FRANKLIN INVESTORS SECURITIES TRUST, 485BPOS, 1997-02-28

FRANKLIN INVESTORS SECURITIES TRUST
485BPOS, 1997-02-28

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As filed with the Securities and Exchange Commission on February 28, 1997
File Nos.
33-11444
811-4986

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No.

Post-Effective Amendment No. 21 (X)

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 23 (X)

FRANKLIN INVESTORS SECURITIES TRUST
(Exact Name of Registrant as Specified in Charter)

777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404 (Address of
Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code (415) 312-2000

HARMON E. BURNS, 777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
(Name and Address of Agent for Service of Process)

Approximate Date of Proposed Public Offering:

It is proposed that this filing will become effective (check appropriate box)

[ ] immediately upon filing pursuant to paragraph (b)
[x] on March 1, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a) of rule 485
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485

If appropriate, check the following box:

[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

The Adjustable Rate Securities Portfolios (the Master Funds) have executed this
registration statement.

DECLARATION PURSUANT TO RULE 24F-2. The Registrant has registered an indefinite
number or amount of securities under the Securities Act of 1933 pursuant to Rule
24f-2 under the Investment Company Act of 1940. The Rule 24f-2 Notice for the
issuer's most recent fiscal year was filed on December 20, 1996.

FRANKLIN INVESTORS SECURITIES TRUST
CROSS REFERENCE SHEET
FORM N-1A

PART A: INFORMATION REQUIRED IN THE PROSPECTUS
Franklin Global Government Income Fund - Class I & II

N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT

1. Cover Page Cover Page

2. Synopsis "Expense Summary"

3. Condensed Financial "Financial Highlights"; "How does
Information the Fund Measure Performance?"

4. General Description "How is the Trust Organized?";
of Registrant "How does the Fund Invest its
Assets?"; "What are the Fund's
Potential Risks?"

5. Management of the Fund "Who Administers the Fund?"

5A. Management's Discussion of Contained in Registrant's Annual
Fund Performance Report to Shareholders

6. Capital Stock and "How is the Trust Organized?";
Other Securities "Services to Help You Manage Your
Account"; "What Distributions
Might I Receive from the Fund?";
"How Taxation Affects the Fund and
its Shareholders"; "What If I Have
Questions About My Account?"

7. Purchase of Securities Being "How Do I Buy Shares?"; "May I
Offered Exchange Shares for Shares of
Another Fund?"; "Transaction
Procedures and Special
Requirements"; "Services to Help
You Manage Your Account"; "Useful
Terms and Definitions"

8. Redemption or "May I Exchange Shares for Shares
Repurchase of Another Fund?"; "How Do I Sell
Shares?"; "Transaction Procedures
and Special Requirements";
"Services to Help You Manage Your
Account"

9. Pending Legal Proceedings Not Applicable

FRANKLIN INVESTORS SECURITIES TRUST
CROSS REFERENCE SHEET
FORM N-1A

PART A: INFORMATION REQUIRED IN THE PROSPECTUS
Franklin Short-Intermediate U.S. Government
Securities Fund - Class I & II

N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT

1. Cover Page Cover Page

2. Synopsis "Expense Summary"

3. Condensed Financial "Financial Highlights"; "How does
Information the Fund Measure Performance?"

4. General Description "How is the Trust Organized?";
of Registrant "How does the Fund Invest its
Assets?"; "What are the Fund's
Potential Risks?"

5. Management of the Fund "Who Administers the Fund?"

5A. Management's Discussion of Contained in Registrant's Annual
Fund Performance Report to Shareholders

8. Redemption or "May I Exchange Shares for Shares
Repurchase of Another Fund?"; "How Do I Sell
Shares?"; "Transaction Procedures
and Special Requirements";
"Services to Help You Manage Your
Account"

9. Pending Legal Proceedings Not Applicable

FRANKLIN INVESTORS SECURITIES TRUST
CROSS REFERENCE SHEET
FORM N-1A

PART A: INFORMATION REQUIRED IN THE PROSPECTUS
Franklin Convertible Securities Fund

N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT

1. Cover Page Cover Page

2. Synopsis "Expense Summary"

3. Condensed Financial "Financial Highlights"; "How does
Information the Fund Measure Performance?"

4. General Description "How is the Trust Organized?";
of Registrant "How does the Fund Invest its
Assets?"; "What are the Fund's
Potential Risks?"

5. Management of the Fund "Who Administers the Fund?"

5A. Management's Discussion of Contained in Registrant's Annual
Fund Performance Report to Shareholders

8. Redemption or "May I Exchange Shares for Shares
Repurchase of Another Fund?"; "How Do I Sell
Shares?"; "Transaction Procedures
and Special Requirements";
"Services to Help You Manage Your
Account"

9. Pending Legal Proceedings Not Applicable

FRANKLIN INVESTORS SECURITIES TRUST
CROSS REFERENCE SHEET
FORM N-1A

PART A: INFORMATION REQUIRED IN THE PROSPECTUS
Franklin Adjustable U.S. Government Securities Fund

N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT

1. Cover Page Cover Page

2. Synopsis "Expense Summary"

3. Condensed Financial "Financial Highlights"; "How does
Information the Fund Measure Performance?"

4. General Description "How is the Trust Organized?";
of Registrant "How does the Fund Invest its
Assets?"; "What are the Fund's
Potential Risks?"

5. Management of the Fund "Who Administers the Fund?"

5A. Management's Discussion of Contained in Registrant's Annual
Fund Performance Report to Shareholders

8. Redemption or "May I Exchange Shares for Shares
Repurchase of Another Fund?"; "How Do I Sell
Shares?"; "Transaction Procedures
and Special Requirements";
"Services to Help You Manage Your
Account"

9. Pending Legal Proceedings Not Applicable

FRANKLIN INVESTORS SECURITIES TRUST
CROSS REFERENCE SHEET
FORM N-1A

PART A: INFORMATION REQUIRED IN THE PROSPECTUS
Franklin Equity Income Fund

N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT

1. Cover Page Cover Page

2. Synopsis "Expense Summary"

3. Condensed Financial "Financial Highlights"; "How does
Information the Fund Measure Performance?"

4. General Description "How is the Trust Organized?"; "How
of Registrant does the Fund Invest its Assets?";
"What are the Fund's Potential
Risks?"

5. Management of the Fund "Who Administers the Fund?"

5A. Management's Discussion of Contained in Registrant's Annual
Fund Performance Report to Shareholders

6. Capital Stock and "How is the Trust Organized?";
Other Securities "Services to Help You Manage Your
Account"; "What Distributions Might
I Receive from the Fund?"; "How
Taxation Affects the Fund and its
Shareholders"; "What If I Have
Questions About My Account?"

8. Redemption or "May I Exchange Shares for Shares
Repurchase of Another Fund?"; "How Do I Sell
Shares?"; "Transaction Procedures
and Special Requirements";
"Services to Help You Manage Your
Account"

9. Pending Legal Proceedings Not Applicable

FRANKLIN INVESTORS SECURITIES TRUST
CROSS REFERENCE SHEET
FORM N-1A

PART A: INFORMATION REQUIRED IN THE PROSPECTUS
Franklin Adjustable Rate Securities Fund

N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT

1. Cover Page Cover Page

2. Synopsis "Expense Summary"

3. Condensed Financial "Financial Highlights"; "How does
Information the Fund Measure Performance?"

4. General Description "How is the Trust Organized?"; "How
of Registrant does the Fund Invest its Assets?";
"What are the Fund's Potential
Risks?"

5. Management of the Fund "Who Administers the Fund?"

5A. Management's Discussion of Contained in Registrant's Annual
Fund Performance Report to Shareholders

6. Capital Stock and "How is the Trust Organized?";
Other Securities "Services to Help You Manage Your
Account"; "What Distributions Might
I Receive from the Fund?"; "How
Taxation Affects the Fund and its
Shareholders"; "What If I Have
Questions About My Account?"

8. Redemption or "May I Exchange Shares for Shares
Repurchase of Another Fund?"; "How Do I Sell
Shares?"; "Transaction Procedures
and Special Requirements";
"Services to Help You Manage Your
Account"

9. Pending Legal Proceedings Not Applicable

FRANKLIN INVESTORS SECURITIES TRUST
CROSS REFERENCE SHEET
FORM N-1A

PART A: INFORMATION REQUIRED IN THE PROSPECTUS
Franklin Global Government Income Fund - Advisor Class

N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT

1. Cover Page Cover Page

2. Synopsis "Expense Summary"

3. Condensed Financial "How does the Fund Measure
Information Performance?"

4. General Description "How is the Trust Organized?";
of Registrant "How does the Fund Invest its
Assets?"; "What are the Fund's
Potential Risks?"

5. Management of the Fund "Who Manages the Fund?"

5A. Management's Discussion of Contained in Registrant's Annual
Fund Performance Report to Shareholders

8. Redemption or "May I Exchange Shares for Shares
Repurchase of Another Fund?"; "How Do I Sell
Shares?"; "Transaction Procedures
and Special Requirements";
"Services to Help You Manage Your
Account"

9. Pending Legal Proceedings Not Applicable

FRANKLIN INVESTORS SECURITIES TRUST
CROSS REFERENCE SHEET
FORM N-1A

PART A: INFORMATION REQUIRED IN THE PROSPECTUS
Franklin Short-Intermediate U.S. Government Securities Fund - Advisor Class

N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT

1. Cover Page Cover Page

2. Synopsis "Expense Summary"

3. Condensed Financial "How does the Fund Measure
Information Performance?"

4. General Description "How is the Trust Organized?";
of Registrant "How does the Fund Invest its
Assets?"; "What are the Fund's
Potential Risks?"

5. Management of the Fund "Who Manages the Fund?"

5A. Management's Discussion of Contained in Registrant's Annual
Fund Performance Report to Shareholders

6. Capital Stock and "How is the Trust Organized?";
Other Securities "Services to Help You Manage Your
Account"; "What Distributions
Might I Receive from the Fund?";
"How Taxation Affects the Fund and
Its Shareholders"; "What If I Have
Questions About My Account?"

8. Redemption or "May I Exchange Shares for Shares
Repurchase of Another Fund?"; "How Do I Sell
Shares?"; "Transaction Procedures
and Special Requirements";
"Services to Help You Manage Your
Account"

9. Pending Legal Proceedings Not Applicable

FRANKLIN INVESTORS SECURITIES TRUST
CROSS REFERENCE SHEET
FORM N-1A

PART B: INFORMATION REQUIRED IN THE
STATEMENT OF ADDITIONAL INFORMATION
Franklin Global Government Income Fund - Class I & II

N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT

10. Cover Page Cover Page

11. Table of Contents Contents

12. General Information and Not Applicable
History

13. Investment Objective "How does the Fund Invest its
Assets?"; "Investment
Restrictions"

14. Management of the Fund "Officers and Trustees"

15. Control Persons and "Officers and Trustees";
Principal Holders of "Investment Management and Other
Securities Services"; "Miscellaneous
Information"

16. Investment Advisory and "Investment Management and Other
Other Services Services"; "The Fund's
Underwriter"

17. Brokerage Allocation and "How does the Fund Buy Securities
Other Practices for its Portfolio?"

18. Capital Stock and Other See Prospectus "How is the Trust
Securities Organized?"

19. Purchase, Redemption and "How Do I Buy, Sell and Exchange
Pricing of Securities Being Shares?"; "How are Fund Shares
Offered Valued?"; "Financial Statements"

20. Tax Status "Additional Information on
Distributions and Taxes"

21. Underwriters "The Fund's Underwriter"

22. Calculation of Performance "How does the Fund Measure
Data Performance?"

23. Financial Statements "Financial Statements"

FRANKLIN INVESTORS SECURITIES TRUST
CROSS REFERENCE SHEET
FORM N-1A

PART B: INFORMATION REQUIRED IN THE
STATEMENT OF ADDITIONAL INFORMATION
Franklin Short-Intermediate U.S. Government Securities Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund

N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT

10. Cover Page Cover Page

11. Table of Contents Contents

12. General Information and Not Applicable
History

13. Investment Objective "How does the Fund Invest its
Assets?"; "Investment
Restrictions"

14. Management of the Fund "Officers and Trustees"

15. Control Persons and "Officers and Trustees";
Principal Holders of "Investment Management and Other
Securities Services"; "Miscellaneous
Information"

16. Investment Advisory and "Investment Management and Other
Other Services Services"; "The Fund's
Underwriter"

17. Brokerage Allocation and "How does the Fund Buy Securities
Other Practices for its Portfolio?"

18. Capital Stock and Other See Prospectus "How is the Trust
Securities Organized?"

19. Purchase, Redemption and "How Do I Buy, Sell and Exchange
Pricing of Securities Being Shares?"; "How are Fund Shares
Offered Valued?"; "Financial Statements"

20. Tax Status "Additional Information on
Distributions and Taxes"

21. Underwriters "The Fund's Underwriter"

22. Calculation of Performance "How does the Fund Measure
Data Performance?"

23. Financial Statements "Financial Statements"

FRANKLIN INVESTORS SECURITIES TRUST
CROSS REFERENCE SHEET
FORM N-1A

PART B: INFORMATION REQUIRED IN THE
STATEMENT OF ADDITIONAL INFORMATION
Franklin Adjustable U.S. Government Securities Fund
Franklin Adjustable Rate Securities Fund

N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT

10. Cover Page Cover Page

11. Table of Contents Contents

12. General Information and Not Applicable
History

13. Investment Objective "How does the Fund Invest its
Assets?"; "Investment
Restrictions"

14. Management of the Fund "Officers and Trustees"

15. Control Persons and "Officers and Trustees";
Principal Holders of "Investment Management and Other
Securities Services"; "Miscellaneous
Information"

16. Investment Advisory and "Investment Management and Other
Other Services Services"; "The Fund's
Underwriter"

17. Brokerage Allocation and "How does the Fund Buy Securities
Other Practices for its Portfolio?"

18. Capital Stock and Other See Prospectus "How is the Trust
Securities Organized?"

19. Purchase, Redemption and "How Do I Buy, Sell and Exchange
Pricing of Securities Being Shares?"; "How are Fund Shares
Offered Valued?"; "Financial Statements"

20. Tax Status "Additional Information on
Distributions and Taxes"

21. Underwriters "The Fund's Underwriter"

22. Calculation of Performance "How does the Fund Measure
Data Performance?"

23. Financial Statements "Financial Statements"

FRANKLIN INVESTORS SECURITIES TRUST
CROSS REFERENCE SHEET
FORM N-1A

PART B: INFORMATION REQUIRED IN THE
STATEMENT OF ADDITIONAL INFORMATION
Franklin Global Government Income Fund - Advisor Class

N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT

10. Cover Page Cover Page

11. Table of Contents Contents

12. General Information and Not Applicable
History

13. Investment Objective "How does the Fund Invest its
Assets?"; "Investment
Restrictions"

14. Management of the Fund "Officers and Trustees"

15. Control Persons and "Officers and Trustees";
Principal Holders of "Investment Management and Other
Securities Services"; "Miscellaneous
Information"

16. Investment Advisory and "Investment Management and Other
Other Services Services"; "The Fund's
Underwriter"

17. Brokerage Allocation and "How does the Fund Buy Securities
Other Practices for its Portfolio?"

18. Capital Stock and Other See Prospectus "How is the Trust
Securities Organized?"

19. Purchase, Redemption and "How Do I Buy, Sell and Exchange
Pricing of Securities Being Shares?"; "How are Fund Shares
Offered Valued?"; "Financial Statements"

20. Tax Status "Additional Information on
Distributions and Taxes"

21. Underwriters "The Fund's Underwriter"

22. Calculation of Performance "How does the Fund Measure
Data Performance?"

23. Financial Statements "Financial Statements"

FRANKLIN INVESTORS SECURITIES TRUST
CROSS REFERENCE SHEET
FORM N-1A

PART B: INFORMATION REQUIRED IN THE
STATEMENT OF ADDITIONAL INFORMATION
Franklin Short-Intermediate U.S. Government Securities Fund - Advisor Class

N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT

10. Cover Page Cover Page

11. Table of Contents Contents

12. General Information and Not Applicable
History

13. Investment Objective "How does the Fund Invest its
Assets?"; "Investment
Restrictions"

14. Management of the Fund "Officers and Trustees"

15. Control Persons and "Officers and Trustees";
Principal Holders of "Investment Management and Other
Securities Services"; "Miscellaneous
Information"

16. Investment Advisory and "Investment Management and Other
Other Services Services"; "The Fund's
Underwriter"

17. Brokerage Allocation and "How does the Fund Buy Securities
Other Practices for its Portfolio?"

18. Capital Stock and Other See Prospectus "How is the Trust
Securities Organized?"

19. Purchase, Redemption and "How Do I Buy, Sell and Exchange
Pricing of Securities Being Shares?"; "How are Fund Shares
Offered Valued?"; "Financial Statements"

20. Tax Status "Additional Information on
Distributions and Taxes"

21. Underwriters "The Fund's Underwriter"

22. Calculation of Performance "How does the Fund Measure
Data Performance?"

23. Financial Statements "Financial Statements"

PROSPECTUS & APPLICATION

FRANKLIN GLOBAL GOVERNMENT INCOME FUND

INVESTMENT STRATEGY

GLOBAL INCOME

MARCH 1, 1997

FRANKLIN INVESTORS SECURITIES TRUST

This prospectus describes Class I and Class II shares of the Franklin Global
Government Income Fund (the "Fund"). It contains information you should know
before investing in the Fund. Please keep it for future reference.

The Fund currently offers another class of shares with a different sales charge
and expense structure, which affects performance. This class is described in a
separate prospectus. For more information, contact your investment
representative or call 1-800/DIALBEN.

The Fund has a Statement of Additional Information ("SAI") for its Class I and
Class II shares, dated March 1, 1997, which may be amended from time to time. It
includes more information about the Fund's procedures and policies. It has been
filed with the SEC and is incorporated by reference into this prospectus. For a
free copy or a larger print version of this prospectus, call 1-800/DIAL BEN or
write the Fund at the address shown.

SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S.
GOVERNMENT. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.

LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE, JURISDICTION OR COUNTRY IN WHICH THE OFFERING IS NOT AUTHORIZED. NO SALES
REPRESENTATIVE, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. FURTHER
INFORMATION MAY BE OBTAINED FROM DISTRIBUTORS.

FRANKLIN GLOBAL GOVERNMENT INCOME FUND

MARCH 1, 1997

WHEN READING THIS PROSPECTUS, YOU WILL SEE CERTAIN TERMS BEGINNING WITH CAPITAL
LETTERS. THIS MEANS THE TERM IS EXPLAINED IN OUR GLOSSARY SECTION.

TABLE OF CONTENTS

ABOUT THE FUND

Expense Summary .................................................. 2
Financial Highlights ............................................. 3
How does the Fund Invest its Assets? ............................. 6
What are the Fund's Potential Risks? ............................. 15
Who Manages the Fund? ............................................ 20
How does the Fund Measure Performance? ........................... 22
How Taxation Affects the Fund and its Shareholders ............... 22
How is the Trust Organized? ...................................... 24

ABOUT YOUR ACCOUNT

How Do I Buy Shares? ............................................. 25
May I Exchange Shares for Shares of Another Fund? ................ 31
How Do I Sell Shares? ............................................ 34
What Distributions Might I Receive from the Fund? ................ 36
Transaction Procedures and Special Requirements .................. 37
Services to Help You Manage Your Account ......................... 41
What If I Have Questions About My Account? ....................... 44

GLOSSARY

Useful Terms and Definitions ..................................... 44

APPENDIX

Description of Ratings ........................................... 47

777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777
1-800/DIAL BEN

ABOUT THE FUND

Expense Summary

This table is designed to help you understand the costs of investing in the
Fund. It is based on the historical expenses of each class for the fiscal year
ended October 31, 1996. The Fund's actual expenses may vary.

CLASS I CLASS II

A. SHAREHOLDER TRANSACTION EXPENSES+

Maximum Sales Charge
(as a percentage of Offering Price) 4.25% 1.99%
Paid at time of purchase 4.25%++ 1.00%+++
Paid at redemption++++ None 0.99%
Exchange Fee (per transaction) $5.00* 5.00*

B.ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)

Management Fees 0.58% 0.58%
Rule 12b-1 Fees 0.10%** 0.65%**
Other Expenses 0.17% 0.17%
Total Fund Operating Expenses 0.85% 1.40%

C. EXAMPLE

Assume the annual return for each class is 5%, operating expenses are as
described above, and you sell your shares after the number of years shown. These
are the projected expenses for each $1,000 that you invest in the Fund.

1 YEAR 3 YEARS 5 YEARS 10 YEARS

Class I $51*** $68 $88 $143
Class II $34 $54 $86 $176

For the same Class II investment, you would pay projected expenses of $24 if
you did not sell your shares at the end of the first year. Your projected
expenses for the remaining periods would be the same.

THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. The
Fund pays its operating expenses. The effects of these expenses are reflected in
the Net Asset Value or dividends of each class and are not directly charged to
your account.

+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.

++There is no front-end sales charge if you invest $1 million or more in Class I
shares.

+++Although Class II has a lower front-end sales charge than Class I, its Rule
12b-1 fees are higher. Over time you may pay more for Class II shares. Please
see "How Do I Buy Shares? - Deciding Which Class to Buy."

++++A Contingent Deferred Sales Charge may apply to any Class II purchase if you
sell the shares within 18 months and to Class I purchases of $1 million or more
if you sell the shares within one year. The charge is 1% of the value of the
shares sold or the Net Asset Value at the time of purchase, whichever is less.
The number in the table shows the charge as a percentage of Offering Price.
While the percentage is different depending on whether the charge is shown based
on the Net Asset Value or the Offering Price, the dollar amount paid by you
would be the same. See "How Do I Sell Shares? - Contingent Deferred Sales
Charge" for details.

*$5.00 fee is only for Market Timers. We process all other exchanges without a
fee.

**These fees may not exceed 0.15% for Class I shares and 0.65% for Class II
shares. The combination of front-end sales charges and Rule 12b-1 fees could
cause long-term shareholders to pay more than the economic equivalent of the
maximum front-end sales charge permitted under the NASD's rules.

***Assumes a Contingent Deferred Sales Charge will not apply.

FINANCIAL HIGHLIGHTS

This table summarizes the Fund's financial history. The information has been
audited by Coopers & Lybrand L.L.P., the Fund's independent auditors. Their
audit report covering each of the most recent six periods appears in the
financial statements in the Trust's Annual Report to Shareholders for the fiscal
year ended October 31, 1996. The Annual Report to Shareholders also includes
more information about the Fund's performance. For a free copy, please call Fund
Information.

YEAR ENDED OCTOBER 31, YEAR ENDED JANUARY 31,

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS I SHARES: 1996 1995 1994 19932 1993 1992 1991 1990 19891
-----------------------------------------------------------------------------------------------

Per Share Operating Performance

Net Asset Value
at Beginning of Period $8.31 $8.06 $9.33 $8.61 $9.39 $9.34 $9.58 $0.39 $10.00
-------------------------------------------------------------------------------------------------

Net investment Income 0.61 0.67 1.30 0.58 0.83 0.86 1.05 1.11 0.66

Net Realized &
Unrealized Gains
(Losses) on Securities 0.330 0.290 (1.806) 0.716 (0.698) 0.246 (0.174) (0.804) 0.296
-------------------------------------------------------------------------------------------------

Total From
Investment Operations 0.940 0.960 (0.506) 1.296 0.132 1.106 0.876 0.306 0.956
-------------------------------------------------------------------------------------------------

Distribution From
Net Investment Income (0.600) (0.645) (0.078) (0.576) (0.713) (0.900) (1.107) (1.116) (0.558)

Distributions
From Capital Gains - - (0.083) - (0.075) (0.156) (0.009) - (0.008)

Distributions
From Return of Capital - (0.065) (0.603) - (0.124) - - - -

Total Distributions (0.600) (0.710) (0.764) (0.576) (0.912) (1.056) (1.116) (1.116) (0.566)
---------------------------------------------------------------------------------------------------

Net Asset Value
at End of Period $8.65 $8.31 $8.06 $9.33 $8.61 $9.39 $9.34 $9.58 $10.39
=================================================================================================

Total Return** 11.80% 12.65% (5.72)% 15.14% 1.08% 12.15% 9.27% 2.69% 9.52%

Ratios/Supplemental Data:

Net Assets
at End of Period (in 000's) $137,626$164,970 $187,204 $195,627 $153,899 $78,911 $29,660 $12,421 $5,604

Ratio of Expenses
to Average Net Assets 0.85% 0.96% 0.89% 0.77%* 0.72%*** 0.50%*** 0.25% 0.03% -

Ratio of Net Income
to Average Net Assets 7.68% 8.29% 8.54% 6.74%* 7.08% 7.87% 11.80% 11.97% 9.92%

Portfolio Turnover Rate 139.71% 103.49% 80.69% 67.36% 49.20% 155.40% 72.21% 41.34% 2.05%

</TABLE>

CLASS II SHARES:++ 1996 1995+

Per Share Operating Performance

Net Asset Value
at Beginning of Period $8.31 $8.03

Net investment Income 0.56 0.31

Net Realized &
Unrealized Gains
(Losses) on Securities 0.334 0.301

Total From
Investment Operations 0.894 0.611

Distribution From
Net Investment Income (0.554) (0.301)

Distributions
From Capital Gains - -

Distributions From
Return of Capital - (0.030)

Total Distribution (0.554) (0.331)

Net Asset Value
at End of Period $8.65 $8.31

Total Return** 11.19% 7.09%

Ratios/Supplemental Data:

Net Assets
at End of Period (in 000's)$3,700 $1,193

Ratio of Expenses
to Average Net Assets 1.40% 1.54%*

Ratio of Net Income
to Average Net Assets 7.17% 7.41%*

Portfolio Turnover Rate 139.71% 103.49%

1For the period March 15, 1988 (effective date of registration) to January 31,
1989.

2For the nine months ended October 31, resulting from a change in fiscal year
end from January 31.

+For the period ended May 1, 1995 to October 31, 1995.

++Ratios have been calculated using daily average net assets during the period.

*Annualized

**Total return measures the change in value of an investment over the periods
indicated and is not annualized. It does not include the maximum front-end sales
charge or the Contingent Deferred Sales Charge, and assumes reinvestment of
dividends and capital gains, if any, at Net Asset Value. Prior to May 1, 1994,
dividends were reinvested at the maximum Offering Price. ***During the periods
indicated, Advisers agreed in advance to waive a portion of its management fees
and to make certain payments to reduce expenses of the Fund. Had such action not
been taken, the ratios of operating expenses to average net assets would have
been as follows:

1992 0.80%
1993 0.73%

HOW DOES THE FUND INVEST ITS ASSETS?

THE FUND'S INVESTMENT OBJECTIVE

The Fund's investment objective is to provide high current income, consistent
with preservation of capital, with capital appreciation as a secondary
consideration. The objective is a fundamental policy of the Fund and may not be
changed without shareholder approval. Of course, there is no assurance that the
Fund's objective will be achieved.

