolio's average weighted maturity.
Average weighted maturity measures the length of time it will take for a
portfolio of debt securities to mature, based on their par values. It is
important because a bond's maturity correlates with its sensitivity to interest
rates (i.e., the longer the maturity, the greater the sensitivity). And, as you
may know, when interest rates rise, the prices of previously issued bonds fall.

Based on our expectation of potentially higher inflation and interest rates, we
kept the portfolio's average weighted maturity near its minimum, at two years
and one month. Furthermore, nearly 25% of the fund's total net assets were in
overnight investments at the close of the period. This conservative stance
helped to reduce volatility in the fund's share price and allowed us to post the
small gain in cumulative total return.

This discussion reflects our strategies for the fund and includes our opinions
at the close of the reporting period. Since economic and market conditions are
constantly changing, our strategies, evaluations, conclusions and decisions
regarding the portfolio holdings discussed above may change as new circumstances
arise. Although past performance of a specific investment or sector cannot
guarantee future performance, such information can help illustrate how we
analyze the securities we purchase for the fund.

Performance Summary
Class I

The Franklin Short-Intermediate U.S. Government Securities Fund's Class I share
price, as measured by net asset value, decreased 11.0 cents from $10.28 on
October 31, 1996, to $10.17 on April 30, 1997.

At the end of the reporting period, your fund's distribution rate was 5.54%,
based on an annualization of April's monthly dividend of 4.8 cents ($0.048) per
share and the maximum offering price of $10.40 on April 30, 1997. Distributions
will vary based on the earnings of the fund's portfolio, and past distributions
are not predictive of future trends.

For the six- and 12-month periods ended April 30, 1997, your fund generated
cumulative total returns of +1.75 and +5.16%, respectively. Cumulative total
return measures the change in value of an investment over the period indicated,
assuming reinvestment of all distributions, and does not include the initial
sales charge. Past performance is not predictive of future results.

Franklin Short-Intermediate
U.S. Government Securities Fund
Dividend Distributions 11/01/96 - 4/30/97

Dividend
Month per Share
November 4.80 cents
December 4.80 cents
January 4.80 cents
February 4.80 cents
March 4.80 cents
April 4.80 cents
Total 28.80 cents

Franklin Short-Intermediate U.S. Government Securities Fund

Class I

Periods Ended April 30, 1997

Since
Inception
1-Year 5-Year 10-Year (4/15/87)
Cumulative Total Return1 5.16% 32.33% 95.47% 95.85%
Average Annual Total Return2 2.75% 5.28% 6.69% 6.68%
Distribution Rate3 5.54%
30-Day Standardized Yield4 5.49%

1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge. See Note
below.

2. Average annual total returns represent the average annual change in value of
an investment over the specified periods and reflect the maximum 2.25% initial
sales charge. See Note below.

3. Distribution rate is based on an annualization of the current
4.8-cent-per-share monthly dividend and the maximum offering price of $10.40 on
April 30, 1997.

4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended April 30, 1997.

Note: Prior to May 1, 1994, the fund reinvested dividends at the offering price.
Thus, actual total returns for purchasers of shares during that period would
have been somewhat lower than noted above. Effective May 1, 1994, the fund
eliminated the sales charge on reinvested dividends and implemented a Rule 12b-1
plan, which affects subsequent performance.

All total return calculations assume reinvestment of dividends and capital
gains, if any, at net asset value. Your investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when you
sell your shares. Past performance is not predictive of future results. Past
expense reductions by the fund's manager increased the fund's total returns.

Performance Summary

Advisor Class

The Franklin Short-Intermediate U.S. Government Securities Fund's Advisor Class
share price, as measured by net asset value, decreased 7.0 cents to $10.17 on
April 30, 1997, from $10.24 on January 2, 1997, the day these shares became
available. During the four-month period, your fund paid income distributions
totaling 19.13 cents ($0.1913) per share. Distributions will vary based on the
earnings of the fund's portfolio, and past distributions are not predictive of
future trends. Based on an annualization of the current monthly dividend of 4.86
cents ($0.0486) per share and the fund's share price of $10.17 on April 30,
1997, your fund's distribution rate was 5.73%.

For the four-month period ended April 30, 1997, your fund posted a cumulative
total return of +1.19%, Cumulative total return measures the change in value of
an investment over the specified periods, and assumes reinvestment of dividends
and capital gains.

Franklin Short-Intermediate
U.S. Government Securities Fund
Advisor Class

Dividend Distributions 1/2/97- 4/30/97

Dividend
Month per Share
January 4.55 cents
February 4.86 cents
March 4.86 cents
April 4.86 cents
Total 19.13 cents

Franklin Short-Intermediate U.S. Government Securities Fund

Advisor Class

Period Ended April 30, 1997

Since
Inception
(1/02/97)
Cumulative Total Return1 1.19%
Distribution Rate2 5.73%
30-Day Standardized Yield3 5.60%

1. Cumulative total return measures the change in value of an investment over
the period indicated. Since Advisor Class shares have been in existence for less
than one year, average annual total returns are not provided.

2. Distribution rate for Advisor Class is based on an annualization of the
current 4.86-cent-per-share monthly dividend and share price of $10.17 on April
30, 1997.

3. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended April 30, 1997.

FRANKLIN CONVERTIBLESECURITIES FUND

Your Fund's Objective:

Seeks to maximize total return consistent with reasonable risk through a
portfolio of convertible securities.

The Franklin Convertible Securities Fund's Class I shares generated a cumulative
total return of +5.54% for the six-month period ended April 30, 1997, as
discussed in the Performance Summary on page 23.

Our investing strategy is to purchase convertible securities that we believe
offer strong total-return potential and have favorable risk/reward profiles.
During this reporting period, many of the securities that met our investing
criteria were issued by companies in the technology sector, as well as by
Argentina-based firms.

Technology

During the first part of the period, we increased our positions in Altera,
Xilinx, and Solectron. Solectron provides manufacturing services to high-tech
companies (called contract manufacturing), while Altera and Xilinx develop
programmable silicon chips. We were able to purchase the shares of these
high-quality companies at deep discounts to their fair values, as the high-tech
sell-off in July depressed these securities' prices.

Continuing a trend of appreciation that began in late July, these firms'
securities appreciated significantly through February 1997, as investors
gradually returned to the technology sector. In fact, the common stocks of these
three companies each hit new 52-week highs during the six months, propping up
prices on the convertible securities we owned.

As the prices of our technology issues rose, we believe they approached their
full value. This made the risk/reward relationship less attractive, since the
downside risk had increased. For example, in July 1996, Altera's convertible
bond was trading in the mid-$90s, and by April it had appreciated to around
$206. In February, we began taking profits from our technology holdings and, by
the end of the reporting period, had sold our entire position in Altera and
significantly reduced our exposure to Xilinx and Solectron.

Revisiting a security mentioned in the previous report, our DII Group
convertible bond appreciated roughly 10% during April. In our opinion, this
provider of contract manufacturing is well-positioned to take advantage of the
outsourcing trend characteristic of today's business world. Although the
convertible's price remained relatively flat during the fund's 1995-96 fiscal
year, it seems the market is beginning to recognize the value in DII's shares.

Argentina-Based Companies

Similar to the common shares of Altera and Xilinx at the time of purchase, the
common shares of many Argentine companies also appeared relatively inexpensive.
In particular, we invested in two utilities -- Telefonica de Argentina and
Telecom Argentina -- as well as in Argentina's largest, private commercial bank,
Banco de Galicia.

Why were these companies' common shares so inexpensive? One possible reason was
the Mexican peso crisis in 1994 that prompted many investors to pull money out
of Latin America. This exodus caused the region's stock prices to fall, and some
economies to deteriorate.

Recently, however, Argentina has shown signs of economic recovery. Increased
consumer spending and commercial lending, accelerating job creation, and foreign
capital returning to the country are allowing Argentina to refinance its debt on
more attractive terms. In fact, given Argentina's favorable prospects, Standard
& Poor's(R), a national credit-rating agency, recently upgraded its rating of
the country's debt. Additionally, Standard & Poor's elevated Telefonica de
Argentina and Telecom Argentina to investment-grade status. (Investment-grade
bonds are those rated AAA to BBB-, within the top-four bond rating categories.)
Against this backdrop we believe, our Argentine convertible investments
performed well during the period as the underlying common stocks appreciated,
between roughly 22% and 43%.

Other Positions

Although some technology issues helped the fund's performance, others did not.
For example, HMT Technology, which manufactures computer peripherals, was
expanding production in February and March to meet increasing demand. A flaw in
the manufacturing process, however, forced the company to discard some
materials. This hurt profit margins and caused the company's common stock to
drop from $20 to $10. Our convertible position faired better, declining only 20%
in value compared with the common stock's 50% decline. We still believe in the
longer-term prospects for the company, and are monitoring the situation closely.

Looking Forward

We recently invested in several health-care companies, and may focus more on
this sector in the coming months. In particular, we are quite interested in
companies that own or operate nursing homes. If interest rates continue to rise,
we want to be invested in companies that are less cyclical (react less to
overall economic changes). Since people always need health care, regardless of
what's happening in the economy, we believe such companies meet this criterion.

GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT

Securities of many such companies still seemed inexpensive at the close of the
period. Investors' fears about health-care pricing -- especially with regard to
potential Medicare cuts -- have held stock prices down. Currently, the federal
government is trying to define pricing and reimbursement policies, and initial
proposals look promising. As the concern over severe price cuts fades, we can
focus our analyses on individual companies' business fundamentals. Some
companies that currently look attractive in this area include Vencor and
Integrated Health Services.

Franklin Convertible Securities Fund
Top Five Holdings on April 30, 1997
Based on Total Net Assets
Company (Type of Security) % of Total

IndustryNet Assets

Nortel (Convertible Preferred Stock) 3.52%
Telecommunications
Dovatron (Convertible Bond) 3.33%
Electronics
Telefonica de Argentina
(Common Stock) 2.42%
Telecommunications
YPF (Common Stock) 1.93%
Oil and Gas
Wilshire Financial Services
(Convertible Bond) 1.72%
Financial Services

For a complete list of portfolio holdings, please see
page 48 of this report.
Performance Summary

Class I

The Franklin Convertible Securities Fund's Class I share price, as measured by
net asset value, decreased 48.0 cents ($0.48) during the reporting period, from
$13.45 on October 31, 1996, to $12.97 on April 30, 1997.

In addition to distributing 30.0 cents ($.30) cents per share in dividend
income, your fund paid out 72.5 cents ($0.725) per share in short-term capital
gains and 17.6 cents ($0.176) per share in long-term capital gains.
Distributions will vary depending on the fund's income and any profits realized
from the sales of securities in the fund's portfolio. Past distributions are not
predictive of future trends. Based on an annualization of April's monthly
dividend of 5.0 cents ($0.05) per share and the maximum offering price of $13.58
on April 30, 1997, your fund's distribution rate was 4.42%.

For the six- and 12-month periods ended April 30, 1997, your fund generated
cumulative total returns of +5.54% and +10.18%, respectively. Total return
measures the change in value of an investment over the period indicated,
assuming reinvestment of all distributions, and does not include the sales
charge. Past performance is not predictive of future results.

Franklin Convertible Securities Fund
Class I

Dividend Distributions 11/1/96 - 4/30/97

Dividend
Month per Share
November 5.0 cents
December 5.0 cents
January 5.0 cents
February 5.0 cents
March 5.0 cents
April 5.0 cents
Total 30 cents

Franklin Convertible Securities Fund

Class I

Periods Ended April 30, 1997

Since
Inception
1-Year 5-Year 10-Year (4/15/87)
Cumulative Total Return1 10.18% 95.79% 194.27% 194.57%
Average Annual Total Return2 5.23% 13.33% 10.88% 10.84%
Distribution Rate3 4.42%
30-Day Standardized Yield4 3.99%
Value of $10,000 Investment5 $10,523 $18,696 $28,091 $28,118

1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charge. See Note below.

2. Average annual total returns represent the average annual change in value of
an investment over the specified periods and reflect the current, maximum 4.5%
initial sales charge. See Note below.

3. Distribution rate is based on an annualization of April's 5.0-cent-per-share
monthly dividend and the maximum offering price of $13.58 on April 30, 1997.

4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended April 30, 1997.

5. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include the initial sales charge. See Note
below.

Note: Prior to July 1, 1994, Class I shares were offered at a lower initial
sales charge with dividends reinvested at the offering price. Thus, actual total
returns for purchasers of shares during that period would have been somewhat
higher than noted above. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which affects
subsequent performance.

All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares. Past performance is not predictive of future results. Past expense
reductions by the fund's manager increased the fund's total returns.

The Franklin Convertible Securities Fund's Class I shares paid per-share
distributions derived from long-term capital gains of 17.6 cents ($0.176) in
December 1996. The fund hereby designates such distributions as capital gains
dividends per Section 852 (b)(3) of the Internal Revenue Code.

Performance Summary

Class II

The Franklin Convertible Securities Fund's Class II share price, as measured by
net asset value, decreased 48.0 cents ($0.48) during the reporting period, from
$13.41 on October 31, 1996, to $12.93 on April 30, 1997.

In addition to distributing 25.25 cents ($0.2525) in dividend income per share,
your fund paid out 72.5 cents ($0.725) in short-term capital gains and 17.6
cents ($0.176) per share in long-term capital gains. Distributions will vary
depending on the fund's income and any profits realized from the sales of
securities in the fund's portfolio. Past distributions are not predictive of
future trends. Based on an annualization of April's monthly dividend of 4.22
cents ($0.0422) per share and the offering price of $13.06 on April 30, 1997,
your fund's distribution rate was 3.88%.

For the six- and 12-month periods ended April 30, 1997, your fund generated
cumulative total returns of +5.18% and +9.29%, respectively. Cumulative total
return measures the change in value of an investment, assuming reinvestment of
all distributions, and does not include sales charges. Past performance is not
predictive of future results.

Franklin Convertible Securities Fund
Class II

Dividend Distributions 11/1/96 - 4/30/97

Dividend
Month per Share
November 4.32 cents
December 4.32 cents
January 4.13 cents
February 4.13 cents
March 4.13 cents
April 4.22 cents
Total 25.25 cents

Franklin Convertible Securities Fund

Class II

Periods Ended April 30, 1997

Since
Inception
1-Year (10/2/95)
Cumulative Total Return1 9.29% 19.46%
Average Annual Total Return2 7.25% 11.23%
Distribution Rate3 3.88%
30-Day Standardized Yield4 3.39%
Value of $10,000 Investment $10,725 $11,827

1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include sales charges.

2. Average annual total returns represent the average annual change in value of
an investment over the specified periods and reflect the maximum 1.0% initial
sales charge and 1.0% contingent deferred sales charge, applicable to shares
redeemed within the first 18 months of investment.

3. Distribution rate is based on an annualization of April's 4.22-cent-per-share
monthly dividend and the offering price of $13.06 on April 30, 1997.

4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended April 30, 1997.

5. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include the sales charges. See Note below.

The Franklin Convertible Securities Fund's Class II shares paid per-share
distributions derived from long-term capital gains of 17.6 cents ($0.176) in
December 1996. The fund hereby designates such distributions as capital gains
dividends per Section 852 (b)(3) of the Internal Revenue Code.

FRANKLIN ADJUSTABLEU.S. GOVERNMENTSECURITIESFUND

Your Fund's Objective:
Seeks to provide a high level of current income consistent with lower volatility
of principal by investing in a portfolio consisting primarily of
adjustable-rate, U.S. government agency- guaranteed, mortgage-backed
securities.*

*Individual securities in the underlying portfolio, but not shares of the fund,
are guaranteed by the U.S. government, its agencies or instrumentalities, as to
the timely payment of principal and interest. Yield and share price are not
guaranteed and will fluctuate with market conditions.

Shareholders often ask:
What is "prepayment risk"?

In general, prepayment refers to paying a debt obligation before it is due.
Homeowners, for instance, may prepay their mortgage -- by refinancing.
Prepayment risk is a situation experienced by the mortgage lender. In the case
of adjustable rate securities, there is the risk that the borrower -- or
homeowner, in this instance -- will prepay his adjustable interest rate loan and
replace it with a fixed-rate loan if the difference in interest payments between
the two narrows. When this occurs, the lender loses his interest earnings from
the adjustable rate security. Prepayment risk is, however, more than just
refinancing risk. General economic conditions can result in increased housing
turnover. In fact, any number of situations, including relocation, death, and
divorce, may result in a mortgage being paid off early.

The Franklin Adjustable U.S. Government Securities Fund performed well in
meeting its investment objectives, posting a cumulative total return of +3.33%
for the six-month period ended April 30, 1997, as discussed in the Performance
Summary on page 29.

Inflation remained low during the reporting period. Recent strong economic
growth, however, created fears of an increase in wages and prices. As a result,
interest rates began to rise. In March, the Federal Reserve Board grew concerned
that this strong growth could lead to higher inflation, and they increased
short-term interest rates by 25 basis points, from 5.25% to 5.50%.

In such an interest-rate environment, price movements of adjustable rate
mortgage securities (ARMS) were modest. There was little danger of reaching the
coupon caps of these securities, which limit how little or, in the case of the
current rise in rates, how much they pay out in interest payments. In addition,
prepayment activity, which limits the potential price appreciation of ARMS, was
relatively low at the end of the period.

Although the number of prepayments has declined since March of last year,
prepayment risk remained. In an effort to reduce the fund's exposure to this
risk, we maintained a relatively high percentage of seasoned, nonconvertible,
adjustable rate mortgage securities. These securities are less likely to
experience high levels of prepayment and have performed extremely well lately.

Looking ahead, we anticipate slightly stronger economic growth and moderate
inflation. This probably will lead to a small increase in rates, which should
not be large enough to upset current interest-rate stability. We are actively
positioning the fund to take advantage of this environment, which should be
generally beneficial for ARMS. We continue to focus on maintaining stability of
principal while generating a yield competitive with short-term alternatives. We
have always maintained a long-term investment perspective and encourage
shareholders to do the same. Although the fund may experience occasional
short-term volatility, we believe its performance should be rewarding over the
long term.

We appreciate your participation in the Franklin Adjustable U.S. Government
Securities Fund and look forward to serving your investment needs in the months
and years to come.

Performance Summary

The Franklin Adjustable U.S. Government Securities Fund's share price, as
measured by net asset value, increased four cents, from $9.37 on October 31,
1996, to $9.41 on April 30, 1997.

At the end of the reporting period, the fund's distribution rate was 5.73%,
based on an annualization of April's monthly dividend of 4.6 cents ($0.046) per
share and the maximum offering price of $9.63 on April 30, 1997. Over the last
two months, the fund's dividend increased twice. Dividends will vary based on
the earnings of the fund's portfolio, and past distributions are not indicative
of future trends. The Franklin Adjustable U.S. Government Securities Fund
recorded a cumulative total return of +3.33% for the six months ended April 30,
1997. Cumulative total return measures the change in value of an investment over
the period indicated, assuming reinvestment of dividends and any capital gains.
It excludes the maximum initial sales charge, and past performance is not
predictive of future results.

Franklin Adjustable
U.S. Government Securities Fund
Dividend Distributions 11/1/96 - 4/30/97

Dividend
Month per Share
November 4.4 cents
December 4.4 cents
January 4.4 cents
February 4.4 cents
March 4.5 cents
April 4.6 cents
Total 26.7 cents

Franklin Adjustable U.S. Government Securities Fund

Periods ended 4/30/97

Since
Inception
1-Year 5-Year (10/20/87)
Cumulative Total Return1 7.19% 20.98% 72.51%
Average Annual Total Return2 4.82% 3.41% 5.64%

Distribution Rate3 5.73%
30-Day Standardized Yield4 5.65%

1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the initial sales charge. See Note
below.

2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the maximum 2.25% initial
sales charge. See Note below.

3. Based on an annualization of the current 4.6 cents per share monthly dividend
and the maximum offering price of $9.63 on April 30, 1997.

4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended April 30, 1997.

Note: All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Your investment return and principal value will
fluctuate with market conditions, and you may have a gain or loss when you sell
your shares. Past performance is not predictive of future results.

The fund's manager agreed in advance to waive a portion of its management
expenses, which reduces operating expenses and increases yield, distribution
rate and total return to shareholders. Without these reductions, the fund's
distribution rate would have been lower, and yield for the period would have
been 5.48%. The fee waiver may be discontinued at any time upon notification to
the fund's Board of Trustees.

FRANKLIN EQUITYINCOMEFUND

Your Fund's Objective:
Seeks to maximize total return, emphasizing high, current income and capital
appreciation, consistent with reasonable risk, through a portfolio of common
stocks with above-average yields.

We are pleased to report that the Franklin Equity Income Fund's Class I shares
generated a cumulative total return of +8.75% for the six-month period ended
April 30, 1997, as discussed in the Performance Summary on page 35.

The U.S. economy gained strength during the reporting period, benefiting the
performance of the fund's holdings. Additionally, overall corporate profits
remained positive and generally above expectations for both the fourth quarter
of 1996 and the first quarter of 1997. Although inflation remained under control
throughout the year, the Federal Reserve Board raised the federal funds rate
(the rate banks charge each other for overnight loans) from 5.25% to 5.50% in
March.

The stronger-than-expected economy and rising interest rates resulted in
increased stock market volatility during the period. Although the S&P 500(R)
stock index steadily climbed to higher levels, it experienced a sharp correction
of approximately 10%, from mid-March through mid-April. Reversing a trend of the
previous year, larger capitalization stocks generally outperformed smaller
capitalization issues, and traditional value stocks registered improved relative
performance. The fund's recent investment performance largely reflected these
market trends, due to its larger capitalization and value emphases.

Portfolio Sector Update

Financial Services
The fund's investments in financial stocks, especially European banks and U.S.
savings & loans (S&Ls), experienced notable gains during the period. Stock
prices of two S&L holdings -- Great Western Financial and Roosevelt Financial --
increased when these companies became subject to takeover bids. Great Western
provided a total return of approximately +44.6% for the six-month period, while
Roosevelt returned roughly +33.4%. We also realized profits in some of our
European bank holdings such as Christiania, Nordbanken, and Credit Communal.

Utilities
The Franklin Equity Income Fund's strategy is to buy stocks of companies selling
at bargain prices according to such valuations as dividend yield, book value,
cash earnings, and revenues. This generally entails investing at times when the
company or sector is out of favor with most investors.

We believed stocks of various utilities, especially electric companies,
represented such an investment opportunity. Many of these stocks were selling at
their most attractive yield valuations in more than 25 years, due partly to
recent, higher interest rates and concern over industry deregulation. Although
the fund's electric utility stocks registered disappointing returns during the
reporting period, we took advantage of this sector's weakness by investing in
companies that should benefit from anticipated industry consolidation. For
example, we initiated an investment in Mid American Energy, a small, Iowa-based
utility that, at the time of purchase, offered a 7.5% yield and sold at
approximately 10 times our estimates of trailing 12-month earnings.

Franklin Equity Income Fund
Top Five Investment Sectors on October 31, 1996 vs. April 30, 1997

Based on Total Net Assets

October 31, 1996 April 30, 1997
- ----------------------------------- ------------------------------------
Oil Integrated 15.8% Oil Integrated 14.9%
- ----------------------------------- ------------------------------------
Electric Utilities 14.7% Electric Utilities 12.7%
- ----------------------------------- ------------------------------------
Telecommunications 10.2% Telecommunications 10.3%
- ----------------------------------- ------------------------------------
Financial Services 6.5% Financial Services 7.0%
- ----------------------------------- ------------------------------------
Real Estate Investment Trusts 5.8% Real Estate Investment Trusts 6.5%
- ----------------------------------- ------------------------------------

Oil Integrated

Energy stocks remained one of the fund's largest investment sectors (14.9% of
total net assets). This sector's business fundamentals, in terms of earnings,
cash flow and dividends, remained strong. We believe future prospects also are
favorable, as rising worldwide demand for oil and gas, relative to exploration
and production activity, should lead to strong prices and profit growth for the
industry's leaders. Energy investments represented four of the fund's top 10
positions at the close of the period, and included Atlantic Richfield, Texaco,
Amoco and Exxon.

Other

Our holdings in real estate investment trusts also performed well, and as a
result of their apprecation, represented more than 6.0% of the fund's total net
assets at the close of the period. Likewise, we took advantage of recent
strength in tobacco and pharmaceutical stocks by reducing our holdings in
companies such as Philip Morris and American Home Products, realizing profits
for the fund.

Franklin Equity Income Fund
Top 10 Holdings on April 30, 1997

Based on Total Net Assets

Company % of Total
Industry Net Assets
Atlantic Richfield Co. 2.44%
Oil
Texaco, Inc. 2.11%
Oil
Penney (J.C.) Co., Inc. 2.07%
Retail
Bristol-Meyer Squibb Co. 2.03%
Pharmaceuticals
NYNEX 2.01%
Telecommunications
U.S. West Communications Group 1.95%
Telecommunications
GTE Corp. 1.93%
Telecommunications
Southern New England
Telecommunications Corp. 1.85%
Telecommunications
Amoco Corp. 1.79%
Oil
Exxon Corp. 1.77%
Oil

For a complete list of portfolio holdings, please see
page 55 of this report.

Foreign stocks represented 14.7% of the fund's total net assets on April 30,
1997.* Currently, compared with domestic companies, many foreign stocks in
pharmaceuticals, energy, basic materials and utilities sectors offer higher
dividend yields and more attractive valuations in terms of price-to-earnings
ratios. Convertible securities represented 6.7% of total net assets. We recently
added the National Australia Bank convertible bond, which offered a 7.9%
dividend yield and an attractive conversion premium at the time of purchase.

*Foreign investing involves special risks, including currency fluctuations and
political uncertainty. These special risk considerations are discussed in the
prospectus.

Of course, not every stock meets our expectations. Two of the portfolio's
utility stocks, Unicom and Central & Southwest, turned in disappointing
performances during the period. Although we had purchased these stocks based on
attractive valuations, negative regulatory and competitive issues led to a 20%
decline in their values during the six months.

Looking forward, we remain committed to our disciplined, value-oriented
approach, which has produced consistent and favorable long-term results.

Performance Summary

Class I

The Franklin Equity Income Fund's Class I share price, as measured by net asset
value, increased 75.0 cents ($0.75) during the reporting period, from $16.41 on
October 31, 1996, to $17.16 on April 30, 1997.

In addition to distributing 33.3 cents ($0.333) per share in dividend income,
including a special, 1996 year-end distribution of 2.1 cents ($0.021) per share,
your fund paid out long-term capital gains of 32.5 cents ($0.325). Distributions
will vary based on the fund's income and any profits realized from the sale of
securities in fund's portfolio, and past distributions are not predictive of
future trends. Based on an annualization of April's monthly dividend of 5.2
cents ($0.052) per share and the maximum offering price of $17.97 on April 30,
1997, your fund's distribution rate was 3.47%.

For the six- and 12-month periods ended April 30, 1997, your fund generated
cumulative total returns of +8.75% and +13.94%, respectively. Total return
measures the change in value of an investment for the period indicated, and does
not include sales charges. Past performance is not predictive of future results.

Franklin Equity Income Fund
Class I

Dividend Distributions 11/1/96 - 4/30/97

Dividend
Month per Share
November 5.20 cents
December 7.30 cents+
January 5.20 cents
February 5.20 cents
March 5.20 cents
April 5.20 cents
Total 33.30 cents

+The dividend consisted of a regular monthly dividend of
5.2 cents and a special 1996 year-end income distribution
of 2.1 cents.

Franklin Equity Income Fund

Class I

Periods Ended April 30, 1997

Since
Inception
1-Year 5-Year (3/15/88)
Cumulative Total Return1 13.94% 87.00% 207.52%
Average Annual Total Return2 8.83% 12.30% 12.53%
Distribution Rate3 3.47%
30-Day Standardized Yield4 3.53%
Value of $10,000 Investment5 $10,882 $17,860 $29,372

1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge. See Note
below.

2. Average annual total returns represent the average annual change in
value of an investment over the specified periods and reflect the maximum 4.5%
initial sales charge. See Note below.

3. Distribution rate is based on an annualization of April's 5.2-cent-per-share
monthly dividend and the maximum offering price of $17.97 on April 30, 1997.

4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended April 30, 1997.

5. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include the initial sales charge. See Note
below.

Note: Prior to July 1, 1994, Class I shares were offered at a lower initial
sales charge with dividends reinvested at the offering price. Thus, actual total
returns for purchasers of shares during that period would have been somewhat
different than noted above. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which affects
subsequent performance.

The Franklin Equity Income Fund's Class I shares paid per-share distributions
derived from long-term capital gains of 32.5 cents ($0.325) in December 1996.
The fund hereby designates such distributions as capital gain dividends per
Section 852(b)(3) of the Internal Revenue Code.

Performance Summary

Class II

The Franklin Equity Income Fund's Class II share price, as measured by net asset
value, increased 76.0 cents ($0.76) during the reporting period, from $16.38 on
October 31, 1996, to $17.14 on April 30, 1997.

In addition to distributing 26.03 cents ($0.2603) per share in dividend income,
including a special, 1996 year-end income distribution of 0.57 cent ($0.0057)
per share, your fund paid out long-term capital gains of 32.5 cents ($0.325).
Distributions will vary based on the fund's income and any profits realized from
the sale of securities in the fund's portfolio, and past distributions are not
predictive of future trends. Based on an annualization of April's monthly
dividend of 4.49 cents ($0.0449) per share and the offering price of $17.31 on
April 30, 1997, your fund's distribution rate was 3.11%.

For the six- and 12-month periods ended April 30, 1997, your fund generated
cumulative total returns of +8.36% and +13.03%, respectively.

Cumulative total return measures the change in value of an investment for the
period indicated, assuming reinvestment of dividends, and does not include sales
charges. Past performance is not predictive of future results.

Franklin Equity Income Fund
Class II

Dividend Distributions 11/1/96 - 4/30/97

Dividend
Month per Share
November 4.38 cents
December 4.95 cents++
January 4.07 cents
February 4.07 cents
March 4.07 cents
April 4.49 cents
Total 26.03 cents

++The dividend consisted of a regular dividend of 4.38 cents and a special 1996
year-end income distribution of .57 cent.

Franklin Equity Income Fund

Class II

Periods Ended April 30, 1997

Since
Inception
1-Year (10/2/95)
Cumulative Total Return1 13.03% 23.27%
Average Annual Total Return2 10.92% 13.49%
Distribution Rate3 3.11%
30-Day Standardized Yield4 2.94%
Value of $10,000 Investment5 $11,092 $12,208

1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include sales charges.

3. Distribution rate is based on an annualization of April's 4.49-cent-per-share
monthly dividend and the offering price of $17.31 on April 30, 1997.

4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended April 30, 1997.

5. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and includes sales charges. See Note below.

The Franklin Equity Income Fund's Class II shares paid per-share distributions
derived from long-term capital gains of 32.5 cents ($0.325) in December 1996.
The fund hereby designates such distributions as capital gain dividends per
Section 852(b)(3) of the Internal Revenue Code.

FRANKLIN ADJUSTABLE RATE SECURITIES FUND

Your Fund's Objective:
Seeks to provide a high level of current income consistent with lower volatility
of principal than a fund that invests in fixed-rate securities, by investing in
a portfolio of adjustable-rate securities.

Shareholders often ask:
What is "prepayment risk"?

The Franklin Adjustable Rate Securities Fund performed well in meeting its
investment objectives, posting a cumulative total return of +3.06% for the
six-month period ended April 30, 1997, as discussed in the Performance Summary
on page 41.

In such an interest rate environment, price movements of adjustable rate
mortgage securities (ARMS) were modest. There was little danger of reaching the
coupon caps of these securities, which limit how little, or in the case of the
current rise in rates, how much they pay out in interest payments. In addition,
prepayment activity, which limits the potential price appreciation of ARMS, was
relatively low at the end of the period.

Although the number of prepayments has declined since March of last year,
prepayment risk remained. In an effort to reduce the fund's exposure to such
risk, we maintained a relatively high percentage of seasoned, nonconvertible,
adjustable rate mortgage securities. These securities are less likely to
experience high levels of prepayment and have performed extremely well lately.

Looking ahead, we anticipate slightly stronger economic growth and moderate
inflation. This probably will lead to a small increase in rates which should not
be large enough to upset current interest rate stability. We are actively
positioning the fund to take advantage of this environment, which should be
generally beneficial for ARMS. We continue to focus on maintaining stability of
principal while generating a yield competitive with short-term alternatives. We
have always maintained a long-term investment perspective and encourage
shareholders to do the same. Although the fund may experience occasional
short-term volatility, we believe its performance should be rewarding over the
long term.

We appreciate your participation in the Franklin Adjustable Rate Securities Fund
and look forward to serving your investment needs in the months and years to
come.

Performance Summary

The Franklin Adjustable Rate Securities Fund's share price, as measured by net
asset value, increased two cents, from $9.87 on October 31, 1996, to $9.89 on
April 30, 1997.

At the end of the reporting period, the fund's distribution rate was 5.34%,
based on an annualization of April's monthly dividend of 4.4653 cents
($0.044653) per share and the maximum offering price of $10.12 on April 30,
1997. Dividends will vary based on the earnings of the fund's portfolio, and
past distributions are not indicative of future trends.

The Franklin Adjustable Rate Securities Fund recorded a cumulative total return
of +3.06% for the six months ended April 30, 1997. Cumulative total return
measures the change in value of an investment over the period indicated,
assuming reinvestment of dividends and any capital gains. It excludes the
maximum initial sales charge, and past performance is not predictive of future
results.

Franklin Adjustable Rate Securities Fund
Dividend Distributions 11/1/96 - 4/30/97

Dividend
Month per Share
November 4.6403 cents
December 5.0142 cents
January 4.4881 cents
February 4.5415 cents
March 4.633 cents
April 4.4653 cents
Total 27.7824 cents

Franklin Adjustable Rate Securities Fund

Periods ended 4/30/97

Since
Inception
1-Year 5-Year (12/26/91)
Cumulative Total Return1 6.70% 29.40% 31.49%
Average Annual Total Return2 4.25% 4.81% 4.81%

Distribution Rate3 5.37%
30-Day Standardized Yield4 5.34%

1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the initial sales charges. See Note
below.

2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the maximum 2.25% initial
sales charge. See Note below.

3. Based on an annualization of the current 4.4653 cents per share monthly
dividend and the maximum offering price of $10.12 on April 30, 1997.

4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended April 30, 1997.

The fund's manager agreed in advance to waive a portion of its management
expenses, which reduces operating expenses and increases yield, distribution
rate and total return to shareholders. Without these reductions, the fund's
distribution rate would have been lower, and yield for the period would have
been 5.16%. The fee waiver may be discontinued at any time upon notification to
the fund's Board of Trustees.

FRANKLIN INVESTORS SECURITIES TRUST

Statement of Investments in Securities and Net Assets, April 30, 1997
(unaudited)
<TABLE>
<CAPTION>

Face Value
Country* Amount Franklin Global Government Income Fund (Note 1)
Bonds, Notes, Bills & Debentures 81.3%

Argentina 4.8%
<S> <C> <C> <C>
US 1,965,000 Republic of Argentina, 10.95%, 11/01/99 ........................ $ 2,097,637
US 2,510,000 Republic of Argentina, 9.25%, 02/23/01 ......................... 2,594,713
US 1,110,000 Republic of Argentina, 8.375%, 12/20/03 ........................ 1,100,287
US 375,000 Republic of Argentina, 11.375%, 01/30/17 ....................... 398,438
US 125,000 Republic of Argentina, Series L, VRN, 5.25%, 03/31/23 .......... 48,938
-----------
6,240,013
-----------
Australia 4.3%
AU 6,800,000 fGovernment of Australia, 8.75%, 01/15/01 ...................... 5,601,900
-----------
Brazil 1.2%
BR 1,180,000 fBrazil Government, 8.875%, 11/05/01 ........................... 1,200,650
BR 425,000 fGovernment of Brazil, cvt., Series L, FRN, 6.563%, 04/15/12 ... 339,469
-----------
1,540,119
-----------
Canada 6.8%
CA 4,675,000 fGovernment of Canada, 10.50%, 07/01/00 ........................ 3,815,937
CA 5,900,000 fGovernment of Canada, 10.50%, 03/01/01 ........................ 4,892,386
-----------
8,708,323
-----------
Germany 17.2%
DD 11,880,000 fFederal Republic of Germany, 8.00%, 07/22/02 .................. 7,825,773
DD 22,630,000 fFederal Republic of Germany, Bundes, 7.75%, 02/21/00 .......... 14,350,412
-----------
22,176,185
-----------
Italy 9.7%
IT 1,925,000,000 fBuoni Poliennali del Tes, 12.00%, 01/17/99 .................... 1,211,165
IT 13,995,000,000 fGovernment of Italy, 10.50%, 07/15/00 ......................... 8,963,792
GB 1,200,000 fGovernment of Italy, 10.50%, 04/28/14 ......................... 2,342,041
-----------
12,516,998
-----------
Japan 4.8%
JP 336,000,000 fInternational Bank for Development, 5.25%, 03/20/02 ........... 3,095,730
JP 323,000,000 fJapan Development Bank, 6.50%, 09/20/01 ....................... 3,074,570
-----------
6,170,300
-----------
Mexico 4.6%
US 4,325,000 United Mexican States, 9.75%, 02/06/01 ......................... 4,519,625
US 725,000 United Mexican States, 11.375%, 09/15/16 ....................... 764,875
US 390,000 United Mexican States, 11.50%, 05/15/26 ........................ 413,887
US 250,000 United Mexican States, Series A, 6.25%, 12/31/19 ............... 181,563
-----------
5,879,950
-----------
Panama 0.6%
US 790,000 Republic of Panama, 7.875%, 12/13/02 ........................... $ 767,288
-----------
Spain 5.8%
ES 609,440,000 fGovernment of Spain, 12.25%, 03/25/00 ......................... 4,887,442
ES 323,900,000 fGovernment of Spain, 10.10%, 02/28/01 ......................... 2,534,176
-----------
7,421,618
-----------
Sweden 1.0%
SE 7,800,000 fSweden Kingdom, 13.00%, 06/15/01 .............................. 1,242,731
-----------
United Kingdom 8.0%
GB 2,160,000 fUnited Kingdom, stk., 10.00%, 02/26/01 ........................ 3,815,326
GB 4,015,000 fUnited Kingdom, stk., 7.00%, 11/06/01 ......................... 6,475,845
-----------
10,291,171
-----------
United States 12.5%
US 3,620,000 U.S. Treasury Bond, 6.375%, 08/15/02 ........................... 3,588,329
US 5,775,000 U.S. Treasury Note, 6.25%, 08/31/00 ............................ 5,738,912
US 6,564,000 U.S. Treasury Note, 7.25%, 08/15/04 ............................ 6,771,180
-----------
16,098,421
-----------
Total Long Term Investments (Cost $107,219,974).......... 104,655,017
-----------
Short Term Investments 1.0%
US 1,310,000 U.S. Treasury Bill, 5.045%, 05/15/97 (Cost $1,307,247) ......... 1,307,632
-----------
Total Investments before Repurchase Agreements
(Cost $108,527,221)............................................ 105,962,649
-----------
c Receivables from Repurchase Agreements 15.8%
US 20,621,000 Swiss Bank Corp., 5.35%, 05/01/97
(Maturity Value $20,320,019) (Cost $20,317,000)
Collateral: U.S. Treasury Note, 5.125%, 11/30/98 .............. 20,317,000
-----------
Total Investments (Cost $128,844,221) 98.1%.......... 126,279,649
Other Assets and Liabilities, Net 1.4%............... 1,764,974
Equity in Forward Contracts 0.5%..................... 726,571
-----------
Net Assets 100.0%.................................... $128,771,194
===========

At April 30, 1997, the net unrealized
depreciation based on the cost of investments
for income tax purposes of $128,844,221 was as
follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost ........... $ 343,880
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value ........... (2,908,452)
-----------
Net unrealized depreciation .................................. $ (2,564,572)
===========

</TABLE>
PORTFOLIO ABBREVIATIONS:
FRN - Floating Rate Notes
VRN - Variable Rate Notes
COUNTRY LEGEND:
AU - Australia
BR - Brazil
CA - Canada
DD - Germany
ES - Spain
GB - United Kingdom
IT - Italy
JP - Japan
SE - Sweden
US - United States

* Securities traded in currency of country indicated and valued in U.S. dollars.
c Face amount for repurchase agreements is for the underlying collateral.
f Face amount is stated in foreign currency.

The accompanying notes are an integral part of these financial statements.