TYPES OF SECURITIES IN WHICH THE FUND MAY INVEST

The Fund seeks to achieve its objective by investing at least 65% of its total
assets in securities issued or guaranteed by domestic and foreign governments
and their political subdivisions, including the U.S. government, its agencies,
and authorities or instrumentalities ("U.S. government securities"). Securities
issued by central banks that are guaranteed by their national governments are
considered to be government securities.

Investments will be selected to provide a high current yield and currency
stability, or a combination of yield, capital appreciation or currency
appreciation consistent with the Fund's objective. The Fund may also seek to
protect or enhance income, or protect capital, through the use of forward
currency exchange contracts, options, futures contracts and interest rate swaps,
all of which are generally considered "derivative securities." A detailed
description of these financial transactions is included below. The risk
considerations involved in global investing generally are included under "What
are the Fund's Potential Risks?"

As a global fund, the Fund may invest in securities issued in any currency and
may hold foreign currency. Under normal circumstances, at least 65% of the
Fund's assets will be invested in government securities of issuers located in at
least three countries, one of which may be the United States. Securities of
issuers within a given country may be denominated in the currency of another
country, or in multinational currency units such as the European Currency Unit
("ECU").

Under normal economic conditions, at least 65% of the Fund's total assets will
be invested in fixed-income securities such as bonds, notes and debentures. Some
of the fixed-income securities may be convertible into common stock or be traded
together with warrants for the purchase of common stocks, although the Fund has
no current intention of converting such securities into equity or holding them
as equity upon such conversion. The remaining 35% may be invested, to the extent
available and permissible, in equity securities, foreign or domestic currency
deposits or equivalents such as short-term U.S. Treasury notes or repurchase
agreements.

The Fund may invest in debt securities with varying maturities. Under current
market conditions, it is expected that the dollar-weighted average maturity of
the Fund's investments will not exceed 15 years. Generally, the portfolio's
average maturity will be shorter when, in the opinion of Advisers, interest
rates worldwide or in a particular country are expected to rise, and longer when
interest rates are expected to fall.

Other fixed-income securities of both domestic and foreign issuers in which the
Fund may invest include preferred and preference stock and all types of
long-term or short-term debt obligations, such as bonds, debentures, notes,
commercial paper, equipment lease certificates, equipment trust certificates and
conditional sales contracts. Additional information concerning these three
latter categories is included in the SAI. These fixed-income securities may
involve equity features, such as conversion or exchange rights or warrants for
the acquisition of stock of the same or a different issuer; participation based
on revenues, sales or profits; or the purchase of common stock in a unit
transaction (where an issuer's debt securities and common stock are offered as a
unit). The Fund will limit its investments in warrants, valued at the lower of
cost or market, to 5% of the Fund's net assets or to warrants attached to
securities.

The Fund is also authorized to invest in debt securities of supranational
entities denominated in any currency. A supranational entity is an entity
designated or supported by the national government of one or more countries to
promote economic reconstruction or development. Examples of supranational
entities include, among others, the World Bank, the European Investment Bank and
the Asian Development Bank. The Fund may, in addition, invest in debt securities
denominated in ECU of an issuer in any country (including supranational
issuers). The Fund is further authorized to invest in "semi-governmental
securities," which are debt securities issued by entities owned by either a
national, state or equivalent government or are obligations of a government
jurisdiction that are not backed by its full faith and credit and general taxing
powers.

The Fund will allocate its assets among securities of various issuers,
geographic regions, and currency denominations in a manner that is consistent
with its objective based upon relative interest rates among currencies, the
outlook for changes in these interest rates, and anticipated changes in
worldwide exchange rates. In considering these factors, a country's economic and
political conditions such as inflation rate, growth prospects, global trade
patterns and government policies will be evaluated.

The Fund's assets will be invested principally within Australia, Canada, Japan,
New Zealand, the U.S. and Western Europe, and in securities denominated in the
currencies of these countries or denominated in multinational currency units
such as the ECU. The Fund may also acquire securities and currency in less
developed countries and in developing countries, which may involve greater
exposure to the risks ordinarily associated with foreign investing. See "What
are the Fund's Potential Risks? - Foreign Securities." Advisers does not
currently expect the Fund's investments in less developed and developing
countries to exceed 20% of the Fund's net assets.

Investments will not be made in securities of foreign countries issued without
stock certificates or comparable stock documents. Securities which are acquired
by the Fund outside the U.S. and which are publicly traded in the U.S. on a
foreign securities exchange or in a foreign securities market are not considered
by the Fund to be illiquid assets so long as the Fund acquires and holds the
securities with the intention of reselling the securities in the foreign trading
market, the Fund reasonably believes it can readily dispose of the securities
for cash in the U.S. or foreign market, and current market quotations are
readily available.

BANK SECURITIES. The Fund may invest in obligations of domestic and foreign
banks which, at the date of investment, have total assets (as of the date of
their most recently published financial statements) in excess of one billion
dollars (or foreign currency equivalent at then current exchange rates).

LOAN PARTICIPATIONS. The Fund is authorized to acquire loan participations in
which the Fund will buy from a lender a portion of a larger loan that it has
made to a borrower. Generally, loan participations are sold without guarantee or
recourse to the lending institution and are subject to the credit risks of both
the borrower and the lending institution. Loan participations, however, may
enable the Fund to acquire an interest in a loan from a financially strong
borrower, which the Fund could not do directly. Further information is included
in the SAI.

LOWER RATED DEBT OBLIGATIONS. The Fund may invest in higher yielding, higher
risk, lower rated debt obligations that are rated at least B by Moody's, or S&P,
or if unrated, are at least of comparable quality as determined by Advisers. The
Fund currently holds approximately 13% in lower rated investments and may in the
future increase this percentage, but such investments will be less than 35% of
the Fund's net assets. Many debt obligations of foreign issuers, especially
developing market issuers, are not rated by U.S. rating agencies and their
selection depends on Advisers' internal analysis. Securities rated BB or lower
by S&P or Ba or lower by Moody's (sometimes referred to as "junk bonds") are
regarded as predominately speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the obligation
and therefore involve special risks. See "What are the Fund's Potential Risks? -
High Yielding, Fixed-Income Securities" and the "Appendix" for a discussion of
the ratings categories.

CURRENCY TECHNIQUES AND HEDGING. The Fund intends to pursue its investment
objective through investments in options, futures, options on futures and
forward contracts. These securities are generally considered "derivative
securities." Investment in these securities is not a fundamental policy of the
Fund, and may be changed at the discretion of the Board without prior notice or
shareholder approval. While there are no specific limits on the Fund's use of
these practices other than those limits stated below, the Fund only engages in
these practices for hedging purposes, or in other words for the purpose of
protecting against declines in the value of the Fund's portfolio securities and
the income on these securities. The production of additional income may at times
be a secondary purpose of these practices.

FORWARD CURRENCY EXCHANGE CONTRACTS. The Fund may enter into forward currency
exchange contracts ("Forward Contract[s]") to attempt to minimize the risk to
the Fund from adverse changes in the relationship between currencies or to
enhance income. A Forward Contract is an obligation to buy or sell a specific
currency for an agreed price at a future date which is individually negotiated
and privately traded by currency traders and their customers.

The Fund may construct an investment position by combining a debt security
denominated in one currency with a Forward Contract calling for the exchange of
that currency for another currency. The investment position is not itself a
security but is a combined position (i.e., a debt security coupled with a
Forward Contract) that is intended to be similar in overall performance to a
debt security denominated in the currency purchased.

The Fund may also enter into a Forward Contract, for example, when it enters
into a contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security.
Additionally, for example, when the Fund believes that a foreign currency may
suffer a substantial decline against the U.S. dollar, it may enter into a
Forward Contract to sell an amount of that foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in such
foreign currency; or when the Fund believes that the U.S. dollar may suffer a
substantial decline against a foreign currency, it may enter into a Forward
Contract to buy that foreign currency for a fixed dollar amount.

The Fund sets aside or segregates sufficient cash, cash equivalents or readily
marketable debt securities held by its custodian bank as deposits for
commitments created by open Forward Contracts. The Fund will cover any
commitments under these contracts to sell currency by owning or acquiring the
underlying currency (or an absolute right to acquire such currency). The
segregated account will be marked-to-market daily. The ability of the Fund to
enter into Forward Contracts is limited only to the extent Forward Contracts
would, in the opinion of Advisers, impede portfolio management or the ability of
the Fund to honor redemption requests.

Forward Contracts may limit potential gain from a positive change in the
relationship between the U.S. dollar and foreign currencies or between foreign
currencies. Unanticipated changes in currency exchange rates also may result in
poorer overall performance for the Fund than if it had not entered into such
contracts.

OPTIONS ON U.S. AND FOREIGN SECURITIES. The Fund intends to write covered put
and call options and buy put and call options on U.S. or foreign securities that
are traded on U.S. and foreign securities exchanges and in over-the-counter
markets.

Call options written by the Fund give the holder the right to buy the underlying
security from the Fund at a stated exercise price upon exercising the option at
any time prior to its expiration. A call option written by the Fund is "covered"
if the Fund owns or has an absolute right (such as by conversion) to the
underlying security covered by the call. A call option is also covered if the
Fund holds a call on the same security and in the same principal amount as the
call written and the exercise price of the call held is (a) equal to or less
than the exercise price of the call written, or (b) greater than the exercise
price of the call written if the difference is maintained by the Fund in cash,
government securities or other high grade debt obligations in a segregated
account with its custodian bank.

Put options written by the Fund give the holder the right to sell the underlying
security to the Fund at a stated exercise price. A put option written by the
Fund is "covered" if the Fund maintains cash or high grade debt obligations with
a value equal to the exercise price in a segregated account with its custodian
bank, or else holds a put on the same security and in the same principal amount
as the put written and the exercise price of the put held is equal to or greater
than the exercise price of the put written.

The premium paid by the purchaser of an option will generally reflect, among
other things, the relationship of the exercise price to the market price and
volatility of the underlying security, the remaining term of the option, supply
and demand, and current interest rates.

The writer of an option who wishes to terminate its obligation may effect a
"closing purchase transaction." This is accomplished by buying an option of the
same series as the option previously written. The effect of the purchase is that
the writer's position will be canceled by the Options Clearing Corporation or
otherwise economically nullified. However, a writer may not effect a closing
purchase transaction after being notified of the exercise of an option.
Likewise, an investor who is the holder of an option may liquidate its position
by effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased.

Effecting a closing transaction will permit the cash or proceeds from the
concurrent sale of any securities subject to the option to be used for other
Fund investments. If the Fund desires to sell a particular security from its
portfolio on which it has written a call option, it will effect a closing
transaction prior to or concurrent with the sale of the security. There is no
guarantee in any particular situation that either a closing purchase or a
closing sale transaction can be effected.

The writer of an option may have no control over when the underlying securities
must be sold in the case of a call option, or purchased in the case of a put
option, since the writer of certain options may be assigned an exercise notice
at any time prior to the expiration of the option. Whether or not an option
expires unexercised, the writer retains the amount of the premium.

An option position may be closed out only where there exists a secondary market
for an option of the same series. If a secondary market does not exist, it might
not be possible to effect closing sale transactions in particular options held
by the Fund, with the result that the Fund would have to exercise the options in
order to realize any profit. If the Fund is unable to effect a closing purchase
transaction in a secondary market with respect to options it has written, it
will not be able to sell the underlying security or other asset covering the
option until the option expires or it delivers the underlying security or asset
upon exercise.

The risks of transactions in options on foreign exchanges are similar to the
risks of investing in foreign securities, which are described under "What are
the Fund's Potential Risks?" In addition, a foreign exchange may impose
different exercise and settlement terms, procedures and margin requirements than
a U.S. exchange.

The Fund may buy put options to hedge against a decline in the value of its
portfolio. By using put options in this way, the Fund will reduce any profit it
might otherwise have realized in the underlying security by the amount of the
premium paid for the put option plus transaction costs.

The Fund may buy call options to hedge against an increase in the price of
securities that the Fund anticipates purchasing in the future. The premium paid
for the call option plus any transaction costs will reduce the benefit, if any,
realized by the Fund upon exercise of the option. Unless the price of the
underlying security rises sufficiently, the option may expire resulting in a
loss to the Fund equal to the cost of the options.

The ability of the Fund to engage in options transactions is subject to the
following limitations: a) not more than 5% of the total assets of the Fund may
be invested in options (including straddles and spreads); b) the obligations of
the Fund under put options written by the Fund may not exceed 50% of the net
assets of the Fund; and c) the aggregate premiums on all options purchased by
the Fund may not exceed 20% of the net assets of the Fund.

A further discussion of the use, risks and costs of options is included in the
SAI.

OPTIONS ON FOREIGN CURRENCIES. The Fund may buy and write put and call options
on foreign currencies (traded on U.S. and foreign exchanges or over-the-counter)
for hedging purposes to protect against declines in the U.S. dollar value of
foreign portfolio securities and against increases in the U.S. dollar cost of
foreign securities or other assets to be acquired. As in the case of other kinds
of options, however, the writing of an option on foreign currency will
constitute only a partial hedge, up to the amount of the premium received, and
the Fund could be required to buy or sell foreign currencies at disadvantageous
exchange rates, thereby incurring losses. The purchase of an option on foreign
currency may constitute an effective hedge against fluctuations in exchange
rates although, in the event of rate movements adverse to the Fund's position,
the Fund may forfeit the entire amount of the premium plus related transaction
costs. A further discussion of the use, risks and costs of options on foreign
currencies is included in the SAI.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund may enter into
contracts for the purchase or sale for future delivery of debt securities
("Futures Contracts") and may buy or write options to buy or sell Futures
Contracts traded on U.S. and foreign exchanges ("Options on Futures Contracts").
These investment techniques are designed only to hedge against anticipated
future changes in interest rates that otherwise might either adversely affect
the value of the Fund's portfolio securities or adversely affect the prices of
securities that the Fund intends to buy at a later date. Should interest rates
move in an unexpected manner, the Fund may not achieve the anticipated benefits
of Futures Contracts or Options on Futures Contracts or may realize a loss.

The Board has adopted the requirement that Futures Contracts and Options on
Futures Contracts may only be used for hedging purposes and not for speculation.
In addition to complying with this requirement, the Fund will not buy or sell
Futures Contracts and Options on Futures Contracts if immediately thereafter the
amount of initial margin deposits on all the futures positions of the Fund and
premiums paid on Options on Futures Contracts would exceed 5% of the market
value of the total assets of the Fund. A further discussion of the use, risks
and costs of Futures Contracts and Options on Futures Contracts is included in
the SAI.

OTHER INVESTMENT POLICIES OF THE FUND

During periods when Advisers believes that the Fund should be in a temporary
defensive position, the Fund may have less than 25% of its assets concentrated
in foreign government securities and may invest instead in U.S. government
securities. U.S. government securities which may be purchased by the Fund may
include (i) U.S. Treasury obligations, which differ only in their interest
rates, maturities and times of issuance: U.S. Treasury bills (maturity of one
year or less), U.S. Treasury notes (maturities of one to 10 years), and U.S.
Treasury bonds (generally maturities of greater than 10 years), all of which are
backed by the full faith and credit of the U.S. government; and (ii) obligations
issued or guaranteed by U.S. government agencies or instrumentalities, some of
which are backed by the full faith and credit of the U.S. Treasury (e.g., direct
pass-through certificates of the Government National Mortgage Association); some
of which are supported by the right of the issuer to borrow from the U.S.
government (e.g., obligations of Federal Home Loan Banks); and some of which are
backed only by the credit of the issuer itself (e.g., obligations of the Student
Loan Marketing Association).

When investing for defensive purposes is appropriate, such as during periods of
adverse market conditions or when relative yields in other securities are not
deemed attractive, part or all of the Fund's assets may be invested in cash
(including foreign currency) or cash equivalent short-term obligations,
including, but not limited to: CDs, commercial paper, short-term notes,
obligations issued or guaranteed by the U.S. government or any of its agencies
or instrumentalities, and repurchase agreements secured thereby. In particular,
for defensive purposes a larger portion of the Fund's assets may be invested in
U.S. dollar denominated obligations to reduce the risks inherent in non-dollar
denominated assets.

LOANS OF PORTFOLIO SECURITIES. Consistent with procedures approved by the Board
and subject to the following conditions, the Fund may lend its portfolio
securities to qualified securities dealers or other institutional investors,
provided that such loans do not exceed 30% of the value of the Fund's total
assets at the time of the most recent loan. The borrower must deposit with the
Fund's custodian bank collateral with an initial market value of at least 102%
of the initial market value of the securities loaned, including any accrued
interest, with the value of the collateral and loaned securities
marked-to-market daily to maintain collateral coverage of at least 102%. This
collateral shall consist of cash. The lending of securities is a common practice
in the securities industry. The Fund may engage in security loan arrangements
with the primary objective of increasing the Fund's income either through
investing the cash collateral in short-term interest bearing obligations or by
receiving a loan premium from the borrower. Under the securities loan agreement,
the Fund continues to be entitled to all dividends or interest on any loaned
securities. As with any extension of credit, there are risks of delay in
recovery and loss of rights in the collateral should the borrower of the
security fail financially.

WHEN-ISSUED SECURITIES. Securities may be purchased by the Fund on a
"when-issued" or "forward delivery" basis, which means that the obligations will
be delivered at a future date beyond customary settlement time. Although the
Fund is not limited to the amount of securities for which it may have
commitments to buy on such basis, it is expected that under normal circumstances
the Fund will not commit more than 30% of its assets to such purchases. The Fund
does not pay for the securities until received nor does the Fund start earning
interest on them until it is notified of the settlement date. In order to invest
its assets immediately, while awaiting delivery of securities purchased on such
basis, the Fund will normally invest the amount required to settle the
transaction in short-term securities that offer same-day settlement and
earnings, but which may bear interest at a lower rate than longer term
securities.

When the Fund commits to buy a security on a when-issued or forward delivery
basis, it will set up segregated accounts, as described in "Forward Currency
Exchange Contracts" above, concerning such purchases. Although the Fund does not
intend to make such purchases for speculative purposes, purchases of securities
on such basis may involve more risk than other types of purchases. For example,
if the Fund determines it is necessary to sell the when-issued or forward
delivery securities before delivery, it may incur a gain or loss because of
market fluctuations since the time the commitment to buy the securities was
made.

REPURCHASE AGREEMENTS. The Fund may engage in repurchase transactions in which
the Fund buys a U.S. government security subject to resale to a bank or dealer
at an agreed-upon price and date. The transaction requires the collateralization
of the seller's obligation by the transfer of securities with an initial market
value, including accrued interest, equal to at least 102% of the dollar amount
invested by the Fund in each agreement, with the value of the underlying
security marked-to-market daily to maintain coverage of at least 100%. A default
by the seller might cause the Fund to experience a loss or delay in the
liquidation of the collateral securing the repurchase agreement. The Fund might
also incur disposition costs in liquidating the collateral. The Fund, however,
intends to enter into repurchase agreements only with financial institutions
such as broker-dealers and banks that are deemed creditworthy by Advisers. A
repurchase agreement is deemed to be a loan by the Fund under the 1940 Act. The
U.S. government security subject to resale (the collateral) will be held on
behalf of the Fund by a custodian bank approved by the Board and will be held
pursuant to a written agreement.

REVERSE REPURCHASE AGREEMENTS. The Fund may also enter into reverse repurchase
agreements, which are the opposite of repurchase agreements but involve similar
mechanics and risks. The Fund sells securities to a bank or dealer and agrees to
repurchase them at a mutually agreed price and date. Cash or liquid high-grade
debt securities having an initial market value, including accrued interest,
equal to at least 102% of the dollar amount sold by the Fund are segregated as
collateral and marked-to-market daily to maintain coverage of at least 100%. A
default by the purchaser might cause the Fund to experience a loss or delay in
the liquidation costs. The Fund intends to enter into reverse repurchase
agreements with domestic or foreign banks or securities dealers. Advisers will
evaluate the creditworthiness of these entities prior to engaging in such
transactions, under the general supervision of the Board.

The general investment practices described above may be changed without
shareholder approval and no assurances can be given that they will in any event
accomplish the results intended.

BORROWING. The Fund may borrow from banks, for temporary or emergency purposes
only, up to 30% of its total assets, and pledge up to 30% of its total assets in
connection therewith. No new investments will be made by the Fund while any
outstanding borrowings exceed 5% of its total assets.

ILLIQUID INVESTMENTS. The Fund's policy is not to invest more than 10% of its
net assets in illiquid securities. Illiquid securities are generally securities
that cannot be sold within seven days in the normal course of business at
approximately the amount at which the Fund has valued them.

PORTFOLIO TURNOVER. The Fund's portfolio turnover rate for the fiscal years
ended October 31, 1995, and October 31, 1996, was 103.49% and 139.71%,
respectively. The high portfolio turnover rate for both fiscal years was due to
changing market conditions and a higher level of redemptions than in previous
years. High portfolio turnover may increase the Fund's transaction costs.

PERCENTAGE RESTRICTIONS. If a percentage restriction noted above is adhered to
at the time of investment, a later increase or decrease in the percentage
resulting from a change in the value or liquidity of portfolio securities or the
amount of net assets will not be considered a violation of any of the foregoing
policies.

OTHER POLICIES AND RESTRICTIONS. The Fund has a number of additional investment
restrictions that limit its activities to some extent. Some of these
restrictions may only be changed with shareholder approval. For a list of these
restrictions and more information about the Fund's investment policies, please
see "How does the Fund Invest its Assets?" and "Investment Restrictions" in the
SAI.

WHAT ARE THE FUND'S POTENTIAL RISKS?

The value of your shares will increase as the value of the securities owned by
the Fund increases and will decrease as the value of the Fund's investments
decrease. In this way, you participate in any change in the value of the
securities owned by the Fund. In addition to the factors that affect the value
of any particular security that the Fund owns, the value of Fund shares may also
change with movements in the stock and bond markets as a whole.

INTEREST RATE, CURRENCY AND MARKET RISK. To the extent the Fund invests in debt
securities, changes in interest rates in any country where the Fund is invested
will affect the value of the Fund's portfolio and its share price. Rising
interest rates, which often occur during times of inflation or a growing
economy, are likely to have a negative effect on the value of the Fund's shares.
To the extent the Fund invests in common stocks, a general market decline in any
country where the Fund is invested, may cause the value of what the Fund owns,
and thus the Fund's share price, to decline. Changes in currency valuations may
also affect the price of Fund shares. The value of stock markets, currency
valuations and interest rates throughout the world has increased and decreased
in the past. These changes are unpredictable and may happen again in the future.

NON-DIVERSIFICATION RISK. As a non-diversified fund, there is no restriction
under the 1940 Act on the percentage of the Fund's assets that may be invested
at any time in the securities of any issuer. However, the Fund intends to comply
with the diversification and other requirements of the Code applicable to
regulated investment companies so that the Fund will not be subject to U.S.
federal income tax on the income and capital gain that it distributes to
shareholders. Nevertheless, the Fund's non-diversified status may expose it to
greater risk or volatility than diversified funds with otherwise similar
investment policies, since the Fund may have a larger portion of its assets
invested in securities of a small number of issuers.

FOREIGN CURRENCY. The Fund may invest in debt securities denominated in U.S. and
foreign currencies. A change in the value of any foreign currency against the
U.S. dollar will result in a corresponding change in the U.S. dollar value of
the Fund's assets denominated in the foreign currency. These changes will also
affect the Fund's yield, income and distributions to shareholders. In addition,
although the Fund receives income in various currencies, the Fund is required to
compute and distribute its income in U.S. dollars. Therefore, if the exchange
rate for any currency depreciates after the Fund's income has been accrued and
translated into U.S. dollars, the Fund could be required to liquidate portfolio
securities to make its distributions. Similarly, if an exchange rate depreciates
between the time the Fund incurs expenses in U.S. dollars and the time the
expenses are paid, the amount of a currency required to be converted into U.S.
dollars in order to pay such expenses in U.S. dollars will be greater than the
equivalent amount in any such currency at the time the expenses were incurred.
The Fund will only invest in foreign currency denominated debt securities of
countries whose currency is fully exchangeable into U.S. dollars without legal
restriction at the time of investment.

FOREIGN SECURITIES. Investment in foreign securities involves certain risks that
should be considered carefully. Each of the risks described below may be
heightened to the extent that the Fund invests in securities of developing or
emerging markets. These risks include political, social or economic instability
in the country of the issuer, the difficulty of predicting international trade
patterns, the possibility of the imposition of exchange controls, expropriation,
limits on removal of currency or other assets, nationalization of assets,
foreign withholding and income taxation and foreign trading practices (including
higher trading commissions, custodial charges and delayed settlements). Foreign
securities may be subject to greater fluctuations in price than securities
issued by U.S. corporations or issued or guaranteed by the U.S. government, its
instrumentalities or agencies. The markets on which foreign securities trade may
have less volume and liquidity, and may be more volatile than securities markets
in the U.S. In addition, there may be less publicly available information about
a foreign company than is contained in reports and reflected in ratings
published for a U.S. domiciled company. Foreign companies generally are not
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to U.S. domestic companies. There is generally
less government regulation of securities exchanges, brokers and listed companies
abroad than in the U.S. Transaction costs on foreign securities exchanges may be
higher than in the U.S. and foreign securities settlements may, in some
instances, be subject to delays and related administrative uncertainties.
Confiscatory taxations or diplomatic developments could also affect investment
in those countries.

The operating expense ratio of the Fund can be expected to be higher than that
of an investment company investing exclusively in U.S. securities because of the
additional expenses of the Fund, such as custodial costs, valuation costs and
communication costs, although they are expected to be similar to expenses of
other investment companies investing in a mix of U.S. securities and securities
of one or more foreign countries.

HIGH YIELDING, FIXED-INCOME SECURITIES. The Fund's investments in higher
yielding, lower-rated securities entail special risks. The market value of lower
rated, fixed-income securities and unrated securities of comparable quality,
commonly known as "junk bonds," tends to reflect individual developments
affecting the issuer to a greater extent than the market value of higher rated
securities, which react primarily to fluctuations in the general level of
interest rates. Lower rated securities also tend to be more sensitive to
economic conditions than higher rated securities. These lower rated fixed-income
securities are considered by the rating agencies, on balance, to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation and will
generally involve more credit risk than securities in the higher rating
categories. Even securities rated triple B by S&P or Baa by Moody's, ratings
which are considered investment grade, possess some speculative characteristics.

Issuers of high yielding, fixed-income securities are often highly leveraged and
may not have more traditional methods of financing available to them. Therefore,
the risk associated with acquiring the securities of these issuers is generally
greater than is the case with higher rated securities. For example, during an
economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of high yielding securities may experience financial stress.
During these periods, these issuers may not have sufficient cash flow to meet
their interest payment obligations. The issuer's ability to service its debt
obligations may also be adversely affected by specific developments affecting
the issuer, the issuer's inability to meet specific projected business
forecasts, or the unavailability of additional financing. The risk of loss due
to default by the issuer may be significantly greater for the holders of high
yielding securities because the securities are generally unsecured and are often
subordinated to other creditors of the issuer. Current prices for defaulted
bonds are generally significantly lower than their purchase price, and the Fund
may have unrealized losses on defaulted securities that are reflected in the
price of the Fund's shares. In general, securities that default lose much of
their value in the time period before the actual default so that the Fund's net
assets are impacted prior to the default. The Fund may retain an issue that has
defaulted because the issue may present an opportunity for subsequent price
recovery.