FRANKLIN INVESTORSSECURITIESTRUST

Statement of Investments in Securities and Net Assets, April 30, 1997
(unaudited)
<TABLE>
<CAPTION>

Face Franklin Short-Intermediate Value
Amount U.S. Government Securities Fund (Note 1)
U.S. Government Securities 75.4%

<S> <C> <C>
$ 25,000,000 U.S. Treasury Notes, 7.50%, 11/15/01 ........................................... $ 25,898,449
36,000,000 U.S. Treasury Notes, 5.875%, 06/30/00 .......................................... 35,415,033
26,000,000 U.S. Treasury Notes, 6.00%, 08/15/99 ........................................... 25,805,024
11,000,000 U.S. Treasury Notes, 6.50%, 04/30/99 ........................................... 11,048,135
23,000,000 U.S. Treasury Notes, 6.375%, 01/15/99 .......................................... 23,071,896
20,000,000 U.S. Treasury Notes, 5.875%, 10/31/98 .......................................... 19,912,518
-----------
Total U.S. Government Securities (Cost $141,057,219)...................... 141,151,055
-----------
c,dReceivables from Repurchase Agreements 23.2%
43,949,574 Joint Repurchase Agreement, 5.335%, 05/01/97 (Maturity Value $43,454,352)
(Cost $43,447,913)
Aubrey G. Lanston & Co., Inc., (Maturity Value $4,904,765)
Collateral: U.S. Treasury Notes, 5.00% - 7.50%, 03/31/98 - 10/31/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $4,216,231)
Collateral: U.S. Treasury Notes, 6.25% - 6.375%, 07/31/98 - 04/30/99
Bear, Stearns & Co., Inc., (Maturity Value $4,904,765)
Collateral: U.S. Treasury Notes, 5.75% - 6.375%, 09/30/97 - 05/15/99
Chase Securities, Inc., (Maturity Value $2,452,383)
Collateral: U.S. Treasury Notes, 5.25%, 01/31/01
Citicorp Securities, Inc., (Maturity Value $2,452,383)
Collateral: U.S. Treasury Notes, 5.25% - 8.50%, 12/31/97 - 01/31/02
Daiwa Securities America, Inc., (Maturity Value $4,904,765)
Collateral: U.S. Treasury Notes, 5.25% - 7.875%, 10/31/97 - 12/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $4,904,765)
Collateral: U.S. Treasury Notes, 4.75% - 7.75%, 08/31/98 - 05/31/01
Fuji Securities, Inc., (Maturity Value $4,904,765)
Collateral: U.S. Treasury Notes, 5.875%, 02/15/00
Sanwa Securities (USA) Co., L.P., (Maturity Value $4,904,765)
Collateral: U.S. Treasury Notes, 5.375% - 9.125%, 05/31/98 - 12/31/01
UBS Securities, L.L.C., (Maturity Value $4,904,765)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 07/15/98 - 08/15/99 ........... 43,447,913
-----------
Total Investments (Cost $184,505,132) 98.6%.......................... 184,598,968
Other Assets and Liabilities, Net 1.4% .............................. 2,637,840
-----------
Net Assets 100.0% ................................................... $187,236,808
===========

At April 30, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of $184,505,132
was as follows:
Aggregate gross unrealized appreciation for all investments in which there
was an excess of value over tax cost .......................................... $ 491,572
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value .......................................... (397,736)
-----------
Net unrealized appreciation .................................................. $ 93,836
===========

</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership

cFace amount for repurchase agreements is for the underlying collateral.
dSee Note 1(h) regarding joint repurchase agreement.

FRANKLIN INVESTORSSECURITIESTRUST

Statement of Investments in Securities and Net Assets, April 30, 1997
(unaudited)
<TABLE>
<CAPTION>

Value
Shares Franklin Convertible Securities Fund (Note 1)
Common Stocks 9.1%

Chemicals
<S> <C> <C>
1,428 Millennium Chemicals, Inc. ................................................... $ 25,347
-----------
Conglomerates 0.6%
84,000 Sovereign Bancorp, Inc. ...................................................... 1,029,000
-----------
Electronics 0.2%
31,800 HMT Technology Corp. ......................................................... 349,800
-----------
Energy 0.4%
40,000 McDermott International, Inc. ................................................ 740,000
-----------
Health Care 0.8%
20,000 Integrated Health Services, Inc. ............................................. 642,500
50,000 aSun Healthcare Group, Inc. .................................................. 706,250
-----------
1,348,750
-----------
Industrial Services 1.4%
20,400 Cooper Industries, Inc. ...................................................... 938,400
50,000 aMagneTek, Inc. .............................................................. 837,500
16,200 MidAmerican Energy Holdings Co. .............................................. 271,350
10,000 Roper Industries, Inc. ....................................................... 408,750
-----------
2,456,000
-----------
Media & Broadcasting 0.4%
53,000 aAll American Communications, Inc. ........................................... 616,125
-----------
Oil & Gas 1.9%
120,000 YPF, SA, Sponsored ADR ....................................................... 3,315,000
-----------
Retail 0.3%
50,000 aRent-Way, Inc. .............................................................. 518,750
-----------
Telecommunications 2.4%
125,000 Telefonica de Argentina, SA, Sponsored ADR ................................... 4,156,250
-----------
Tobacco 0.2%
6,000 aPhilip Morris Cos., Inc. .................................................... 236,250
-----------
Transportation 0.5%
100,000 aFritz Cos., Inc. ............................................................ 856,250
-----------
Total Common Stocks (Cost $15,696,807) ................................. 15,647,522
-----------
Convertible Preferred Stocks 24.9%
Cable Systems 0.4%
30,000 Cablevision Systems Corp., 8.50% cvt. pfd., Series I ......................... 663,750
-----------
Computers 0.6%
30,000 bVanstar Financing Trust, 6.75% cvt. pfd. .................................... 960,000
-----------
Conglomerates 0.3%
40,000 bWestinghouse Electric Co., $1.30 cvt. pfd., Series C ........................ $ 610,000
-----------
Energy 3.1%
20,000 bDevon Financing Trust, $3.25 cvt. pfd. ...................................... 1,287,500
85,000 Enron Corp., 6.25% cvt. pfd. ................................................. 1,700,000
15,000 bMcDermott International Inc., $2.875 cvt. pfd., Series C .................... 603,750
38,100 Nuevo Financing I, 5.75% cvt. pfd., Series A ................................. 1,738,313
-----------
5,329,563
-----------
Financial Services 2.2%
10,000 Bank One Corp., $3.50 cvt. pfd., Series C .................................... 832,500
35,000 Finova Finance Trust, 5.50% cvt. pfd. ........................................ 1,828,750
42,900 National Australia Bank, 7.875% cvt. pfd. .................................... 1,136,850
-----------
3,798,100
-----------
Lodging 1.3%
40,000 bHost Marriott Corp., 6.75% cvt. pfd. ........................................ 2,290,000
-----------
Media & Broadcasting 1.5%
315,000 Triathlon Broadcasting, 9.00% cvt. pfd. ...................................... 2,559,375
-----------
Metals & Mining 1.1%
13,100 Armco, Inc., $3.625 cvt. pfd., Series A ...................................... 540,375
7,500 Cyprus Amax Minerals Co., $4.00 cvt. pfd., Series A .......................... 402,188
20,000 bTitanium Metals, 6.625% cvt. pfd. ........................................... 930,000
1,000 WHX Corp., 6.50% cvt. pfd., Series A ......................................... 32,625
-----------
1,905,188
-----------
Oil & Gas 1.7%
1,949 Patina Oil & Gas Corp., 7.125% cvt. pfd. ..................................... 57,008
50,000 bTosco Corp., 5.75% cvt. pfd. ................................................ 2,787,500
-----------
2,844,508
-----------
Real Estate Investment Trusts 2.1%
60,000 FelCor Suite Hotels, Inc., $1.95 cvt. pfd., Series A ......................... 1,710,000
20,000 Oasis Residential, Inc., $2.25 cvt. pfd., Series A ........................... 515,000
22,000 Security Capital Industrial Trust, 7.00% cvt. pfd. ........................... 574,750
30,000 Security Capital Pacific Trust, $1.75 cvt. pfd., Series A .................... 911,250
-----------
3,711,000
-----------
Retail 1.7%
20,000 Kmart Financing, 7.75% cvt. pfd. ............................................. 1,152,500
35,000 Wendy's Financing I, 5.00% cvt. pfd., Series A ............................... 1,776,250
-----------
2,928,750
-----------
Savings & Loans 0.4%
7,900 Roosevelt Financial Group, $3.25 cvt. pfd. ................................... $ 679,894
-----------
Telecommunications 5.5%
15,000 bLoral Space & Communications, 6.00% cvt. pfd. ............................... 710,625
127,600 Nortel Inversora, SA, 10.00% cvt. pfd., MEDS ................................. 6,061,000
10,000 bQualcomm, Inc., 5.75% cvt. pfd. ............................................. 446,250
40,000 Salomon, Inc., 6.25%, cvt. pfd. .............................................. 2,240,000
-----------
9,457,875
-----------
Textiles & Apparel 0.4%
23,000 Designer Holdings, Ltd., 5.00% cvt. pfd. ..................................... 747,500
-----------
Tobacco 1.4%
400,000 RJR Nabisco Holdings Corp., $0.6012 cvt. pfd., Series C ...................... 2,350,000
-----------
Utilities 1.2%
40,000 Citizens Utility Co., 5.00%, cvt. pfd. ....................................... 2,030,000
-----------
Total Convertible Preferred Stocks (Cost $42,904,482) ................. 42,865,503
-----------
Face
Amount
Convertible Bonds 48.3%
Commercial Services 0.3%
$ 150,000 National Data Corp., cvt. sub. notes, 5.00%, 11/01/03 ........................ 146,062
300,000 bYouth Services International, Inc., cvt. sub. deb., 7.00%, 02/01/06 ......... 295,500
-----------
441,562
-----------
Computers 0.4%
750,000 Apple Computer, Inc., cvt. sub. notes, 6.00%, 06/01/01 ....................... 652,500
-----------
Conglomerates 1.0%
1,600,000 bThermo Electron Corp., cvt. sub. deb., 4.25%, 01/01/03 ...................... 1,736,000
-----------
Electronics 10.1%
870,000 bAdaptec, Inc., cvt. sub. notes. 4.75%, 02/01/04 ............................. 865,650
250,000 Analog Devices, cvt. sub. notes, 3.50%, 12/01/00 ............................. 354,688
300,000 bApplied Magnetics Corp., cvt. sub. deb., 7.00%, 03/15/06 .................... 462,375
2,200,000 bBay Networks, Inc., cvt. sub. deb., 5.25%, 05/15/03 ......................... 1,933,250
750,000 Diagnostic Retrieval Systems, cvt. senior sub. deb., 9.00%, 10/01/03 ......... 922,500
5,500,000 bDovatron International, Inc., cvt. sub. notes, 6.00%, 10/15/02 .............. 5,720,000
1,300,000 bHMT Technology Corp., cvt. sub. notes, 5.75%, 01/15/04 ...................... 1,056,250
750,000 bItron, Inc., cvt. sub. notes, 6.75%, 03/31/04 ............................... 810,000
350,000 Motorola, Inc., cvt. sub. deb., (original accretion rate 6.00%), 0.00%, 09/27/13 260,750
2,500,000 Park Electrochemical Corp., cvt. sub. notes, 5.50%, 03/01/06 ................. 2,171,875
300,000 bSCI Systems, Inc., cvt. sub. notes, 5.00%, 05/01/06 ......................... 423,375
Electronics (cont.)
$ 500,000 bSolectron Corp., cvt. sub. notes, 6.00%, 03/01/06 ........................... $ 556,250
1,600,000 bXilinx, Inc., cvt. sub. notes, 5.25%, 11/01/02 .............................. 1,834,000
-----------
17,370,963
-----------
Entertainment 0.9%
1,500,000 bImax Corp., cvt. deb., 5.75%, 04/01/03 ...................................... 1,552,500
-----------
Environmental Services 1.4%
2,500,000 USA Waste Systems, Inc., cvt. sub. notes, 4.00%, 02/01/02 .................... 2,456,250
-----------
Financial Services 6.3%
1,900,000 Banco de Galicia, SA, cvt. sub. notes, 7.00%, 08/01/02 ....................... 2,180,250
2,000,000 Meditrust, cvt. sub. deb., 6.875%, 11/15/98 .................................. 2,045,000
1,000,000 bPeregrine Investment Finance, cvt. company guaranteed, 4.50%, 12/01/00 ...... 865,000
2,000,000 PIV Investment Finance, cvt. company guaranteed, 4.50%, 12/01/00 ............. 1,730,000
1,000,000 Westbridge Capital Corp., cvt. sub. notes, 7.50%, 05/01/04 ................... 1,010,000
3,000,000 Wilshire Financial Services, cvt. notes, 13.00%, 01/01/04 .................... 2,962,500
-----------
10,792,750
-----------
Food & Beverages 1.2%
1,700,000 bGrand Metropolitan, Plc., cvt. unsub. senior notes, 6.50%, 01/31/00 ......... 2,099,500
-----------
Gaming & Leisure 0.4%
800,000 Signature Resorts, Inc., cvt. sub notes, 5.75%, 01/15/07 ..................... 634,000
-----------
Health Care 5.9%
4,000,000 Alza Corp., cvt. sub. notes, (original accretion rate 4.62%), 0.00%, 07/14/14 1,755,000
1,500,000 bHealthsource, Inc., cvt. sub. notes, 5.00%, 03/01/03 ........................ 1,473,750
600,000 Multicare Cos., Inc., cvt. sub. deb., 7.00%, 03/15/03 ........................ 691,500
300,000 Nabi, Inc., cvt. sub. notes, 6.50%, 02/01/03 ................................. 238,500
1,500,000 bNabi, Inc., cvt. sub. notes, 6.50%, 02/01/03 ................................ 1,192,500
300,000 bRoTech Medical Corp., cvt. sub. deb., 5.25%, 06/01/03 ....................... 258,375
250,000 bSandoz Capital BVI, Ltd., cvt. company guaranteed, 2.00%, 10/06/02 .......... 314,063
1,000,000 bSun Healthcare Group, Inc., sub. notes, 6.00%, 03/01/04 ..................... 930,000
1,000,000 Tenet Healthcare Corp., cvt. sub. notes, 6.00%, 12/01/05 ..................... 1,205,000
2,175,000 bU.S. Diagnostic Labs, Inc., cvt. sub. deb., 9.00%, 03/31/03 ................. 2,109,750
-----------
10,168,438
-----------
Industrial Services 4.9%
1,000,000 Berkshire Hathaway, cvt. senior notes, 1.00%, 12/02/01 ....................... 962,500
300,000 C-Cube Microsystems, Inc., cvt. sub. notes, 5.875%, 11/01/05 ................. 301,500
774,000 Cooper Industries, Inc., cvt. sub. notes, 7.05%, 01/01/15 .................... 859,140
5,000,000 bExide Corp., cvt. sub. notes, 2.90%, 12/15/05 ............................... 2,850,000
750,000 Mercury Air Group, Inc., cvt. sub. deb., 7.75%, 02/01/06 ..................... 765,000
Industrial Services (cont.)
$ 500,000 bS3, Inc., cvt. sub. notes, 5.75%, 10/01/03 .................................. $ 416,875
1,200,000 bThermo Instrument Systems, Inc., cvt. deb., 4.50%, 10/15/03 ................. 1,165,500
1,100,000 U.S. Filter Corp., cvt. sub. notes, 4.50%, 12/15/01 .......................... 1,090,374
-----------
8,410,889
-----------
Metals & Mining 2.3%
2,500,000 Ashanti Capital, Ltd., cvt. notes, 5.50%, 03/15/03 ........................... 2,068,750
2,000,000 bDayton Mining Corp., cvt. notes, 7.00%, 04/01/02 ............................ 1,970,000
-----------
4,038,750
-----------
Oil & Gas 2.5%
2,000,000 Consolidated Natural Gas, cvt. sub. deb., 7.25%, 12/15/15 .................... 2,100,000
100,000 Nabors Industries, Inc., cvt. sub. notes, 5.00%, 05/15/06 ................... 123,000
1,500,000 Seacor Holdings, Inc., cvt. sub. notes, 5.375%, 11/15/06 ..................... 1,425,000
750,000 Swift Energy Co., cvt. sub. notes, 6.25%, 11/15/06 ........................... 701,250
-----------
4,349,250
-----------
Real Estate Investment Trusts 3.0%
2,000,000 Liberty Property Trust, cvt. sub. deb., 8.00%, 07/01/01 ...................... 2,422,500
2,500,000 OMEGA Healthcare Investors, Inc., cvt. sub. deb., 8.50%, 02/01/01 ............ 2,696,874
-----------
5,119,374
-----------
Retail 5.2%
1,000,000 Men's Wearhouse, Inc., cvt. sub. notes, 5.25%, 03/01/03 ...................... 980,000
3,200,000 Michaels Stores, Inc., cvt. sub. notes, 6.75%, 01/15/03 ...................... 2,804,000
4,000,000 bPep Boys, cvt. sub. notes, (original accretion rate 4.00%), 0.00%, 09/20/11 . 2,220,000
2,200,000 bRent-Way, Inc., cvt. sub. deb., 7.00%, 02/01/07 ............................. 1,980,000
750,000 bSunglass Hut International, Inc., cvt. sub. notes, 5.25%, 06/15/03 .......... 577,500
400,000 bThe Sports Authority, Inc., cvt. sub. notes, 5.25%, 09/15/01 ................ 359,000
-----------
8,920,500
-----------
Savings & Loans 0.8%
1,150,000 BankAtlantic Bancorp, Inc., cvt. sub. deb., 6.75%, 07/01/06 .................. 1,414,500
-----------
Telecommunications 0.8%
4,000,000 U.S. Cellular Corp., cvt. notes, (original accretion rate 6.00%), 0.00%, 06/15/15 1,310,000
-----------
Veterinary Services 0.9%
2,300,000 bVeterinary Centers of America, Inc., cvt. sub. deb., 5.25%, 05/01/06 ........ 1,518,000
-----------
Total Convertible Bonds (Cost $83,012,386) ............................. 82,985,726
-----------
Total Long Term Investments (Cost $141,613,675) ........................ 141,498,751
-----------

c,dReceivables from Repurchase Agreements 16.2%
$ 28,237,422 Joint Repurchase Agreement, 5.335%, 05/01/97 (Maturity Value $27,918,606)
(Cost $27,914,469)
Aubrey G. Lanston & Co., Inc., (Maturity Value $3,151,220)
Collateral: U.S. Treasury Notes, 5.00% - 7.50%, 03/31/98 - 10/31/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $2,708,846)
Collateral: U.S. Treasury Notes, 6.25% - 6.375%, 07/31/98 - 04/30/99
Bear, Stearns & Co., Inc., (Maturity Value $3,151,220)
Collateral: U.S. Treasury Notes, 5.75% - 6.375%, 09/30/97 - 05/15/99
Chase Securities, Inc., (Maturity Value $1,575,610)
Collateral: U.S. Treasury Notes, 5.25%, 01/31/01
Citicorp Securities, Inc., (Maturity Value $1,575,610)
Collateral: U.S. Treasury Notes, 5.25% - 8.50%, 12/31/97 - 01/31/02
Daiwa Securities America, Inc., (Maturity Value $3,151,220)
Collateral: U.S. Treasury Notes, 5.25% - 7.875%, 10/31/97 - 12/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $3,151,220)
Collateral: U.S. Treasury Notes, 4.75% - 7.75%, 08/31/98 - 05/31/01
Fuji Securities, Inc., (Maturity Value $3,151,220)
Collateral: U.S. Treasury Notes, 5.875%, 02/15/00
Sanwa Securities (USA) Co., L.P., (Maturity Value $3,151,220)
Collateral: U.S. Treasury Notes, 5.375% - 9.125%, 05/31/98 - 12/31/01
UBS Securities, L.L.C., (Maturity Value $3,151,220)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 07/15/98 - 08/15/99 ......... $ 27,914,469
-----------
Total Investments (Cost $169,528,144) 98.5% ....................... 169,413,220
Other Assets and Liabilities, Net 1.5% ............................ 2,575,689
-----------
Net Assets 100.0% ................................................. $171,988,909
===========

At April 30, 1997, the net unrealized depreciation based on
the cost of investment for income tax purposes of
$169,591,519 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .................................. $ 6,680,032
Aggregate gross unrealized depreciation for all investments in which
there was an excess tax cost over value ..................................... (6,858,331)
-----------
Net unrealized depreciation ................................................ $ (178,299)
===========

</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership

MEDS - Mandatorially Exchangeable Debt Security
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
cFace amount for repurchase agreements is for the underlying collateral.
dSee Note 1(h) regarding joint repurchase agreement.