High yielding, fixed-income securities frequently have call or buy-back features
that permit an issuer to call or repurchase the securities from the Fund.
Although these securities are typically not callable for a period from three to
five years after their issuance, if a call were exercised by the issuer during
periods of declining interest rates, Advisers may find it necessary to replace
the securities with lower yielding securities, which could result in less net
investment income to the Fund. The premature disposition of a high yielding
security due to a call or buy-back feature, the deterioration of the issuer's
creditworthiness, or a default may also make it more difficult for the Fund to
manage the timing of its receipt of income, which may have tax implications. The
Fund may be required under the Code and U.S. Treasury regulations to accrue
income for income tax purposes on defaulted obligations and to distribute the
income to the Fund's shareholders even though the Fund is not currently
receiving interest or principal payments on these obligations. In order to
generate cash to satisfy any or all of these distribution requirements, the Fund
may be required to dispose of portfolio securities that it otherwise would have
continued to hold or to use cash flows from other sources such as the sale of
Fund shares.

The Fund may have difficulty disposing of certain high yielding securities
because there may be a thin trading market for a particular security at any
given time. The market for lower rated, fixed-income securities generally tends
to be concentrated among a smaller number of dealers than is the case for
securities that trade in a broader secondary retail market. Generally, buyers of
these securities are predominantly dealers and other institutional buyers,
rather than individuals. To the extent the secondary trading market for a
particular high yielding, fixed-income security does exist, it is generally not
as liquid as the secondary market for higher rated securities. Reduced liquidity
in the secondary market may have an adverse impact on market price and the
Fund's ability to dispose of particular issues, when necessary, to meet the
Fund's liquidity needs, or in response to a specific economic event, such as a
deterioration in the creditworthiness of the issuer. Reduced liquidity in the
secondary market for certain securities may also make it more difficult for the
Fund to obtain market quotations based on actual trades for purposes of valuing
the Fund's portfolio. Current values for these high yield issues are obtained
from pricing services and/or a limited number of dealers and may be based upon
factors other than actual sales. (See "How are Fund Shares Valued?" in the SAI.)

The Fund is authorized to acquire high yielding, fixed-income securities that
are sold without registration under the federal securities laws and therefore
carry restrictions on resale. While many high yielding securities have been sold
with registration rights, covenants and penalty provisions for delayed
registration, if the Fund is required to sell restricted securities before the
securities have been registered, it may be deemed an underwriter of the
securities under the Securities Act of 1933, which entails special
responsibilities and liabilities. The Fund may incur special costs in disposing
of these securities; however, the Fund will generally incur no costs when the
issuer is responsible for registering the securities.

The Fund may acquire high yielding, fixed-income securities during an initial
underwriting. These securities involve special risks because they are new
issues. Advisers will carefully review their credit and other characteristics.
The Fund has no arrangement with its underwriter or any other person concerning
the acquisition of these securities.

Factors adversely impacting the market value of high yielding securities will
adversely impact the Fund's Net Asset Value. In addition, the Fund may incur
additional expenses to the extent it is required to seek recovery upon a default
in the payment of principal or interest on its portfolio holdings. The Fund will
rely on Advisers' judgment, analysis and experience in evaluating the
creditworthiness of an issuer. In this evaluation, Advisers will take into
consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters.

ASSET COMPOSITION TABLE. A credit rating by a rating agency evaluates only the
safety of principal and interest of a security, and does not consider the market
value risk associated with the investment. The table below shows the percentage
of the Fund's assets invested in fixed income securities rated in each of the
specific rating categories shown and those that are not rated by the rating
agency but deemed by Advisers to be of comparable credit quality. The
information was prepared based on a dollar weighted average of the Fund's
portfolio composition based on month-end assets for each of the 12 months in the
fiscal year ended October 31, 1996. The Appendix to this prospectus includes a
description of each rating category.

AVERAGE WEIGHTED
S&P RATING PERCENTAGE OF ASSETS

AAA 85.9%
AA 1.3%
BB 4.8%
BB-* 5.4%
B+ 2.5%

*1.9% of these securities, which are unrated by the rating agency, have been
included in the BB- rating category.

WHO MANAGES THE FUND?

THE BOARD. The Board oversees the management of the Fund and elects its
officers. The officers are responsible for the Fund's day-to-day operations. The
Board also monitors the Fund to ensure no material conflicts exist between the
Fund's classes of shares. While none is expected, the Board will act
appropriately to resolve any material conflict that may arise.

INVESTMENT MANAGER. Advisers manages the Fund's assets and makes its investment
decisions. Advisers also performs similar services for other funds. It is wholly
owned by Resources, a publicly owned company engaged in the financial services
industry through its subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr.
are the principal shareholders of Resources. Together, Advisers and its
affiliates manage over $179 billion in assets. Please see "Investment Management
and Other Services" and "Miscellaneous Information" in the SAI for information
on securities transactions and a summary of the Fund's Code of Ethics.

Under an agreement with Advisers, TICI is the sub-advisor of the Fund. TICI
provides Advisers with investment management advice and assistance. The
agreement provides for the sub-advisor to furnish, subject to Advisers'
discretion, a portion of the investment advisory services for which Advisers is
responsible pursuant to the management agreement. These responsibilities may
include managing a portion of the Fund's investments and supplying research
services. TICI's activities are subject to the Board's review and control, as
well as Advisers' instruction and supervision.

MANAGEMENT TEAM. The team responsible for the day-to-day management of the
Fund's portfolio is: Thomas J. Dickson since 1993, Neil S. Devlin since 1994 and
Thomas Latta since 1995.

Thomas J. Dickson
Portfolio Manager of TICI

Mr. Dickson received his bachelor of science degree in managerial economics from
the University of California at Davis. Mr. Dickson joined the Franklin Templeton
Group in 1992.

Neil S. Devlin
Executive Vice President of TICI

Mr. Devlin is a Chartered Financial Analyst and holds a bachelor of arts degree
in economics and philosophy from Brandeis University. Mr. Devlin joined the
Franklin Templeton Group in 1987.

Thomas Latta
Portfolio Manager of TICI

Mr. Latta attended the University of Missouri and New York University. Mr. Latta
has been in the securities industry since 1981 and with the Franklin Templeton
Group since 1991. Prior to joining the Franklin Templeton Group, Mr. Latta
worked as a portfolio manager with Forester and Hairston, a global fixed-income
investment management firm, and prior thereto, he worked as an investment
adviser with Merrill Lynch.

MANAGEMENT FEES. During the fiscal year ended October 31, 1996, management fees
totaling 0.58% of the average monthly net assets of the Fund were paid to
Advisers. Total expenses, including fees paid to Advisers were 0.85% for Class I
and 1.40% for Class II. During the same period, Advisers paid TICI a
sub-advisory fee totaling 0.25% of the average monthly net assets of the Fund.
This fee is not a separate expense of the Fund but is paid by Advisers from the
management fees it receives from the Fund.

PORTFOLIO TRANSACTIONS. Advisers tries to obtain the best execution on all
transactions. If Advisers believes more than one broker or dealer can provide
the best execution, consistent with internal policies it may consider research
and related services and the sale of Fund shares, as well as shares of other
funds in the Franklin Templeton Group of Funds, when selecting a broker or
dealer. Please see "How does the Fund Buy Securities for its Portfolio?" in the
SAI for more information.

ADMINISTRATIVE SERVICES. Under an agreement with Advisers, FT Services provides
certain administrative services and facilities for the Fund. Please see
"Investment Management and Other Services" in the SAI for more information.

THE RULE 12B-1 PLANS

Class I and Class II have separate distribution plans or "Rule 12b-1 Plans"
under which they may pay or reimburse Distributors or others for activities
primarily intended to sell shares of the class. These expenses may include,
among others, distribution or service fees paid to Securities Dealers or others
who have executed a servicing agreement with the Fund, Distributors or its
affiliates, printing prospectuses and reports used for sales purposes, preparing
and distributing sales literature and advertisements, and a prorated portion of
Distributors' overhead expenses.

Payments by the Fund under the Class I plan may not exceed 0.15% per year of
Class I's average daily net assets. All distribution expenses over this amount
will be borne by those who have incurred them. During the first year after
certain Class I purchases made without a sales charge, Distributors may keep the
Rule 12b-1 fees associated with the purchase.

Under the Class II plan, the Fund may pay Distributors up to 0.50% per year of
Class II's average daily net assets to pay Distributors or others for providing
distribution and related services and bearing certain Class II expenses. All
distribution expenses over this amount will be borne by those who have incurred
them. During the first year after a purchase of Class II shares, Distributors
may keep this portion of the Rule 12b-1 fees associated with the purchase.

The Fund may also pay a servicing fee of up to 0.15% per year of Class II's
average daily net assets under the Class II plan. This fee may be used to pay
Securities Dealers or others for, among other things, helping to establish and
maintain customer accounts and records, helping with requests to buy and sell
shares, receiving and answering correspondence, monitoring dividend payments
from the Fund on behalf of customers, and similar servicing and account
maintenance activities.

The Rule 12b-1 fees charged to each class are based only on the fees
attributable to that particular class. For more information, please see "The
Fund's Underwriter" in the SAI.

HOW DOES THE FUND MEASURE PERFORMANCE?

From time to time, each class of the Fund advertises its performance. The more
commonly used measures of performance are total return, current yield and
current distribution rate. Performance figures are usually calculated using the
maximum sales charges, but certain figures may not include sales charges.

Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested. Current yield for each
class shows the income per share earned by that class. The current distribution
rate shows the dividends or distributions paid to shareholders of a class. This
rate is usually computed by annualizing the dividends paid per share during a
certain period and dividing that amount by the current Offering Price of the
class. Unlike current yield, the current distribution rate may include income
distributions from sources other than dividends and interest received by the
Fund.

The investment results of each class will vary. Performance figures are always
based on past performance and do not guarantee future results. For a more
detailed description of how the Fund calculates its performance figures, please
see "How does the Fund Measure Performance?" in the SAI.

HOW TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS

The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For more information on tax matters
relating to the Fund and its shareholders, see "Additional Information on
Distributions and Taxes" in the SAI.

Each fund of the Trust is treated as a separate entity for federal income tax
purposes.

The Fund has elected and intends to continue to qualify as a regulated
investment company under Subchapter M of the Code. By distributing all of its
income and meeting certain other requirements relating to the sources of its
income and diversification of its assets, the Fund will not be liable for
federal income or excise taxes.

Regular income dividends (which are generally distributed monthly) will be
determined from the Fund's net investment income, excluding any realized net
foreign currency gains and losses. Under the Code, net realized foreign currency
gains and losses are required to be reported as ordinary income or loss to the
Fund. Therefore, if in the course of a fiscal year, the Fund realizes net
foreign currency losses, the Fund may be required to reclassify all or a portion
of its income dividend distributions made during such fiscal year as a
return-of-capital for federal income tax purposes. Net foreign currency gains,
if any, will generally be distributed as a supplemental income dividend once
each year in December to reflect any net foreign currency gain realized by the
Fund as of October 31 of the current fiscal year. You will be informed of the
tax status of all distributions shortly after the close of each calendar year.

Distributions derived from the excess of net long-term capital gain over net
short-term capital loss are treated as long-term capital gain regardless of the
length of time you have owned Fund shares and regardless of whether such
distributions are received in cash or in additional shares.

Pursuant to the Code, certain distributions which are declared in October,
November or December but which, for operational reasons, may not be paid to you
until the following January, will be treated for tax purposes as if paid by the
Fund and received by you on December 31 of the calendar year in which they are
declared.

Redemptions and exchanges of Fund shares are taxable events on which you may
realize a gain or loss. Any loss incurred on the sale or exchange of Fund shares
held for six months or less will be treated as a long-term capital loss to the
extent of capital gain dividends received with respect to such shares.

For corporate shareholders, it is anticipated that no portion of the Fund's
dividends will qualify for the corporate dividends-received deduction.

The Fund may be subject to foreign withholding taxes on income from certain of
its foreign securities. If more than 50% of the total assets of the Fund at the
end of its fiscal year are invested in securities of foreign corporations, the
Fund may elect to pass through to its shareholders the pro rata share of foreign
taxes paid by the Fund. For more information, please see the SAI.

Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currencies, foreign currency payables or
receivables, foreign currency-denominated debt securities, foreign currency
forward contracts, and options or futures contracts on foreign currencies are
subject to special tax rules which may cause such gains and losses to be treated
as ordinary income and losses rather than capital gains and losses and may
affect the amount and timing of the Fund's income or loss from such transactions
and in turn its distributions to shareholders.

The Fund's investment in options, futures contracts, forward contracts, and
options on futures contracts, including transactions involving actual or deemed
short sales, may give rise to taxable income, gain or loss and will be subject
to special tax treatment under certain mark-to-market and straddle rules, the
effect of which may be to accelerate income to the Fund, defer Fund losses,
cause adjustments in the holding periods of Fund securities, convert capital
gains and losses into ordinary income and losses, convert long-term capital
gains into short-term capital gains, and convert short-term capital losses into
long-term capital losses. These rules could, therefore, affect the amount,
timing and character of distributions to shareholders. Certain elections may be
available to the Fund to mitigate some of the unfavorable consequences of the
provisions described in this paragraph. These investments and transactions are
discussed in the SAI.

The Fund will inform you of the source of your dividends and distributions at
the time they are paid, and will promptly after the close of each calendar year
advise you of the tax status for federal income tax purposes of such dividends
and distributions.

If you are not a U.S. person for purposes of federal income taxation, you should
consult with your financial or tax advisors regarding the applicability of U.S.
withholding or other taxes to distributions received by you from the Fund and
the application of foreign tax laws to these distributions.

HOW IS THE TRUST ORGANIZED?

The Fund is a non-diversified series of Franklin Investors Securities Trust (the
"Trust"), an open-end management investment company, commonly called a mutual
fund. It was organized as a Massachusetts business trust on December 16, 1986,
and is registered with the SEC under the 1940 Act. As of January 1, 1997, the
Fund began offering a new class of shares designated Franklin Global Government
Income Fund Advisor Class. All shares outstanding before the offering of Advisor
Class shares have been designated Franklin Global Government Income Fund - Class
I and Franklin Global Government Income Fund - Class II. Additional series and
classes of shares may be offered in the future.

Shares of each class represent proportionate interests in the assets of the Fund
and have the same voting and other rights and preferences as any other class of
the Fund for matters that affect the Fund as a whole. For matters that only
affect one class, however, only shareholders of that class may vote. Each class
will vote separately on matters (1) affecting only that class, (2) expressly
required to be voted on separately by state law, or (3) required to be voted on
separately by the 1940 Act. Shares of each class of a series have the same
voting and other rights and preferences as the other classes and series of the
Trust for matters that affect the Trust as a whole.

The Trust has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this happens, holders of the remaining shares voting will not be able to elect
anyone to the Board.

The Trust does not intend to hold annual shareholder meetings. It may hold a
special meeting of a series, however, for matters requiring shareholder approval
under the 1940 Act. A meeting may also be called by the Board in its discretion
or by shareholders holding at least 10% of the outstanding shares. The 1940 Act
requires that we help you communicate with other shareholders in connection with
removing members of the Board.

ABOUT YOUR ACCOUNT

HOW DO I BUY SHARES?

OPENING YOUR ACCOUNT

To open your account, contact your investment representative or complete and
sign the enclosed shareholder application and return it to the Fund with your
check. PLEASE INDICATE WHICH CLASS OF SHARES YOU WANT TO BUY. IF YOU DO NOT
SPECIFY A CLASS, YOUR PURCHASE WILL BE AUTOMATICALLY INVESTED IN CLASS I SHARES.

MINIMUM
INVESTMENTS*

To Open Your Account $100
To Add to Your Account $ 25

*We may waive these minimums for retirement plans. We may also refuse any order
to buy shares.

DECIDING WHICH CLASS TO BUY

You should consider a number of factors when deciding which class of shares to
buy. IF YOU PLAN TO BUY $1 MILLION OR MORE IN A SINGLE PAYMENT OR YOU QUALIFY TO
BUY CLASS I SHARES WITHOUT A SALES CHARGE, YOU MAY NOT BUY CLASS II SHARES.

Generally, you should consider buying Class I shares if:

o you expect to invest in the Fund over the long term;

o you qualify to buy Class I shares at a reduced sales charge; or

o you plan to buy $1 million or more over time.

You should consider Class II shares if:

o you expect to invest less than $100,000 in the Franklin Templeton Funds; and

o you plan to sell a substantial number of your shares within approximately six
years or less of your investment.

Class I shares are generally more attractive for long-term investors because of
Class II's higher Rule 12b-1 fees. These may accumulate over time to outweigh
the lower Class II front-end sales charge and result in lower income dividends
for Class II shareholders. If you qualify to buy Class I shares at a reduced
sales charge based upon the size of your purchase or through our Letter of
Intent or cumulative quantity discount programs, but plan to hold your shares
less than approximately six years, you should evaluate whether it is more
economical for you to buy Class I or Class II shares.

For purchases of $1 million or more, it is considered more beneficial for you to
buy Class I shares since there is no front-end sales charge, even though these
purchases may be subject to a Contingent Deferred Sales Charge. Any purchase of
$1 million or more is therefore automatically invested in Class I shares. You
may accumulate more than $1 million in Class II shares through purchases over
time, but if you plan to do this, you should determine whether it would be more
beneficial for you to buy Class I shares through a Letter of Intent.

Please consider all of these factors before deciding which class of shares to
buy. There are no conversion features attached to either class of shares.

PURCHASE PRICE OF FUND SHARES

For Class I shares, the sales charge you pay depends on the dollar amount you
invest, as shown in the table below. The sales charge for Class II shares is 1%
and, unlike Class I, does not vary based on the size of your purchase.

TOTAL SALES CHARGE AMOUNT PAID
AS A PERCENTAGE OF TO DEALER AS A
AMOUNT OF PURCHASE OFFERING NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE PRICE INVESTED OFFERING PRICE

CLASS I
Under $100,000 4.25% 4.44% 4.00%
$100,000 but less than $250,000 3.50% 3.63% 3.25%
$250,000 but less than $500,000 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000 2.15% 2.20% 2.00%
$1,000,000 or more* None None None

CLASS II
Under $1,000,000* 1.00% 1.01% 1.00%

*A Contingent Deferred Sales Charge of 1% may apply to Class I purchases of $1
million or more and any Class II purchase. Please see "How Do I Sell Shares? -
Contingent Deferred Sales Charge." Please also see "Other Payments to Securities
Dealers" below for a discussion of payments Distributors may make out of its own
resources to Securities Dealers for certain purchases. Purchases of Class II
shares are limited to purchases below $1 million. Please see "Deciding Which
Class to Buy."

Sales Charge Reductions and Waivers

IF YOU QUALIFY TO BUY SHARES UNDER ONE OF THE SALES CHARGE REDUCTION OR
WAIVER CATEGORIES DESCRIBED BELOW, PLEASE INCLUDE A WRITTEN STATEMENT WITH
EACH PURCHASE ORDER EXPLAINING WHICH PRIVILEGE APPLIES. If you don't
include this statement, we cannot guarantee that you will receive the
sales charge reduction or waiver.

CUMULATIVE QUANTITY DISCOUNTS - CLASS I ONLY. To determine if you may pay a
reduced sales charge, the amount of your current Class I purchase is added to
the cost or current value, whichever is higher, of your existing shares in the
Franklin Templeton Funds, as well as those of your spouse, children under the
age of 21 and grandchildren under the age of 21. If you are the sole owner of a
company, you may also add any company accounts, including retirement plan
accounts. Companies with one or more retirement plans may add together the total
plan assets invested in the Franklin Templeton Funds to determine the sales
charge that applies.

LETTER OF INTENT - CLASS I ONLY. You may buy Class I shares at a reduced sales
charge by completing the Letter of Intent section of the shareholder
application. A Letter of Intent is a commitment by you to invest a specified
dollar amount during a 13 month period. The amount you agree to invest
determines the sales charge you pay on Class I shares.

BY COMPLETING THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION, YOU
ACKNOWLEDGE AND AGREE TO THE FOLLOWING:

o You authorize Distributors to reserve 5% of your total intended purchase in
Class I shares registered in your name until you fulfill your Letter.

o You give Distributors a security interest in the reserved shares and appoint
Distributors as attorney-in-fact.

o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the Letter.

o Although you may exchange your shares, you may not sell reserved shares until
you complete the Letter or pay the higher sales charge.

Your periodic statements will include the reserved shares in the total shares
you own. We will pay or reinvest dividend and capital gain distributions on the
reserved shares as you direct. Our policy of reserving shares does not apply to
certain retirement plans.

If you would like more information about the Letter of Intent privilege, please
see "How Do I Buy, Sell and Exchange Shares? - Letter of Intent" in the SAI or
call Shareholder Services.

GROUP PURCHASES - CLASS I ONLY. If you are a member of a qualified group, you
may buy Class I shares at a reduced sales charge that applies to the group as a
whole. The sales charge is based on the combined dollar value of the group
members' existing investments, plus the amount of the current purchase.

A qualified group is one that:

o Was formed at least six months ago,

o Has a purpose other than buying Fund shares at a discount,

o Has more than 10 members,

o Can arrange for meetings between our representatives and group members,

o Agrees to include Franklin Templeton Fund sales and other materials in
publications and mailings to its members at reduced or no cost to Distributors,

o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the Fund, and

o Meets other uniform criteria that allow Distributors to achieve cost savings
in distributing shares.

SALES CHARGE WAIVERS. The Fund's sales charges (front-end and contingent
deferred) will not apply to certain purchases. For waiver categories 1, 2 or 3
below: (i) the distributions or payments must be reinvested within 365 days of
their payment date, and (ii) Class II distributions may be reinvested in either
Class I or Class II shares. Class I distributions may only be reinvested in
Class I shares.

The Fund's sales charges will not apply if you are buying Class I shares with
money from the following sources or Class II shares with money from the sources
in waiver categories 1 or 4:

1. Dividend and capital gain distributions from any Franklin Templeton Fund or a
REIT sponsored or advised by Franklin Properties, Inc.

2. Distributions from an existing retirement plan invested in the Franklin
Templeton Funds

3. Annuity payments received under either an annuity option or from death
benefit proceeds, only if the annuity contract offers as an investment option
the Franklin Valuemark Funds, the Templeton Variable Annuity Fund, the Templeton
Variable Products Series Fund, or the Franklin Government Securities Trust. You
should contact your tax advisor for information on any tax consequences that may
apply.

4. Redemptions from any Franklin Templeton Fund if you:

o Originally paid a sales charge on the shares,

o Reinvest the money within 365 days of the redemption date, and

o Reinvest the money in the same class of shares.

An exchange is not considered a redemption for this privilege. The Contingent
Deferred Sales Charge will not be waived if the shares were subject to a
Contingent Deferred Sales Charge when sold. We will credit your account in
shares, at the current value, in proportion to the amount reinvested for any
Contingent Deferred Sales Charge paid in connection with the earlier redemption,
but a new Contingency Period will begin.

If you immediately placed your redemption proceeds in a Franklin Bank CD, you
may reinvest them as described above. The proceeds must be reinvested within 365
days from the date the CD matures, including any rollover.

5. Redemptions from other mutual funds

If you sold shares of a fund that is not a Franklin Templeton Fund within the
past 60 days, you may invest the proceeds without any sales charge if (a) the
investment objectives were similar to the Fund's, and (b) your shares in that
fund were subject to any front-end or contingent deferred sales charges at the
time of purchase. You must provide a copy of the statement showing your
redemption.

The Fund's sales charges will also not apply to Class I purchases by:

6. Trust companies and bank trust departments agreeing to invest in Franklin
Templeton Funds over a 13 month period at least $1 million of assets held in a
fiduciary, agency, advisory, custodial or similar capacity and over which the
trust companies and bank trust departments or other plan fiduciaries or
participants, in the case of certain retirement plans, have full or shared
investment discretion. We will accept orders for these accounts by mail
accompanied by a check or by telephone or other means of electronic data
transfer directly from the bank or trust company, with payment by federal funds
received by the close of business on the next business day following the order.

7. Group annuity separate accounts offered to retirement plans

9. An Eligible Governmental Authority. Please consult your legal and investment
advisors to determine if an investment in the Fund is permissible and suitable
for you and the effect, if any, of payments by the Fund on arbitrage rebate
calculations.

10. Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for clients
participating in comprehensive fee programs

11. Registered Securities Dealers and their affiliates, for their investment
accounts only

12. Current employees of Securities Dealers and their affiliates and their
family members, as allowed by the internal policies of their employer

13. Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family members,
consistent with our then-current policies

14. Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer

15. Accounts managed by the Franklin Templeton Group

16. Certain unit investment trusts and their holders reinvesting distributions
from the trusts

HOW DO I BUY SHARES IN CONNECTION WITH RETIREMENT PLANS?

Your individual or employer-sponsored retirement plan may invest in the Fund.
Plan documents are required for all retirement plans. Trust Company can provide
the plan documents for you and serve as custodian or trustee.

Trust Company can provide you with brochures containing important information
about its plans. To establish a Trust Company retirement plan, you will need an
application other than the one included in this prospectus. For a retirement
plan brochure or application, please call our Retirement Plans Department.

Please consult your legal, tax or retirement plan specialist before choosing a
retirement plan. Your investment representative or advisor can help you make
investment decisions within your plan.

OTHER PAYMENTS TO SECURITIES DEALERS

The payments described below may be made to Securities Dealers who initiate and
are responsible for Class II purchases and certain Class I purchases made
without a sales charge. The payments are subject to the sole discretion of
Distributors, and are paid by Distributors or one of its affiliates and not by
the Fund or its shareholders.

1. Class II purchases - up to 1% of the purchase price.

2. Class I purchases of $1 million or more - up to 0.75% of the purchase price.

3. Class I purchases by certain retirement plans - up to 1% of the purchase
price.

4. Class I purchases by trust companies and bank trust departments, Eligible
Governmental Authorities, and broker-dealers or others on behalf of clients
participating in comprehensive fee programs - up to 0.25% of the purchase price.

A Securities Dealer may only receive one of these payments for each qualifying
purchase. Securities Dealers who receive payments in connection with investments
described in paragraphs 1, 2 or 3 above will be eligible to receive the Rule
12b-1 fee associated with the purchase starting in the thirteenth calendar month
after the purchase.

FOR BREAKPOINTS THAT MAY APPLY AND INFORMATION ON ADDITIONAL COMPENSATION
PAYABLE TO SECURITIES DEALERS IN CONNECTION WITH THE SALE OF FUND SHARES, PLEASE
SEE "HOW DO I BUY, SELL AND EXCHANGE SHARES? - OTHER PAYMENTS TO SECURITIES
DEALERS" IN THE SAI.

MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?

We offer a wide variety of funds. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction.

If you own Class I shares, you may exchange into any of our money funds except
Franklin Templeton Money Fund II ("Money Fund II"). Money Fund II is the only
money fund exchange option available to Class II shareholders. Unlike our other
money funds, shares of Money Fund II may not be purchased directly and no drafts
(checks) may be written on Money Fund II accounts.

Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund, its investment objective
and policies, and its rules and requirements for exchanges. For example, some
Franklin Templeton Funds do not accept exchanges and others may have different
investment minimums. Some Franklin Templeton Funds do not offer Class II shares.

METHOD STEPS TO FOLLOW

BY MAIL 1. Send us written instructions signed by all account
owners

2. Include any outstanding share certificates for the shares
you're exchanging

BY PHONE Call Shareholder Services or TeleFACTS(R)

- If you do not want the ability to exchange by phone to apply
to your account, please let us know.

THROUGH YOUR DEALER Call your investment representative

Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.

WILL SALES CHARGES APPLY TO MY EXCHANGE?

You generally will not pay a front-end sales charge on exchanges. If you have
held your shares less than six months, however, you will pay the percentage
difference between the sales charge you previously paid and the applicable sales
charge of the new fund. If you have never paid a sales charge on your shares
because, for example, they have always been held in a money fund, you will pay
the Fund's applicable sales charge no matter how long you have held your shares.
These charges may not apply if you qualify to buy shares without a sales charge.

We will not impose a Contingent Deferred Sales Charge when you exchange shares.
Any shares subject to a Contingent Deferred Sales Charge at the time of
exchange, however, will remain so in the new fund. See the discussion on
Contingent Deferred Sales Charges below and under "How Do I Sell Shares?"

CONTINGENT DEFERRED SALES CHARGE - CLASS I. For accounts with Class I shares
subject to a Contingent Deferred Sales Charge, shares are exchanged into the new
fund in the order they were purchased. If you exchange Class I shares into one
of our money funds, the time your shares are held in that fund will not count
towards the completion of any Contingency Period.

CONTINGENT DEFERRED SALES CHARGE - CLASS II. For accounts with Class II shares
subject to a Contingent Deferred Sales Charge, shares are exchanged into the new
fund proportionately based on the amount of shares subject to a Contingent
Deferred Sales Charge and the length of time the shares have been held. For
example, suppose you own $1,000 in shares that have never been subject to a
Contingent Deferred Sales Charge, such as shares from the reinvestment of
dividends and capital gains ("free shares"), $2,000 in shares that are no longer
subject to a Contingent Deferred Sales Charge because you have held them for
longer than 18 months ("matured shares"), and $3,000 in shares that are still
subject to a Contingent Deferred Sales Charge ("CDSC liable shares"). If you
exchange $3,000 into a new fund, $500 will be exchanged from free shares, $1,000
from matured shares, and $1,500 from CDSC liable shares.

Likewise, CDSC liable shares purchased at different times will be exchanged into
a new fund proportionately. For example, assume you purchased $1,000 in shares 3
months ago, 6 months ago, and 9 months ago. If you exchange $1,500 into a new
fund, $500 will be exchanged from shares purchased at each of these three
different times.

While Class II shares are exchanged proportionately, they are redeemed in the
order purchased. In some cases, this means exchanged shares may be CDSC liable
even though they would not be subject to a Contingent Deferred Sales Charge if
they were sold. We believe the proportional method of exchanging Class II shares
more closely reflects the expectations of Class II shareholders if shares are
sold during the Contingency Period. The tax consequences of a sale or exchange
are determined by the Code and not by the method used by the Fund to transfer
shares.

If you exchange your Class II shares for shares of Money Fund II, the time your
shares are held in that fund will count towards the completion of any
Contingency Period.

EXCHANGE RESTRICTIONS

Please be aware that the following restrictions apply to exchanges:

o You may only exchange shares within the SAME CLASS, except as noted below.

o The accounts must be identically registered. You may, however, exchange shares
from a Fund account requiring two or more signatures into an identically
registered money fund account requiring only one signature for all transactions.
PLEASE NOTIFY US IN WRITING IF YOU DO NOT WANT THIS OPTION TO BE AVAILABLE ON
YOUR ACCOUNT. Additional procedures may apply. Please see "Transaction
Procedures and Special Requirements."

o Trust Company IRA or 403(b) retirement plan accounts may exchange shares as
described above. Restrictions may apply to other types of retirement plans.
Please contact our Retirement Plans Department for information on exchanges
within these plans.

o The fund you are exchanging into must be eligible for sale in your state.

o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.

o Your exchange may be restricted or refused if you: (i) request an exchange out
of the Fund within two weeks of an earlier exchange request, (ii) exchange
shares out of the Fund more than twice in a calendar quarter, or (iii) exchange
shares equal to at least $5 million, or more than 1% of the Fund's net assets.
Shares under common ownership or control are combined for these limits. If you
exchange shares as described in this paragraph, you will be considered a Market
Timer. Each exchange by a Market Timer, if accepted, will be charged $5.00. Some
of our funds do not allow investments by Market Timers.

Because excessive trading can hurt Fund performance and shareholders, we may
refuse any exchange purchase if (i) we believe the Fund would be harmed or
unable to invest effectively, or (ii) the Fund receives or anticipates
simultaneous orders that may significantly affect the Fund.

LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES

Certain funds in the Franklin Templeton Funds offer classes of shares not
offered by the Fund, such as "Class Z" shares. Beginning on or about May 1,
1997, you may exchange Class Z shares of Franklin Mutual Series Fund Inc. for
Class I shares of the Fund at Net Asset Value.

HOW DO I SELL SHARES?

You may sell (redeem) your shares at any time.

METHOD STEPS TO FOLLOW

BY MAIL 1. Send us written instructions signed by all account owners

2. Include any outstanding share certificates for the shares
you are selling

3. Provide a signature guarantee if required

4. Corporate, partnership and trust accounts may need to send
additional documents. Accounts under court jurisdiction may
have other requirements.

BY PHONE Call Shareholder Services

(Only available Telephone requests will be accepted:
if you have
completed and o If the request is $50,000 or less. Institutional
sent to us the accounts may exceed $50,000 by completing a separate
telephone redemption agreement. Call Institutional Services to receive a copy.
agreement included
with this o If there are no share certificates issued for the
prospectus) shares you want to sell or you have already returned them
to the Fund

o Unless you are selling shares in a Trust Company
retirement plan account

o Unless the address on your account was changed by phone
within the last 30 days

THROUGH YOUR DEALER Call your investment representative

Beginning on or about May 1, 1997, you will automatically be able to redeem
shares by telephone without completing a telephone redemption agreement. PLEASE
NOTIFY US IN WRITING IF YOU DO NOT WANT THIS OPTION TO BE AVAILABLE ON YOUR
ACCOUNT. If you later decide you would like this option, send us written
instructions signed by all account owners, with a signature guarantee.

We will send your redemption check within seven days after we receive your
request in proper form. If you sell your shares by phone, the check may only be
made payable to all registered owners on the account and sent to the address of
record. We are not able to receive or pay out cash in the form of currency.

If you sell shares you recently purchased with a check or draft, we may delay
sending you the proceeds for up to 15 days or more to allow the check or draft
to clear. A certified or cashier's check may clear in less time.

Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.

Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.

TRUST COMPANY RETIREMENT PLAN ACCOUNTS

To comply with IRS regulations, you need to complete additional forms before
selling shares in a Trust Company retirement plan account. Tax penalties
generally apply to any distribution from these plans to a participant under age
59 1/2, unless the distribution meets an exception stated in the Code. To obtain
the necessary forms, please call our Retirement Plans Department.

CONTINGENT DEFERRED SALES CHARGE

For Class I purchases, if you did not pay a front-end sales charge because you
invested $1 million or more or agreed to invest $1 million or more under a
Letter of Intent, a Contingent Deferred Sales Charge may apply if you sell all
or a part of your investment within the Contingency Period. Once you have
invested $1 million or more, any additional Class I investments you make without
a sales charge may also be subject to a Contingent Deferred Sales Charge if they
are sold within the Contingency Period. For any Class II purchase, a Contingent
Deferred Sales Charge may apply if you sell the shares within the Contingency
Period. The charge is 1% of the value of the shares sold or the Net Asset Value
at the time of purchase, whichever is less.

We will first redeem any shares in your account that are not subject to the
charge. If there are not enough of these to meet your request, we will redeem
shares subject to the charge in the order they were purchased.

Unless otherwise specified, when you request to sell a stated DOLLAR AMOUNT, we
will redeem additional shares to cover any Contingent Deferred Sales Charge. For
requests to sell a stated NUMBER OF SHARES, we will deduct the amount of the
Contingent Deferred Sales Charge, if any, from the sale proceeds.

WAIVERS. We waive the Contingent Deferred Sales Charge for:

o Exchanges

o Account fees

o Sales of shares purchased pursuant to a sales charge waiver

o Redemptions by the Fund when an account falls below the minimum required
account size

o Redemptions following the death of the shareholder or beneficial owner

o Redemptions through a systematic withdrawal plan set up before February 1,
1995

o Redemptions through a systematic withdrawal plan set up on or after February
1, 1995, up to 1% a month of an account's Net Asset Value (3% quarterly, 6%
semiannually or 12% annually). For example, if you maintain an annual balance of
$1 million in Class I shares, you can withdraw up to $120,000 annually through a
systematic withdrawal plan free of charge. Likewise, if you maintain an annual
balance of $10,000 in Class II shares, $1,200 may be withdrawn annually free of
charge.

o Distributions from individual retirement plan accounts due to death or
disability or upon periodic distributions based on life expectancy

o Tax-free returns of excess contributions from employee benefit plans

o Distributions from employee benefit plans, including those due to termination
or plan transfer

WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?

The Fund declares dividends from its net investment income monthly to
shareholders of record on the first business day before the 15th of the month
and pays them on or about the last day of that month.

Capital gains, if any, may be distributed annually, usually in December.

Dividends and capital gains are calculated and distributed the same way for each
class. The amount of any income dividends per share will differ, however,
generally due to the difference in the Rule 12b-1 fees of Class I and Class II.

Dividend payments are not guaranteed, are subject to the Board's discretion and
may vary with each payment. THE FUND DOES NOT PAY "INTEREST" OR GUARANTEE ANY
FIXED RATE OF RETURN ON AN INVESTMENT IN ITS SHARES.

If you buy shares shortly before the record date, please keep in mind that any
distribution will lower the value of the Fund's shares by the amount of the
distribution and you will then receive a portion of the price you paid back in
the form of a taxable distribution.

DISTRIBUTION OPTIONS

You may receive your distributions from the Fund in any of these ways:

1. BUY ADDITIONAL SHARES OF THE FUND - You may buy additional shares of the same
class of the Fund (without a sales charge or imposition of a Contingent Deferred
Sales Charge) by reinvesting capital gain distributions, or both dividend and
capital gain distributions. If you own Class II shares, you may also reinvest
your distributions in Class I shares of the Fund. This is a convenient way to
accumulate additional shares and maintain or increase your earnings base.

2. BUY SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
distributions to buy the same class of shares of another Franklin Templeton Fund
(without a sales charge or imposition of a Contingent Deferred Sales Charge). If
you own Class II shares, you may also direct your distributions to buy Class I
shares of another Franklin Templeton Fund. Many shareholders find this a
convenient way to diversify their investments.

3. RECEIVE DISTRIBUTIONS IN CASH - You may receive dividends, or both dividend
and capital gain distributions in cash. If you have the money sent to another
person or to a checking account, you may need a signature guarantee. If you send
the money to a checking account, please see "Electronic Fund Transfers" under
"Services to Help You Manage Your Account."

TO SELECT ONE OF THESE OPTIONS, PLEASE COMPLETE SECTIONS 6 AND 7 OF THE
SHAREHOLDER APPLICATION INCLUDED WITH THIS PROSPECTUS OR TELL YOUR INVESTMENT
REPRESENTATIVE WHICH OPTION YOU PREFER. IF YOU DO NOT SELECT AN OPTION, WE WILL
AUTOMATICALLY REINVEST DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS IN THE SAME CLASS
OF THE FUND. For Trust Company retirement plans, special forms are required to
receive distributions in cash. You may change your distribution option at any
time by notifying us by mail or phone. Please allow at least seven days before
the record date for us to process the new option.

TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS

HOW AND WHEN SHARES ARE PRICED

The Fund is open for business each day the NYSE is open. We determine the Net
Asset Value per share of each class as of the scheduled close of the NYSE,
generally 1:00 p.m. Pacific time. You can find the prior day's closing Net Asset
Value and Offering Price for each class in many newspapers.

The Net Asset Value of all outstanding shares of each class is calculated on a
pro rata basis. It is based on each class' proportionate participation in the
Fund, determined by the value of the shares of each class. Each class, however,
bears the Rule 12b-1 fees payable under its Rule 12b-1 plan. To calculate Net
Asset Value per share of each class, the assets of each class are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares of the class outstanding. The Fund's assets are
valued as described under "How are Fund Shares Valued?" in the SAI.

THE PRICE WE USE WHEN YOU BUY OR SELL SHARES

You buy shares at the Offering Price of the class you wish to purchase, unless
you qualify to buy shares at a reduced sales charge or with no sales charge. The
Offering Price of each class is based on the Net Asset Value per share of the
class and includes the maximum sales charge. We calculate it to two decimal
places using standard rounding criteria. You sell shares at Net Asset Value.

The Net Asset Value we use when you buy or sell shares is the one next
calculated after we receive your transaction request in proper form. If you buy
or sell shares through your Securities Dealer, however, we will use the Net
Asset Value next calculated after your Securities Dealer receives your request,
which is promptly transmitted to the Fund. Your redemption proceeds will not
earn interest between the time we receive the order from your dealer and the
time we receive any required documents.

PROPER FORM

An order to buy shares is in proper form when we receive your signed shareholder
application and check. Written requests to sell or exchange shares are in proper
form when we receive written instructions signed by ALL registered owners, with
a signature guarantee if necessary. We must also receive any outstanding share
certificates for those shares.

WRITTEN INSTRUCTIONS

Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:

o Your name,

o The Fund's name,

o The class of shares,

o A description of the request,

o For exchanges, the name of the fund you're exchanging into,

o Your account number,

o The dollar amount or number of shares, and

o A telephone number where we may reach you during the day, or in the evening if
preferred.

SIGNATURE GUARANTEES

For our mutual protection, we require a signature guarantee in the following
situations:

1) You wish to sell over $50,000 worth of shares,

2) You want the proceeds to be paid to someone other than the registered owners,

3) The proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account,

4) We receive instructions from an agent, not the registered owners,

5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.

A signature guarantee verifies the authenticity of your signature and may be
obtained from certain banks, brokers or other eligible guarantors. YOU SHOULD
VERIFY THAT THE INSTITUTION IS AN ELIGIBLE GUARANTOR BEFORE SIGNING. A NOTARIZED
SIGNATURE IS NOT SUFFICIENT.

SHARE CERTIFICATES

We will credit your shares to your Fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate is
lost, stolen or destroyed, you may have to pay an insurance premium of up to 2%
of the value of the certificate to replace it.

Any outstanding share certificates must be returned to the Fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form. In this case, you should send the certificate and assignment
form in separate envelopes.

TELEPHONE TRANSACTIONS

You may initiate many transactions by phone. Please refer to the sections of
this prospectus that discuss the transaction you would like to make or call
Shareholder Services.

When you call, we will request personal or other identifying information to
confirm that instructions are genuine. We will also record calls. We will not be
liable for following instructions communicated by telephone if we reasonably
believe they are genuine. For your protection, we may delay a transaction or not
implement one if we are not reasonably satisfied that the instructions are
genuine. If this occurs, we will not be liable for any loss.

If our lines are busy or you are otherwise unable to reach us by phone, you may
wish to ask your investment representative for assistance or send us written
instructions, as described elsewhere in this prospectus. If you are unable to
execute a transaction by telephone, we will not be liable for any loss.

TRUST COMPANY RETIREMENT PLAN ACCOUNTS. We cannot accept instructions to sell
shares or change distribution options on Trust Company retirement plans by
phone. While you may exchange shares of Trust Company IRA and 403(b) retirement
accounts by phone, certain restrictions may be imposed on other retirement
plans.

To obtain any required forms or more information about distribution or transfer
procedures, please call our Retirement Plans Department.

ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS

When you open an account, we need you to tell us how you want your shares
registered. How you register your account will affect your ownership rights and
ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.

JOINT OWNERSHIP. If you open an account with two or more owners, we register the
account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of survivorship"
is shown as "Jt Ten" on your account statement. For any account with two or more
owners, all owners must sign instructions to process transactions and changes to
the account. Even if the law in your state says otherwise, we cannot accept
instructions to change owners on the account unless all owners agree in writing.
If you would like another person or owner to sign for you, please send us a
current power of attorney.

GIFTS AND TRANSFERS TO MINORS. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this form
of registration, a minor may not be named as an account owner.

TRUSTS. You should register your account as a trust only if you have a valid
written trust document. This avoids future disputes or possible court action
over who owns the account.

REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please send
us the following documents when you open your account. This will help avoid
delays in processing your transactions while we verify who may sign on the
account.

TYPE OF ACCOUNT DOCUMENTS REQUIRED

CORPORATION Corporate Resolution

PARTNERSHIP 1. The pages from the partnership agreement that identify
the general partners, or

2. A certification for a partnership agreement

TRUST 1. The pages from the trust document that identify the
trustees, or

2. A certification for trust

STREET OR NOMINEE ACCOUNTS. If you have Fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the shares
to the street or nominee name account of another Securities Dealer. Both dealers
must have an agreement with Distributors or we cannot process the transfer.
Contact your Securities Dealer to initiate the transfer. We will process the
transfer after we receive authorization in proper form from your delivering
Securities Dealer. Accounts may be transferred electronically through the NSCC.
For accounts registered in street or nominee name, we may take instructions
directly from the Securities Dealer or your nominee.

ELECTRONIC INSTRUCTIONS. If there is a Securities Dealer or other representative
of record on your account, we are authorized to use and execute electronic
instructions. We will accept electronic instructions directly from your dealer
or representative without further inquiry. Electronic instructions may be
processed through the services of the NSCC, which currently include the NSCC's
"Networking," "Fund/SERV," and "ACATS" systems, or through Franklin/Templeton's
PCTrades II(TM) System.

TAX IDENTIFICATION NUMBER

The IRS requires us to have your correct Social Security or tax identification
number on a signed shareholder application or applicable tax form. Federal law
requires us to withhold 31% of your taxable distributions and sale proceeds if
(i) you have not furnished a certified correct taxpayer identification number,
(ii) you have not certified that withholding does not apply, (iii) the IRS or a
Securities Dealer notifies the Fund that the number you gave us is incorrect, or
(iv) you are subject to backup withholding.

We may refuse to open an account if you fail to provide the required tax
identification number and certifications. We may also close your account if the
IRS notifies us that your tax identification number is incorrect. If you
complete an "awaiting TIN" certification, we must receive a correct tax
identification number within 60 days of your initial purchase to keep your
account open.

KEEPING YOUR ACCOUNT OPEN

Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $50. We will only do this
if the value of your account fell below this amount because you voluntarily sold
your shares and your account has been inactive (except for the reinvestment of
distributions) for at least six months. Before we close your account, we will
notify you and give you 30 days to increase the value of your account to $100.

SERVICES TO HELP YOU MANAGE YOUR ACCOUNT

AUTOMATIC INVESTMENT PLAN

Our automatic investment plan offers a convenient way to invest in the Fund.
Under the plan, you can have money transferred automatically from your checking
account to the Fund each month to buy additional shares. If you are interested
in this program, please refer to the automatic investment plan application
included with this prospectus or contact your investment representative. The
market value of the Fund's shares may fluctuate and a systematic investment plan
such as this will not assure a profit or protect against a loss. You may
discontinue the program at any time by notifying Investor Services by mail or
phone.

AUTOMATIC PAYROLL DEDUCTION - CLASS I ONLY

You may have money transferred from your paycheck to the Fund to buy additional
Class I shares. Your investments will continue automatically until you instruct
the Fund and your employer to discontinue the plan. To process your investment,
we must receive both the check and payroll deduction information in required
form. Due to different procedures used by employers to handle payroll
deductions, there may be a delay between the time of the payroll deduction and
the time we receive the money.

SYSTEMATIC WITHDRAWAL PLAN

Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or annual
basis. The value of your account must be at least $5,000 and the minimum payment
amount for each withdrawal must be at least $50. For retirement plans subject to
mandatory distribution requirements, the $50 minimum will not apply.

If you would like to establish a systematic withdrawal plan, please complete the
systematic withdrawal plan section of the shareholder application included with
this prospectus and indicate how you would like to receive your payments. You
may choose to direct your payments to buy the same class of shares of another
Franklin Templeton Fund or have the money sent directly to you, to another
person, or to a checking account. If you choose to have the money sent to a
checking account, please see "Electronic Fund Transfers" below.

You will generally receive your payment by the end of the month in which a
payment is scheduled. When you sell your shares under a systematic withdrawal
plan, it is a taxable transaction.

To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if you
plan to buy shares on a regular basis. Shares sold under the plan may also be
subject to a Contingent Deferred Sales Charge. Please see "Contingent Deferred
Sales Charge" under "How Do I Sell Shares?"

You may discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying us in writing at
least seven business days before the end of the month preceding a scheduled
payment. Please see "How Do I Buy, Sell and Exchange Shares? - Systematic
Withdrawal Plan" in the SAI for more information.

ELECTRONIC FUND TRANSFERS - CLASS I ONLY

You may choose to have dividend and capital gain distributions from Class I
shares of the Fund or payments under a systematic withdrawal plan sent directly
to a checking account. If the checking account is with a bank that is a member
of the Automated Clearing House, the payments may be made automatically by
electronic funds transfer. If you choose this option, please allow at least
fifteen days for initial processing. We will send any payments made during that
time to the address of record on your account.

TELEFACTS(R)

From a touch-tone phone, you may call our TeleFACTS system (day or night) at
1-800/247-1753 to:

o obtain information about your account;

o obtain price and performance information about any Franklin Templeton Fund;

o exchange shares between identically registered Franklin accounts; and

o request duplicate statements and deposit slips for Franklin accounts.

You will need the code number for each class to use TeleFACTS. The code number
is 135 for Class I and 235 for Class II.

STATEMENTS AND REPORTS TO SHAREHOLDERS

We will send you the following statements and reports on a regular basis:

o Confirmation and account statements reflecting transactions in your account,
including additional purchases and dividend reinvestments. PLEASE VERIFY THE
ACCURACY OF YOUR STATEMENTS WHEN YOU RECEIVE THEM.

o Financial reports of the Fund will be sent every six months. To reduce Fund
expenses, we attempt to identify related shareholders within a household and
send only one copy of a report. Call Fund Information if you would like an
additional free copy of the Fund's financial reports or an interim quarterly
report.

INSTITUTIONAL ACCOUNTS

Additional methods of buying, selling or exchanging shares of the Fund may be
available to institutional accounts. Institutional investors may also be
required to complete an institutional account application. For more information,
call Institutional Services.

AVAILABILITY OF THESE SERVICES

The services above are available to most shareholders. If, however, your shares
are held by a financial institution, in a street name account, or networked
through the NSCC, the Fund may not be able to offer these services directly to
you. Please contact your investment representative.

WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?

If you have any questions about your account, you may write to Investor Services
at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California 94403-7777.
The Fund, Distributors and Advisers are also located at this address. TICI is
located at Broward Financial Centre, Suite 2100, Fort Lauderdale, Florida
33394-3091. You may also contact us by phone at one of the numbers listed below.

HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)

Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)
Retirement Plans 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.

Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.

GLOSSARY

USEFUL TERMS AND DEFINITIONS

1940 ACT - Investment Company Act of 1940, as amended

ADVISERS - Franklin Advisers, Inc., the Fund's investment manager

BOARD - The Board of Trustees of the Trust

CD - Certificate of deposit

CLASS I, CLASS II AND ADVISOR CLASS - The Fund offers three classes of shares,
designated "Class I," "Class II" and "Advisor Class." The three classes have
proportionate interests in the Fund's portfolio. They differ, however, primarily
in their sales charge and expense structures.

CODE - Internal Revenue Code of 1986, as amended

CONTINGENCY PERIOD - For Class I shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. For Class II shares, the contingency
period is 18 months. Regardless of when during the month you purchased shares,
they will age one month on the last day of that month and each following month.

CONTINGENT DEFERRED SALES CHARGE (CDSC) - A sales charge of 1% that may apply if
you sell your shares within the Contingency Period.

DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Trustees."

ELIGIBLE GOVERNMENTAL AUTHORITY - Any state or local government or any
instrumentality, department, authority or agency thereof that has determined the
Fund is a legally permissible investment and that can only buy shares of the
Fund without paying sales charges.

FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Franklin Government Securities Trust, Templeton Capital Accumulator Fund,
Inc., Templeton Variable Annuity Fund, and Templeton Variable Products Series
Fund

FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries

FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds

FT SERVICES - Franklin Templeton Services, Inc., the Fund's administrator

INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent

IRS - Internal Revenue Service

LETTER - Letter of Intent

MARKET TIMERS - Market Timers generally include market timing or allocation
services, accounts administered so as to buy, sell or exchange shares based on
predetermined market indicators, or any person or group whose transactions seem
to follow a timing pattern.

MOODY'S - Moody's Investors Service, Inc.

NASD - National Association of Securities Dealers, Inc.

NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.

NSCC - National Securities Clearing Corporation

NYSE - New York Stock Exchange

OFFERING PRICE - The public offering price is based on the Net Asset Value per
share of the class and includes the front-end sales charge. The maximum
front-end sales charge is 4.25% for Class I and 1% for Class II.

QUALIFIED RETIREMENT PLANS - An employer sponsored pension or profit-sharing
plan that qualifies under section 401 of the Code. Examples include 401(k),
money purchase pension, profit sharing and defined benefit plans.

REIT - Real Estate Investment Trust

RESOURCES - Franklin Resources, Inc.

SAI - Statement of Additional Information

S&P - Standard & Poor's Corporation

SEC - U.S. Securities and Exchange Commission

SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.

SEP - An employer sponsored simplified employee pension plan established under
section 408(k) of the Code

TELEFACTS(R) - Franklin Templeton's automated customer servicing system

TICI - Templeton Investment Counsel, Inc., the Fund's sub-advisor

TRUST COMPANY - Franklin Templeton Trust Company. Trust Company is an affiliate
of Distributors and both are wholly owned subsidiaries of Resources.

U.S. - United States

WE/OUR/US - Unless the context indicates a different meaning, these terms refer
to the Fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.

APPENDIX

DESCRIPTION OF RATINGS

CORPORATE BOND RATINGS

MOODY'S

AAA - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

AA - Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large, fluctuation of protective elements may be of greater amplitude, or
there may be other elements present which make the long-term risks appear
somewhat larger.

A - Bonds rated A possess many favorable investment attributes and are
considered upper medium grade obligations. Factors giving security to principal
and interest are considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.

BAA - Bonds rated Baa are considered medium grade obligations. They are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.

BA - Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of interest
and principal payments is very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.

B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.

CAA - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.

CA - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.

C - Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.

Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.

S&P

AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.

AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in small degree.

A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.

BB, B, CCC, CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

C - Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating may also reflect the
filing of a bankruptcy petition under circumstances where debt service payments
are continuing. The C1 rating is reserved for income bonds on which no interest
is being paid.

D - Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.