FRANKLIN INVESTORSSECURITIESTRUST

Statement of Investments in Securities and Net Assets, April 30, 1997
(unaudited)
<TABLE>
<CAPTION>

Value
Shares Franklin Adjustable U.S. Government Securities Fund (Note 1)
Mutual Funds 100.4%

<S> <C> <C>
38,222,106 U.S. Government ARM Portfolio (Note 1) ........................................... $359,287,798
-----------
Total Investments (Cost $384,477,117) 100.4% .......................... 359,287,798
Liabilities in Excess of Other Assets (0.4)% .......................... (1,496,940)
-----------
Net Assets 100.0% ..................................................... $357,790,858
===========

At April 30, 1997, the net unrealized depreciation based on the
cost of investments for income tax purposes of $384,615,540 was
as follows:
Aggregate gross unrealized appreciation for all investments in which there
was an excess of value over tax cost ............................................ $--
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value ............................................ (25,327,742)
-----------
Net unrealized depreciation .................................................... $ (25,327,742)
===========

FRANKLIN INVESTORSSECURITIESTRUST

Statement of Investments in Securities and Net Assets, April 30, 1997 (unaudited)

Value
Shares Franklin Equity Income Fund (Note 1)
Common Stocks 86.4%

<S> <C> <C>
Chemicals 3.6%
45,000 ARCO Chemical Co. ............................................................. $ 1,901,250
80,000 Chemed Corp. .................................................................. 2,700,000
55,000 Dow Chemical Co. .............................................................. 4,668,125
117,249 Millennium Chemicals, Inc. .................................................... 2,081,170
-----------
11,350,545
-----------
Conglomerates 0.9%
43,937 Hanson, Plc., Sponsored ADR ................................................... 1,065,472
84,900 Ogden Corp. ................................................................... 1,782,900
-----------
2,848,372
-----------
Consumer Products 3.1%
91,500 American Brands, Inc. ......................................................... 4,918,125
106,100 Tambrands, Inc. ............................................................... 4,986,700
-----------
9,904,825
-----------
Financial Services 7.0%
71,800 Banc One Corp. ................................................................ 3,042,525
116,050 Catellus Development Corp. .................................................... 1,711,737
25,383 eCredit Communal Holding/Dexia (Belgium) ...................................... 2,520,550
39,000 Great Western Financial Corp. ................................................. 1,638,000
30,500 Morgan (J.P.) & Co., Inc. ..................................................... 3,107,188
88,700 National City Corp. ........................................................... 4,324,125
31,000 Nordbanken AB, Sponsored ADR .................................................. 1,904,349
98,300 PNC Bank Corp. ................................................................ 4,042,588
-----------
22,291,062
-----------
Industrial Services 1.0%
71,700 Cooper Industries, Inc. ....................................................... 3,298,200
-----------
Insurance 3.5%
140,000 IPC Holdings, Ltd. ............................................................ 3,220,000
85,500 Lincoln National Corp. ........................................................ 4,788,000
80,500 eScor, SA (France) ............................................................ 3,143,885
-----------
11,151,885
-----------
Oil & Gas 14.9%
68,000 Amoco Corp. ................................................................... 5,686,500
57,000 Atlantic Richfield Co. ........................................................ 7,759,125
81,900 Chevron Corp. ................................................................. 5,610,150
99,400 Exxon Corp. ................................................................... 5,628,525
29,800 Mobil Corp. ................................................................... 3,874,000
144,900 Occidental Petroleum Corp. .................................................... 3,205,913
Oil & Gas (cont.)
4,000 Royal Dutch Petroleum Co., New York Shares, ADR ............................... $ 721,000
63,500 Texaco, Inc. .................................................................. 6,699,250
89,700 Ultramar Corp. ................................................................ 2,881,613
185,200 YPF, SA, ADR .................................................................. 5,116,150
-----------
47,182,226
-----------
Paper & Forest Products 4.0%
245,000 bPortucel Industrial, SA ...................................................... 1,605,338
88,000 Potlatch Corp. ................................................................ 3,608,000
80,000 Union Camp Corp. .............................................................. 3,890,000
77,000 Weyerhaeuser Co. .............................................................. 3,522,750
-----------
12,626,088
-----------
Pharmaceuticals 4.5%
20,000 American Home Products Corp. .................................................. 1,325,000
98,600 Bristol-Myers Squibb Co. ...................................................... 6,458,300
111,200 Glaxo Wellcome, Plc., Sponsored ADR ........................................... 4,378,500
75,000 Pharmacia & Upjohn, Inc. ...................................................... 2,221,875
-----------
14,383,675
-----------
Publishing 0.7%
93,900 Dun & Bradstreet Corp. ........................................................ 2,312,288
-----------
Real Estate Investment Trusts 6.5%
90,200 Arden Realty Group, Inc. ...................................................... 2,243,725
120,300 Equity Residential Properties Trust ........................................... 5,263,125
144,000 Felcor Suite Hotels, Inc. ..................................................... 5,166,000
95,000 Highwoods Properties, Inc. .................................................... 2,956,875
41,000 Oasis Residential, Inc. ....................................................... 912,250
140,800 Simon DeBartolo Group, Inc. ................................................... 4,030,400
-----------
20,572,375
-----------
Retail 2.1%
138,000 Penney (J.C.) Co., Inc. ....................................................... 6,589,500
-----------
Steel 2.2%
119,500 British Steel, Plc., Sponsored ADR ............................................ 2,658,875
110,000 Carpenter Technology Corp. .................................................... 4,468,750
-----------
7,127,625
-----------
Telecommunications 10.3%
72,000 AT&T Corp. .................................................................... 2,412,000
29,400 BellSouth Corp. ............................................................... 1,308,300
Telecommunications (cont.)
26,700 British Telecommunications, Plc., Sponsored ADR ............................... $ 1,965,788
133,500 GTE Corp. ..................................................................... 6,124,313
150,000 Hong Kong Telecommunications, Ltd., Sponsored ADR ............................. 2,568,750
123,100 NYNEX Corp. ................................................................... 6,370,425
160,800 Southern New England Telecommunications Corp. ................................. 5,869,200
176,800 US West Communications Group .................................................. 6,210,100
-----------
32,828,876
-----------
Tobacco 3.3%
172,875 Imperial Tobacco Group, Plc., ADR ............................................. 2,269,175
94,600 Philip Morris Cos., Inc. ...................................................... 3,724,875
175,000 UST, Inc. ..................................................................... 4,571,875
-----------
10,565,925
-----------
Transportation 1.5%
158,000 Chrysler Corp. ................................................................ 4,740,000
-----------
Utilities - Electric 12.7%
120,800 Central & South West Corp. .................................................... 2,431,100
106,800 CINergy Corp. ................................................................. 3,551,100
112,000 Dominion Resources, Inc. ...................................................... 3,850,000
43,937 Energy Group, Plc., Sponsored ADR ............................................. 1,378,523
163,000 Enova Corp. ................................................................... 3,606,375
48,600 MidAmerican Energy Holdings Co. ............................................... 814,050
108,000 New England Electric System ................................................... 3,685,500
109,000 OGE Energy Corp. .............................................................. 4,523,500
108,000 PacifiCorp..................................................................... 2,146,500
151,100 PECO Energy Co. ............................................................... 2,984,225
106,600 PG&E Corp. .................................................................... 2,558,400
73,000 Public Service Co. of Colorado ................................................ 2,828,750
72,000 Public Service Enterprise Group, Inc. ......................................... 1,737,000
188,500 Unicom Corp. .................................................................. 4,099,875
-----------
40,194,898
-----------
Utilities - Natural Gas 4.6%
80,300 Consolidated Natural Gas Co. .................................................. 4,045,112
84,900 National Fuel Gas Co. ......................................................... 3,533,962
142,200 Pacific Enterprises ........................................................... 4,354,874
210,000 Transportadora de Gas del Sur, SA, Sponsored ADR .............................. 2,625,000
-----------
14,558,948
-----------
Total Common Stocks (Cost $240,289,956) ................................. 274,527,313
-----------
Convertible Preferred Stocks 6.7%............................................
36,300 Battle Mountain Gold Co., $3.25 cvt. pfd. ..................................... $ 1,751,474
109,500 Browning-Ferris Industries, Inc., 7.25% cvt. pfd., ACES ....................... 3,339,750
23,454 bCatellus Development Corp., $3.625 cvt. pfd., Series B ....................... 1,776,640
137,100 National Australia Bank, 7.875% cvt. pfd. ..................................... 3,633,150
76,900 Nortel Inversora, SA, 10.00% cvt. pfd., MEDS .................................. 3,652,750
460,000 RJR Nabisco Holdings Corp., $0.6012 cvt. pfd., Series C ....................... 2,702,500
28,500 Roosevelt Financial Group, $3.25 cvt. pfd. .................................... 2,452,781
118,000 bWestinghouse Electric Co., $1.30 cvt. pfd., Series C ......................... 1,799,500
-----------
Total Convertible Preferred Stocks (Cost $19,242,846) .................... 21,108,545
-----------
Total Long Term Investments (Cost $259,532,802) ......................... 295,635,858
-----------
Face
Amount
c,dReceivables from Repurchase Agreements 7.4%
$23,894,444 Joint Repurchase Agreement, 5.335%, 05/01/97 (Maturity Value $23,624,752)
(Cost $23,621,251)
Aubrey G. Lanston & Co., Inc., (Maturity Value $2,666,565)
Collateral: U.S. Treasury Notes, 5.00% - 7.50%, 03/31/98 - 10/31/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $2,292,231)
Collateral: U.S. Treasury Notes, 6.25% - 6.375%, 07/31/98 - 04/30/99
Bear, Stearns & Co., Inc., (Maturity Value $2,666,565)
Collateral: U.S. Treasury Notes, 5.75% - 6.375%, 09/30/97 - 05/15/99
Chase Securities, Inc., (Maturity Value $1,333,283)
Collateral: U.S. Treasury Notes, 5.25%, 01/31/01
Citicorp Securities, Inc., (Maturity Value $1,333,283)
Collateral: U.S. Treasury Notes, 5.25% - 8.50%, 12/31/97 - 01/31/02
Daiwa Securities America, Inc., (Maturity Value $2,666,565)
Collateral: U.S. Treasury Notes, 5.25% - 7.875%, 10/31/97 - 12/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $2,666,565)
Collateral: U.S. Treasury Notes, 4.75% - 7.75%, 08/31/98 - 05/31/01
Fuji Securities, Inc., (Maturity Value $2,666,565)
Collateral: U.S. Treasury Notes, 5.875%, 02/15/00
Sanwa Securities (USA) Co., L.P., (Maturity Value $2,666,565)
Collateral: U.S. Treasury Notes, 5.375% - 9.125%, 05/31/98 - 12/31/01
UBS Securities, L.L.C., (Maturity Value 2,666,565)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 07/15/98 - 08/15/99 .......... 23,621,251
-----------
Total Investments (Cost $283,154,053) 100.5% ....................... 319,257,109
Liabilities in Excess of Other Assets (0.5)% ....................... (1,553,757)
-----------
Net Assets 100.0% .................................................. $317,703,352
===========

At April 30, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of $283,172,571
was as follows:
Aggregate gross unrealized appreciation for all investments in which there
was an excess of value over tax cost ......................................... $ 44,331,551
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value ......................................... (8,247,013)
-----------
Net unrealized appreciation ................................................. $ 36,084,538
===========

</TABLE>
PORTFOLIO ABBREVIATIONS:
ACES - Adjustable Convertible Exempt Securities
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
MEDS - Mandatorially Exchangeable Debt Security

bPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
cFace amount for repurchase agreements is for the underlying collateral.
dSee Note 1(h) regarding joint repurchase agreement.
eSecurities traded in foreign currency and value is stated in U.S. dollars.

The accompanying notes are an integral part of these financial statements.

FRANKLIN INVESTORSSECURITIESTRUST

Statement of Investments in Securities and Net Assets, April 30, 1997
(unaudited)
<TABLE>
<CAPTION>

Value Shares
Franklin Adjustable Rate Securities Fund (Note 1)
Mutual Funds 100.4%

<S> <C> <C>
2,775,894 Adjustable Rate Securities Portfolio (Note 1)....................................... $27,425,838
-----------
Total Investments (Cost $27,591,437) 100.4% ............................. 27,425,838
Liabilities in Excess of Other Assets (0.4)%............................. (122,767)
-----------
Net Assets 100.0%........................................................ $27,303,071
===========

At April 30, 1997, the net unrealized depreciation based on the
cost of investments for income tax purposes of $27,597,394 was as
follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost ..................................................... $--
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value ..................................................... (171,556)
-----------
Net unrealized depreciation ...................................................... $ (171,556)
===========

</TABLE>
FRANKLIN INVESTORSSECURITIESTRUST

Financial Statements

Statements of Assets and Liabilities
April 30, 1997 (unaudited)
<TABLE>
<CAPTION>

Franklin
Franklin GlobalShort-Intermediate Franklin
Government U.S. Government Convertible
Assets: Income Fund Securities Fund Securities Fund
---------- ------------ ----------
<S> <C> <C> <C>
Investments in securities:
At identified cost .......................................... $108,527,221 $141,057,219 $141,613,675
========== ============ ==========
At value .................................................... 105,962,649 141,151,055 141,498,751
Receivables from repurchase agreements, at value and cost .... 20,317,000 43,447,913 27,914,469
Cash ......................................................... -- -- 567,992
Receivables:
Dividends and interest ...................................... 2,220,731 2,329,618 1,478,138
Investment securities sold .................................. 6,381,108 -- 579,078
Capital shares sold ......................................... 164,948 1,264,070 327,150
Unrealized gains on forward currency contracts (Note 2) ...... 1,325,695 -- -
---------- ------------ ----------
Total assets ............................................ 136,372,131 188,192,656 172,365,578
---------- ------------ ----------
Liabilities:
Payables:
Investment securities purchased............................. 6,240,816 -- --
Capital shares repurchased .................................. 114,842 671,366 84,554
Management fees ............................................. 69,864 88,203 82,019
Distribution fees ........................................... 43,660 34,210 147,117
Shareholder servicing costs ................................. 14,728 -- 3,243
Bank overdraft ............................................... 105,654 -- --
Other payables to shareholders ............................... 189,053 162,069 59,736
Unrealized losses on forward currency contracts .............. 599,124 -- --
Accrued expenses and other liabilities ....................... 223,196 -- --
---------- ----------- -----------
Total liabilities ....................................... 7,600,937 955,848 376,669
---------- ----------- -----------
Net assets, at value .......................................... $128,771,194 $187,236,808 $171,988,909
========== =========== ===========
Net assets consist of:
Undistributed net investment income .......................... $ -- $ 688,805 $ 853,705
Accumulated distributions in excess of net investment income . (163,122) -- --
Net unrealized appreciation (depreciation)
on investments and translation of
assets and liabilities denominated in foreign currencies ..... (1,888,237) 93,836 (114,924)
Accumulated net realized gain (loss) from investments ........ (3,932,049) (6,200,783) 7,444,425
Class I capital shares ....................................... 130,194,572 192,519,378 144,125,317
Class II capital shares ...................................... 3,798,818 -- 19,680,386
Advisor class capital shares ................................. 761,212 135,572 --
---------- ----------- -----------
Net assets, at value .......................................... $128,771,194 $187,236,808 $171,988,909
========== =========== ===========
Class I shares:
Net assets, at value ......................................... $124,196,274 $187,102,307 $152,593,831
========== =========== ===========
Shares outstanding ........................................... 14,783,361 18,401,241 11,769,053
========== =========== ===========
Net asset value per share * .................................. $8.40 $10.17 $12.97
========== =========== ===========
Class II shares:
Net assets, at value ......................................... $ 3,834,803 $ 19,395,078
=========== =========
Shares outstanding ........................................... 456,260 1,500,154
=========== =========
Net asset value per share * .................................. $8.40 $12.93
=========== =========
Advisor Class shares:
Net assets, at value ......................................... $ 740,117 $ 134,501
========== ============
Shares outstanding ........................................... 88,041 13,226
========== ============
Net asset value per share .................................... $8.41 $10.17
========== ============
</TABLE>
*Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.

The accompanying notes are an integral part of these financial statements.

FRANKLIN INVESTORSSECURITIESTRUST

Financial Statements (cont.)

Statements of Assets and Liabilities (cont.)
April 30, 1997 (unaudited)
<TABLE>
<CAPTION>

Franklin
Adjustable Franklin
U.S. Government Franklin Equity Adjustable Rate
Assets: Securities Fund Income Fund Securities Fund
--------- ---------- ------------
<S> <C> <C> <C>
Investments in securities:
At identified cost ........................................... $384,477,117 $259,532,802 $27,591,437
============ =========== ========
At value ..................................................... 359,287,798 295,635,858 27,425,838
Receivables from repurchase agreements, at value and cost ..... -- 23,621,251 --
Cash .......................................................... -- 76,318 --
Receivables:
Dividends and interest ....................................... -- 1,023,187 --
Investment securities sold ................................... -- 735,329 --
Capital shares sold .......................................... 35,239 350,260 35,625
------------ --------- ----------
Total assets ............................................. 359,323,037 321,442,203 27,461,463
------------ --------- ----------
Liabilities:
Payables:
Investment securities purchased............................... -- 3,190,127 --
Capital shares repurchased ................................... 198,435 100,258 23,826
Management fees .............................................. -- 139,870 --
Administration fees .......................................... 30,414 -- 2,174
Distribution fees ............................................ 153,501 241,583 10,724
Shareholder servicing costs .................................. 21,917 -- --
Other payables to shareholders ................................ 1,127,912 67,013 105,658
Accrued expenses and other liabilities ........................ -- -- 16,010
----------- --------- -----------
Total liabilities ........................................ 1,532,179 3,738,851 158,392
------------ --------- ----------
Net assets, at value ........................................... $357,790,858 $317,703,352 $27,303,071
============ ========= ==========
Net assets consist of:
Undistributed net investment income ........................... $ 1,116,930 $ 84,189 $ --
Net unrealized appreciation (depreciation)
on investments and translation of assets
and liabilities denominated in foreign currencies ............. (25,189,319) 36,103,056 (165,599)
Accumulated net realized gain (loss) from investments ......... (81,382,578) 6,462,910 (801,717)
Class I capital shares ........................................ 463,245,825 247,239,300 28,270,387
Class II capital shares ....................................... -- 27,813,897 --
------------ -------- -----------
Net assets, at value ........................................... $357,790,858 $317,703,352 $27,303,071
============ ======== ===========
Class I shares:
Net Assets, at value .......................................... $357,790,858 $288,533,885 $27,303,071
============ ======== ===========
Shares outstanding ............................................ 38,032,705 16,814,800 2,760,488
============ ========= ==========
Net asset value per share * ................................... $9.41 $17.16 $9.89
============ ========= ==========
Class II shares:
Net Assets, at value .......................................... $ 29,169,467
==========
Shares outstanding ............................................ 1,702,136
==========
Net asset value per share * ................................... $17.14
==========

</TABLE>
*Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.

FRANKLIN INVESTORSSECURITIESTRUST

Financial Statements (cont.)

Statements of Operations
for the six months ended April 30, 1997 (unaudited)
<TABLE>
<CAPTION>

Franklin
Franklin GlobalShort-Intermediate Franklin
Government U.S. Government Convertible
Income Fund Securities Fund Securities Fund
---------- ----------- -----------
<S> <C> <C> <C>
Investment income:
Dividends .................................................... $ 6,096 $ -- $1,630,745
Interest (net of foreign taxes withheld of $90,528 in the
Global Fund) ................................................. 5,212,334 6,082,831 3,276,613
---------- ------------- ---------
Total income ............................................ 5,218,430 6,082,831 4,907,358
---------- -------------- --------
Expenses:
Management fees (Note 6) ..................................... 399,197 540,648 470,092
Distribution fees - Class I (Note 6) ......................... 65,454 75,412 198,310
Distribution fees - Class II (Note 6) ........................ 11,342 -- 76,968
Shareholder servicing costs (Note 6) ......................... 62,793 37,508 68,237
Reports to shareholders ...................................... 26,000 23,348 23,202
Registration and filing fees ................................. 16,500 5,880 11,026
Custodian fees................................................ 10,000 635 1,918
Professional fees ............................................ 8,500 5,475 4,021
Trustees' fees and expenses .................................. 7,000 11,324 7,908
Other ........................................................ -- 4,189 2,477
---------- ------------ ----------
Total expenses .......................................... 606,786 704,419 864,159
---------- ------------- ---------
Net investment income ................................... 4,611,644 5,378,412 4,043,199
---------- ------------- ---------
Realized and unrealized gain (loss)
from investments and foreign currency:
Net realized gain (loss) from:
Investments ................................................ (3,200,300) 98,482 7,690,970
Foreign currency transactions .............................. 2,303,956 -- --
Net unrealized appreciation (depreciation) on:
Investments ................................................ (3,571,369) (2,208,287) (4,068,563)
Translation of assets and liabilities denominated in foreign
currency ..................................................... 1,003,281 -- --
---------- ------------- ---------
Net realized and unrealized gain (loss) on investments and foreign
currency ..................................................... (3,464,432) (2,109,805) 3,622,407
---------- ------------- ---------
Net increase in net assets resulting from operations .......... $1,147,212 $3,268,607 $7,665,606
========== ============= =========

FRANKLIN INVESTORSSECURITIESTRUST

Financial Statements (cont.)

Statements of Operations (cont.)
for the six months ended April 30, 1997 (unaudited)

Franklin
Adjustable Franklin
U.S. Government Franklin Equity Adjustable Rate
Securities Fund Income Fund Securities Fund
---------- ------------- ---------
<S> <C> <C> <C>
Investment income:
Dividends ..................................................... $12,029,059 $ 6,098,569 $538,999
Interest ...................................................... -- 525,705 --
---------- ------------- ---------
Total income ............................................. 12,029,059 6,624,274 538,999
---------- ------------- ---------
Expenses:
Management fees (Note 6) ...................................... -- 806,977 --
Administration fees (Note 6) .................................. 189,468 -- 8,712
Distribution fees - Class I (Note 6) .......................... 414,415 341,813 20,026
Distribution fees - Class II (Note 6) ......................... -- 118,733 --
Shareholder servicing costs (Note 6) .......................... 148,616 109,427 5,376
Reports to shareholders........................................ 81,001 44,166 3,669
Registration and filing fees .................................. 6,858 16,624 7,237
Custodian fees ................................................ -- 1,595 --
Professional fees ............................................. 5,355 7,881 2,586
Trustees' fees and expenses ................................... 23,682 15,542 853
Other ......................................................... 11,372 3,106 1,085
---------- ------------- ---------
Total expenses ........................................... 880,767 1,465,864 49,544
---------- ------------- ---------
Net investment income .................................. 11,148,292 5,158,410 489,455
---------- ------------- ---------
Realized and unrealized gain (loss)
from investments and foreign currency:
Net realized gain (loss) from:
Investments ................................................. (2,798,156) 6,628,076 (16,015)
Foreign currency transactions ............................... -- (20,377) --
Net unrealized appreciation on investments ................... 3,981,604 11,813,583 77,206
---------- ------------- ---------
Net realized and unrealized gain on investments and foreign
currency ...................................................... 1,183,448 18,421,282 61,191
---------- ------------- ---------
Net increase in net assets resulting from operations ........... $12,331,740 $23,579,692 $550,646
======== ============= ==========

FRANKLIN INVESTORSSECURITIESTRUST

Financial Statements (cont.)