PROSPECTUS & APPLICATION

FRANKLIN SHORT-
INTERMEDIATE
U.S. GOVERNMENT
SECURITIES FUND

INVESTMENT STRATEGY

INCOME

MARCH 1, 1997

FRANKLIN INVESTORS SECURITIES TRUST

This prospectus describes the Class I shares of the Franklin Short-Intermediate
U.S. Government Securities Fund (the "Fund"). It contains information you should
know before investing in the Fund. Please keep it for future reference.

The Fund has a Statement of Additional Information ("SAI") for its Class I
shares, dated March 1, 1997, which may be amended from time to time. It includes
more information about the Fund's procedures and policies. It has been filed
with the SEC and is incorporated by reference into this prospectus. For a free
copy or a larger print version of this prospectus, call 1-800/DIAL BEN or write
the Fund at the address shown.

FRANKLIN SHORT-
INTERMEDIATE
U.S. GOVERNMENT
SECURITIES FUND

MARCH 1, 1997

WHEN READING THIS PROSPECTUS, YOU WILL SEE TERMS THAT ARE CAPITALIZED. THIS
MEANS THE TERM IS EXPLAINED IN OUR GLOSSARY SECTION.

TABLE OF CONTENTS

ABOUT THE FUND

Expense Summary.............................. 2
Financial Highlights......................... 3
How does the Fund Invest its Assets?......... 6
What are the Fund's Potential Risks?......... 9
Who Manages the Fund?........................ 9
How does the Fund Measure Performance?....... 11
How Taxation Affects the
Fund and its Shareholders................... 12
How is the Trust Organized?.................. 13

ABOUT YOUR ACCOUNT

How Do I Buy Shares?......................... 14
May I Exchange Shares
for Shares of Another Fund?................. 19
How Do I Sell Shares?........................ 21
What Distributions
Might I Receive from the Fund?.............. 23
Transaction Procedures
and Special Requirements.................... 24
Services to Help You Manage Your Account..... 29
What If I Have Questions About My Account?... 31

GLOSSARY

Useful Terms and Definitions................. 32

777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777
1-800/DIAL BEN

ABOUT THE FUND

EXPENSE SUMMARY

This table is designed to help you understand the costs of investing in the
Fund. It is based on the Fund's historical expenses for the fiscal year ended
October 31, 1996. The Fund's actual expenses may vary.

A. SHAREHOLDER TRANSACTION EXPENSES+

Maximum Sales Charge Imposed on Purchases
(as a percentage of Offering Price).......... 2.25%++
Deferred Sales Charge......................... None+++
Exchange Fee (per transaction)................ $5.00*

B. ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

Management Fees.............................. 0.56%
Rule 12b-1 Fees.............................. 0.08%**
Other Expenses............................... 0.10%
-----
Total Fund Operating Expenses................ 0.74%
=====

C. EXAMPLE

Assume the Fund's annual return is 5%, operating expenses are as described
above, and you sell your shares after the number of years shown. These are the
projected expenses for each $1,000 that you invest in the Fund.

1 YEAR 3 YEARS 5 YEARS 10 YEARS

$30*** $46 $63 $112

THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. The
Fund pays its operating expenses. The effects of these expenses are reflected in
its Net Asset Value or dividends and are not directly charged to your account.

+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.

++There is no front-end sales charge if you invest $1 million or more.

+++A Contingent Deferred Sales Charge of 1% may apply to purchases of $1 million
or more if you sell the shares within one year. See "How Do I Sell Shares? -
Contingent Deferred Sales Charge" for details.

*$5.00 fee is only for Market Timers. We process all other exchanges without a
fee.

**These fees may not exceed 0.10%. The combination of front-end sales charges
and Rule 12b-1 fees could cause long-term shareholders to pay more than the
economic equivalent of the maximum front-end sales charge permitted under the
NASD's rules.

***Assumes a Contingent Deferred Sales Charge will not apply.

FINANCIAL HIGHLIGHTS

FOR THE YEAR ENDED OCTOBER 31, FOR THE YEAR ENDED JANUARY 31,

1996 1995 1994 19932 1993 1992 1991 1990 1989 19881
-----------------------------------------------------------------------------------------------------

PER SHARE OPERATING PERFORMANCE+

Net Asset Value at
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of Period $10.35 $10.03 $10.80 $10.57 $10.39 $10.30 $10.16 $10.12 $10.38 $10.00

Net Investment Income 0.58 0.56 0.49 0.38 0.57 0.58 0.76 0.78 0.78 0.64

Net Realized &
Unrealized Gains
(Losses) on Securities (0.080) 0.309 (0.696) 0.245 0.432 0.374 0.248 0.097 (0.300) 0.045

Total From
Investment Operations (0.500 .869 (.206) .625 1.002 .954 1.008 .877 .480 .685

Distributions From
Net Investment Income (0.570) (.549) (.472) (.390) (.565) (.786) (.864) (.837) (.740) (.305)

Distributions
From Capital Gains - - (.092) (.005) (.257) (.078) (.004) - - -

Total Distributions (0.570) (.549) (.564) (.395) (.822) (.864) (.868) (.837) (.740) (.305)

Net Asset Value
at End of Period $10.28 $10.35 $10.03 $10.80 $10.57 $10.39 $10.30 $10.16 $10.12 $10.38

Total Return++ 4.97% 8.90% (1.99)% 5.90% 10.01% 9.44% 10.19% 8.78% 4.63% 6.33%

RATIOS/SUPPLEMENTAL DATA

Net Assets at End
of Period (in 000's) $196,042 $208,057 $225,352 $273,678 $235,382 $163,690 $48,981 $30,996 $29,150 $20,636

Ratio of Expenses
to Average Net Assets** 0.74% 0.73% 0.65% 0.55%* 0.56% 0.71% 0.48% 0.27% 0.25% 0.14%*

Ratio of Net
Investment Income
to Average Net Assets 5.64% 5.42% 4.75% 4.75%* 5.40% 5.90% 7.56% 7.60% 7.72% 6.5%*

Portfolio Turnover Rate 72.62% 56.34% 99.09% 31.71% 78.96% 102.05% 71.44% 151.36% 111.75% 13.14%*

</TABLE>

1For the period April 15, 1987 (effective date of registration) to January 31,
1988.

2For the nine months ended October 31, resulting from a change in fiscal year
end from January 31.

+Selected data for a share of beneficial interest outstanding throughout the
period.

*Annualized.

**During the periods indicated, Advisers agreed in advance to limit its
management fees and to make certain payments to reduce expenses of the Fund. Had
such action not been taken, the ratios of operating expenses to average net
assets would have been as follows:

Ratio of Expenses
TO AVERAGE NET ASSETS

19881 0.81%*
1989 0.79%
1990 0.77%
1991 0.74%
1993 0.65%
19932 0.63%*
1994 0.68%

HOW DOES THE FUND INVEST ITS ASSETS?

THE FUND'S INVESTMENT OBJECTIVE

The Fund's investment objective is to provide as high a level of current income
as is consistent with prudent investing while seeking preservation of
shareholder's capital. The objective is a fundamental policy of the Fund and may
not be changed without shareholder approval. Of course, there is no assurance
that the Fund's objective will be achieved.

TYPES OF SECURITIES IN WHICH THE FUND MAY INVEST

The Fund intends to invest up to 100% of its net assets in U.S. government
securities. As a fundamental policy of the Fund, the Fund must invest at least
65% of its net assets in U.S. government securities. SEC guidelines require at
least 65% of the Fund's total assets be invested in U.S. government securities
and the Fund will follow that policy notwithstanding its fundamental policy. It
is the investment policy of the Fund (which may be changed upon notice to
shareholders) to maintain the average dollar weighted maturity of its portfolio
in a range of two to five years. Within this range, the Fund intends to
emphasize an average weighted maturity of 3 1/2 years or less.

The Fund may invest in obligations either issued or guaranteed by the U.S.
government and its agencies or instrumentalities including, but not limited to:
direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes and
bonds; and obligations of U.S. government agencies or instrumentalities such as
Federal Home Loan Banks, Federal National Mortgage Association, Government
National Mortgage Association, Banks for Cooperatives (including Central Bank
for Cooperatives), Federal Land Banks, Federal Intermediate Credit Banks,
Tennessee Valley Authority, Export-Import Bank of the United States, Commodity
Credit Corporation, Federal Financing Bank, Student Loan Marketing Association,
Federal Home Loan Mortgage Corporation or National Credit Union Administration.

Since inception, the assets of the Fund have been invested solely in direct
obligations of the U.S. Treasury and in repurchase agreements collateralized by
U.S. Treasury obligations. The level of income achieved by the Fund may not be
as high as that of other funds which invest in lower quality, longer-term
securities.

Certain of the U.S. government securities that the Fund may invest in may be
purchased at a discount. These securities, when held to maturity or retired, may
include an element of capital gain. The Fund does not intend to hold securities
for the purpose of achieving capital gains, but will generally hold them as long
as current yields on these securities remain attractive. Capital losses may be
realized when securities purchased at a premium are held to maturity or are
called or redeemed at a price lower than their purchase price. Capital gains or
losses may also be realized upon the sale of securities.

ZERO COUPON BONDS. The Fund may, consistent with its other policies, invest in
zero coupon bonds issued or guaranteed by the U.S. government, its agencies or
instrumentalities. Zero coupon bonds are debt obligations which are issued at a
significant discount from face value. The original discount approximates the
total amount of interest the bonds will accrue and compounds over the period
until maturity or the first interest accrual date at a rate of interest
reflecting the market rate of the security at the time of issuance. A zero
coupon security pays no interest to its holder during its life and its value
(above its cost to the Fund) consists of the difference between its face value
at maturity and its cost. These investments experience greater volatility in
market value due to changes in interest rates than debt obligations that provide
for regular payments of interest. The Fund will accrue income on such
investments for tax and accounting purposes, as required, which is distributable
to shareholders and which, because no cash is received at the time of accrual,
may require the liquidation of other portfolio securities to satisfy the Fund's
distribution obligations.

ANNUALLY. Their principal value is adjusted for inflation, as measured by the
Consumer Price Index. Their interest payments are calculated at a fixed
percentage rate of the inflation-adjusted principal value as of the payment
date.

OTHER INVESTMENT POLICIES OF THE FUND

When-Issued and Delayed Delivery Transactions. The Fund may buy obligations on a
"when-issued" or "delayed delivery" basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time, generally within two weeks. Purchases of securities on a
when-issued or delayed delivery basis are subject to market fluctuation and the
risk that the value or yields at delivery may be more or less than the purchase
price or the yields available when the transaction was entered into. Although
the Fund will generally buy securities on a when-issued basis with the intention
of acquiring the securities, it may sell the securities before the settlement
date if it is deemed advisable. When the Fund is the buyer in such a
transaction, it will maintain, in a segregated account with its custodian bank,
cash or high-grade marketable securities having an aggregate value equal to the
amount of such purchase commitments until payment is made. To the extent the
Fund engages in when-issued and delayed delivery transactions, it will do so
only for the purpose of acquiring portfolio securities consistent with the
Fund's investment objective and policies, and not for the purpose of investment
leverage. In when-issued and delayed delivery transactions, the Fund relies on
the seller to complete the transaction. The other party's failure may cause the
Fund to miss a price or yield considered advantageous. Securities purchased on a
when-issued or delayed delivery basis do not generally earn interest until their
scheduled delivery date. The Fund is not subject to any percentage limit on the
amount of its assets which may be invested in when-issued purchase obligations.

CONCENTRATION. The Fund will not invest more than 25% of the value of its total
assets in any one particular industry.

BORROWING. The Fund does not borrow money or mortgage or pledge any of its
assets, except that it may borrow from banks for temporary or emergency purposes
up to 5% of its total assets and pledge up to 5% of its total assets in
connection therewith.

LOANS OF PORTFOLIO SECURITIES. Consistent with procedures approved by the Board
and subject to the following conditions, the Fund may lend its portfolio
securities to qualified securities dealers or other institutional investors,
provided that such loans do not exceed 10% of the value of the Fund's total
assets at the time of the most recent loan. The borrower must deposit with the
Fund's custodian bank collateral with an initial market value of at least 102%
of the initial market value of the securities loaned, including any accrued
interest, with the value of the collateral and loaned securities
marked-to-market daily to maintain collateral coverage of at least 102%. This
collateral shall consist of cash. The lending of securities is a common practice
in the securities industry. The Fund may engage in security loan arrangements
with the primary objective of increasing the Fund's income either through
investing the cash collateral in short-term interest bearing obligations or by
receiving a loan premium from the borrower. Under the securities loan agreement,
the Fund continues to be entitled to all dividends or interest on any loaned
securities. As with any extension of credit, there are risks of delay in
recovery and loss of rights in the collateral should the borrower of the
security fail financially.

The foregoing permissible investments and practices are subject to the
fundamental policy of the Fund, which can only be changed with shareholder
approval, that the Fund will only purchase securities and engage in trading
practices that are permitted, without limitation, to national banks, federal
savings and loan associations and federal credit unions. Please see the SAI for
more details on the Fund's policies regarding eligible federal credit union
investments.

WHAT ARE THE FUND'S POTENTIAL RISKS?

INTEREST RATE RISK. Changes in interest rates will affect the value of the
Fund's portfolio and its share price. Rising interest rates, which often occur
during times of inflation or a growing economy, are likely to have a negative
effect on the value of the Fund's shares. Interest rates have increased and
decreased in the past. These changes are unpredictable and may happen again in
the future.

WHO MANAGES THE FUND?

MANAGEMENT TEAM. The team responsible for the day-to-day management of the
Fund's portfolio since its inception is: Jack Lemein, David Capurro and Tom
Runkel.

Jack Lemein
Senior Vice President of Advisers

Mr. Lemein holds a Bachelor of Science degree in finance from the University of
Illinois. He has been in the securities industry since 1967 and with the
Franklin Templeton Group since 1984. He is a member of several securities
industry-related associations.

David Capurro
Vice President of Advisers

Mr. Capurro holds a Master of Business Administration degree and a Bachelor of
Science degree in business administration from California State University at
Hayward. Mr. Capurro has been with the Franklin Templeton Group since 1985.

Tom Runkel
Vice President of Advisers

Mr. Runkel is a Chartered Financial Analyst and holds a Master of Business
Administration degree from the University of Santa Clara. He earned his Bachelor
of Arts degree in political science from the University of California at Davis.
Mr. Runkel has been with the Franklin Templeton Group since 1985. He is a member
of several securities industry-related committees and associations.

MANAGEMENT FEES. During the fiscal year ended October 31, 1996 management fees
totaling 0.56% of the average daily net assets of the Fund were paid to
Advisers. Total expenses of the Fund, including fees paid to Advisers, were
0.74%.

PORTFOLIO TRANSACTIONS. Advisers tries to obtain the best execution on all
transactions. If Advisers believes more than one broker or dealer can provide
the best execution, consistent with internal policies, it may consider research
and related services and the sale of Fund shares, as well as shares of other
funds in the Franklin Templeton Group of Funds, when selecting a broker or
dealer. Please see "How does the Fund Buy Securities for its Portfolio?" in the
SAI for more information.

THE RULE 12B-1 PLAN

The Fund has a distribution plan or "Rule 12b-1 Plan" for its Class I shares
under which it may reimburse Distributors or others for activities primarily
intended to sell shares of the class. These expenses may include, among others,
distribution or service fees paid to Securities Dealers or others who have
executed a servicing agreement with the Fund, Distributors or its affiliates,
printing prospectuses and reports used for sales purposes, preparing and
distributing sales literature and advertisements, and a prorated portion of
Distributors' overhead expenses.

Payments by the Fund under the plan may not exceed 0.10% per year of Class I's
average daily net assets. All distribution expenses over this amount will be
borne by those who have incurred them. During the first year after certain
purchases made without a sales charge, Distributors may keep the Rule 12b-1 fees
associated with the purchase. For more information, please see "The Fund's
Underwriter" in the SAI.

HOW DOES THE FUND MEASURE PERFORMANCE?

From time to time, the Fund advertises its performance. The more commonly used
measures of performance are total return, current yield and current distribution
rate. Performance figures are usually calculated using the maximum sales charge,
but certain figures may not include the sales charge.

Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested. Current yield shows the
income per share earned by the Fund. The current distribution rate shows the
dividends or distributions paid to shareholders by the Fund. This rate is
usually computed by annualizing the dividends paid per share during a certain
period and dividing that amount by the current Offering Price. Unlike current
yield, the current distribution rate may include income distributions from
sources other than dividends and interest received by the Fund.

The Fund's investment results will vary. Performance figures are always based on
past performance and do not guarantee future results. For a more detailed
description of how the Fund calculates its performance figures, please see "How
does the Fund Measure Performance?" in the SAI.

The Fund also offers another share class and, from time to time, will advertise
its performance in a manner described in the prospectus for that class.

HOW TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS

Each fund of the Trust is treated as a separate entity for federal income tax
purposes. The Fund has elected and intends to continue to qualify as a regulated
investment company under Subchapter M of the Code. By distributing all of its
income and meeting certain other requirements relating to the sources of its
income and diversification of its assets, the Fund will not be liable for
federal income or excise taxes.

Distributions derived from the excess of net long-term capital gain over net
short-term capital loss are treated as long-term capital gain regardless of the
length of time you have owned Fund shares and regardless of whether the
distributions are received in cash or in additional shares.

Pursuant to the Code, certain distributions that are declared in October,
November or December but which, for operational reasons, may not be paid to you
until the following January, will be treated as if received by you on December
31 of the calendar year in which they are declared.

For corporate shareholders, none of the distributions paid by the Fund for the
fiscal year ended October 31, 1996, qualified for the dividends received
deduction, and it is not anticipated that any of the current year's dividends
will qualify.

Many states grant tax-free status to dividends paid out to shareholders of
mutual funds from interest income earned by the mutual fund from direct
obligations of the U.S. government, subject in some cases to minimum investment
requirements to be met by the Fund. Investments in repurchase agreements
collateralized by U.S. government securities do not generally qualify for this
purpose. At the end of each calendar year, the Fund will provide you with the
percentage of any dividends paid that may qualify for tax-free status. You
should consult your tax advisor with respect to the application of state and
local income tax laws to these distributions and on the application of other
state and local intangible property or income tax laws to your shares and to
distributions and redemption proceeds received from the Fund.

The Fund will inform you of the source of your dividends and distributions at
the time they are paid and will, promptly after the close of each calendar year,
advise you of the tax status for federal income tax purposes of these dividends
and distributions.

If you are not considered a U.S. person for federal income taxation purposes,
you should consult with your financial or tax advisor regarding the
applicability of U.S. withholding or other taxes to distributions received by
you from the Fund and the application of foreign tax laws to these
distributions.

HOW IS THE TRUST ORGANIZED?

The Fund is a diversified series of Franklin Investors Securities Trust (the
"Trust"), an open-end management investment company, commonly called a mutual
fund. It was organized as a Massachusetts business trust on December 16, 1986,
and is registered with the SEC under the 1940 Act. As of January 1, 1997, the
Fund began offering a new class of shares designated Franklin Short-Intermediate
U.S. Government Securities Fund - Advisor Class. All shares outstanding before
the offering of Advisor Class shares have been designated Franklin
Short-Intermediate U.S. Government Securities Fund - Class I. Additional series
and classes of shares may be offered in the future.

ABOUT YOUR ACCOUNT

HOW DO I BUY SHARES?

OPENING YOUR ACCOUNT

To open your account, contact your investment representative or complete and
sign the enclosed shareholder application and return it to the Fund with your
check.

MINIMUM
INVESTMENTS*

To Open Your Account $100
To Add to Your Account $ 25

*We may waive these minimums for retirement plans. We may also refuse any order
to buy shares.

SALES CHARGE REDUCTIONS AND WAIVERS

If you qualify to buy shares under one of the sales charge reduction or waiver
categories described below, please include a written statement with each
purchase order explaining which privilege applies. If you don't include this
statement, we cannot guarantee that you will receive the sales charge reduction
or waiver.

QUANTITY DISCOUNTS. The sales charge you pay depends on the dollar amount you
invest, as shown in the table below.

TOTAL SALES CHARGE AMOUNT PAID
AS A PERCENTAGE OF TO DEALER AS A
AMOUNT OF PURCHASE OFFERING NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE PRICE INVESTED OFFERING PRICE

Under $100,000..................... 2.25% 2.31% 2.00%
$100,000 but less than $250,000.... 1.75% 1.78% 1.50%
$250,000 but less than $500,000.... 1.25% 1.27% 1.00%
$500,000 but less than $1,000,000.. 1.00% 1.01% 0.85%
$1,000,000 or more*................ None None None

*If you invest $1 million or more, a Contingent Deferred Sales Charge may be
imposed on an early redemption. Please see "How Do I Sell Shares? - Contingent
Deferred Sales Charge." Please also see "Other Payments to Securities Dealers"
below for a discussion of payments Distributors may make out of its own
resources to Securities Dealers for certain purchases.

CUMULATIVE QUANTITY DISCOUNTS. To determine if you may pay a reduced sales
charge, the amount of your current purchase is added to the cost or current
value, whichever is higher, of your existing shares in the Franklin Templeton
Funds, as well as those of your spouse, children under the age of 21 and
grandchildren under the age of 21. If you are the sole owner of a company, you
may also add any company accounts, including retirement plan accounts. Companies
with one or more retirement plans may add together the total plan assets
invested in the Franklin Templeton Funds to determine the sales charge that
applies.

LETTER OF INTENT. You may buy shares at a reduced sales charge by completing the
Letter of Intent section of the shareholder application. A Letter of Intent is a
commitment by you to invest a specified dollar amount during a 13 month period.
The amount you agree to invest determines the sales charge you pay.

BY COMPLETING THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION, YOU
ACKNOWLEDGE AND AGREE TO THE FOLLOWING:

o You authorize Distributors to reserve 5% of your total intended purchase in
Fund shares registered in your name until you fulfill your Letter.

o You give Distributors a security interest in the reserved shares and appoint
Distributors as attorney-in-fact.

o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the Letter.

o Although you may exchange your shares, you may not sell reserved shares until
you complete the Letter or pay the higher sales charge.

If you would like more information about the Letter of Intent privilege, please
see "How Do I Buy, Sell and Exchange Shares? - Letter of Intent" in the SAI or
call Shareholder Services.

GROUP PURCHASES. If you are a member of a qualified group, you may buy Fund
shares at a reduced sales charge that applies to the group as a whole. The sales
charge is based on the combined dollar value of the group members' existing
investments, plus the amount of the current purchase.

A qualified group is one that:

o Was formed at least six months ago,

o Has a purpose other than buying Fund shares at a discount,

o Has more than 10 members,

o Can arrange for meetings between our representatives and group members,

o Agrees to include Franklin Templeton Fund sales and other materials in
publications and mailings to its members at reduced or no cost to Distributors,

o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the Fund, and

o Meets other uniform criteria that allow Distributors to achieve cost savings
in distributing shares.

The Fund's sales charges will not apply if you are buying shares with money from
the following sources:

1. Dividend and capital gain distributions from any Franklin Templeton Fund or
a REIT sponsored or advised by Franklin Properties, Inc.

2. Distributions from an existing retirement plan invested in the Franklin
Templeton Funds

4. Redemptions from any Franklin Templeton Fund if you:

o Originally paid a sales charge on the shares,

o Reinvest the money within 365 days of the redemption date, and

o Reinvest the money in the same class of shares.

5. Redemptions from other mutual funds

The Fund's sales charges will also not apply to purchases by:

7. Group annuity separate accounts offered to retirement plans

10. Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for clients
participating in comprehensive fee programs

11. Registered Securities Dealers and their affiliates, for their investment
accounts only

12. Current employees of Securities Dealers and their affiliates and their
family members, as allowed by the internal policies of their employer

13. Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family members,
consistent with our then-current policies

14. Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer

15. Accounts managed by the Franklin Templeton Group

16. Certain unit investment trusts and their holders reinvesting distributions
from the trusts

HOW DO I BUY SHARES IN CONNECTION WITH RETIREMENT PLANS?

Please consult your legal, tax or retirement plan specialist before choosing a
retirement plan. Your investment representative or advisor can help you make
investment decisions within your plan.

OTHER PAYMENTS TO SECURITIES DEALERS

The payments described below may be made to Securities Dealers who initiate and
are responsible for certain purchases made without a sales charge. The payments
are subject to the sole discretion of Distributors, and are paid by Distributors
or one of its affiliates and not by the Fund or its shareholders.

1. Purchases of $1 million or more - up to 0.75% of the purchase price.

2. Purchases by certain retirement plans - up to 1% of the purchase price.

3. Purchases by trust companies and bank trust departments, Eligible
Governmental Authorities, and broker-dealers or others on behalf of clients
participating in comprehensive fee programs - up to 0.25% of the purchase price.

A Securities Dealer may only receive one of these payments for each qualifying
purchase. Securities Dealers who receive payments in connection with investments
described in paragraphs 1 or 2 above will be eligible to receive the Rule 12b-1
fee associated with the purchase starting in the thirteenth calendar month after
the purchase.

Securities Dealers may receive additional compensation from Distributors or an
affiliated company in connection with selling shares of the Franklin Templeton
Funds. Compensation may include financial assistance for conferences,
shareholder services, automation, sales or training programs, or promotional
activities. Registered representatives and their families may be paid for travel
expenses, including lodging, in connection with business meetings or seminars.
In some cases, this compensation may only be available to Securities Dealers
whose representatives have sold or are expected to sell significant amounts of
shares. Securities Dealers may not use sales of the Fund's shares to qualify for
this compensation if prohibited by the laws of any state or self-regulatory
agency, such as the NASD.

MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?

METHOD STEPS TO FOLLOW

BY MAIL 1. Send us written instructions signed by all account owners

2. Include any outstanding share certificates for the shares
you're exchanging

BY PHONE Call Shareholder Services or TeleFACTS(R)

- If you do not want the ability to exchange by phone to
apply to your account, please let us know.

THROUGH YOUR DEALER Call your investment representative

Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.

WILL SALES CHARGES APPLY TO MY EXCHANGE?

CONTINGENT DEFERRED SALES CHARGE. We will not impose a Contingent Deferred Sales
Charge when you exchange shares. Any shares subject to a Contingent Deferred
Sales Charge at the time of exchange, however, will remain so in the new fund.
For accounts with shares subject to a Contingent Deferred Sales Charge, shares
are exchanged into the new fund in the order they were purchased. If you
exchange shares into one of our money funds, the time your shares are held in
that fund will not count towards the completion of any Contingency Period. For
more information about the Contingent Deferred Sales Charge, please see that
section under "How Do I Sell Shares?"

EXCHANGE RESTRICTIONS

Please be aware that the following restrictions apply to exchanges:

o You may only exchange shares within the same class, except as noted below.

o The accounts must be identically registered. You may, however, exchange shares
from a Fund account requiring two or more signatures into an identically
registered money fund account requiring only one signature for all transactions.
Please notify us in writing if you do not want this option to be available on
your account. Additional procedures may apply. Please see "Transaction
Procedures and Special Requirements."

o The fund you are exchanging into must be eligible for sale in your state.

o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.

LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES

HOW DO I SELL SHARES?

You may sell (redeem) your shares at any time.

METHOD STEPS TO FOLLOW

BY MAIL 1. Send us written instructions signed by all account owners

2. Include any outstanding share certificates for the shares
you are selling

3. Provide a signature guarantee if required

4. Corporate, partnership and trust accounts may need to send
additional documents. Accounts under court jurisdiction may
have other requirements.