Statements of Changes in Net Assets for the six months ended April 30, 1997
(unaudited) and the year ended October 31, 1996

Franklin Short-Intermediate
Franklin Global U.S. Government Franklin Convertible
Government Income Fund Securities Fund Securities Fund
----------------------------------------------------------
Six months Year ended Six months Year ended Six months Year ended
ended 4/30/97 10/31/96 ended 4/30/97 10/31/96 ended 4/30/97 10/31/96
--------- --------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:

Net investment income ........ $ 4,611,644 $ 11,369,376 $ 5,378,412 $ 11,482,507 $ 4,043,199 $ 5,369,753
Net realized gain (loss) from
investments and foreign currency
transactions .................. (896,344) 962,741 98,482 (300,618) 7,690,970 9,634,023
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in foreign
currencies..................... (2,568,088) 4,017,050 (2,208,287) (1,357,852) (4,068,563) 1,567,232
--------- --------- ---------- --------- ---------- --------
Net increase in net assets
resulting from operations ..... 1,147,212 16,349,167 3,268,607 9,824,037 7,665,606 16,571,008
Distributions to shareholders:
From undistributed net investment
income:
Class I .................... (4,746,591) (10,401,793) (5,389,769) (11,299,126) (3,255,824) (5,000,306)
Class II ................... (114,150) (159,145) -- -- (293,974) (174,577)
Advisor Class .............. (10,787) -- (1,725) -- -- --
In excess of net investment income
Class I ..................... (154,662) -- -- -- -- --
Class II .................... (6,190) -- -- -- -- --
Advisor Class ............... (2,270) -- -- -- -- --
From net realized capital gains:
Class I ..................... -- -- -- -- (9,005,025) (4,634,096)
Class II .................... -- -- -- -- (857,185) (30,571)
Increase (decrease) in net assets
from capital share transactions
(Note 3) ...................... (8,667,068) (30,625,436) (6,682,101) (10,540,555) 35,922,853 51,348,182
--------- --------- ---------- --------- -------- ----------
Net increase (decrease) in
net assets .................... (12,554,506) (24,837,207) (8,804,988) (12,015,644) 30,176,451 58,079,640
Net assets:
Beginning of period ........... 141,325,700 166,162,907 196,041,796 208,057,440 141,812,458 83,732,818
--------- --------- ---------- --------- -------- ----------
End of period ................. $128,771,194 $141,325,700 $187,236,808 $196,041,796 $171,988,909 $141,812,458
========= ========= ========== ========= ======== ==========
Undistributed net investment income included in net assets:
Beginning of period .......... $ 259,884 $ 100,998 $ 701,887 $ 613,089 $ 360,304 $ 152,947
========= ========= ========== ========= ======== ==========
End of period ................ $ (163,122) $ 259,884 $ 688,805 $ 701,887 $ 853,705 $ 360,304
========= ========= ========== ========= ========= =========

</TABLE>
The accompanying notes are an integral part of these financial statements.

FRANKLIN INVESTORSSECURITIESTRUST

Financial Statements (cont.)

Statements of Changes in Net Assets (cont.)
for the six months ended April 30, 1997 (unaudited)
and the year ended October 31, 1996
<TABLE>
<CAPTION>

Franklin Adjustable U.S. Franklin Adjustable Rate
Government Securities Fund Franklin Equity Income Fund Securities Fund
---------------------------------------------------------
Six months Year ended Six months Year ended Six months Year ended
ended 4/30/97 10/31/96 ended 4/30/97 10/31/96 ended 4/30/97 10/31/96
--------- --------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ..........$ 11,148,292 $ 27,128,106 $ 5,158,410 $ 9,016,420 $ 489,455 $ 851,994
Net realized gain (loss) from
investments and foreign currency
transactions .................... (2,798,156) (8,331,753) 6,607,699 5,500,551 (16,015) (67,763)
Net unrealized appreciation on
investments and translation of
assets and liabilities denominated
in foreign currencies ........... 3,981,604 10,070,322 11,813,583 15,107,182 77,206 163,341
--------- --------- ---------- --------- --------- --------
Net increase in net assets
resulting from operations ....... 12,331,740 28,866,675 23,579,692 29,624,153 550,646 947,572
Distributions to shareholders from:
Undistributed net investment income:
Class I ....................... (10,788,875) (27,723,298) (5,333,694) (8,653,540) (489,455) (851,994)
Class II....................... -- -- (360,729) (244,243) -- --
Net realized capital gains:
Class I........................ -- -- (5,098,267) (4,623,214) -- --
Class II....................... -- -- (396,312) (30,854) -- --
Increase (decrease) in net assets from
capital share transactions (Note 3)(40,830,391)(113,435,575) 40,133,577 79,822,947 11,534,507 (1,401,961)
--------- --------- ---------- --------- --------- --------
Net increase (decrease) in net
assets .......................... (39,287,526) (112,292,198) 52,524,267 95,895,249 11,595,698 (1,306,383)
Net assets:
Beginning of period ............. 397,078,384 509,370,582 265,179,085 169,283,836 15,707,373 17,013,756
--------- --------- ---------- --------- -------- ---------
End of period ...................$357,790,858 $397,078,384 $317,703,352 $265,179,085 $27,303,071 $15,707,373
========= ========= ========== ========= ======== =========
Undistributed net
investment income included in net assets:
Beginning of period ............ $ 757,513 $ 1,352,705 $ 620,202 $ 399,686 $-- $--
========= ========= ========== ========= ======== =========
End of period .................. $ 1,116,930 $ 757,513 $ 84,189 $ 620,202 $-- $--
========= ========= ========== ========= ========= ========

</TABLE>
FRANKLIN INVESTORSSECURITIESTRUST

Notes to Financial Statements (unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES

Franklin Investors Securities Trust (the Trust) is an open-end, management
investment company (mutual fund), registered under the Investment Company Act of
1940, as amended. The Trust currently has six separate funds (the Funds)
consisting of five separate diversified Funds: Franklin Short-Intermediate U.S.
Government Securities Fund (the Short-Intermediate Fund), Franklin Convertible
Securities Fund (the Convertible Fund), Franklin Adjustable U.S. Government
Securities Fund (the Adjustable U.S. Government Fund), Franklin Equity Income
Fund (the Equity Income Fund), and Franklin Adjustable Rate Securities Fund (the
Adjustable Rate Fund), and one non-diversified Fund: Franklin Global Government
Income Fund (the Global Fund). Each of the Funds issues a separate series of the
Trust's shares and maintains a totally separate investment portfolio. The
investment objectives of the Funds are as follows:

Global Income Growth and Income Income
- --------- -------------- ------------------------
Global Fund Convertible Fund Short-Intermediate Fund
Equity Income Fund Adjustable U.S. Government Fund
Adjustable Rate Fund

The Adjustable Rate Fund and the Adjustable U.S. Government Fund invest
substantially all of their assets in the Adjustable Rate Securities Portfolio
(the Securities Portfolio) and the U.S. Government Adjustable Rate Mortgage
Portfolio (the Mortgage Portfolio), respectively. Both are no load, open-end,
diversified management investment companies having the same investment objective
as the Adjustable Rate Fund and the Adjustable U.S. Government Fund. The
financial statements of the Securities Portfolio and the Mortgage Portfolio,
including the Statements of Investments in Securities and Net Assets, are
included elsewhere in this report and should be read in conjunction with the
financial statements of the Adjustable Rate Fund and Adjustable U.S.
Government Fund.

The Global Fund offers three classes of shares, Class I, Class II and Advisor
Class. The Short-Intermediate Fund offers Class I and Advisor Class shares and
the Convertible Fund and Equity Income Fund offer Class I and Class II shares.
Class I shares are sold with a higher front-end sales charge than Class II.
There is no front-end sales load nor distribution fees for Advisor Class shares.
Class I and Class II shares may be subject to a contingent deferred sales charge
and has the same rights, except with respect to the effect of the respective
sales charges, the distribution fees borne by each class, voting rights on
matters affecting a single class and the exchange privilege of each class. The
offering of Advisor Class shares began January 2, 1997.

The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.

a. Security Valuation:

Portfolio securities listed on a securities exchange or on the NASDAQ for which
market quotations are readily available are valued at the last sale price or, if
there is no sale price, within the range of the most recent quoted bid and asked
prices. Other securities are valued based on a variety of factors, including
yield, risk, maturity, trade activity and recent developments related to the
securities. Portfolio securities which are traded both in the over the counter
market and on a securities exchange are valued according to the broadest and
most representative market as determined by the Manager. The Trust may utilize a
pricing service, bank or broker/dealer experienced in such matters to perform
any of the pricing functions, under procedures approved by the Board of Trustees
(the Board). Securities for which market quotations are not available, and
securities restricted as to resale, are valued in accordance with procedures
established by the Board.

1. SIGNIFICANT ACCOUNTING POLICIES (cont.)

a. Security Valuation: (cont.)

The value of a foreign security is determined as of the earlier of the close of
trading on the foreign exchange on which it is traded or the close of trading on
the New York Stock Exchange. That value is then converted into its U.S. dollar
equivalent at the foreign exchange rate in effect at noon, New York time, on the
day the value of the foreign security is determined. If no sale is reported at
that time, the mean between the current bid and asked prices is used.
Occasionally, events which affect the values of foreign securities and foreign
exchange rates may occur between the times at which they are determined and the
close of the exchange and will, therefore, not be reflected in the computation
of the Fund's net asset value, unless material. If events which materially
affect the value of these foreign securities occur during such period, these
securities will be valued in accordance with procedures established by the
Board.

The Adjustable Rate Fund and the Adjustable U.S. Government Fund hold Portfolio
shares that are valued at their proportionate interest in the net assets of the
Securities Portfolio and the Mortgage Portfolio (the Portfolios), respectively.
At April 30, 1997, the Adjustable Rate Fund owns 85% of the Securities Portfolio
and the Adjustable U.S. Government Fund owns 98% of the Mortgage Portfolio. The
Portfolios' shares held by the Funds are valued at the net asset value of the
Portfolios.

b. Income Taxes:

The Funds intend to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make the
requisite distributions to shareholders which will be sufficient to relieve the
Funds from income and excise taxes. Each Fund is treated as a separate entity in
the determination of compliance with the Internal Revenue Code.

c. Security Transactions:

Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Realized gains and losses on security transactions are
determined on the basis of specific identification.

d. Investment Income, Expenses and Distributions:

Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income and estimated expenses are accrued daily.
Original issue discount is amortized as required by the Internal Revenue Code.
Realized and unrealized gains or losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.

The Short-Intermediate Fund and the Adjustable Rate Fund normally declare
dividends from their net investment income daily and distribute monthly. Daily
allocations of net investment income will commence on the day following the
receipt of an investor's funds. Dividends declared by the Short-Intermediate
Fund equal an amount set from time to time by the Board. Dividends declared by
the Adjustable Rate Fund equal its net investment income.

Net investment income differs for financial statement and tax purposes primarily
due to differing treatment of defaulted securities and foreign currency
transactions. Net realized capital gains and losses differ for financial
statement and tax purposes primarily due to differing treatment of wash sale and
foreign currency transactions.

A portion of the distributions received by the Convertible Fund and the Equity
Income Fund from investments in Real Estate Investment Trust (REIT) securities
may be characterized as tax basis return of capital (ROC) distributions, which
are not recorded as dividend income, but reduce the cost basis of the REIT
securities. ROC distributions exceeding the cost basis of the REIT security are
recognized by the Funds as capital gain.

1. SIGNIFICANT ACCOUNTING POLICIES (cont.)

e. Accounting Estimates:

The preparation of financial statements in accordance with generally accepted
accounting principles 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.

f. Expense Allocation:

Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of net assets of each Fund to the combined net assets. In all other
respects, expenses are charged to each Fund as incurred on a specific
identification basis.

g. Foreign Currency Translation:

The accounting records of the Funds are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies are translated into U.S.
dollars at the rate of exchange of the currencies against U.S. dollars on the
valuation date. Purchases and sales of securities, income and expenses are
translated at the rate of exchange quoted on the day that the transactions are
recorded. Differences between income and expense amounts recorded and collected
or paid are recognized when reported by the custodian.

The Funds do not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.

Realized foreign exchange gains or losses arise from sales and maturities of
short-term securities, sales of foreign currencies, gains or losses realized
between the trade and settlement dates on security transactions, the difference
between the amounts of dividends, interest and foreign withholding taxes
recorded on the Funds' books and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized appreciation or depreciation on
translation of assets and liabilities denominated in foreign currencies arises
from changes in the value of assets and liabilities other than investments in
securities at the end of the reporting period, resulting from changes in
exchange rates.

h. Joint Repurchase Agreements:

The Short-Intermediate Fund, the Convertible Fund, the Adjustable U.S.
Government Fund, the Equity Income Fund and the Adjustable Rate Fund may enter
into a joint repurchase agreement whereby their uninvested cash balances are
deposited into a joint cash account to be used to invest in one or more
repurchase agreements with government securities dealers recognized by the
Federal Reserve Board and/or member banks of the Federal Reserve System. The
value and face amount of the joint repurchase agreement are allocated to the
Funds based on their pro-rata interest. A repurchase agreement is accounted for
as a loan by the Funds to the seller, collateralized by underlying U.S.
government securities, which are delivered to the Funds' custodian. The market
value, including accrued interest, of the initial collateralization is required
to be at least 102% of the dollar amount invested by the Funds, with the value
of the underlying securities marked to market daily to maintain coverage of at
least 100%. At April 30, 1997, all outstanding repurchase agreements held by the
Funds had been entered into on that date.

i. Securities Purchased on a When-Issued or Delayed Delivery Basis:

The Funds may purchase securities on a when-issued or delayed delivery basis,
with payment and delivery scheduled for a future date. These transactions are
subject to market fluctuations and are subject to the risk that the value at
delivery may be more or less than the trade date purchase price. Although the
Funds will generally purchase these securities with the intention of holding the
securities, they may sell the securities before the settlement date. These
securities are identified on the accompanying Statement of Investments in
Securities and Net Assets. The Funds have set aside sufficient investment
securities as collateral for these purchase commitments.

2. FORWARD FOREIGN CURRENCY CONTRACTS

A forward currency contract, which is individually negotiated and privately
traded by currency traders and their customers, is a commitment to purchase or
sell a specific currency for an agreed-upon price at a future date.

The Global Fund may enter into forward contracts with the objective of
minimizing the risk to the Fund from adverse changes in the relationship between
currencies or to enhance fund value. The Fund may also enter into a forward
contract in relation to a security denominated in a foreign currency or when it
anticipates receipt in a foreign currency of dividends or interest payments in
order to "lock in" the U.S. dollar price of a security or the U.S. dollar
equivalent of such dividend or interest payments.

Any gain or loss realized from a forward currency contract is recorded as a
realized gain or loss from investments.

The Fund segregates sufficient cash, cash equivalents or readily marketable debt
securities as collateral for commitments created by open forward contracts. The
Fund could be exposed to risk if counterparties to the contracts are unable to
meet the terms of their contracts or if the value of the foreign currency
changes unfavorably.

As of April 30, 1997, the Global Fund had the following forward foreign currency
contracts outstanding:
<TABLE>
<CAPTION>

In Unrealized
Contracts to Sell Exchange for Settlement Date Gain (Loss)
------------------------------- --------- ---------- --------
<S> <C> <C> <C> <C>
36,043,000 German Deutschemarks...... U.S. $21,526,563 7/14/97 U.S. $595,668
808,613,000 Japanese Yen.............. 6,501,672 7/18/97 54,202
3,167,000 Australian Dollars........ 2,489,452 7/21/97 20,865
4,730,000 Canadian Dollars.......... 3,407,167 7/21/97 2,505
7,000,000 German Deutschemarks...... 4,089,741 7/22/97 22,370
7,000,000 German Deutschemarks...... 4,092,849 7/22/97 25,478
7,000,000 German Deutschemarks...... 4,147,411 7/23/97 79,748
12,000,000 German Deutschemarks...... 7,003,332 7/24/97 29,697
12,000,000 German Deutschemarks...... 7,009,919 7/24/97 36,283
7,000,000 German Deutschemarks...... 4,057,030 8/4/97 (14,260)
626,000 Australian Dollars........ 489,876 8/4/97 (1,927)
--------
850,629

Contracts to Buy
-------------------------------
13,443,000 German Deutschemarks....... 8,067,042 7/14/97 (260,422)
10,367,000 German Deutschemarks....... 6,045,250 7/14/97 (24,925)
2,592,000 German Deutschemarks....... 1,504,763 7/14/97 (463)
3,500,000 German Deutschemarks....... 2,055,800 7/22/97 (22,115)
--------
(307,925)

Net unrealized gain on offsetting forward foreign
currency contracts 183,867
--------
Net unrealized gain on forward foreign currency contracts U.S.$726,571
========

</TABLE>
3. TRUST SHARES

At April 30, 1997, there was an unlimited number of $.01 par value shares of
beneficial interest authorized. Transactions in each of the Fund's shares were
as follows:
<TABLE>
<CAPTION>

Franklin
Franklin Global Short-Intermediate U.S. Franklin Convertible
Government Income Fund Government Securities Fund Securities Fund
------------------------------------------------------------
Class I Shares: Shares Amount Shares Amount Shares Amount
--------- ----------- -------- ---------- ------- -----------
Six months ended April 30, 1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold ................. 891,063 $ 7,624,552 4,156,245 $ 42,503,724 2,970,804 $39,516,097
Shares issued in reinvestment
of distributions ............ 296,676 2,548,660 307,385 3,141,636 720,356 9,314,063
Shares redeemed ............. (2,309,113) (19,835,009) (5,130,835) (52,463,033) (1,660,658) (22,046,589)
--------- ----------- -------- ----------- ------- ---------
Net increase (decrease)...... (1,121,374) $ (9,661,797) (667,205) $ (6,817,673) 2,030,502 $26,783,571
========= =========== ======== =========== ======= ==========
Year Ended October 31, 1996
Shares sold ................. 4,025,707 $ 33,831,552 7,187,123 $ 73,976,114 4,365,828 $56,759,465
Shares issued in reinvestment
of distributions ............ 627,075 5,249,077 656,342 6,749,593 544,756 6,898,946
Shares redeemed ............. (8,597,709) (72,097,101) (8,876,550) (91,266,262) (1,733,409) (22,632,385)
--------- ----------- -------- ----------- -------- ---------
Net increase (decrease) ...... (3,944,927) $ (33,016,472) (1,033,085) $ (10,540,555) 3,177,175 $41,026,026
========= =========== ======== =========== ======== =========
Class II Shares:
Six months ended April 30, 1997
Shares sold ................. 134,391 $ 1,146,463 694,710 $ 9,225,022
Shares issued in reinvestment
of distributions ............ 8,748 75,105 72,183 929,944
Shares redeemed ............. (114,497) (988,051) (76,536) (1,015,684)
--------- ----------- ------- ---------
Net increase ................. 28,642 $ 233,517 690,357 $ 9,139,282
========= =========== ======= ===========
Year Ended October 31, 1996
Shares sold ................. 346,306 $ 2,915,042 804,020 $ 10,462,164
Shares issued in reinvestment
of distributions ............ 11,601 97,238 12,211 157,571
Shares redeemed ............. (73,846) (621,244) (22,905) (297,579)
--------- ----------- -------- ----------
Net increase ................. 284,061 $ 2,391,036 793,326 $ 10,322,156
========= =========== ======== ==========
Advisor Class Shares:
January 2, 1997 to April 30, 1997
Shares sold ................. 89,137 $ 770,523 13,151 $ 134,808
Shares issued in reinvestment
of distributions ............ 1,528 12,948 75 764
Shares redeemed ............. (2,624) (22,259) -- --
--------- ----------- -------- ----------
Net increase ................. 88,041 $ 761,212 13,226 $ 135,572
========= =========== ======== ==========

3. TRUST SHARES (cont.)

Franklin Adjustable Franklin Franklin Adjustable
U.S. Government Securities Fund Equity Income Fund Rate Securities Fund
----------------------------------------------------------
Class I Shares: Shares Amount Shares Amount Shares Amount
--------- ----------- -------- -------- --------- -----------
Six months ended April 30, 1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold .................. 7,925,727 $ 74,344,876 3,591,942 $ 61,629,035 1,626,239 $16,044,318
Shares issued in reinvestment
of distributions ............. 671,739 6,286,138 525,865 8,765,122 39,286 387,625
Shares redeemed .............. (12,946,544) (121,461,405) (2,353,561) (40,324,279) (496,323) (4,897,436)
--------- ----------- -------- ----------- -------- ---------
Net increase (decrease) ....... (4,349,078) $ (40,830,391) 1,764,246 $ 30,069,878 1,169,202 $11,534,507
========= =========== ======== ======== ======== ==========
Year Ended October 31, 1996
Shares sold .................. 14,565,477 $136,048,405 6,911,802 $110,237,707 686,370 $ 6,733,448
Shares issued in reinvestment
of distributions ............. 1,655,133 15,418,849 674,366 10,650,968 65,447 642,723
Shares redeemed .............. (28,356,704) (264,902,829) (3,657,228) (58,425,562) (892,821) (8,778,132)
--------- ----------- -------- ----------- -------- ---------
Net increase (decrease) ....... (12,136,094) $(113,435,575) 3,928,940 $ 62,463,113 (141,004) $ (1,401,961)
========= =========== ======== =========== ======= ==========
Class II Shares:
Six months ended April 30, 1997
Shares sold .................. 667,454 $ 11,404,958
Shares issued in reinvestment
of distributions ............. 41,490 690,550
Shares redeemed .............. (119,571) (2,031,809)
-------- ----------
Net increase .................. 589,373 $ 10,063,699
======== ==========
Year Ended October 31, 1996
Shares sold .................. 1,133,269 $ 18,099,689
Shares issued in reinvestment
of distributions ............. 15,808 251,793
Shares redeemed .............. (61,758) (991,648)
-------- ----------
Net increase ................. 1,087,319 $ 17,359,834
======== ==========

4. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS

At October 31, 1996, for tax purposes, the Funds had accumulated net realized
gains or capital loss carryovers as follows:

Franklin Franklin Franklin
Global Short-Intermediate Franklin Adjustable Franklin Franklin
Government U.S. Government Convertible U.S. Government Equity Adjustable Rate
Income Fund Securities FundSecurities FundSecurities Fund Income FundSecurities Fund
-------- ------------ ---------- ---------- ---------- ---------
Accumulated net realized
<S> <C> <C> <C> <C> <C> <C>
gains...................... $-- $-- $9,857,840 $ -- $5,377,980 $ --
======== ============ ========== =========== ========= =========

4. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS (cont.)
Franklin Franklin Franklin
Global Short-Intermediate Franklin Adjustable Franklin Franklin
Government U.S. Government Convertible U.S. Government Equity Adjustable Rate
Income Fund Securities FundSecurities FundSecurities Fund Income FundSecurities Fund
-------- ------------ ---------- ------------ -------- ---------
Capital loss carryovers
<S> <C> <C> <C> <C> <C> <C> <C>
Expiring in: 2000.......... $-- $-- $-- $ 1,925,614 $-- $ --
2001.......... -- -- -- 7,701,615 -- --
2002.......... -- 2,434,010 -- 41,867,757 -- 414,821
2003.......... 3,035,705 3,564,637 -- 18,176,270 -- 286,740
2004.......... -- 300,618 -- 8,741,194 -- 66,100
-------- ------------ ---------- ----------- -------- ----------
$3,035,705 $6,299,265 $-- $78,412,450 $-- $767,661
======== ============ ========== =========== ======== ==========

</TABLE>
For tax purposes, the aggregate cost of securities is higher (and unrealized
appreciation is lower or unrealized depreciation is higher) than for financial
reporting purposes at April 30, 1997, by $63,375 in the Convertible Fund,
$138,423 in the Adjustable U.S. Government Securities Fund, $18,518 in the
Equity Income Fund, and $5,957 in the Adjustable Rate Fund.

5. PURCHASES AND SALES OF SECURITIES

Aggregate purchases and sales of securities (excluding purchases and sales of
short-term securities) for the six months ended April 30, 1997, were as follows:
<TABLE>
<CAPTION>

Franklin Franklin Franklin
Global Short-Intermediate Franklin Adjustable Franklin Franklin
Government U.S. Government Convertible U.S. Government Equity Adjustable Rate
Income Fund Securities Fund Securities FundSecurities Fund Income Fund Securities Fund
---------- ------------ ---------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Purchases .............. $163,093,111 $24,942,188 $131,489,878 $ 62,252,431 $54,504,926 $14,741,656
Sales .................. $187,368,984 $75,025,910 $121,070,108 $101,627,208 $24,506,308 $ 3,117,130

</TABLE>
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

a. Management/Administrative Agreement:

Under the terms of a management agreement, Franklin Advisers, Inc. (Advisers),
provides investment advice, administrative services, office space and facilities
to each Fund, and receives fees computed monthly based on the net assets of each
Fund on the last day of the month, except for the Adjustable U.S. Government
Fund and the Adjustable Rate Fund, as follows:

Annualized Fee RateMonth End Net Assets
------------- ----------------------------------
0.625% First $100 million
0.50% Over $100 million, up to and including $250 million
0.45% Over $250 million

Under the terms of a separate administration agreement with the Adjustable U.S.
Government Fund and the Adjustable Rate Fund, Advisers provides various
administrative, statistical, and other services, and receives fees computed
monthly based on each Fund's average daily net assets as follows:

Annualized Fee RateAverage Daily Net Assets
------------- ----------------------------------
0.10% First $5 billion
0.09% Over $5 billion, up to and including $10 billion
0.08% Over $10 billion

6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)

a. Management/Administrative Agreement: (cont.)

Under an agreement with Advisers, Franklin Templeton Services, Inc., (FT
Services) provides administrative services and facilities for the Global Fund,
the Short-Intermediate Fund, the Convertible Fund and the Equity Income Fund.
The fee is paid by Advisory and computed monthly based on the average daily net
assets as follows:

Annualized Fee Rate Month End Net Assets
------------- ----------------------------------
0.150% First $200 million
0.135% Over $200 million, up to and including $700 million
0.100% Over $700 million, up to and including $1.2 billion

Fees are further reduced on net assets over $1.2 billion.

Under a subadvisory agreement, Templeton Investment Counsel, Inc. (TICI)
provides services to the Global Fund and receives from Advisers fees computed
monthly based on the net assets on the last day of the month as follows:

Annualized Fee Rate Month End Net Assets
------------- ----------------------------------
0.35% First $100 million
0.25% Over $100 million, up to and including $250 million
0.20% Over $250 million

b. Shareholders Services Agreement:

Under the terms of a shareholder services agreement with Franklin/Templeton
Investor Services, Inc. (Investor Services), the Funds pay costs on a per
shareholder account basis. Shareholder servicing costs incurred by the Funds for
the six months ended April 30, 1997, aggregated $431,957 all of which was paid
to Investor Services.

c. Distribution Plans and Underwriting Agreement:

Under the terms of distribution plans pursuant to Rule 12b-1 of the Investment
Company Act of 1940 (the Plans), the Short-Intermediate Fund, the Adjustable
U.S. Government Fund and the Adjustable Rate Fund reimburse Franklin/Templeton
Distributors, Inc. (Distributors), in an amount up to a maximum of 0.10%, 0.25%
and 0.25%, respectively, per annum of each Fund's average daily net assets for
costs incurred in the promotion, offering and marketing of the Funds' shares.
The Plans do not permit nor require payments of excess costs after termination.
Fees incurred by the Funds under the Plans aggregated $509,853 for the six
months ended April 30, 1997.

Under the terms of the Plans, the Global Fund reimburses Distributors in an
amount up to a maximum of 0.15% per annum for Class I and 0.65% per annum for
Class II, the Convertible Fund and Equity Income Fund reimburse Distributors in
an amount up to a maximum of 0.25% per annum for Class I and 1.00% per annum for
Class II of the average daily net assets of such class for costs incurred in the
promotion, offering and marketing of the Fund's shares. The Plans do not permit
nor require payments of excess costs after termination. Fees incurred by the
Funds under the Plan aggregated $812,620 for the six months ended April 30,
1997.

In its capacity as underwriter for the shares of the Funds, Distributors
receives commissions on sales of the Funds' shares of beneficial interest.
Commissions are deducted from the gross proceeds received from the sale of the
shares of the Funds, and as such are not expenses of the Funds. Distributors may
also make payments, out of its own resources, to the dealers for certain sales
of the Funds' shares. Commissions received by Distributors, the amounts paid to
other dealers, and any applicable contingent deferred sales charges (CDSC) for
the six months ended April 30,1997, were as follows:

6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)

c. Distribution Plans and Underwriting Agreement: (cont.)
<TABLE>
<CAPTION>

Franklin Franklin Franklin
Global Short-Intermediate Franklin Adjustable Franklin Franklin
Government U.S. Government Convertible U.S. Government Equity Adjustable Rate
Income Fund Securities FundSecurities FundSecurities Fund Income FundSecurities Fund
-------- ------------ ---------- ----------- --------- ---------
Total commissions received,
<S> <C> <C> <C> <C> <C> <C>
including CDSC............. $99,719 $158,754 $654,606 $71,483 $727,406 $33,705
Paid to other dealers....... $91,979 $177,554 $724,194 $76,423 $883,670 $33,443
CDSC........................ $ 1,567 $-- $ 2,961 $-- $ 6,715 $ --

</TABLE>
d. Other Affiliates and Related Party Transactions:

Certain officers and trustees of the Trust are also officers and/or directors of
Distributors, Advisers, Investor Services, TICI and FT Services (all
wholly-owned subsidiaries of Franklin Resources, Inc.,) and of the Securities
Portfolio and the Mortgage Portfolio.

7. CREDIT RISKS

There are certain credit risks, foreign currency exchange risk, or event risk
due to the manner in which certain Funds are invested, which may subject the
Funds more significantly to economic changes occurring in certain industries, or
sectors as follows:

The Convertible Fund has 55.51% of its portfolio invested in lower rated and
comparable quality unrated high yield securities. Investments in high yield
securities are accompanied by a greater degree of credit risk and such lower
quality securities tend to be more sensitive to economic conditions than higher
rated securities. The risk of loss due to default by the issuer may be
significantly greater for the holders of high yield securities, because such
securities are generally unsecured and are often subordinated to other creditors
of the issuer.

The Global Fund has investments in excess of 10% of net assets in debt
securities denominated in German Deutschemarks.

The Convertible Fund has investments in excess of 10% of net assets in the
Electronics industry.

8. FINANCIAL HIGHLIGHTS

Selected data for each share of beneficial interest outstanding throughout the
period, by Fund, are as follows:

Per Share Operating Performance Ratios/Supplemental Data
-------------------------------------------------- ----------------------------
Net Distri- Ratio
Net Realized Total butionsDistri- Distri- of Net
Asset & Un- From From butions butions Net Net Ratio of Invest- Port-
Value at Net realized Invest-Net From From Asset Assets Expenses ment folio Average
Year Begin- Invest- Gain ment Invest-RealizedReturn Total Value at at End to Aver- Income to Turn- Com-
Ended ning of ment (Loss) on Oper- ment Capital of Distri-End of Total of PeriodAverage NetAverage over mission
Oct.31 Period Income Securities ations Income Gains Capital butionsPeriod Return**(in 000's)Assets*** Net Assets Rate Rate5

Franklin Global Government Income Fund
Class I Shares:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19922 $ 9.34 $0.86 $0.246 $1.106$(0.900)$(0.156)$ -- $(1.056)$ 9.39 12.15% $ 78,911 0.50% 7.87% 155.40% --
19932 9.39 0.83 (0.698) 0.132 (0.713) (0.075) (0.124) (0.912) 8.61 1.08 153,899 0.72 7.08 49.20 --
19933 8.61 0.58 0.716 1.296 (0.576) -- -- (0.576) 9.33 15.14 195,627 0.77* 6.74* 67.36 --
1994 9.33 1.30 (1.806) (0.506)(0.078) (0.083) (0.603) (0.764) 8.06 (5.72) 187,204 0.89 8.54 80.69 --
1995 8.06 0.67 0.290 0.960 (0.645) -- (0.065) (0.710) 8.31 12.65 164,970 0.96 8.29 103.49 --
1996 8.31 0.61 0.330 0.940 (0.600) -- -- (0.600) 8.65 11.80 137,626 0.85 7.68 139.71 --
19976 8.65 0.29 (0.220) 0.070 (0.320)+-- -- (0.320) 8.40 0.78 124,196 0.89* 6.36* 133.35 --

8. FINANCIAL HIGHLIGHTS (cont.)

Franklin Global Government Income Fund (cont.)
Class II Shares:
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19958 $ 8.03 $0.31 $0.301 $0.611$ (0.301) $-- $(0.030)$(0.331)$ 8.31 7.09% $ 1,193 1.54%* 7.41%* 103.49% --
1996 8.31 0.56 0.334 0.894 (0.554) -- -- (0.554) 8.65 11.19 3,700 1.40 7.17 139.71 --
19976 8.65 0.27 (0.223) 0.047 (0.297) ++-- -- (0.297) 8.40 0.51 3,835 1.44* 6.30* 133.35 --
Advisor Class Shares:
19977 8.71 0.18 (0.277) (0.097) (0.203) +++-- -- (0.203) 8.41 (1.31) 740 0.80* 6.79* 133.35 --
Franklin Short-Intermediate U.S. Government Securities Fund:
Class I Shares:
19922 10.30 0.58 0.374 0.954 (0.786) (0.078) -- (0.864) 10.39 9.44 163,690 0.71 5.90 102.05 --
19932 10.39 0.57 0.432 1.002 (0.565) (0.257) -- (0.822) 10.57 10.01 235,382 0.56 5.40 78.96 --
19933 10.57 0.38 0.245 0.625 (0.390) (0.005) -- (0.395) 10.80 5.90 273,678 0.55* 4.75* 31.71 --
1994 10.80 0.49 (0.696) (0.206) (0.472) (0.092) -- (0.564) 10.03 (1.99) 225,352 0.65 4.75 99.09 --
1995 10.03 0.56 0.309 0.869 (0.549) -- -- (0.549) 10.35 8.90 208,057 0.73 5.42 56.34 --
1996 10.35 0.58 (0.080) 0.500 (0.570) -- -- (0.570) 10.28 4.97 196,042 0.74 5.64 72.62 --
19976 10.28 0.29 (0.112) 0.178 (0.288) -- -- (0.288) 10.17 1.75 187,102 0.73* 5.60* 14.66 --
Advisor Class Shares:
19977 10.24 0.27 (0.149) 0.121 (0.191) -- -- (0.191) 10.17 1.19 135 0.65* 5.62* 14.66 --
Franklin Convertible Securities Fund
Class I Shares:
19922 8.53 0.44 2.194 2.634 (0.684) -- -- (0.684) 10.48 31.50 20,282 0.26 6.84 64.90 --
19932 10.48 0.61 1.034 1.644 (0.684) -- -- (0.684) 11.44 16.12 28,307 0.25 6.01 60.00 --
19933 11.44 0.45 1.413 1.863 (0.513) -- -- (0.513) 12.79 16.50 47,440 0.25* 5.25* 31.05 --
1994 12.79 0.59 (0.327) 0.263 (0.594) (0.119) -- (0.713) 12.34 2.07 66,869 0.84 4.84 68.39 --
1995 12.34 0.58 1.099 1.679 (0.592) (0.697) -- (1.289) 12.73 15.18 83,523 1.03 4.82 108.64 --
1996 12.73 0.61 1.389 1.999 (0.600) (0.679) -- (1.279) 13.45 16.71 130,951 1.02 4.79 129.83 0.0495
19976 13.45 0.33 0.391 0.721 (0.300) (0.901) -- (1.201) 12.97 5.54 152,594 1.01* 5.13* 85.38 0.0516
Class II Shares:
19959 13.06 0.07 (0.373) (0.303) (0.047) -- -- (0.047) 12.71 (2.33) 209 1.60* 3.64* 108.64 --
1996 12.71 0.51 1.397 1.907 (0.528) (0.679) -- (1.207) 13.41 15.92 10,861 1.79 4.00 129.83 0.0495
19976 13.41 0.28 0.394 0.674 (0.253) (0.901) -- (1.154) 12.93 5.18 19,395 1.73* 4.37* 85.38 0.0516
Franklin Adjustable U.S. Government Securities Fund:
19922 9.99 0.74 0.027 0.767 (0.777) -- -- (0.777) 9.98 7.96 3,513,415 0.684 7.10 30.89 --
19932 9.98 0.51 (0.105) 0.405 (0.522) (0.003) -- (0.525) 9.86 4.16 2,971,424 0.664 5.10 30.36 --
19933 9.86 0.28 (0.086) 0.194 (0.284) -- -- (0.284) 9.77 1.99 1,813,504 0.654* 3.92* 6.97 --
1994 9.77 0.35 (0.606) (0.256) (0.314) -- -- (0.314) 9.20 (2.65) 700,617 0.424 3.67 5.99 --
1995 9.20 0.54 0.136 0.676 (0.536) -- -- (0.536) 9.34 7.57 509,371 0.614 5.76 17.81 --
1996 9.34 0.56 0.032 0.592 (0.562) -- -- (0.562) 9.37 6.54 397,078 0.694 5.87 23.52 --
19976 9.37 0.28 0.027 0.307 (0.267) -- -- (0.267) 9.41 3.33 357,791 0.714* 5.82* 16.44 --

8. FINANCIAL HIGHLIGHTS (cont.)
Per Share Operating Performance Ratios/Supplemental Data
-------------------------------------------------- ----------------------------
Net Distri- Ratio
Net Realized Total butionsDistri- Distri- of Net
Asset & Un- From From butions butions Net Net Ratio of Invest- Port-
Value at Net realized Invest-Net From From Asset Assets Expenses ment folio Average
Year Begin- Invest- Gain ment Invest-RealizedReturn Total Value at at End to Aver- Income to Turn- Com-
Ended ning of ment (Loss) on Oper- ment Capital of Distri-End of Total of PeriodAverage NetAverage over mission
Oct.31 Period Income Securities ations Income Gains Capital butionsPeriod Return**(in 000's)Assets*** Net Assets Rate Rate5

Franklin Equity Income Fund
Class I Shares:
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19922 $10.64 $0.42 $1.967 $2.387 $(0.660)$(0.057) $ -- $(0.717)$12.31 22.76% $ 16,144 0.25% 5.77% 40.59% --
19932 12.31 0.66 1.307 1.967 (0.682) (0.135) -- (0.817) 13.46 16.23 26,092 0.25 5.18 31.05 --
19933 13.46 0.60 1.435 2.035 (0.495) (0.090) -- (0.585) 14.91 15.27 42,177 0.25* 5.86* 19.33 --
1994 14.91 0.62 (0.358) 0.262 (0.725) (0.307) -- (1.032) 14.14 1.83 92,763 0.77 4.53 39.51 --
1995 14.14 0.63 1.272 1.902 (0.609) (0.243) -- (0.852) 15.19 14.10 168,897 1.00 4.44 27.86 --
1996 15.19 0.64 1.628 2.268 (0.649) (0.399) -- (1.048) 16.41 15.39 246,952 0.98 4.11 24.15 0.0514
19976 16.41 0.30 1.108 1.408 (0.333) (0.325) -- (0.658) 17.16 8.75 288,534 0.93* 3.53* 8.82 0.0497
Class II Shares:
19959 15.38 0.05 (0.193) (0.143) (0.047) -- -- (0.047) 15.19 (0.93) 386 1.99* 3.57* 27.86 --
1996 15.19 0.52 1.627 2.147 (0.558) (0.399) -- (0.957) 16.38 14.53 18,227 1.73 3.33 24.15 0.0514
19976 16.38 0.24 1.105 1.345 (0.260) (0.325) -- (0.585) 17.14 8.36 29,169 1.67* 2.75* 8.82 0.0497
Franklin Adjustable Rate Securities Fund:
19921 10.00 -- -- -- -- -- -- -- 10.00 -- -- -- -- -- --
19932 10.00 0.60 0.031 0.631 (0.601) -- -- (0.601) 10.03 6.48 12,521 -- 5.84 48.95 --
19933 10.03 0.37 0.009 0.379 (0.369) -- -- (0.369) 10.04 3.83 37,809 0.114* 4.69* 49.11 --
1994 10.04 0.45 (0.341) 0.109 (0.449) -- -- (0.449) 9.70 1.11 24,564 0.454 4.45 84.67 --
1995 9.70 0.58 0.120 0.700 (0.580) -- -- (0.580) 9.82 7.57 17,014 0.704 5.82 53.30 --
1996 9.82 0.54 0.055 0.595 (0.545) -- -- (0.545) 9.87 6.23 15,707 0.904 5.54 41.67 --
19976 9.87 0.28 0.018 0.298 (0.278) -- -- (0.278) 9.89 3.06 27,303 0.824* 5.62* 17.48 --

</TABLE>

1For the period December 26, 1991 (effective date of registration) to January
31, 1992.

2For the year ended January 31.

3For the nine months ended October 31, 1993.

4Includes the Funds' share of the Portfolios' allocated expenses.

5Represents the average broker commission rate per share paid by the Fund in
connection with the execution of the Fund's portfolio transactions in equity
securities.