BY PHONE Call Shareholder Services

(Only available if Telephone requests will be accepted:
you have completed
and sent to us the o If the request is $50,000 or less. Institutional
telephone redemption accounts may exceed $50,000 by completing a separate
agreement included agreement. Call Institutional Services to receive
with this prospectus) a copy.
o If there are no share certificates issued for the
shares you want to sell or you have already returned
them to the Fund

o Unless you are selling shares in a Trust Company
retirement plan account

o Unless the address on your account was changed by
phone within the last 30 days

THROUGH YOUR DEALER Call your investment representative

Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.

Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.

TRUST COMPANY RETIREMENT PLAN ACCOUNTS

CONTINGENT DEFERRED SALES CHARGE

If you did not pay a front-end sales charge because you invested $1 million or
more or agreed to invest $1 million or more under a Letter of Intent, a
Contingent Deferred Sales Charge may apply if you sell all or a part of your
investment within the Contingency Period. Once you have invested $1 million or
more, any additional investments you make without a sales charge may also be
subject to a Contingent Deferred Sales Charge if they are sold within the
Contingency Period. The charge is 1% of the value of the shares sold or the Net
Asset Value at the time of purchase, whichever is less.

WAIVERS. We waive the Contingent Deferred Sales Charge for:

o Exchanges

o Account fees

o Sales of shares purchased pursuant to a sales charge waiver

o Redemptions by the Fund when an account falls below the minimum required
account size

o Redemptions following the death of the shareholder or beneficial owner

o Redemptions through a systematic withdrawal plan set up before February 1,
1995

o Redemptions through a systematic withdrawal plan set up on or after February
1, 1995, up to 1% a month of an account's Net Asset Value (3% quarterly, 6%
semiannually or 12% annually). For example, if you maintain an annual balance of
$1 million, you can withdraw up to $120,000 annually through a systematic
withdrawal plan free of charge.

o Distributions from individual retirement plan accounts due to death or
disability or upon periodic distributions based on life expectancy

o Tax-free returns of excess contributions from employee benefit plans

o Distributions from employee benefit plans, including those due to termination
or plan transfer

WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?

The Fund declares dividends from its net investment income daily and pays them
monthly on or about the last day of the month. The daily allocation of net
investment income begins on the day after we receive your money or settlement of
a wire order trade and continues to accrue through the day we receive your
request to sell your shares or the settlement of a wire order trade. Capital
gains, if any, may be distributed annually, usually in December.

DISTRIBUTION OPTIONS

You may receive your distributions from the Fund in any of these ways:

1. BUY ADDITIONAL SHARES OF THE FUND - You may buy additional shares of the same
class of the Fund (without a sales charge or imposition of a Contingent Deferred
Sales Charge) by reinvesting capital gain distributions, or both dividend and
capital gain distributions. This is a convenient way to accumulate additional
shares and maintain or increase your earnings base.

2. BUY SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
distributions to buy the same class of shares of another Franklin Templeton Fund
(without a sales charge or imposition of a Contingent Deferred Sales Charge).
Many shareholders find this a convenient way to diversify their investments.

TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS

HOW AND WHEN SHARES ARE PRICED

The Fund is open for business each day the NYSE is open. We determine the Net
Asset Value per share as of the scheduled close of the NYSE, generally 1:00 p.m.
Pacific time. You can find the prior day's closing Net Asset Value and Offering
Price of the Fund in many newspapers.

The Net Asset Value of all outstanding shares of each class is calculated on a
pro rata basis. It is based on each class' proportionate participation in the
Fund, determined by the value of the shares of each class. Class I, however,
bears the Rule 12b-1 fees payable under its Rule 12b-1 plan. To calculate Net
Asset Value per share of each class, the assets of each class are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares of the class outstanding. The Fund's assets are
valued as described under "How are Fund Shares Valued?" in the SAI.

THE PRICE WE USE WHEN YOU BUY OR SELL SHARES

You buy shares at the Offering Price, unless you qualify to buy shares at a
reduced sales charge or with no sales charge. The Offering Price is based on the
Net Asset Value per share and includes the maximum sales charge. We calculate it
to two decimal places using standard rounding criteria. You sell shares at Net
Asset Value.

PROPER FORM

An order to buy shares is in proper form when we receive your signed shareholder
application and check. Written requests to sell or exchange shares are in proper
form when we receive written instructions signed by all registered owners, with
a signature guarantee if necessary. We must also receive any outstanding share
certificates for those shares.

WRITTEN INSTRUCTIONS

Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:

o Your name,

o The Fund's name,

o The class of shares,

o A description of the request,

o For exchanges, the name of the fund you're exchanging into,

o Your account number,

o The dollar amount or number of shares, and

o A telephone number where we may reach you during the day, or in the evening if
preferred.

SIGNATURE GUARANTEES

For our mutual protection, we require a signature guarantee in the following
situations:

1) You wish to sell over $50,000 worth of shares,

2) You want the proceeds to be paid to someone other than the registered owners,

3) The proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account,

4) We receive instructions from an agent, not the registered owners,

5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.

SHARE CERTIFICATES

TELEPHONE TRANSACTIONS

You may initiate many transactions by phone. Please refer to the sections of
this prospectus that discuss the transaction you would like to make or call
Shareholder Services.

To obtain any required forms or more information about distribution or transfer
procedures, please call our Retirement Plans Department.

ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS

TRUSTS. You should register your account as a trust only if you have a valid
written trust document. This avoids future disputes or possible court action
over who owns the account.

TYPE OF ACCOUNT DOCUMENTS REQUIRED

CORPORATION Corporate Resolution

PARTNERSHIP 1. The pages from the partnership agreement that identify the
general partners, or

2. A certification for a partnership agreement

TRUST 1. The pages from the trust document that identify the
trustees, or

2. A certification for trust

TAX IDENTIFICATION NUMBER

KEEPING YOUR ACCOUNT OPEN

SERVICES TO HELP YOU MANAGE YOUR ACCOUNT

AUTOMATIC INVESTMENT PLAN

AUTOMATIC PAYROLL DEDUCTION

SYSTEMATIC WITHDRAWAL PLAN

You will generally receive your payment by the end of the month in which a
payment is scheduled. When you sell your shares under a systematic withdrawal
plan, it is a taxable transaction.

ELECTRONIC FUND TRANSFERS

TELEFACTS(R)

From a touch-tone phone, you may call our TeleFACTS system (day or night) at
1-800/247-1753 to:

o obtain information about your account;

o obtain price and performance information about any Franklin Templeton Fund;

o exchange shares between identically registered Franklin accounts; and

o request duplicate statements and deposit slips for Franklin accounts.

You will need the Fund's code number to use TeleFACTS. The Fund's code number is
136.

STATEMENTS AND REPORTS TO SHAREHOLDERS

We will send you the following statements and reports on a regular basis:

INSTITUTIONAL ACCOUNTS

AVAILABILITY OF THESE SERVICES

WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?

If you have any questions about your account, you may write to Investor Services
at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California 94403-7777.
The Fund, Distributors and Advisers are also located at this address. You may
also contact us by phone at one of the numbers listed below.

HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)

Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.

GLOSSARY

USEFUL TERMS AND DEFINITIONS

1940 ACT - Investment Company Act of 1940, as amended

ADVISERS - Franklin Advisers, Inc., the Fund's investment manager

BOARD - The Board of Trustees of the Trust

CD - Certificate of deposit

CLASS I, CLASS II AND ADVISOR CLASS - The Fund offers two classes of shares,
designated "Class I" and "Advisor Class." The two classes have proportionate
interests in the Fund's portfolio. They differ, however, primarily in their
sales charge and expense structures. Certain funds in the Franklin Templeton
Funds also offer a share class designated "Class II."

CODE - Internal Revenue Code of 1986, as amended

CONTINGENCY PERIOD - The 12 month period during which a Contingent Deferred
Sales Charge may apply. Regardless of when during the month you purchased
shares, they will age one month on the last day of that month and each following
month.

CONTINGENT DEFERRED SALES CHARGE (CDSC) - A sales charge of 1% that may apply if
you sell your shares within the Contingency Period.

DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Trustees."

FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries

FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds

FT SERVICES - Franklin Templeton Services, Inc., the Fund's administrator

INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent

IRS - Internal Revenue Service

LETTER - Letter of Intent

NASD - National Association of Securities Dealers, Inc.

NSCC - National Securities Clearing Corporation

NYSE - New York Stock Exchange

OFFERING PRICE - The public offering price is based on the Net Asset Value per
share and includes the 2.25% sales charge.

REIT - Real Estate Investment Trust

RESOURCES - Franklin Resources, Inc.

SAI - Statement of Additional Information

SEC - U.S. Securities and Exchange Commission

SEP - An employer sponsored simplified employee pension plan established under
section 408(k) of the Code

TELEFACTS(R) - Franklin Templeton's automated customer servicing system

TRUST COMPANY - Franklin Templeton Trust Company. Trust Company is an affiliate
of Distributors and both are wholly owned subsidiaries of Resources.

U.S. - United States

WE/OUR/US - Unless the context indicates a different meaning, these terms refer
to the Fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.

PROSPECTUS & APPLICATION

FRANKLIN CONVERTIBLE SECURITIES FUND

INVESTMENT STRATEGY

GROWTH & INCOME

MARCH 1, 1997

FRANKLIN INVESTORS SECURITIES TRUST

This prospectus describes the Franklin Convertible Securities Fund (the "Fund").
It contains information you should know before investing in the Fund. Please
keep it for future reference.

The Fund has a Statement of Additional Information ("SAI"), dated March 1, 1997,
which may be amended from time to time. It includes more information about the
Fund's procedures and policies. It has been filed with the SEC and is
incorporated by reference into this prospectus. For a free copy or a larger
print version of this prospectus, call 1-800/DIAL BEN or write the Fund at the
address shown.

THE FUND MAY INVEST UP TO 100% OF ITS NET ASSETS IN NON-INVESTMENT GRADE BONDS
OF BOTH U.S. AND FOREIGN ISSUERS. THESE ARE COMMONLY KNOWN AS "JUNK BONDS."
THEIR DEFAULT AND OTHER RISKS ARE GREATER THAN THOSE OF HIGHER RATED SECURITIES.
YOU SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE INVESTING IN THE FUND. PLEASE
SEE "WHAT ARE THE FUND'S POTENTIAL RISKS?"

FRANKLIN CONVERTIBLE SECURITIES FUND

MARCH 1, 1997

WHEN READING THIS PROSPECTUS, YOU WILL SEE CERTAIN TERMS BEGINNING WITH CAPITAL
LETTERS. THIS MEANS THE TERM IS EXPLAINED IN OUR GLOSSARY SECTION.

TABLE OF CONTENTS

ABOUT THE FUND

Expense Summary............................. 2
Financial Highlights........................ 3
How does the Fund Invest its Assets?........ 6
What are the Fund's Potential Risks?........ 15
Who Manages the Fund?....................... 19

How does the Fund Measure Performance?...... 21
How Taxation Affects the
Fund and its Shareholders.................. 22

How is the Trust Organized?................. 23

ABOUT YOUR ACCOUNT

How Do I Buy Shares?........................ 24
May I Exchange Shares
for Shares of Another Fund?................ 30
How Do I Sell Shares?....................... 33
What Distributions
Might I Receive from the Fund?............. 35
Transaction Procedures
and Special Requirements................... 36
Services to Help You Manage Your Account ... 41
What If I Have Questions About My Account?.. 43

GLOSSARY

Useful Terms and Definitions ............... 43

APPENDIX

Description of Ratings ..................... 46

777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777
1-800/DIAL BEN

ABOUT THE FUND

EXPENSE SUMMARY

CLASS I CLASS II

A. Shareholder Transaction Expenses+

Maximum Sales Charge
(as a percentage of Offering Price) 4.50% 1.99%
Paid at time of purchase.. 4.50%++ 1.00%+++
Paid at redemption++++.... None 0.99%
Exchange Fee (per transaction) $5.00* $5.00*

B. Annual Fund Operating Expenses
(as a percentage of average net assets)

Management Fees............. 0.62% 0.62%
Rule 12b-1 Fees............. 0.23%** 1.00%**
Other Expenses.............. 0.17% 0.17%
----------------
Total Fund Operating Expenses 1.02% 1.79%
================

C. Example

Assume the annual return for each class is 5%, operating expenses are as
described above, and you sell your shares after the number of years shown.
These are the projected expenses for each $1,000 that you invest in the Fund.

1 YEAR 3 YEARS 5 YEARS 10 YEARS

Class I............... $55*** $76 $ 99 $164
Class II.............. $38 $66 $106 $218

For the same Class II investment, you would pay projected expenses of $28 if
you did not sell your shares at the end of the first year. Your projected
expenses for the remaining periods would be the same.

THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. The
Fund pays its operating expenses. The effects of these expenses are reflected
in the Net Asset Value or dividends of each class and are not directly charged
to your account.

+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.

++There is no front-end sales charge if you invest $1 million or more in Class I
shares.

*$5.00 fee is only for Market Timers. We process all other exchanges without a
fee.

**These fees may not exceed 0.25% for Class I. The combination of front-end
sales charges and Rule 12b-1 fees could cause long-term shareholders to pay more
than the economic equivalent of the maximum front-end sales charge permitted
under the NASD's rules.

***Assumes a Contingent Deferred Sales Charge will not apply.

FINANCIAL HIGHLIGHTS

Year Ended October 31, Year Ended January 31

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS I SHARES: 1996 1995 1994 19931 1993 1992 1991 1990 1989 19882
- --------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING PERFORMANCE+

Net Asset Value
at Beginning of Period $12.73 $12.34 $12.79 $11.44 $10.48 $8.53 $9.31 $9.60 $9.10 $10.00
------------------------------------------------------------------------------------------------

Net Investment Income 0.61 0.58 0.59 0.45 0.61 0.44 0.78 0.80 0.78 0.58

Net Realized & Unrealized
Gains (Losses) on Securities1.389 1.099 (0.327) 1.413 1.034 2.194 (0.729) (0.395) 0.404 (1.168)
------------------------------------------------------------------------------------------------

Total From
Investment Operations 1.999 1.679 0.263 1.863 1.644 2.634 0.051 0.405 1.184 (0.588)
------------------------------------------------------------------------------------------------

Distributions From
Net Investment Income (0.600) (0.592) (0.594) (0.513) (0.684) (0.684) (0.831) (0.695) (0.684) (0.312)

Distributions
From Capital Gains (0.679) (0.697) (0.119) - - - - - - -
--------------------------------------------------------------------------------------------

Total Distributions (1.279) (1.289) (0.713) (0.513) (0.684) (0.684) (0.831) (0.695) (0.684) (0.312)
-------------------------------------------------------------------------------------------------

Net Asset Value
at End of Period $13.45 $12.73 $12.34 $12.79 $11.44 $10.48 $8.53 $9.31 $9.60 $9.10
================================================================================================

Total Return++ 16.71% 15.18% 2.07% 16.50% 16.12% 31.50% 0.37% 3.85% 13.08% (4.80)%

RATIOS/SUPPLEMENTAL DATA:

Net Assets
at End of Period (in 000's)$130,951 $83,523 $66,869 $47,440 $28,307 $20,282 $15,843 $14,774 $17,290 $14,734

Ratio of Expenses
to Average Net Assets+++ 1.02% 1.03% 0.84% 0.25%* 0.25% 0.26% 0.25% 0.24% 0.25% 0.15 %*

Ratio of Net Investment
Income to Average Net Assets4.79% 4.82% 4.84% 5.25%* 6.01% 6.84% 8.90% 8.25% 8.27% 6.82%*

Portfolio Turnover Rate 129.83% 108.64% 68.39% 31.05% 60.00% 64.90% 45.42% 30.87% 70.75% 148.67%

Average Commission Rate** 0.0495 - - - - - - - - -

</TABLE>

YEAR ENDED OCTOBER 31,

CLASS II SHARES***: 1996 19953
-------------------------

Per Share Operating Performance+

Net Asset Value at Beginning of Period $12.71 $13.06
------------------------

Net Investment Income 0.51 0.07

Net Realized & Unrealized
Gains (Losses) on Securities 1.397 (0.373)
------------------------

Total From Investment Operations 1.907 (0.303)
==========================

Distributions From Net Investment Income (0.528) (0.047)

Distributions From Capital Gains (0.679) -
-------------------------

Total Distributions (1.207) (0.047)
--------------------------

Net Asset Value at End of Period $13.41 $12.71
==========================

Total Return++ 15.92% (2.33)%

Ratios/Supplemental Data:

Net Assets at End of Period (in 000's) $10,861 $209

Ratio of Expenses to Average Net Assets 1.79% 1.60%

Ratio of Net Investment
Income to Average Net Assets 4.00% 3.64%*

Portfolio Turnover Rate 129.83% 108.64%

Average Commission Rate** 0.0495 -

1For the nine months ended October 31, 1993 resulting from a change in fiscal
year end from January 31.

2For the period April 15, 1987 (effective date) to January 31, 1988.

3For the period October 2, 1995 (effective date) to October 31, 1995.

+Selected data for a share of beneficial interest outstanding throughout the
period.

++Total return measures the change in value of an investment over the periods
indicated and is not annualized. It does not include the maximum front-end sales
charge or the Contingent Deferred Sales Charge, and assumes reinvestment of
dividends and capital gains, if any, at Net Asset Value. Prior to May 1, 1994,
dividends were reinvested at the maximum Offering Price. +++During the periods
indicated below, Advisers agreed in advance to waive all or a portion of its
management fees and to make certain payments to reduce expenses of the Fund. Had
such action not been taken, the ratios of operating expenses to average net
assets would have been as follows:

Class I

19882 0.94%*
1989 0.90%
1990 0.89%
1991 0.84%
1992 0.94%
1993 0.81%
19931 0.86%*
1994 0.92%

*Annualized.

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

***Ratios have been calculated using daily average net assets during the period.

HOW DOES THE FUND INVEST ITS ASSETS?

THE FUND'S INVESTMENT OBJECTIVE

The Fund's investment objective is to maximize total return, consistent with
reasonable risk, by seeking to optimize capital appreciation and high current
income under varying market conditions. The objective is a fundamental policy of
the Fund and may not be changed without shareholder approval. Of course, there
is no assurance that the Fund's objective will be achieved.

TYPES OF SECURITIES IN WHICH THE FUND MAY INVEST

The Fund pursues its investment objective by investing at least 65% of its net
assets (except when maintaining a temporary defensive position) in convertible
securities as described below, and common stock received upon conversion or
exchange of such securities and retained in the Fund's portfolio to permit their
orderly disposition. The Fund's policies permit investment in convertible and
fixed-income securities without restrictions as to a specified range of
maturities.

The Fund may invest up to 35% of its net assets in other securities
(nonconvertible equity securities and corporate bonds, covered call options and
put options, securities issued or guaranteed by the U.S. government, its
agencies and instrumentalities, repurchase agreements collateralized by U.S.
government securities, money market securities and securities of foreign
issuers), which, in the aggregate, are considered to be consistent with the
Fund's investment objective.

When maintaining a temporary defensive position, the Fund may invest its assets
without limit in U.S. government securities and, subject to certain tax
diversification requirements, commercial paper (short-term debt securities of
large corporations), certificates of deposit and bankers' acceptances of banks
having total assets in excess of $5 billion, repurchase agreements and other
money market securities.

CONVERTIBLE SECURITIES. A convertible security is generally a debt obligation or
preferred stock that may be converted within a specified period of time into a
certain amount of common stock of the same or a different issuer. A convertible
security provides a fixed-income stream and the opportunity, through its
conversion feature, to participate in the capital appreciation resulting from a
market price advance in its underlying common stock. As with a straight
fixed-income security, a convertible security tends to increase in market value
when interest rates decline and decrease in value when interest rates rise. Like
a common stock, the value of a convertible security also tends to increase as
the market value of the underlying stock rises, and it tends to decrease as the
market value of the underlying stock declines. Because its value can be
influenced by both interest rate and market movements, a convertible security is
not as sensitive to interest rates as a similar fixed-income security, nor is it
as sensitive to changes in share price as its underlying stock.

A convertible security is usually issued either by an operating company or by an
investment bank. When issued by an operating company, a convertible security
tends to be senior to common stock, but subordinate to other types of
fixed-income securities issued by that company. When a convertible security
issued by an operating company is "converted," the operating company often
issues new stock to the holder of the convertible security but, if the parity
price of the convertible security is less than the call price, the operating
company may pay out cash instead of common stock. If the convertible security is
issued by an investment bank, the security is an obligation of and is
convertible through the issuing investment bank.

The issuer of a convertible security may be important in determining the
security's true value. This is because the holder of a convertible security will
have recourse only to the issuer. In addition, a convertible security may be
subject to redemption by the issuer, but only after a specified date and under
circumstances established at the time the security is issued.

While the Fund uses the same criteria to rate a convertible debt security that
it uses to rate a more conventional debt security, a convertible preferred stock
is treated like a preferred stock for the Fund's financial reporting, credit
rating and investment limitation purposes. A preferred stock is subordinated to
all debt obligations in the event of insolvency, and an issuer's failure to make
a dividend payment is generally not an event of default entitling the preferred
shareholder to take action. A preferred stock generally has no maturity date, so
that its market value is dependent on the issuer's business prospects for an
indefinite period of time. In addition, distributions from preferred stock are
dividends, rather than interest payments, and are usually treated as such for
corporate tax purposes.

The Fund may invest in convertible preferred stocks that offer enhanced yield
features, such as Preferred Equity Redemption Cumulative Stocks ("PERCS"), which
provide an investor, such as the Fund, with the opportunity to earn higher
dividend income than is available on a company's common stock. PERCS are
preferred stocks that generally feature a mandatory conversion date, as well as
a capital appreciation limit which is usually expressed in terms of a stated
price. Most PERCS expire three years from the date of issue, at which time they
are convertible into common stock of the issuer. PERCS are generally not
convertible into cash at maturity. Under a typical arrangement, after three
years PERCS convert into one share of the issuer's common stock if the issuer's
common stock is trading at a price below that set by the capital appreciation
limit, and into less than one full share if the issuer's common stock is trading
at a price above that set by the capital appreciation limit. The amount of that
fractional share of common stock is determined by dividing the price set by the
capital appreciation limit by the market price of the issuer's common stock.
PERCS can be called at any time prior to maturity, and hence do not provide call
protection. If called early, however, the issuer must pay a call premium over
the market price to the investor. This call premium declines at a preset rate
daily, up to the maturity date.

The Fund may also invest in other enhanced convertible securities. These include
but are not limited to ACES (Automatically Convertible Equity Securities), PEPS
(Participating Equity Preferred Stock), PRIDES (Preferred Redeemable Increased
Dividend Equity Securities), SAILS (Stock Appreciation Income Linked
Securities), TECONS (Term Convertible Notes), QICS (Quarterly Income Cumulative
Securities), and DECS (Dividend Enhanced Convertible Securities). ACES, PEPS,
PRIDES, SAILS, TECONS, QICS, and DECS all have the following features: they are
issued by the company, the common stock of which will be received in the event
the convertible preferred stock is converted, unlike PERCS they do not have a
capital appreciation limit, they seek to provide the investor with high current
income with some prospect of future capital appreciation, they are typically
issued with three to four-year maturities, they typically have some built-in
call protection for the first two to three years, investors have the right to
convert them into shares of common stock at a preset conversion ratio or hold
them until maturity, and upon maturity they will automatically convert to either
cash or a specified number of shares of common stock.

Similarly, there may be enhanced convertible debt obligations issued by the
operating company, whose common stock is to be acquired in the event the
security is converted, or by a different issuer, such as an investment bank.
These securities may be identified by names such as ELKS (Equity Linked
Securities) or similar names. Typically they share most of the salient
characteristics of an enhanced convertible preferred stock but will be ranked as
senior or subordinated debt in the issuer's corporate structure according to the
terms of the debt indenture. There may be additional types of convertible
securities not specifically referred to herein which may be similar to those
described above in which the Fund may invest, consistent with its investment
objective and policies.

An investment in an enhanced convertible security may involve additional risks
to the Fund. The Fund may have difficulty disposing of such securities because
there may be a thin trading market for a particular security at any given time.
Reduced liquidity may have an adverse impact on market price and the Fund's
ability to dispose of particular securities, when necessary, to meet the Fund's
liquidity needs or in response to a specific economic event, such as the
deterioration in the creditworthiness of an issuer. Reduced liquidity in the
secondary market for certain securities may also make it more difficult for the
Fund to obtain market quotations based on actual trades for purposes of valuing
the Fund's portfolio. The Fund, however, intends to acquire liquid securities,
though there can be no assurances that this will be achieved.

SYNTHETIC CONVERTIBLES. The Fund may invest a portion of its assets in
"synthetic convertible" securities. A synthetic convertible is created by
combining distinct securities which together possess the two principal
characteristics of a true convertible security, i.e., fixed income and the right
to acquire the underlying equity security. This combination is achieved by
investing in nonconvertible fixed-income securities and in warrants or stock or
stock index call options which grant the holder the right to buy a specified
quantity of securities within a specified period of time at a specified price or
to receive cash in the case of stock index options.

Synthetic convertible securities differ from the true convertible security in
several respects. The value of a synthetic convertible is the sum of the values
of its fixed-income component and its convertibility component. Thus, the values
of a synthetic convertible and a true convertible security will respond
differently to market fluctuations. Further, although Advisers expects normally
to create synthetic convertibles whose two components represent one issuer, the
character of a synthetic convertible allows the Fund to combine components
representing distinct issuers, or to combine a fixed income security with a call
option on a stock index, when Advisers determines that such a combination would
better promote the Fund's investment objective. In addition, the component parts
of a synthetic convertible security may be purchased simultaneously or
separately; and the holder of a synthetic convertible faces the risk that the
price of the stock, or the level of the market index underlying the
convertibility component will decline.

LOWER RATED SECURITIES. When investing in convertible securities and
nonconvertible fixed-income debt securities, the Fund may buy both securities
rated by nationally recognized statistical rating agencies or in unrated
securities, depending upon prevailing market and economic conditions. Lists of
these ratings are shown in the Appendix to this prospectus.

Ratings, which represent the opinions of the rating services with respect to the
securities and are not absolute standards of quality, will be considered in
connection with the investment of the Fund's assets but will not be a
determining or limiting factor. Rather than relying principally on the ratings
assigned by rating services, the investment analysis of securities being
considered for the Fund's portfolio may also include, among other things,
consideration of relative values, based on such factors as anticipated cash
flow, interest or dividend coverage, asset coverage, earnings prospects, the
experience and managerial strength of the issuer, responsiveness to changes in
interest rates and business conditions, debt maturity schedules and borrowing
requirements and the issuer's changing financial condition and public
recognition thereof.