6For the six months ended April 30, 1997.

7For the period January 2, 1997 (effective date) to April 30, 1997.

8For the period May 1, 1995 to October 31, 1995.

9For the period October 1, 1995 to October 31, 1995.

*Annualized

**Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It does not include the maximum front-end sales
charge or contingent deferred sales charge, and assumes reinvestment of
dividends and capital gains at net asset value. Prior to May 1, 1994, dividends
were reinvested at the maximum offering price,and capital gains at net asset
value. Effective May 1, 1994, with the implementation of the Rule 12b-1
distribution plan for Class I shares, the sales charge on reinvested dividends
was eliminated. The total return may differ from that reported in the Manager's
Discussion due to differences between the net asset values quoted and the net
asset values calculated for financial reporting purposes.

+Includes distribution in excess of net investment income in the amount of
$.003.

++Includes distribution in excess of net investment income in the amount of
$.005.

+++Includes distribution in excess of net investment income in the amount of
$.007.

8. FINANCIAL HIGHLIGHTS (cont.)

***During the periods indicated, Advisers agreed in advance to waive a portion
of its administration and management fees and to make payments of other expenses
incurred by the Funds. Had such action not been taken, the ratio of expenses to
average net assets would have been as follows:

Ratio of Expenses to
Average Net Assets

Franklin Global Government Income Fund
Class I
19922 ................................. 0.80%
19932 ................................ 0.73
Franklin Short-Intermediate
U.S. Government Securities Fund
Class I
19932 ................................. 0.65
19933.................................. 0.63*
1994 .................................. 0.68
Franklin Convertible Securities Fund
Class I
19922 ................................. 0.94
19932 ................................. 0.81
19933.................................. 0.86*
1994 .................................. 0.92

Ratio of Expenses to
Average Net Assets

Franklin Adjustable
U.S. Government Securities Fund
19922 ................................. 0.89%4
19932 ................................. 0.804
19933 ................................. 0.794*
1994 .................................. 0.824
1995 .................................. 0.864
1996 .................................. 0.864
1997 .................................. 0.884*
Franklin Equity Income Fund
Class I
19922 ................................. 0.84
19932 ................................. 0.81
19933 ................................. 0.87*
1994 .................................. 0.95
1995 .................................. 1.02
Franklin Adjustable Rate Securities Fund
19921 ................................. --
19932 ................................. 1.914
19933 ................................. 1.014*
1994 .................................. 0.854
1995 .................................. 0.994
1996 .................................. 1.124
1997 .................................. 1.024*

ADJUSTABLE RATE SECURITIES PORTFOLIOS

Statement of Investments in Securities and Net Assets, April 30, 1997
(unaudited)
<TABLE>
<CAPTION>

Face Value
Amount U.S. Government Adjustable Rate Mortgage Portfolio (Note 1)
Adjustable Rate Mortgage Securities 97.8%

Federal Home Loan Mortgage Corp. (FHLMC) 21.9%
<S> <C> <C>
$ 5,173,722 FHLMC, Cap 11.253%, Margin 1.75% + CMT, Resets Annually, 7.625%, 11/01/16 ..... $ 5,398,944
2,201,540 FHLMC, Cap 12.723%, Margin 2.189% + CMT, Resets Annually, 7.725%, 04/01/19 .... 2,302,216
4,930,556 FHLMC, Cap 12.744%, Margin 2.00% + CMT, Resets Annually, 7.262%, 07/01/18 ..... 5,105,887
7,252,726 FHLMC, Cap 12.806%, Margin 2.23% + CMT, Resets Annually, 7.786%, 04/01/18 ..... 7,630,666
5,921,301 FHLMC, Cap 13.006%, Margin 2.00% + CMT, Resets Annually, 7.615%, 09/01/19 ..... 6,171,397
2,872,366 FHLMC, Cap 13.156%, Margin 1.915% + CMT, Resets Annually, 7.645%, 12/01/16 .... 2,999,300
1,964,685 FHLMC, Cap 13.16%, Margin 2.115% + CMT, Resets Annually, 7.712%, 07/01/19 ..... 2,049,805
2,689,191 FHLMC, Cap 13.246%, Margin 2.175% + CMT, Resets Annually, 7.927%, 10/01/18 .... 2,808,168
2,187,873 FHLMC, Cap 13.292%, Margin 2.115% + CMT, Resets Annually, 7.712%, 03/01/19 .... 2,282,662
1,391,884 FHLMC, Cap 13.306%, Margin 2.057% + CMT, Resets Annually, 7.622%, 12/01/18 .... 1,450,824
1,877,974 FHLMC, Cap 13.36%, Margin 2.242% + CMT, Resets Annually, 7.596%, 07/01/20 ..... 1,963,103
4,393,013 FHLMC, Cap 13.366%, Margin 2.102% + CMT, Resets Annually, 7.626%, 03/01/18 .... 4,579,037
9,119,252 FHLMC, Cap 13.37%, Margin 2.04% + CMT, Resets Annually, 7.608%, 04/01/19 ...... 9,511,562
6,941,690 FHLMC, Cap 13.65%, Margin 2.249% + CMT, Resets Annually, 7.738%, 07/01/20 ..... 7,260,521
3,165,993 FHLMC, Cap 13.793%, Margin 2.214% + CMT, Resets Annually, 7.839%, 11/01/19 .... 3,316,473
8,410,182 FHLMC, Cap 13.879%, Margin 2.089% + CMT, Resets Annually, 7.679%, 04/01/18 .... 8,803,863
2,027,958 FHLMC, Cap 14.307%, Margin 1.957% + 3CMT, Resets Every 3 Years, 8.745%,
12/01/21 ..................................................................... 2,103,175
1,444,357 FHLMC, Cap 14.451%, Margin 2.00% + CMT, Resets Annually, 7.794%, 12/01/18 ..... 1,507,447
3,112,415 FHLMC, Cap 14.90%, Margin 2.546% + CMT, Resets Annually, 8.085%, 02/01/19 ..... 3,283,381
-----------
Total Federal Home Loan Mortgage Corp. (Cost $79,600,549) ............... 80,528,431
-----------
Federal National Mortgage Association (FNMA) 71.9%
7,000,000 gFNMA, Cap 12.00%, Margin 1.25% + COFI, Resets Monthly, 6.07%, 04/01/27 ....... 6,925,625
10,012,375 FNMA, Cap 12.064%, Margin 1.25% + COFI, Resets Monthly, 6.099%, 11/01/35 ...... 9,917,444
2,478,791 FNMA, Cap 12.605%, Margin 2.536% + 6 Month DR, Resets Semi-Annually, 7.719%,
11/01/18 ..................................................................... 2,569,193
16,576,477 FNMA, Cap 12.637%, Margin 2.00% + NCI, Resets Annually, 6.876%, 11/01/17 ...... 16,824,295
4,420,165 FNMA, Cap 12.64%, Margin 2.00% + CMT, Resets Annually, 7.675%, 03/01/19 ....... 4,603,558
11,274,384 FNMA, Cap 12.66%, Margin 1.75% + 6 Month DR, Resets Semi-Annually, 6.848%,
01/01/19 11,452,971
2,994,212 FNMA, Cap 12.662%, Margin 1.25% + COFI, Resets Monthly, 6.888%, 01/01/19 ...... 2,980,978
11,335,156 FNMA, Cap 12.705%, Margin 1.25% + COFI, Resets Monthly, 6.092%, 09/01/18 ...... 11,189,273
2,928,028 FNMA, Cap 12.787%, Margin 1.25% + COFI, Resets Monthly, 7.486%, 01/01/19 ...... 2,990,102
4,014,445 FNMA, Cap 12.788%, Margin 2.11% + CMT, Resets Annually, 7.626%, 11/01/20 ...... 4,204,850
5,466,077 FNMA, Cap 12.804%, Margin 1.75% + CMT, Resets Annually, 7.371%, 05/01/19 ...... 5,696,124
3,149,064 FNMA, Cap 12.84%, Margin 2.762% + 6 Month DR, Resets Semi-Annually, 7.925%,
06/01/17 ..................................................................... 3,292,441
5,357,072 FNMA, Cap 12.85%, Margin 2.078% + 5CMT, Resets Every 5 Years, 8.076%,
10/01/17 ..................................................................... 5,492,177
Federal National Mortgage Association (FNMA) (cont.)
$ 7,527,701 FNMA, Cap 12.89%, Margin 2.125% + 6 Month DR, Resets Semi-Annually, 7.30%,
07/01/17 ..................................................................... $ 7,762,265
1,763,143 FNMA, Cap 12.911%, Margin 2.00% + 6 Month DR, Resets Semi-Annually, 6.97%,
02/01/18 ..................................................................... 1,796,590
10,281,949 FNMA, Cap 12.938%, Margin 1.25% + COFI, Resets Monthly, 6.092%, 02/01/19 ...... 10,149,621
3,531,267 FNMA, Cap 12.993%, Margin 2.092% + CMT, Resets Annually, 7.719%, 12/01/19 ..... 3,705,515
5,524,512 FNMA, Cap 13.005%, Margin 1.97% + 3CMT, Resets Every 3 Years, 8.151%,
11/01/17 ..................................................................... 5,677,652
5,445,495 FNMA, Cap 13.01%, Margin 2.10% + CMT, Resets Annually, 7.757%, 06/01/19 ....... 5,721,092
8,869,179 FNMA, Cap 13.03%, Margin 1.25% + COFI, Resets Monthly, 6.917%, 02/01/20 ....... 8,829,977
5,587,163 FNMA, Cap 13.03%, Margin 1.75% + 6 Month TB, Resets Semi-Annually, 7.068%,
12/01/20 ..................................................................... 5,691,475
6,233,078 FNMA, Cap 13.063%, Margin 2.175% + CMT, Resets Annually, 7.718%, 04/01/19 ..... 6,569,602
5,419,630 FNMA, Cap 13.083%, Margin 2.005% + CMT, Resets Annually, 7.431%, 06/01/19 ..... 5,649,257
4,610,739 FNMA, Cap 13.147%, Margin 1.895% + CMT, Resets Annually, 7.471%, 04/01/19 ..... 4,806,964
2,717,581 FNMA, Cap 13.202%, Margin 2.478% + 6 Month DR, Resets Semi-Annually, 7.605%,
11/01/26 ..................................................................... 2,844,736
3,013,252 FNMA, Cap 13.249%, Margin 2.00% + CMT, Resets Annually, 7.318%, 06/01/19 ...... 3,126,038
7,976,056 FNMA, Cap 13.281%, Margin 2.00% + CMT, Resets Annually, 7.773%, 10/01/19 ...... 8,380,131
6,507,713 FNMA, Cap 13.32%, Margin 1.25% + COFI, Resets Monthly, 7.425%, 04/01/03 ....... 6,572,465
12,345,617 FNMA, Cap 13.452%, Margin 2.148% + CMT, Resets Annually, 7.706%, 09/01/22 ..... 12,857,713
5,998,475 FNMA, Cap 13.457%, Margin 1.903% + CMT, Resets Annually, 7.611%, 06/01/18 ..... 6,275,764
5,599,993 FNMA, Cap 13.662%, Margin 2.177% + CMT, Resets Annually, 7.70%, 03/01/21 ...... 5,871,144
8,555,381 FNMA, Cap 13.791%, Margin 2.143% + CMT, Resets Annually, 7.677%, 12/01/20 ..... 9,000,261
2,825,677 FNMA, Cap 13.797%, Margin 2.20% + CMT, Resets Annually, 7.75%, 03/01/19 ....... 2,962,327
5,937,025 FNMA, Cap 13.80%, Margin 0.94% + 6 Month DR, Resets Semi-Annually, 6.793%,
07/01/24 ..................................................................... 5,886,442
4,387,309 FNMA, Cap 13.887%, Margin 2.25% + CMT, Resets Annually, 7.774%, 02/01/19 ...... 4,604,042
3,281,006 FNMA, Cap 13.896%, Margin 2.25% + CMT, Resets Annually, 7.978%, 12/01/18 ...... 3,449,102
6,424,846 FNMA, Cap 14.069%, Margin 2.089% + CMT, Resets Annually, 7.688%, 01/01/19 ..... 6,735,776
2,152,082 FNMA, Cap 14.142%, Margin 2.118% + CMT, Resets Annually, 7.734%, 03/01/21 ..... 2,240,016
10,939,229 FNMA, Cap 14.354%, Margin 2.07% + 5CMT, Resets Every 5 Years, 8.074%,
05/01/21 ..................................................................... 11,187,767
3,262,019 FNMA, Cap 14.42%, Margin 2.099% + CMT, Resets Annually, 7.682%, 03/01/20 ...... 3,431,678
8,590,160 FNMA, Cap 14.887%, Margin 1.72% + CMT, Resets Annually, 7.108%, 01/01/16 ...... 8,771,929
3,170,355 FNMA, Cap 14.952%, Margin 2.523% + CMT, Resets Annually, 7.852%, 05/01/19 ..... 3,355,315
1,527,475 FNMA, Cap 15.381%, Margin 2.168% + CMT, Resets Annually, 7.693%, 02/01/20 ..... 1,601,753
-----------
Total Federal National Mortgage Association (Cost $264,205,113).......... 263,653,440
-----------

Government National Mortgage Association (GNMA) 4.0%
$ 7,519,646 GNMA, Cap 10.00%, Margin 1.50% + CMT, Resets Annually, 6.50%, 01/20/24 ........ $ 7,639,810
6,697,090 GNMA, Cap 11.00%, Margin 2.50% + CMT, Resets Annually, 7.00%, 07/20/25 ........ 6,889,298
-----------
Total Government National Mortgage Association (Cost $14,343,373) ....... 14,529,108
-----------
Total Long Term Investments (Cost $358,149,035) ......................... 358,710,979
-----------
c,dReceivables from Repurchase Agreements 3.8%
14,322,004 Joint Repurchase Agreement, 5.335%, 05/01/97 (Maturity Value $14,160,513)
(Cost $14,158,415)
Aubrey G. Lanston & Co., Inc., (Maturity Value $1,598,321)
Collateral: U.S. Treasury Notes, 5.00% - 7.50%, 03/31/98 - 10/31/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $1,373,946)
Collateral: U.S. Treasury Notes, 6.25% - 6.375%, 07/31/98 - 04/30/99
Bear, Stearns & Co., Inc., (Maturity Value $1,598,321)
Collateral: U.S. Treasury Notes, 5.75% - 6.375%, 09/30/97 - 05/15/99
Chase Securities, Inc., (Maturity Value $799,160)
Collateral: U.S. Treasury Notes, 5.25%, 01/31/01
Citicorp Securities, Inc., (Maturity Value $799,160)
Collateral: U.S. Treasury Notes, 5.25% - 8.50%, 12/31/97 - 01/31/02
Daiwa Securities America, Inc., (Maturity Value $1,598,321)
Collateral: U.S. Treasury Notes, 5.25% - 7.875%, 10/31/97 - 12/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $1,598,321)
Collateral: U.S. Treasury Notes, 4.75% - 7.75%, 08/31/98 - 05/31/01
Fuji Securities, Inc., (Maturity Value $1,598,321)
Collateral: U.S. Treasury Notes, 5.875%, 02/15/00
Sanwa Securities (USA) Co., L.P., (Maturity Value $1,598,321)
Collateral: U.S. Treasury Notes, 5.375% - 9.125%, 05/31/98 - 12/31/01
UBS Securities, L.L.C., (Maturity Value $1,598,321)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 07/15/98 - 08/15/99 .......... 14,158,415
-----------
Total Investments (Cost $372,307,450) 101.6% ....................... 372,869,394
Liabilities In Excess of Other Assets (1.6%) ....................... (5,946,767)
-----------
Net Assets 100.0% .................................................. $366,922,627
===========

At April 30, 1997, the net unrealized appreciation based on the
cost of investment for income tax purposes of $372,307,450 was
as follows:
Aggregate gross unrealized appreciation for all investments in which there
was an excess of value over tax cost ......................................... $ 3,214,256
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value ......................................... (2,652,312)
-----------
Net unrealized appreciation ................................................. $ 561,944
===========

</TABLE>

PORTFOLIO ABBREVIATIONS :
3CMT - 3 Year Constant Maturity Treasury Index
5CMT - 5 Year Constant Maturity Treasury Index
CMT - 1 Year Constant Maturity Treasury Index
COFI - Eleventh District Cost of Funds Index
DR - Discount Rate
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
NCI - National Median Cost of Funds Index
TB - Treasury Bill Rate

cFace amount for repurchase agreements is for the underlying collateral.
dSee Note 1(g) regarding joint repurchase agreement.
gSee Note 1(h) regarding securities purchased on a when-issued basis.

ADJUSTABLE RATE SECURITIES PORTFOLIOS

Statement of Investments in Securities and Net Assets, April 30, 1997
(unaudited)
<TABLE>
<CAPTION>

Face Value
Amount Adjustable Rate Securities Portfolio (Note 1)
Adjustable Rate Mortgage Securities 81.8%

<S> <C> <C>
$ 2,900,000 gFNMA, Cap 12.00%, Margin 1.25% + COFI, Resets Monthly, 6.07%, 04/01/27 ......... $ 2,869,188
901,113 FNMA, Cap 12.00%, Margin 1.25% + COFI, Resets Monthly, 6.099%, 11/01/35 ......... 892,569
3,518,453 FNMA, Cap 12.24%, Margin 2.25% + CMT, Resets Annually, 7.831%, 04/01/25 ......... 3,656,444
848,727 FNMA, Cap 12.65%, Margin 1.75% + NCI, Resets Monthly, 6.625%, 10/01/28 .......... 852,929
388,207 FNMA, Cap 13.149%, Margin 1.25% + COFI, Resets Monthly, 6.093%, 10/01/27 ........ 384,624
391,319 FNMA, Cap 13.86%, Margin 1.84% + CMT, Resets Annually, 7.323%, 08/01/16 ......... 407,553
1,954,688 FNMA, Cap 14.68%, Margin 2.125% + 3CMT, Resets Every 3 Years, 8.565%,
08/01/22 ....................................................................... 2,047,558
821,937 GNMA, Cap 13.00%, Margin 1.50% + CMT, Resets Annually, 7.125%, 07/20/18 ......... 842,868
965,781 Homeowners Federal Savings, Cap 13.00%, Margin 1.75% + CMT, Resets Annually,
7.302%, 01/25/18 ............................................................... 971,818
1,049,112 PHMS, Cap 11.67%, Margin 2.67% + CMT, Resets Annually, 7.829%, 07/25/22 ......... 1,041,244
698,231 PHMS, Cap 12.02%, Margin 2.55% + CMT, Resets Annually, 8.151%, 04/25/22 ......... 712,197
963,448 RFC, Cap 10.00%, Margin 0.85% + COFI, Resets Monthly, 5.671%, 02/25/22 .......... 952,311
1,442,728 RFC, Cap 11.092%, Margin 2.456% + CMT, Resets Annually, 7.993%, 09/25/24 ........ 1,492,322
1,473,308 RFC, Cap 11.46%, Margin 2.25% + CMT, Resets Annually, 7.885%, 11/25/22 .......... 1,501,788
1,329,026 RTC, Cap 13.82%, Margin 0.92% + 3CMT, Resets Every 3 Years, 7.00%, 04/25/22 ..... 1,335,506
1,678,569 RTC, Cap 14.69%, Margin 1.55% + 3CMT, Resets Every 3 Years, 7.602%, 06/25/22 .... 1,625,589
1,193,060 RTC, Cap 16.48%, Margin NACR - 0.15%, Resets Annually, 7.525%, 07/25/20 ......... 1,194,179
1,696,280 Salomon Brothers Mortgage Securities, Cap 14.00%, Margin 0.96% + NACR, Resets
Annually, 7.926%, 10/25/16 ..................................................... 1,694,691
643,989 Saxon Mortgage Securities Corp., Cap 10.78%, Margin 2.78% + 6 Month LIBOR,
Resets Semi-Annually, 8.444%, 05/25/24 ......................................... 655,313
829,485 Travelers Mortgage Services, Inc., Cap 13.95%, Margin 2.25% + CMT, Resets Annually,
7.868%, 12/25/18 ............................................................... 830,263
411,703 Western Federal Savings and Loan Association, Cap 13.00%, Margin 1.80% + COFI,
Resets Monthly, 6.674%, 03/25/19 ............................................... 411,300
-----------
Total Adjustable Rate Mortgage Securities (Cost $26,674,320)............... 26,372,254
-----------
Fixed Rate Mortgage Securities 3.1%
1,035,280 Countrywide Mortgage-Backed Securities, Inc., Series 1994-I, Class A8, 6.25%,
07/25/09 (Cost $1,006,810) ..................................................... 1,005,661
-----------
Other Adjustable Rate Securities 3.0%
911,700 SBA, Cap 12.625%, Margin - 0.125% + Prime, Resets Quarterly, 8.125%, 08/25/20
(Cost $982,927) ................................................................ 981,787
-----------
U.S. Government Securities 15.4%
1,000,000 U.S. Treasury Notes, 4.75%, 08/31/98 ............................................ 983,126
1,000,000 U.S. Treasury Notes, 5.875%, 10/31/98 ........................................... 995,626