Higher yields are ordinarily available from securities in the lower-rated
categories or from unrated securities of comparable quality. Convertible
securities generally fall within the lower-rated categories of rating agencies,
that is, securities rated Baa or lower by Moody's or BBB or lower by S&P. The
Fund may only invest in convertible and nonconvertible securities rated at least
B or above by Moody's, or S&P, or if unrated, are at least of comparable quality
as determined by Advisers. To the extent the Fund acquires securities rated B or
unrated securities of comparable quality, these securities are regarded as
speculative in nature and there may be a greater risk, including the risk of
bankruptcy or default by the issuer, as to the timely repayment of the
principal, and timely payment of interest or dividends on such securities. (A
breakdown of the securities' ratings is included under "What are the Fund's
Potential Risks? - Asset Composition Table.") The Fund will not invest in
securities Advisers believes involve excessive risk. In the event the rating on
an issue held in the Fund's portfolio is changed by the ratings service or the
security goes into default, such event will be considered by Advisers in its
evaluation of the overall investment merits of that security but will not
generally result in an automatic sale of the security.

WARRANTS. A warrant is an instrument issued by a corporation which gives the
holder the right to subscribe to a specified amount of the corporation's capital
stock at a set price for a specified period of time.

The Fund limits its investments in warrants, valued at the lower of cost or
market, to 5% of the Fund's net assets, or to warrants attached to securities.

OPTIONS ON EQUITY SECURITIES. In seeking to achieve its investment objective,
the Fund may write covered call options on securities it owns that are listed
for trading on a national securities exchange. The Fund may buy listed call
options provided that the value of the call options bought will not exceed 5% of
the Fund's net assets. The Fund may also buy put options on the common stock it
owns or may acquire through conversion or exchange. In addition, the Fund may
enter into options on stock indices.

Call options are short-term contracts (generally having a duration of nine
months or less) which give the buyer of the option the right to buy and
obligates the writer of the option to sell the underlying security at the
exercise price at any time during the option period, regardless of the market
price of the underlying security. The buyer of an option pays a cash premium,
that typically reflects, among other things, the relationship of the exercise
price to the market price and the volatility of the underlying security, the
remaining term of the option, supply and demand factors and interest rates.

Call options give the holder the right to buy the underlying security from the
writer at a stated exercise price upon exercising the option at any time prior
to its expiration. A call option written by the Fund is "covered" if the Fund
owns or has an absolute right (such as by conversion) to the underlying security
covered by the call. A call option is also covered if the Fund holds a call on
the same security and in the same principal amount as the call written and the
exercise price of the call held (a) is equal to or less than the exercise price
of the call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Fund in cash, government
securities or other high grade debt obligations in a segregated account with its
custodian bank.

When the Fund sells covered call options, it will receive the cash premium which
can be used in whatever way is felt to be most beneficial to the Fund. The risk
associated with covered option writing is that in the event of a price rise on
the underlying security which would likely trigger the exercise of the call
option, the Fund will not participate in the increase in price beyond the
exercise price. It will generally be the Fund's policy, in order to avoid the
exercise of a call option written by it, to cancel its obligation under the call
option by entering into a "closing purchase transaction," if available, unless
it is determined to be in the Fund's interest to deliver the underlying
securities from its portfolio. A closing purchase transaction consists of the
Fund purchasing an option having the same terms as the option written by the
Fund, and has the effect of canceling the Fund's position as a writer. The
premium which the Fund will pay in executing a closing purchase transaction may
be higher or lower than the premium it received when writing the option,
depending in large part upon the relative price of the underlying security at
the time of each transaction. The aggregate premiums paid on all such options
held at any time will not exceed 20% of the Fund's net assets. As of the date of
this prospectus, certain state regulations limit the aggregate value of
securities underlying outstanding options.

The Fund may also buy put options on common stock that it owns or may acquire
through the conversion or exchange of other securities to protect against a
decline in the market value of the underlying security or to protect the
unrealized gain in an appreciated security in its portfolio without actually
selling the security. A put option gives the holder the right to sell the
underlying security at the option exercise price at any time during the option
period. The Fund may pay for a put either separately or by paying a higher price
for securities which are purchased subject to a put, thus increasing the cost of
the securities and reducing the yield otherwise available from the same
securities.

The Fund may buy call and put options on stock indices in order to hedge against
the risk of market or industry-wide stock price fluctuations. Call and put
options on stock indices are similar to options on securities except that,
rather than the right to buy or sell particular securities at a specified price,
options on a stock index give the holder the right to receive, upon exercise of
the option, an amount of cash if the closing level of the underlying stock index
is greater than (or less than, in the case of puts) the exercise price of the
option. This amount of cash is equal to the difference between the closing price
of the index and the exercise price of the option, expressed in dollars
multiplied by a specified number. Thus, unlike options on individual securities,
all settlements are in cash, and gain or loss depends on price movements in the
stock market generally (or in a particular industry or segment of the market)
rather than price movements in individual securities.

Transactions in options are generally considered "derivative securities." The
Fund's investment in options will be for portfolio hedging purposes in an effort
to stabilize principal fluctuations in seeking to achieve the Fund's investment
objective and not for speculation.

To the extent that the Fund does invest in options, it may be limited by the
requirements of the Code, for qualification as a regulated investment company.
These investments may also be subject to special tax rules that may affect the
amount, character and timing of income earned by the Fund and distributed to
shareholders. For more information, see the tax section of the SAI.

FOREIGN SECURITIES. The Fund may invest, without restriction, in foreign
securities. The Fund will generally buy foreign securities that are traded in
the U.S. or buy sponsored or unsponsored American Depositary Receipts ("ADRs"),
that are certificates issued by U.S. banks representing the right to receive
securities of a foreign issuer deposited with that bank or a correspondent bank.
The Fund may, however, buy the securities of foreign issuers directly in foreign
markets. The Fund presently has no intention of investing more than 30% of its
net assets in foreign securities not publicly traded in the U.S.

Investments may be in securities of foreign issuers, whether located in
developed or undeveloped countries, but investments will not be made in any
securities issued without stock certificates or comparable stock documents.
Securities which are acquired by the Fund outside the U.S. and which are
publicly traded in the U.S. or on a foreign securities exchange or in a foreign
securities market are not considered by the Fund to be an illiquid asset so long
as the Fund acquires and holds the security with the intention of re-selling the
security in the foreign trading market, the Fund reasonably believes it can
readily dispose of the security for cash in the U.S. or foreign market and
current market quotations are readily available. The holding of foreign
securities may be limited by the Fund to avoid investment in certain Passive
Foreign Investment Companies ("PFIC") and the imposition of a PFIC tax on the
Fund resulting from such investments. Please see "What are the Fund's Potential
Risks? - Foreign Securities."

U.S. GOVERNMENT SECURITIES. The Fund may invest in securities which are
obligations of the U.S. government, its agencies or instrumentalities. U.S.
government securities include, but are not limited to, U.S. Treasury bonds,
notes and bills, Treasury Certificates of Indebtedness and securities issued by
instrumentalities of the U.S. government. The Fund may invest in participation
certificates of the Government National Mortgage Association ("GNMAs"). GNMAs
are guaranteed as to principal and interest by GNMA, which guarantee is backed
by the full faith and credit of the U.S. government. The market value of GNMAs
may fluctuate based upon factors such as changing interest rates. In addition,
the mortgages underlying GNMAs are subject to repayment prior to maturity, and
in times of falling mortgage interest rates premature repayments may be more
likely. To the extent GNMAs held by the Fund are prepaid, the returned principal
will be reinvested in new obligations at then-prevailing interest rates which
may be lower than those of previously held obligations.

OTHER INVESTMENT POLICIES OF THE FUND

SHORT SALES AGAINST THE BOX. The Fund may make short sales of common stocks,
provided the Fund owns an equal amount of these securities or owns securities
that are convertible or exchangeable, without payment of further consideration,
into an equal amount of such common stock. In a short sale the Fund does not
immediately deliver the securities sold and does not receive the proceeds from
the sale. The Fund is said to have a short position in the securities sold until
it delivers the securities sold, at that time it receives the proceeds of the
sale. To secure its obligation to deliver the securities sold short, the Fund
will deposit collateral with its custodian bank that will generally consist of
an equal amount of such securities or securities convertible into or
exchangeable for at least an equal amount of such securities. The Fund may make
a short sale when Advisers believes the price of the stock may decline and when,
for tax or other reasons, Advisers does not want to currently sell the stock or
convertible security it owns. In this case, any decline in the value of the
Fund's portfolio securities would be reduced by a gain in the short sale
transaction. Conversely, any increase in the value of the Fund's portfolio
securities would be reduced by a loss in the short sale transaction. The Fund
may not make short sales or maintain a short position unless, at all times when
a short position is open, not more than 20% of its total assets (taken at
current value) is held as collateral for such sales.

BORROWING. The Fund does not borrow money or mortgage or pledge any of its
assets except that it may borrow from banks for temporary or emergency purposes
up to 5% of its total assets and pledge up to 5% of its total assets in
connection therewith.

LOANS OF PORTFOLIO SECURITIES. Consistent with procedures approved by the Board
and subject to the following conditions, the Fund may lend its portfolio
securities to qualified securities dealers or other institutional investors,
provided that such loans do not exceed 10% of the value of the Fund's total
assets at the time of the most recent loan. The borrower must deposit with the
Fund's custodian bank collateral with an initial market value of at least 102%
of the initial market value of the securities loaned, including any accrued
interest, with the value of the collateral and loaned securities
marked-to-market daily to maintain collateral coverage of at least 102%. This
collateral shall consist of cash. The lending of securities is a common practice
in the securities industry. The Fund may engage in security loan arrangements
with the primary objective of increasing the Fund's income either through
investing the cash collateral in short-term interest bearing obligations or by
receiving a loan premium from the borrower. Under the securities loan agreement,
the Fund continues to be entitled to all dividends or interest on any loaned
securities. As with any extension of credit, there are risks of delay in
recovery and loss of rights in the collateral should the borrower of the
security fail financially.

CONCENTRATION. The Fund will not invest more than 25% of its net assets in any
particular industry. This limitation does not apply to U.S. government
securities and repurchase agreements secured by such government securities or
obligations.

PORTFOLIO TURNOVER. The Fund's portfolio turnover rate was 129.83% for the
fiscal year ended October 31, 1996, and 108.64% for the fiscal year ended
October 31, 1995. The higher portfolio turnover rate for the fiscal year ended
October 31, 1996, was due to a determination by Advisers that in light of the
generally rising securities market in 1996 the Fund should take profits.
Additionally, the market experienced significant new issuances of convertibles,
many with terms (yield, premium, call protection, downside protection) that were
more attractive than existing positions held by the Fund. The Fund took
advantage of this opportunity to upgrade its holdings. High portfolio turnover
may increase the Fund's transaction costs.

WHAT ARE THE FUND'S POTENTIAL RISKS?

HIGH YIELDING, FIXED-INCOME SECURITIES. Because of the Fund's policy of
investing in higher yielding, higher risk securities, an investment in the Fund
is accompanied by a higher degree of risk than is present with an investment in
higher rated, lower yielding securities. Accordingly, an investment in the Fund
should not be considered a complete investment program and should be carefully
evaluated for its appropriateness in light of your overall investment needs and
goals. If you are on a fixed income or retired, you should also consider the
increased risk of loss to principal that is present with an investment in higher
risk securities such as those in which the Fund invests.

The market value of lower rated, fixed-income securities and unrated securities
of comparable quality, commonly known as junk bonds, tends to reflect individual
developments affecting the issuer to a greater extent than the market value of
higher rated securities, which react primarily to fluctuations in the general
level of interest rates. Lower rated securities also tend to be more sensitive
to economic conditions than higher rated securities. These lower rated
fixed-income securities are considered by the rating agencies, on balance, to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation and will
generally involve more credit risk than securities in the higher rating
categories. Even securities rated triple B by S&P or Moody's, ratings which are
considered investment grade, possess some speculative characteristics.

The Fund may have difficulty disposing of certain high yielding securities
because there may be a thin trading market for a particular security at any
given time. The market for lower rated, fixed-income securities generally tends
to be concentrated among a smaller number of dealers than is the case for
securities that trade in a broader secondary retail market. Generally, buyers of
these securities are predominantly dealers and other institutional buyers,
rather than individuals. To the extent the secondary trading market for a
particular high yielding, fixed-income security does exist, it is generally not
as liquid as the secondary market for higher rated securities. Reduced liquidity
in the secondary market may have an adverse impact on market price and the
Fund's ability to dispose of particular issues, when necessary, to meet the
Fund's liquidity needs or in response to a specific economic event, such as a
deterioration in the creditworthiness of the issuer. Reduced liquidity in the
secondary market for certain securities may also make it more difficult for the
Fund to obtain market quotations based on actual trades for purposes of valuing
the Fund's portfolio. Current values for these high yield issues are obtained
from pricing services and/or a limited number of dealers and may be based upon
factors other than actual sales. (See "How are Fund Shares Valued?" in the SAI.)

The Fund is authorized to acquire high yielding, fixed-income securities that
are sold without registration under the federal securities laws and therefore
carry restrictions on resale. While many high yielding securities have been sold
with registration rights, covenants and penalty provisions for delayed
registration, if the Fund is required to sell restricted securities before the
securities have been registered, it may be deemed an underwriter of the
securities under the Securities Act of 1933, which entails special
responsibilities and liabilities. The Fund may incur special costs in disposing
of restricted securities; however, the Fund will generally incur no costs when
the issuer is responsible for registering the securities.

The high yield securities market is relatively new and much of its growth prior
to 1990 paralleled a long economic expansion. The recession that began in 1990
disrupted the market for high yielding securities and adversely affected the
value of outstanding securities and the ability of issuers of such securities to
meet their obligations. Although the economy has improved considerably and high
yielding securities have performed more consistently since that time, there is
no assurance that the adverse effects previously experienced will not reoccur.
For example, the highly publicized defaults of some high yield issuers during
1989 and 1990 and concerns regarding a sluggish economy that continued into
1993, depressed the prices for many of these securities. While market prices may
be temporarily depressed due to these factors, the ultimate price of any
security will generally reflect the true operating results of the issuer.
Factors adversely impacting the market value of high yielding securities will
adversely impact the Fund's Net Asset Value. In addition, the Fund may incur
additional expenses to the extent it is required to seek recovery upon a default
in the payment of principal or interest on its portfolio holdings. The Fund will
rely on Advisers' judgment, analysis and experience in evaluating the
creditworthiness of an issuer. In this evaluation, Advisers will take into
consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters.

ASSET COMPOSITION TABLE. A credit rating by a rating agency evaluates only the
safety of principal and interest of a security, and does not consider the market
value risk associated with the investment. The table below shows the percentage
of the Fund's assets invested in securities rated in each of the specific rating
categories shown and those that are not rated by the rating agency but deemed by
Advisers to be of comparable credit quality. The information was prepared based
on a dollar weighted average of the Fund's portfolio composition based on
month-end assets for each of the 12 months in the fiscal year ended October 31,
1996. The Appendix to this prospectus includes a description of each rating
category.

AVERAGE WEIGHTED
MOODY'S RATINGS PERCENTAGE OF ASSETS

Aa.............. 1.43%
A............... 4.08%
Baa............. 10.35%
Ba.............. 10.89%
B*.............. 57.27%
Caa............. 0.99%

*22.38% are unrated by the rating agency and have been included in the B rating
category.

FOREIGN SECURITIES. Investment in the shares of foreign issuers requires
consideration of certain factors that are not normally involved in investments
solely in U.S. issuers. Among other things, the financial and economic policies
of some foreign countries in which the Fund may invest are not as stable as in
the U.S. Furthermore, foreign issuers are not generally subject to uniform
accounting, auditing and financial standards and requirements comparable to
those applicable to U.S. corporate issuers. There may also be less government
supervision and regulation of foreign securities exchanges, brokers and issuers
than exist in the U.S. Restrictions and controls on investment in the securities
markets of some countries may have an adverse effect on the availability and
costs to the Fund of investments in those countries. In addition, there may be
the possibility of expropriations, foreign withholding taxes, confiscatory
taxation, political, economic or social instability or diplomatic developments
that could affect assets of the Fund invested in issuers in foreign countries.

There may be less publicly available information about foreign issuers than is
contained in reports and reflected in ratings published for U.S. issuers. Some
foreign securities markets have substantially less volume than the NYSE and some
foreign government securities may be less liquid and more volatile than U.S.
government securities. Transaction costs on foreign securities exchanges may be
higher than in the U.S., and foreign securities settlements may, in some
instances, be subject to delays and related administrative uncertainties.

Investments in companies domiciled in developing countries may be subject to
potentially higher risks than investments in companies in developed countries.
These risks include (i) less social, political and economic stability; (ii) the
smaller size of the markets for these securities and the currently low or
nonexistent volume of trading, that result in a lack of liquidity and in greater
price volatility; (iii) the lack of publicly available information, including
reports of payments of dividends or interest on outstanding securities; (iv)
certain national policies that may restrict the Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (v) foreign taxation; (vi) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vii) restrictions that may make it
difficult or impossible for the Fund to vote proxies, exercise shareholder
rights, pursue legal remedies, and obtain judgments in foreign courts; (viii)
the risk of uninsured loss due to lost, stolen, or counterfeit stock
certificates; and (ix) possible losses through the holding of securities in
domestic and foreign custodial banks and depositories.

INTEREST RATE AND MARKET RISK. To the extent the Fund invests in debt
securities, changes in interest rates in any country where the Fund is invested
will affect the value of the Fund's portfolio and its share price. Rising
interest rates, which often occur during times of inflation or a growing
economy, are likely to have a negative effect on the value of the Fund's shares.
To the extent the Fund invests in common stocks, a general market decline in any
country where the Fund is invested, may also cause the value of what the Fund
owns, and thus the Fund's share price, to decline. The value of stock markets
and interest rates throughout the world has increased and decreased in the past.
These changes are unpredictable and may happen again in the future.

WHO MANAGES THE FUND?

MANAGEMENT TEAM. The team responsible for the day-to-day management of the
Fund's portfolio is: Edward Jamieson since inception, and Mitchell Cone since
1994.

Edward B. Jamieson
Senior Vice President of Advisers

Mr. Jamieson holds a Master's degree in accounting and finance from the
University of Chicago Graduate School of Business and a Bachelor of Arts degree
from Bucknell University. He has been with the Franklin Templeton Group since
1987. Mr. Jamieson is a member of several securities industry-related committees
and associations.

Mitchell Cone
Portfolio Manager of Advisers

Mr. Cone is a Chartered Financial Analyst and holds a Bachelor of Arts degree in
economics and sociology from the University of California at Berkeley. He has
been in the securities industry since 1985 and with the Franklin Templeton Group
since 1992. He is a member of several securities industry-related committees and
associations.

MANAGEMENT FEES. During the fiscal year ended October 31, 1996, management fees
totaling 0.62% of the average monthly net assets of the Fund were paid to
Advisers. Total expenses, including fees paid to Advisers, were 1.02% for Class
I and 1.79% for Class II.

PORTFOLIO TRANSACTIONS.Advisers tries to obtain the best execution on all
transactions. If Advisers believes more than one broker or dealer can provide
the best execution, consistent with internal policies it may consider research
and related services and the sale of Fund shares, as well as shares of other
funds in the Franklin Templeton Group of Funds, when selecting a broker or
dealer. Please see "How does the Fund Buy Securities for its Portfolio?" in the
SAI for more information.

THE RULE 12B-1 PLANS

Payments by the Fund under the Class I plan may not exceed 0.25% per year of
Class I's average daily net assets. All distribution expenses over this amount
will be borne by those who have incurred them. During the first year after
certain Class I purchases made without a sales charge, Distributors may keep the
Rule 12b-1 fees associated with the purchase.

Under the Class II plan, the Fund may pay Distributors up to 0.75% per year of
Class II's average daily net assets to pay Distributors or others for providing
distribution and related services and bearing certain Class II expenses. All
distribution expenses over this amount will be borne by those who have incurred
them. During the first year after a purchase of Class II shares, Distributors
may keep this portion of the Rule 12b-1 fees associated with the purchase.

The Fund may also pay a servicing fee of up to 0.25% per year of Class II's
average daily net assets under the Class II plan. This fee may be used to pay
Securities Dealers or others for, among other things, helping to establish and
maintain customer accounts and records, helping with requests to buy and sell
shares, receiving and answering correspondence, monitoring dividend payments
from the Fund on behalf of customers, and similar servicing and account
maintenance activities.

The Rule 12b-1 fees charged to each class are based only on the fees
attributable to that particular class. For more information, please see "The
Fund's Underwriter" in the SAI.

HOW DOES THE FUND MEASURE PERFORMANCE?

HOW TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS

For federal income tax purposes, any income dividends which you receive from the
Fund, as well as any distributions derived from the excess of net short-term
capital gain over net long-term capital loss, are treated as ordinary income
whether you have elected to receive them in cash or in additional shares.
Distributions derived from the excess of net long-term capital gain over net
short-term capital loss are treated as long-term capital gain regardless of the
length of time you have owned Fund shares and whether you received the
distributions in cash or in additional shares.

For corporate investors, dividends from net investment income will generally
qualify in part for the corporate dividends received deduction. The portion of
the dividends so qualified, however, depends on the aggregate qualifying
dividend income received by the Fund from domestic (U.S.) sources. For the
fiscal year ended October 31, 1996, 19.05% of the income dividends paid by the
Fund qualified for the corporate dividends-received deduction, subject to
certain holding period and debt financing restrictions imposed under the Code on
the corporation claiming the deduction.

Pursuant to the Code, certain distributions which are declared in October,
November or December but which, for operational reasons, may not be paid to you
until the following January, will be treated as if received by you on December
31 of the calendar year in which they are declared.

The Fund will inform you of the source of its dividends and distributions at the
time they are paid and will, promptly after the close of each calendar year,
advise you of the tax status for federal income tax purposes of such dividends
and distributions.

If you are not considered a U.S. person for federal income tax purposes, you
should consult with your financial or tax advisor regarding the applicability of
U.S. withholding or other taxes to distributions received by you from the Fund
and the application of foreign tax laws to these distributions.

HOW IS THE TRUST ORGANIZED?

The Fund is a diversified series of Franklin Investors Securities Trust (the
"Trust"), an open-end management investment company, commonly called a mutual
fund. It was organized as a Massachusetts business trust on December 16, 1986,
and is registered with the SEC under the 1940 Act. The Fund offers two classes
of shares: Franklin Convertible Securities Fund - Class I and Franklin
Convertible Securities Fund - Class II. All shares outstanding before the
offering of Class II shares are considered Class I shares. Additional series and
classes of shares may be offered in the future.

ABOUT YOUR ACCOUNT

HOW DO I BUY SHARES?

OPENING YOUR ACCOUNT

MINIMUM
INVESTMENTS*

To Open Your Account .... $100
To Add to Your Account... $ 25

*We may waive these minimums for retirement plans. We may also refuse any order
to buy shares.

DECIDING WHICH CLASS TO BUY

Generally, you should consider buying Class I shares if:

o you expect to invest in the Fund over the long term;

o you qualify to buy Class I shares at a reduced sales charge; or

o you plan to buy $1 million or more over time.

You should consider Class II shares if:

o you expect to invest less than $100,000 in the Franklin Templeton Funds; and

o you plan to sell a substantial number of your shares within approximately six
years or less of your investment.

For purchases of $1 million or more, it is considered more beneficial for you to
buy Class I shares since there is no front-end sales charge, even though these
purchases may be subject to a Contingent Deferred Sales Charge. Any purchase of
$1 million or more is therefore automatically invested in Class I shares. You
may accumulate more than $1 million in Class II shares through purchases over
time, but if you plan to do this you should determine whether it would be more
beneficial for you to buy Class I shares through a Letter of Intent.

Please consider all of these factors before deciding which class of shares to
buy. There are no conversion features attached to either class of shares.

PURCHASE PRICE OF FUND SHARES

TOTAL SALES CHARGE AMOUNT PAID
AS A PERCENTAGE OF TO DEALER AS A
AMOUNT OF PURCHASE OFFERING NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE PRICE INVESTED OFFERING PRICE

CLASS I
Under $100,000...................... 4.50% 4.71% 4.00%
$100,000 but less than $250,000..... 3.75% 3.90% 3.25%
$250,000 but less than $500,000..... 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000... 2.25% 2.30% 2.00%
$1,000,000 or more*................. None None None

CLASS II
Under $1,000,000*................... 1.00% 1.01% 1.00%

SALES CHARGE REDUCTIONS AND WAIVERS

- - IF YOU QUALIFY TO BUY SHARES UNDER ONE OF THE SALES CHARGE REDUCTION OR
WAIVER CATEGORIES DESCRIBED BELOW, PLEASE INCLUDE A WRITTEN STATEMENT WITH EACH
PURCHASE ORDER EXPLAINING WHICH PRIVILEGE APPLIES. If you don't include this
statement, we cannot guarantee that you will receive the sales charge reduction
or waiver.

BY COMPLETING THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION, YOU
ACKNOWLEDGE AND AGREE TO THE FOLLOWING:

o You authorize Distributors to reserve 5% of your total intended purchase in
Class I shares registered in your name until you fulfill your Letter.

o You give Distributors a security interest in the reserved shares and appoint
Distributors as attorney-in-fact.

o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the Letter.

o Although you may exchange your shares, you may not sell reserved shares until
you complete the Letter or pay the higher sales charge.

If you would like more information about the Letter of Intent privilege, please
see "How Do I Buy, Sell and Exchange Shares? - Letter of Intent" in the SAI or
call Shareholder Services.

A qualified group is one that:

o Was formed at least six months ago,

o Has a purpose other than buying Fund shares at a discount,

o Has more than 10 members,

o Can arrange for meetings between our representatives and group members,

o Agrees to include Franklin Templeton Fund sales and other materials in
publications and mailings to its members at reduced or no cost to Distributors,

o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the Fund, and

o Meets other uniform criteria that allow Distributors to achieve cost savings
in distributing shares.

The Fund's sales charges will not apply if you are buying Class I shares with
money from the following sources or Class II shares with money from the sources
in waiver categories 1 or 4:

1. Dividend and capital gain distributions from any Franklin Templeton Fund or
a REIT sponsored or advised by Franklin Properties, Inc.

2. Distributions from an existing retirement plan invested in the Franklin
Templeton Funds

4. Redemptions from any Franklin Templeton Fund if you:

o Originally paid a sales charge on the shares,

o Reinvest the money within 365 days of the redemption date, and

o Reinvest the money in the same class of shares.

5. Redemptions from other mutual funds

The Fund's sales charges will also not apply to Class I purchases by:

7. Group annuity separate accounts offered to retirement plans

8. Retirement plans that (i) are sponsored by an employer with at least 100
employees, (ii) have plan assets of $1 million or more, or (iii) agree to invest
at least $500,000 in the Franklin Templeton Funds over a 13 month period.
Retirement plans that are not Qualified Retirement Plans or SEPS, such as 403(b)
or 457 plans, must also meet the requirements described under "Group Purchases -
Class I Only" above. 9. An Eligible Governmental Authority. Please consult your
legal and investment advisors to determine if an investment in the Fund is
permissible and suitable for you and the effect, if any, of payments by the Fund
on arbitrage rebate calculations.

10. Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for clients
participating in comprehensive fee programs

11. Registered Securities Dealers and their affiliates, for their investment
accounts only

12. Current employees of Securities Dealers and their affiliates and their
family members, as allowed by the internal policies of their employer

13. Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family members,
consistent with our then-current policies

14. Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer

15. Accounts managed by the Franklin Templeton Group

16. Certain unit investment trusts and their holders reinvesting distributions
from the trusts

HOW DO I BUY SHARES IN CONNECTION WITH RETIREMENT PLANS?