$ 1,000,000 U.S. Treasury Notes, 5.875%, 03/31/99 ........................................... $ 993,438
2,000,000 U.S. Treasury Notes, 6.375%, 07/15/99 ........................................... 2,003,125
-----------
Total U.S Government Securities (Cost $4,966,524).......................... 4,975,315
-----------
Total Long Term Investments (Cost $33,630,581)............................. 33,335,017
-----------
c,dReceivables from Repurchase Agreements 3.9%
1,277,979 Joint Repurchase Agreement, 5.335%, 05/01/97 (Maturity Value $1,263,592)
(Cost $1,263,405)
Aubrey G. Lanston & Co., Inc., (Maturity Value $142,624)
Collateral: U.S. Treasury Notes, 5.00% - 7.50%, 03/31/98 - 10/31/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $122,600)
Collateral: U.S. Treasury Notes, 6.25% - 6.375%, 07/31/98 - 04/30/99
Bear, Stearns & Co., Inc., (Maturity Value $142,624)
Collateral: U.S. Treasury Notes, 5.75% - 6.375%, 09/30/97 - 05/15/99
Chase Securities, Inc., (Maturity Value $71,312)
Collateral: U.S. Treasury Notes, 5.25%, 01/31/01
Citicorp Securities, Inc., (Maturity Value $71,312)
Collateral: U.S. Treasury Notes, 5.25% - 8.50%, 12/31/97 - 01/31/02
Daiwa Securities America, Inc., (Maturity Value $142,624)
Collateral: U.S. Treasury Notes, 5.25% - 7.875%, 10/31/97 - 12/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $142,624)
Collateral: U.S. Treasury Notes, 4.75% - 7.75%, 08/31/98 - 05/31/01
Fuji Securities, Inc., (Maturity Value $142,624)
Collateral: U.S. Treasury Notes, 5.875%, 02/15/00
Sanwa Securities (USA) Co., L.P., (Maturity Value $142,624)
Collateral: U.S. Treasury Notes, 5.375 % - 9.125%, 05/31/98 - 12/31/01
UBS Securities, L.L.C., (Maturity Value $142,624)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 07/15/98 - 08/15/99 ............ 1,263,405
-----------
Total Investments (Cost $34,893,986) 107.2% .......................... 34,598,422
Liabilities in Excess of Other Assets (7.2%) ......................... (2,337,577)
-----------
Net Assets 100.0% .................................................... $32,260,845
===========

At April 30, 1997, the net unrealized depreciation based on the
cost of investments for income tax purposes of $34,893,986 was
as follows:
Aggregate gross unrealized appreciation for all investments in which there
was an excess of value over tax cost ........................................... $ 41,358
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value ........................................... (336,922)
-----------
Net unrealized depreciation ................................................... $ (295,564)
===========

</TABLE>
PORTFOLIO ABBREVIATIONS:
3CMT - 3 Year Constant Maturity Treasury Index
CMT - 1 Year Constant Maturity Treasury Index
COFI - Eleventh District Cost of Funds Index
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
LIBOR - London Interbank Offered Rate
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
NACR - National Average Contract Rate
NCI - National Median Cost of Funds Index
PHMS - Prudential Home Mortgage Securities
RFC - Residential Finance Corp.
RTC - Resolution Trust Corp.
SBA - Small Business Administration

cFace amount for repurchase agreements is for the underlying collateral.
dSee Note 1(g) regarding joint repurchase agreement.
gSee Note 1(h) regarding securities purchased on a when-issued basis.

The accompanying notes are an integral part of these financial statements.

ADJUSTABLE RATE SECURITIES PORTFOLIOS

Financial Statements

Statements of Assets and Liabilities
April 30, 1997 (unaudited)
<TABLE>
<CAPTION>

U.S. Government
Adjustable Rate Adjustable Rate
Mortgage PortfolioSecurities Portfolio
------------ ------------

<S> <C> <C>
Assets:
Investments in securities:
At identified cost ...................................................... $358,149,035 $33,630,581
============ ============
At value ................................................................ 358,710,979 33,335,017
Receivables from repurchase agreements, at value and cost ................ 14,158,415 1,263,405
Cash ..................................................................... -- 2,864
Receivables:
Interest ................................................................ 2,621,135 267,404
Investment securities sold .............................................. 642,381 266,020
------------ ------------
Total assets ........................................................ 376,132,910 35,134,710
------------ ------------
Liabilities:
Payables:
Investment securities purchased:
When-issued basis (Note 1) ............................................. 6,924,161 2,868,581
Capital shares repurchased .............................................. 2,209,086 --
Management fees ......................................................... 73,656 4,920
Accrued expenses and other liabilities ................................... 3,380 364
------------ ------------
Total liabilities ................................................... 9,210,283 2,873,865
------------ ------------
Net assets, at value ...................................................... $366,922,627 $32,260,845
============ ============
Net assets consist of:
Accumulated distributions in excess of net investment income ............. $ -- $ (16,100)
Net unrealized appreciation (depreciation) on investments ................ 561,944 (295,564)
Accumulated net realized loss from investments ........................... (137,477,584) (2,762,421)
Capital shares ........................................................... 503,838,267 35,334,930
------------ ------------
Net assets, at value ...................................................... $366,922,627 $32,260,845
============ ============
Shares outstanding ........................................................ 39,023,035 3,265,709
============ ============
Net asset value per share.................................................. $9.40 $9.88
============ ============

ADJUSTABLE RATE SECURITIES PORTFOLIOS

Financial Statements (cont.)

Statements of Operations
for the six months ended April 30, 1997 (unaudited)

U.S. Government
Adjustable Rate Adjustable Rate
Mortgage PortfolioSecurities Portfolio
------------ ------------
<S> <C> <C>
Investment income:
Interest ................................................................. $12,786,720 $699,052
------------ ------------
Expenses:
Management fees (Note 5) ................................................. 774,540 44,357
Professional fees ........................................................ 27,673 1,860
Trustees' fees and expenses .............................................. 3,665 221
Custodian fees ........................................................... 1,927 142
Reports to shareholders .................................................. 658 612
Other .................................................................... 11,209 2,834
Management fees waived by manager (Note 5) ............................... (336,374) (21,765)
------------ ------------
Total expenses ...................................................... 483,298 28,261
------------ ------------
Net investment income ............................................... 12,303,422 670,791
------------ ------------
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) ................................................. 343,005 (18,705)
Net unrealized appreciation .............................................. 1,171,388 108,587
------------ ------------
Net realized and unrealized gain on investments ........................... 1,514,393 89,882
------------ ------------
Net increase in net assets resulting from operations ...................... $13,817,815 $760,673
============ ============

ADJUSTABLE RATE SECURITIES PORTFOLIOS

Financial Statements (cont.)

Statements of Changes in Net Assets for the six months ended April 30, 1997
(unaudited) and the year ended October 31, 1996

U.S. Government Adjustable Rate
Adjustable Rate Mortgage Portfolio Securities Portfolio
--------------------------------------------
Six months Year ended Six months Year ended
ended 4/30/97 10/31/96 ended 4/30/97 10/31/96
---------- --------------- -------- --------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................... $ 12,303,422 $ 29,813,817 $ 670,791 $ 1,391,109
Net realized gain (loss) from security transactions . 343,005 (419,303) (18,705) (37,828)
Net unrealized appreciation on investments .......... 1,171,388 2,011,283 108,587 139,862
---------- ----------- ---------- ----------
Net increase in net assets from operations ...... 13,817,815 31,405,797 760,673 1,493,143
Distributions to shareholders:
From undistributed net investment income ............ (12,303,422) (29,813,817) (670,791) (1,391,109)
In excess of net investment income .................. -- -- (16,100) --
Increase (decrease) in net assets from capital
share transactions (Note 3) .......................... (41,022,763) (117,962,940) 11,652,816 (6,646,687)
---------- ----------- --------- -----------
Net increase (decrease) in net assets ........... (39,508,370) (116,370,960) 11,726,598 (6,544,653)
Net assets
Beginning of period .................................. 406,430,997 522,801,957 20,534,247 27,078,900
---------- ----------- --------- -----------
End of period ........................................ $366,922,627 $406,430,997 $32,260,845 $20,534,247
========== =========== ========= ===========
Undistributed net investment income
(accumulated distributions in excess of net
investment income) included in net assets:
Beginning of period ................................. $-- $ -- $-- $--
========== =========== ========== ==========
End of period ....................................... $-- $ -- $ (16,100) $--
========== =========== ========== ==========

</TABLE>
The accompanying notes are an integral part of these financial statements.

ADJUSTABLE RATE SECURITIES PORTFOLIOS

Notes to Financial Statements (unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES

Adjustable Rate Securities Portfolios (the Trust) is a no load, open-end,
diversified management investment company (mutual fund), registered under the
Investment Company Act of 1940, as amended. The Trust currently consists of two
separate portfolios (the Portfolios): the U.S. Government Adjustable Rate
Mortgage Portfolio (Mortgage Portfolio) and the Adjustable Rate Securities
Portfolio (Securities Portfolio). The shares of the Trust are issued in private
placements and are thus exempt from registration under the Securities Act of
1933. The investment objective of each Portfolio is to seek current income.

The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.

a. Security Valuation:

Portfolio securities listed on a securities exchange or on the NASDAQ for which
market quotations are readily available are valued at the last sale price or, if
there is no sale price, within the range of the most recent quoted bid and asked
prices. Other securities are valued based on a variety of factors, including
yield, risk, maturity, trade activity and recent developments related to the
securities. Portfolio securities which are traded both in the over the counter
market and on a securities exchange are valued according to the broadest and
most representative market as determined by the manager. The Portfolios may
utilize a pricing service, bank or broker/dealer experienced in such matters to
perform any of the pricing functions, under procedures approved by the Board of
Trustees (the Board). Securities for which market quotations are not available
are valued in accordance with procedures established by the Board.

b. Income Taxes:

The Portfolios intend to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make the
requisite distributions to shareholders which will be sufficient to relieve the
Portfolios from income and excise taxes. Each Portfolio is treated as a separate
entity in the determination of compliance with the Internal Revenue Code.

c. Security Transactions:

d. Investment Income, Expenses and Distributions:

Distributions to shareholders are recorded on the ex-dividend date. Interest
income and estimated expenses are accrued daily. The Portfolios normally declare
dividends from their net investment income daily and distribute monthly. Daily
allocations of net investment income will commence on the date following receipt
of an investor's funds. Dividends declared by the Portfolios equal their net
investment income.

e. Expense Allocation:

Common expenses incurred by the Trust are allocated among the Portfolios based
on the ratio of net assets of each Portfolio to the combined net assets. In all
other respects, expenses are charged to each Portfolio as incurred on a specific
identification basis.

f. Accounting Estimates:

The preparation of financial statements in accordance with generally accepted
accounting principles 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 expense during the reporting
period. Actual results could differ from those estimates.

1. SIGNIFICANT ACCOUNTING POLICIES (cont.)

g. Joint Repurchase Agreements:

The Portfolios may enter into a joint repurchase agreement whereby their
uninvested cash balances are deposited into a joint cash account to be used to
invest in one or more repurchase agreements with government securities dealers
recognized by the Federal Reserve Board and/or member banks of the Federal
Reserve System. The value and face amount of the joint repurchase agreement are
allocated to the Portfolios based on their pro-rata interest. A repurchase
agreement is accounted for as a loan by the Portfolios to the seller,
collateralized by underlying U.S. government securities, which are delivered to
the Portfolios' custodian. The market value, including accrued interest, of the
initial collateralization is required to be at least 102% of the dollar amount
invested by the Portfolios, with the value of the underlying securities marked
to market daily to maintain coverage of at least 100%. At April 30, 1997, all
outstanding repurchase agreements held by the Portfolios had been entered into
on that date.

h. Securities Purchased on a When-Issued Basis or Delayed Delivery Basis:

The Portfolios may trade securities on a when-issued or delayed delivery basis,
with payment and delivery scheduled for a future date. These transactions are
subject to market fluctuations and are subject to the risk that the value at
delivery may be more or less than the trade date purchase price. Although the
Portfolios will generally purchase these securities with the intention of
holding the securities, they may sell the securities before the settlement date.
These securities are identified on the accompanying Statement of Investments in
Securities and Net Assets. The Portfolios have set aside sufficient investment
securities as collateral for these purchase commitments.

i. Mortgage Dollar Rolls:

The Portfolios may enter into mortgage dollar rolls in which the Portfolio sells
mortgage-backed securities and simultaneously contracts to repurchase
substantially similar, but not identical, securities on a specified future date,
generally at a price lower than the price of the security sold. The counterparty
receives all principal and interest payments, including prepayments, made on the
mortgage-backed security sold while it is the holder. Mortgage dollar rolls may
be renewed with a new sale and repurchase price fixed and a cash settlement made
without physical delivery of the securities subject to the contract, at the
renewal date. Mortgage dollar rolls are accounted for as collateralized
financing transactions.

2. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS

At October 31, 1996, for tax purposes, the Portfolios had accumulated capital
loss carryovers as follows:

U.S. Government
Adjustable Rate Adjustable Rate
Mortgage Portfolio Securities Portfolio
----------- ------------
Capital loss carryovers
Expiring in:2000............ $ 45,439,616 $ 57,701
2001............ 17,182,002 50,908
2002............ 67,102,060 1,987,888
2003............ 7,677,608 609,391
2004............ 419,303 37,828
----------- ------------
$137,820,589 $2,743,716
=========== ============

For tax purposes, the aggregate cost of securities and unrealized appreciation
(depreciation) of the Portfolios are the same as for financial statement
purposes at April 30, 1997.

3. TRUST SHARES

At April 30, 1997, there was an unlimited number of $.01 par value shares of
beneficial interest authorized. Transactions in each of the Portfolios' shares
were as follows:
<TABLE>
<CAPTION>

U.S. Government Adjustable Rate
Adjustable Rate Mortgage Portfolio Securities Portfolio
------------------------------------------
Shares Amount Shares Amount
--------- ----------- ---------- --------
Six months ended April 30, 1997
<S> <C> <C> <C> <C>
Shares sold ....................................... 5,360,923 $ 50,241,541 1,473,382 $14,521,514
Shares issued in reinvestment of distributions .... 1,311,984 12,303,963 69,696 686,888
Shares redeemed ................................... (11,046,945) (103,568,267) (360,705) (3,555,586)
--------- ----------- -------- ----------
Net increase (decrease)....................... (4,374,038) $ (41,022,763) 1,182,373 $11,652,816
========= =========== ========= =========
Year ended October 31, 1996
Shares sold ....................................... 8,516,434 $ 79,504,622 741,450 $ 7,267,077
Shares issued in reinvestment of distributions .... 3,196,067 29,832,645 141,790 1,391,107
Shares redeemed ................................... (24,351,072) (227,300,207) (1,560,875) (15,304,871)
--------- ----------- --------- ---------
Net decrease.................................. (12,638,571) $(117,962,940) (677,635) $ (6,646,687)
========= =========== ========== ========

</TABLE>
4. PURCHASES AND SALES OF SECURITIES

Purchases and sales of securities (excluding purchases and sales of short-term
securities and mortgage dollar roll transactions) for the six months ended April
30, 1997, were as follows:

U.S. Government
Adjustable Rate Adjustable Rate
Mortgage PortfolioSecurities Portfolio
------------ -------------
Purchases .............................. $37,966,975 $21,368,389
Sales .................................. $60,778,698 $ 6,706,338

5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

a. Management Agreement:

Under the terms of a management agreement, Franklin Advisers, Inc. (Advisers),
provides investment advice, administrative services, office space and facilities
to each Portfolio, and receives fees computed monthly based on the average net
assets of each Portfolio as follows:

Annualized Fee Rate Average Daily Net Assets
- ------------- ---------------------------------
0.400% First $5 billion
0.350% Over $5 billion, up to and including $10 billion
0.330% Over $10 billion, up to and including $15 billion

Fees are further reduced on net assets over $15 billion. Advisers agreed in
advance to waive a portion of its management fees for the Portfolios aggregating
$358,139, for the six months ended April 30, 1997.

5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)

b. Other Affiliates and Related Party Transactions:

At April 30, 1997, 38,222,106 shares of the Mortgage Portfolio were owned by the
Franklin Adjustable U.S. Government Securities Fund, and 800,929 shares were
owned by the Franklin Institutional Adjustable U.S. Government Securities Fund.
This represents 98% and 2%, respectively, of the outstanding shares of the
Mortgage Portfolio.

At April 30, 1997, 2,775,894 shares of the Securities Portfolio were owned by
the Franklin Adjustable Rate Securities Fund and 488,344 shares were owned by
the Franklin Institutional Adjustable Securities Fund. This represents 85% and
15%, respectively, of the outstanding shares of the Securities Portfolio. The
remaining 1,471 shares of the Securities Portfolio were owned by Franklin
Resources, Inc. (Resources).

Certain officers and trustees of the Trust are also officers and/or directors of
Advisers (a wholly-owned subsidiary of Resources) and of the Franklin Investors
Securities Trust and Institutional Fiduciary Trust.

6. FINANCIAL HIGHLIGHTS

Selected data for each share of beneficial interest outstanding throughout the
period by Portfolio are as follows:
<TABLE>
<CAPTION>

Per Share Operating Performance Ratios/Supplemental Data
---------------------------------------------------------------------
Ratio of Net
Net Asset Net Realized Distributions Ratio of Investment
Year Value at Net & Unrealized Total From From Net Net Asset Net Assets at Expenses to Income to Portfolio
Ended Beginning Investment Gain (Loss) Investment InvestmentValue at End Total End of Period Average NetAverage NetTurnover
Oct. 31, of Period Income on Securities Operations Income of Period Return+ (in 000's) Assets+++ Assets Rate

U.S. Government Adjustable Rate Mortgage Portfolio:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19931 $10.01 $.544 $(.100) $ .444 $(.544) $ 9.91 4.53% $4,201,411 .30% 5.49% 66.44%
19932 9.91 .313 (.090) .223 (.313) 9.82 2.28 2,130,229 .27* 4.15* 76.55
1994 9.82 .415 (.630) (.215) (.415) 9.19 (2.22) 747,471 .02 4.01 56.43
1995 9.19 .572 .140 .712 (.572) 9.33 7.99 522,802 .18 6.17 20.16
1996 9.33 .589 .040 .629 (.589) 9.37 6.95 406,431 .25 6.31 24.63
19973 9.37 .298 .030 .328 (.298) 9.40 3.55 366,923 .25* 6.35* 10.20
Adjustable Rate Securities Portfolio:
19931 10.00 .599 .020 .619 (.599) 10.02 6.36 44,656 -- 5.80 88.92
19932 10.02 .368 .010 .378 (.368) 10.03 3.83 124,309 .11* 4.76* 158.70
1994 10.03 .469 (.340) .129 (.469) 9.69 1.32 41,619 .25 4.55 192.06
1995 9.69 .625 .120 .745 (.625) 9.81 7.94 27,079 .25 6.36 50.29
1996 9.81 .607 .050 .657 (.607) 9.86 6.91 20,534 .25 6.19 46.78
19973 9.86 .301 .025 .326 (.306)++ 9.88 3.36 32,261 .25* 6.05* 30.84

</TABLE>
*Annualized

1For the year ended January 31, 1993.

2For the nine months ended October 31, 1993.

3For the six months ended April 30, 1997.

+Total return measures the change in value of an investment over the period
indicated. It is not annualized. It assumes reinvestment of dividends and
capital gains, if any, at net asset value.

++Includes distribution in excess of net investment income in the amount of
$0.005.

6. FINANCIAL HIGHLIGHTS (cont.)
+++During the periods indicated, Advisers agreed in advance to waive a portion
of its management fees and to make payments of other expenses incurred by the
Portfolios. Had such action not been taken, the ratios of expenses to average
net assets would have been as follows:

Ratio of Expenses to
Average Net Assets
U.S. Government Adjustable
Rate Mortgage Portfolio:
19931................................. .42%
19932................................. .41*
1994.................................. .42
1995.................................. .43
1996.................................. .42
19973................................. .42*

Ratio of Expenses to
Average Net Assets
Adjustable Rate Securities Portfolio:
19931................................. .64%
19932................................. .47*
1994.................................. .43
1995.................................. .47
1996.................................. .47
19973................................. .45*
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
determined by the presence of a regular beeping tone.

FRANKLIN INVESTORS SECURITIES TRUST SEMI-ANNUAL REPORT APRIL 30, 1997.

APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING (PURSUANT TO ITEM
304 (a)OF REGULATION S-T)

GRAPHIC MATERIAL (1)

This chart shows in bar format the breakdown of the fund's securities on
October 31, 1996 and April 30, 1997.

Portfolio Breakdown on October 31, 1996 vs. April 30, 1997

Convertible Bonds 63.0% 48.3%
Convertible Preferred Stocks 20.5% 24.9%
Corporate Bonds 3.1% 0.0%
Common Stocks 3.0% 9.1%
Cash & Short-Term Equivalents 10.4% 17.7%