Please consult your legal, tax or retirement plan specialist before choosing a
retirement plan. Your investment representative or advisor can help you make
investment decisions within your plan.

OTHER PAYMENTS TO SECURITIES DEALERS

1. Class II purchases - up to 1% of the purchase price.

2. Class I purchases of $1 million or more - up to 1% of the purchase price.

3. Class I purchases by certain retirement plans - up to 1% of the purchase
price.

MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?

METHOD STEPS TO FOLLOW

BY MAIL 1. Send us written instructions signed by all account owners

2. Include any outstanding share certificates for the shares
you're exchanging

BY PHONE Call Shareholder Services or TeleFACTS(R)

- If you do not want the ability to exchange by phone to
apply To your account, please let us know.

THROUGH YOUR DEALER Call your investment representative

Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.

WILL SALES CHARGES APPLY TO MY EXCHANGE?

If you exchange your Class II shares for shares of Money Fund II, the time your
shares are held in that fund will count towards the completion of any
Contingency Period.

Exchange Restrictions

Please be aware that the following restrictions apply to exchanges:

o You may only exchange shares within the SAME CLASS, except as noted below.

o The accounts must be identically registered. You may, however, exchange shares
from a Fund account requiring two or more signatures into an identically
registered money fund account requiring only one signature for all transactions.
Please notify us in writing if you do not want this option to be available on
your account. Additional procedures may apply. Please see "Transaction
Procedures and Special Requirements."

o The fund you are exchanging into must be eligible for sale in your state.

o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.

if accepted, will be charged $5.00. Some of our funds do not allow investments
by Market Timers.

LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES

Certain funds in the Franklin Templeton Funds offer classes of shares not
offered by the Fund, such as "Advisor Class" or "Class Z" shares. Because the
Fund does not currently offer an Advisor Class, you may exchange Advisor Class
shares of any Franklin Templeton Fund for Class I shares of the Fund at Net
Asset Value. If you do so and you later decide you would like to exchange into a
fund that offers an Advisor Class, you may exchange your Class I shares for
Advisor Class shares of that fund. Beginning on or about May 1, 1997, you may
also exchange Class Z shares of Franklin Mutual Series Fund Inc. for Class I
shares of the Fund at Net Asset Value.

HOW DO I SELL SHARES?

You may sell (redeem) your shares at any time.

METHOD STEPS TO FOLLOW

BY MAIL 1. Send us written instructions signed by all account owners

2. Include any outstanding share certificates for the shares
you are selling

3. Provide a signature guarantee if required

4. Corporate, partnership and trust accounts may need to send
additional documents. Accounts under court jurisdiction may
have other requirements.

BY PHONE Call Shareholder Services

(Only available Telephone requests will be accepted:
if you have
completed and o If the request is $50,000 or less. Institutional accounts may
sent to us the exceed $50,000 by completing a separate agreement. Call
telephone Institutional Services to receive a copy.
redemption
agreeement o If there are no share certificates issued for the shares you
included with want to sell or you have already returned them to the Fund
this prospectus)
o Unless you are selling shares in a Trust Company retirement
plan account

o Unless the address on your account was changed by phone
within the last 30 days

THROUGH YOUR DEALER Call your investment representative

Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.

Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.

TRUST COMPANY RETIREMENT PLAN ACCOUNTS

CONTINGENT DEFERRED SALES CHARGE

WAIVERS. We waive the Contingent Deferred Sales Charge for:

o Exchanges

o Account fees

o Sales of shares purchased pursuant to a sales charge waiver

o Redemptions by the Fund when an account falls below the minimum required
account size

o Redemptions following the death of the shareholder or beneficial owner

o Redemptions through a systematic withdrawal plan set up before February 1,
1995

o Distributions from individual retirement plan accounts due to death or
disability or upon periodic distributions based on life expectancy

o Tax-free returns of excess contributions from employee benefit plans

o Distributions from employee benefit plans, including those due to termination
or plan transfer

WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?

Capital gains, if any, may be distributed annually, usually in December.

DISTRIBUTION OPTIONS

You may receive your distributions from the Fund in any of these ways:

TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS

HOW AND WHEN SHARES ARE PRICED

THE PRICE WE USE WHEN YOU BUY OR SELL SHARES

PROPER FORM

An order to buy shares is in proper form when we receive your signed shareholder
application and check. Written requests to sell or exchange shares are in proper
form when we receive written instructions signed by all registered owners, with
a signature guarantee if necessary. We must also receive any outstanding share
certificates for those shares.

WRITTEN INSTRUCTIONS

Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:

o Your name,

o The Fund's name,

o The class of shares,

o A description of the request,

o For exchanges, the name of the fund you're exchanging into,

o Your account number,

o The dollar amount or number of shares, and

o A telephone number where we may reach you during the day, or in the evening if
preferred.

SIGNATURE GUARANTEES

For our mutual protection, we require a signature guarantee in the following
situations:

1) You wish to sell over $50,000 worth of shares,

2) You want the proceeds to be paid to someone other than the registered owners,

3) The proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account,

4) We receive instructions from an agent, not the registered owners,

5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.

SHARE CERTIFICATES

TELEPHONE TRANSACTIONS

You may initiate many transactions by phone. Please refer to the sections of
this prospectus that discuss the transaction you would like to make or call
Shareholder Services.

To obtain any required forms or more information about distribution or transfer
procedures, please call our Retirement Plans Department.

ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS

Joint Ownership. If you open an account with two or more owners, we register the
account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of survivorship"
is shown as "Jt Ten" on your account statement. For any account with two or more
owners, ALL owners must sign instructions to process transactions and changes to
the account. Even if the law in your state says otherwise, we cannot accept
instructions to change owners on the account unless all owners agree in writing.
If you would like another person or owner to sign for you, please send us a
current power of attorney.

TRUSTS. You should register your account as a trust only if you have a valid
written trust document. This avoids future disputes or possible court action
over who owns the account.

TYPE OF ACCOUNT DOCUMENTS REQUIRED

CORPORATION Corporate Resolution

PARTNERSHIP 1. The pages from the partnership agreement that identify the
general partners, or

2. A certification for a partnership agreement

TRUST 1. The pages from the trust document that identify the
trustees, or

2. A certification for trust

TAX IDENTIFICATION NUMBER

KEEPING YOUR ACCOUNT OPEN

SERVICES TO HELP YOU MANAGE YOUR ACCOUNT

AUTOMATIC INVESTMENT PLAN

AUTOMATIC PAYROLL DEDUCTION - CLASS I ONLY

SYSTEMATIC WITHDRAWAL PLAN

You will generally receive your payment by the end of the month in which a
payment is scheduled. When you sell your shares under a systematic withdrawal
plan, it is a taxable transaction.

ELECTRONIC FUND TRANSFERS - CLASS I ONLY

TELEFACTS(R)

From a touch-tone phone, you may call our TeleFACTS system (day or night) at
1-800/247-1753 to:

o obtain information about your account;

o obtain price and performance information about any Franklin Templeton Fund;

o exchange shares between identically registered Franklin accounts; and

o request duplicate statements and deposit slips for Franklin accounts.

You will need the code number for each class to use TeleFACTS. The code number
is 137 for Class I and 237 for Class II.

STATEMENTS AND REPORTS TO SHAREHOLDERS

We will send you the following statements and reports on a regular basis:

INSTITUTIONAL ACCOUNTS

AVAILABILITY OF THESE SERVICES

WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?

If you have any questions about your account, you may write to Investor Services
at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California 94403-7777.
The Fund, Distributors and Advisers are also located at this address. You may
also contact us by phone at one of the numbers listed below.

HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)

Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.

GLOSSARY

USEFUL TERMS AND DEFINITIONS

1940 ACT - Investment Company Act of 1940, as amended

ADVISERS - Franklin Advisers, Inc., the Fund's investment manager

BOARD - The Board of Trustees of the Trust

CD - Certificate of deposit

CLASS I AND CLASS II - The Fund offers two classes of shares, designated "Class
I" and "Class II." The two classes have proportionate interests in the Fund's
portfolio. They differ, however, primarily in their sales charge structures and
Rule 12b-1 plans.

CODE - Internal Revenue Code of 1986, as amended

CONTINGENT DEFERRED SALES CHARGE (CDSC) - A sales charge of 1% that may apply if
you sell your shares within the Contingency Period.

DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Trustees."

Franklin Templeton Funds - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Franklin Government Securities Trust, Templeton Capital Accumulator Fund,
Inc., Templeton Variable Annuity Fund, and Templeton Variable Products Series
Fund

FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries

FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds

FT SERVICES - Franklin Templeton Services, Inc., the Fund's administrator

INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent

IRS - Internal Revenue Service

LETTER - Letter of Intent

MOODY'S - Moody's Investors Service, Inc.

NASD - National Association of Securities Dealers, Inc.

NSCC - National Securities Clearing Corporation

NYSE - New York Stock Exchange

REIT - Real Estate Investment Trust

RESOURCES - Franklin Resources, Inc.

SAI - Statement of Additional Information

S&P - Standard & Poor's Corporation

SEC - U.S. Securities and Exchange Commission

SEP - An employer sponsored simplified employee pension plan established under
section 408(k) of the Code

TELEFACTS(R) - Franklin Templeton's automated customer servicing system

TRUST COMPANY - Franklin Templeton Trust Company. Trust Company is an affiliate
of Distributors and both are wholly owned subsidiaries of Resources.

U.S. - United States

WE/OUR/US - Unless the context indicates a different meaning, these terms refer
to the Fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.

APPENDIX

DESCRIPTION OF RATINGS

CORPORATE BOND RATINGS

MOODY'S

CAA - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.

CA - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.

C - Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.

S&P

AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.

A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

D - Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.

PROSPECTUS & APPLICATION

FRANKLIN ADJUSTABLE
U.S. GOVERNMENT
SECURITIES FUND

INVESTMENT STRATEGY

INCOME

MARCH 1, 1997

FRANKLIN INVESTORS SECURITIES TRUST

This prospectus describes the Franklin Adjustable U.S. Government Securities
Fund (the "Fund"). It contains information you should know before investing in
the Fund. Please keep it for future reference.

UNLIKE MOST FUNDS THAT INVEST DIRECTLY IN SECURITIES, THE FUND SEEKS TO ACHIEVE
ITS INVESTMENT OBJECTIVE BY INVESTING ALL OF ITS ASSETS IN SHARES OF THE U.S.
GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO (THE "PORTFOLIO"). THE PORTFOLIO
IS A SERIES OF THE ADJUSTABLE RATE SECURITIES PORTFOLIOS. ITS INVESTMENT
OBJECTIVE IS THE SAME AS THE FUND'S.

FRANKLIN
ADJUSTABLE
U.S. GOVERNMENT
SECURITIES FUND

MARCH 1, 1997

WHEN READING THIS PROSPECTUS, YOU WILL SEE CERTAIN TERMS BEGINNING WITH CAPITAL
LETTERS. THIS MEANS THE TERM IS EXPLAINED IN OUR GLOSSARY SECTION.

TABLE OF CONTENTS

ABOUT THE FUND

Expense Summary................................................. 2
Financial Highlights............................................ 4
How does the Fund Invest its Assets?............................ 6
What are the Fund's Potential Risks?............................ 13
Who Administers the Fund?....................................... 14
How does the Fund Measure Performance?.......................... 16
How Taxation Affects the Fund and its Shareholders.............. 16
How is the Trust Organized?..................................... 18

ABOUT YOUR ACCOUNT

How Do I Buy Shares?............................................ 18
May I Exchange Shares for Shares of Another Fund?............... 23
How Do I Sell Shares?........................................... 25
What Distributions Might I Receive from the Fund?............... 28
Transaction Procedures and Special Requirements................. 29
Services to Help You Manage Your Account........................ 33
What If I Have Questions About My Account?...................... 35

GLOSSARY

Useful Terms and Definitions.................................... 36

777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777
1-800/DIAL BEN

ABOUT THE FUND

EXPENSE SUMMARY

This table is designed to help you understand the costs of investing in the
Fund. It is based on the Fund's historical expenses, including its proportionate
share of the Portfolio's expenses, for the fiscal year ended October 31, 1996.
The Fund's actual expenses may vary.

A. SHAREHOLDER TRANSACTION EXPENSES+

Maximum Sales Charge Imposed on Purchases
(as a percentage of Offering Price) 2.25%++
Deferred Sales Charge None+++
Exchange Fee (per transaction) $5.00*

B. ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)

Management and Administration Fees 0.50%**
Rule 12b-1 Fees 0.22%***
Other Expenses of the Fund and the Portfolio 0.14%
Total Fund Operating Expenses 0.86%**

C. EXAMPLE

1 YEAR 3 YEARS 5 YEARS 10 YEARS

$31**** $49 $69 $126

THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. The
Fund pays its operating expenses. The effects of these expenses are reflected
in its Net Asset Value or dividends and are not directly charged to your
account.

+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.

++There is no front-end sales charge if you invest $1 million or more.

*$5.00 fee is only for Market Timers. We process all other exchanges without a
fee.

**For the period shown, Advisers had agreed in advance to limit its management
fees and make certain payments to reduce the Fund's and the Portfolio's
expenses. With this reduction, management fees of the Portfolio were 0.23% and
administration fees of the Fund were 0.10%. Total Fund operating expenses were
0.69%.

***These fees may not exceed 0.25%. The combination of front-end sales charges
and Rule 12b-1 fees could cause long-term shareholders to pay more than the
economic equivalent of the maximum front-end sales charge permitted under the
NASD's rules.

****Assumes a Contingent Deferred Sales Charge will not apply.

The Board considered whether the total fees and expenses of the Fund and the
Portfolio would be more or less than if the Fund invested directly in the types
of securities held by the Portfolio. By investing all of its assets in shares of
the Portfolio, the Fund, other investment companies and institutional investors
are able to pool their assets. This may result in a variety of operating
economies. Accordingly, the Board concluded that the total expenses of the Fund
and the Portfolio were expected to be lower than if the Fund invested directly
in various types of mortgage-backed securities. Of course, there is no guarantee
that asset growth and lower expenses will be achieved. Advisers, however, has
agreed in advance to limit expenses so that they will not be higher than if the
Fund invested directly in the types of securities held by the Portfolio.
Advisers may end this arrangement at any time upon notice to the Board. For more
information on the fees and expenses of the Fund and the Portfolio, please see
"Who Administers the Fund?"

Financial Highlights

Nine Months
Ended
Year Ended October 31, October 31, Year Ended January 31,

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING PERFORMANCE

Net Asset Value
at Beginning of Period $9.34 $9.20 $9.77 $9.86 $9.98 $9.99 $10.05 $10.07 $10.17
--------------------------------------------------------------------------------------------------

Net Investment Income 0.56 0.54 0.35 0.28 0.51 0.74 0.88 0.94 0.82

Net Realized &
Unrealized Gains
(Losses) on Securities 0.032 0.136 (0.606) (0.086) (0.105) 0.027 0.066 0.034 (0.229)
---------------------------------------------------------------------------------------------------

Total From
Investment Operations 0.592 0.676 (0.256) 0.194 0.405 0.767 0.946 0.974 0.591
--------------------------------------------------------------------------------------------------

Distributions From
Net Investment Income (0.562) (0.536) (0.314) (0.284) (0.522) (0.777) (1.006) (0.994) (0.691)

Distributions From
Capital Gains - - - - (0.003) - - - -
----------------------------------------------------------------------------------------------

Total Distributions (0.562) (0.536) (0.314) (0.284) (0.525) (0.777) (1.006) (0.994) (0.691)
----------------------------------------------------------------------------------------------------

Net Asset Value
at End of Period $9.37 $9.34 $9.20 $9.77 $9.86 $9.98 $9.99 $10.05 $10.07
==================================================================================================

Total Return** 6.54% 7.57% (2.65)% 1.99% 4.16% 7.96% 9.91% 10.16% 5.99%

RATIOS/SUPPLEMENTAL DATA

Net Assets
at End of Period (in 000's)$397,078 $509,371 $700,617 $1,813,504 $2,971,424 $3,513,415 $1,173,486 $82,257 $45,250

Ratio of Expenses
to Average Net Assets+ 0.69%2 0.61%2 0.42%2 0.65%2* 0.66%2 0.68%2 0.30% 0.39% 0.44%

Ratio of Net
Investment Income
to Average Net Assets 5.87% 5.76% 3.67% 3.92%* 5.10% 7.10% 8.23% 9.03% 7.92%

Portfolio Turnover Rate 23.52% 17.81% 5.99% 6.97% 30.36% 30.89% 96.50% 76.32% 48.39%
</TABLE>

1For the nine months ended October 31, resulting from a change in fiscal year
end from January 31.

2Includes the Fund's share of the Portfolio's allocated expenses.

*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.

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

1989 .96
1990 .87
1991 .82
1992 .892
1993 .802
19931 .792*
1994 .822
1995 .862
1996 .862

HOW DOES THE FUND INVEST ITS ASSETS?

THE FUND'S INVESTMENT OBJECTIVE

The Fund's investment objective is to seek a high level of current income,
consistent with lower volatility of principal. The Fund seeks to achieve its
investment objective by investing all of its assets in the Portfolio. The
investment policies of the Fund are substantially similar to the policies and
restrictions of the Portfolio except that, in all cases, the Fund may pursue its
policies by investing in an open-end management investment company with the same
investment objective and substantially similar policies and restrictions as the
Fund. Any additional exceptions are noted below. The Fund buys shares of the
Portfolio at Net Asset Value. An investment in the Fund is an indirect
investment in the Portfolio. The objective of the Fund and the Portfolio is
fundamental and may not be changed without shareholder approval. Of course,
there is no assurance that the Fund's objective will be achieved.

THE FUND'S MASTER/FEEDER FUND STRUCTURE

An investment in the Fund may be subject to certain risks due to the Fund's
structure. These risks include the potential that if other future shareholders
in the Portfolio sell their shares, the Fund's expenses may increase or the
economies of scale that have been achieved as a result of the structure may be
diminished. Institutional investors in the Portfolio that have a greater pro
rata ownership interest in the Portfolio than the Fund could also have effective
voting control over the operation of the Portfolio. Furthermore, if shareholders
of the Fund do not approve a proposed future change in the Fund's objective or
fundamental policies, which has been approved for the Portfolio, the Fund may be
forced to withdraw its investment from the Portfolio and seek another investment
company with the same investment objective and policies. If the Board considers
it to be in the best interest of the Fund, the Fund may withdraw its investment
in the Portfolio at any time. In that event, the Board would consider what
action to take, including the investment of all of the assets of the Fund in
another pooled investment entity with the same investment objective and
substantially similar policies as the Fund or the hiring of an investment
advisor to manage the Fund's investments. Either circumstance may cause an
increase in Fund expenses.

The Fund's structure is a relatively new format that often results in certain
operational and other complexities. The Franklin organization was one of the
first mutual fund complexes in the country to implement this structure, and the
Board does not believe the additional complexities outweigh the potential
benefits to be gained by shareholders.

The Fund's investment of all of its assets in the Portfolio was previously
approved by shareholders of the Fund. Whenever the Fund, as an investor in the
Portfolio, is asked to vote on a matter relating to the Portfolio, the Fund will
hold a meeting of Fund shareholders and will cast its votes in the same
proportion as the Fund's shareholders have voted.

The Franklin Templeton Funds have one other fund, designed for institutional
investors only, that invests in the Portfolio. In the future, other funds may be
created that may likewise invest in the Portfolio or existing funds may be
restructured so that they may invest in the Portfolio. If requested, we will
forward additional information to you about other funds through which you may
invest in the Portfolio. If you would like to receive this information, please
call Fund Information.

The Portfolio is a diversified series of the Adjustable Rate Securities
Portfolios, an open-end management investment company. The Adjustable Rate
Securities Portfolios was organized as a Delaware business trust on February 15,
1991, and is registered with the SEC under the 1940 Act. The Adjustable Rate
Securities Portfolios currently issues shares in two separate series. In the
future, additional series may be added by the Board of Trustees of the
Adjustable Rate Securities Portfolios.

For information on the Fund's administrator and its expenses, please see "Who
Administers the Fund?"

TYPES OF SECURITIES IN WHICH THE PORTFOLIO MAY INVEST

The Portfolio will seek to achieve its investment objective by investing at
least 65% of its total assets in adjustable rate mortgage securities ("ARMS") or
other securities collateralized by or representing an interest in mortgages
(collectively, "mortgage securities") that have interest rates that reset at
periodic intervals. All mortgage securities that the Portfolio invests in, will
be issued or guaranteed by the U.S. government, its agencies or
instrumentalities. The Portfolio may also invest up to 35% of its total assets
in (1) notes, bonds and discount notes of the following U.S. government agencies
or instrumentalities: Federal Home Loan Banks, Federal National Mortgage
Association ("FNMA"), Government National Mortgage Association ("GNMA"), Federal
Home Loan Mortgage Corporation ("FHLMC") and Small Business Administration, (2)
obligations of or guaranteed by the full faith and credit of the U.S. government
and repurchase agreements collateralized by such obligations and (3) time and
savings deposits in commercial or savings banks or in institutions whose
accounts are insured by the Federal Deposit Insurance Corporation ("FDIC"). The
Portfolio's investment in time deposits will not exceed 10% of its total assets.

For temporary defensive purposes, the Portfolio may invest up to 100% of its
assets in U.S. government securities, CDs of banks having total assets in excess
of $5 billion and repurchase agreements.

ADJUSTABLE RATE MORTGAGE SECURITIES. ARMS, like traditional mortgage securities,
are interests in pools of mortgage loans. Most mortgage securities are
pass-through securities, which means that they provide investors with payments
consisting of both principal and interest as mortgages in the underlying
mortgage pool are paid off by the borrower. The dominant issuers or guarantors
of mortgage securities today are GNMA, FNMA and FHLMC. GNMA creates mortgage
securities from pools of government guaranteed or insured (Federal Housing
Authority or Veterans Administration) mortgages originated by mortgage bankers,
commercial banks and savings and loan associations. FNMA and FHLMC issue
mortgage securities from pools of conventional and federally insured and/or
guaranteed residential mortgages obtained from various entities, including
savings and loan associations, savings banks, commercial banks, credit unions
and mortgage bankers.

The adjustable interest rate feature of the mortgages underlying the mortgage
securities in which the Portfolio invests generally will act as a buffer to
reduce sharp changes in the Portfolio's Net Asset Value in response to normal
interest rate fluctuations. As the interest rates on the mortgages underlying
the Portfolio's investments are reset periodically, yields of portfolio
securities will gradually align themselves to reflect changes in market rates so
that the market value of the securities held by the Portfolio will remain
relatively stable as compared to fixed-rate instruments and should cause the Net
Asset Value of the Fund to fluctuate less significantly than it would if the
Portfolio invested in more traditional long-term, fixed-rate debt securities.
During periods of rising interest rates, changes in the coupon rate lag behind
changes in the market rate, resulting in possibly a lower Net Asset Value until
the coupon resets to market rates. Thus, investors could suffer some principal
loss if they sold their Fund shares before the interest rates on the underlying
mortgages are adjusted to reflect current market rates. During periods of
extreme fluctuation in interest rates, the Fund's Net Asset Value will fluctuate
as well. Since most mortgage securities held by the Portfolio will generally
have annual reset limits or caps of 100 to 200 basis points, short-term
fluctuations in interest rates above these levels could cause these mortgage
securities to "cap out" and to behave more like long-term, fixed-rate debt
securities.

Unlike fixed-rate mortgages, that generally decline in value during periods of
rising interest rates, adjustable rate mortgage securities allow the Portfolio
to participate in increases in interest rates through periodic adjustments in
the coupons of the underlying mortgages, resulting in both higher current yields
and lower price fluctuations. Furthermore, if prepayments of principal are made
on the underlying mortgages during periods of rising interest rates, the
Portfolio generally will be able to reinvest such amounts in securities with a
higher current rate of return. The Portfolio, however, will not benefit from
increases in interest rates to the extent that interest rates rise to the point
where they cause the current coupon of adjustable rate mortgage securities held
as investments by the Portfolio to exceed the maximum allowable annual or
lifetime reset limits (or "cap rates") for a particular mortgage. Also, the
Portfolio's Net Asset Value could vary to the extent that current yields on
mortgage-backed securities are different than market yields during interim
periods between coupon reset dates.

During periods of declining interest rates, of course, the coupon rates may
readjust downward, resulting in lower yields to the Fund. Further, because of
this feature, the value of ARMS are unlikely to rise during periods of declining
interest rates to the same extent as fixed-rate instruments. As with other
mortgage backed securities, interest rate declines may result in accelerated
prepayment of mortgages and the proceeds from such prepayments must be
reinvested at lower prevailing interest rates.

One additional difference between ARMS and fixed-rate mortgages is that for
certain types of ARMS, the rate of amortization of principal, as well as
interest payments, can and does change in accordance with movements in a
particular, pre-specified, published interest rate index. The amount of interest
due to an ARMS holder is calculated by adding a specified additional amount, the
"margin," to the index, subject to limitations or "caps" on the maximum and
minimum interest that is charged to the mortgagor during the life of the
mortgage or to maximum and minimum changes to that interest rate during a given
period. It is these special characteristics that are unique to adjustable rate
mortgages that the Fund believes make them attractive investments in seeking to
accomplish the Fund's investment objective.

Many mortgage securities issued or guaranteed by GNMA, FHLMC or FNMA
("Certificates") are called pass-through Certificates because a pro rata share
of both regular interest and principal payments (less GNMA's, FHLMC's or FNMA's
fees and any applicable loan servicing fees), as well as unscheduled early
prepayments on the underlying mortgage pool, are passed through monthly to the
holder of the Certificate (i.e., the Portfolio). The principal and interest on
GNMA securities are guaranteed by GNMA which guarantee is backed by the full
faith and credit of the U.S. government. FNMA guarantees full and timely payment
of all interest and principal, while FHLMC guarantees timely payment of interest
and ultimate collection of principal. Mortgage securities issued or guaranteed
by FNMA and FHLMC are not backed by the full faith and credit of the U.S.
government; however, they are generally considered to offer minimal credit
risks. The yields provided by these mortgage securities have historically
exceeded the yields on other types of U.S. government securities with comparable
maturities in large measure due to the prepayment risk. See "What Are the Fund's
Potential Risks? - Mortgage Securities" in this Prospectus.

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). The Portfolio may invest in CMOs
issued and guaranteed by U.S. government agencies or instrumentalities. A CMO is
a mortgage-backed security that separates mortgage pools into short-, medium-
and long-term components. Each component pays a fixed rate of interest at
regular intervals. These components enable an investor such as the Portfolio to
more accurately predict the pace at which principal is returned. The Portfolio
will not invest in privately issued CMOs except to the extent that it invests in
the securities of entities that are instrumentalities of the U.S. government.
CMOs purchased by the Portfolio may be:

(1) collateralized by pools of mortgages in which each mortgage is guaranteed as
to payment of principal and interest by an agency or instrumentality of the U.S.
government;

(2) collateralized by pools of mortgages in which payment of principal and
interest are guaranteed by the issuer and the guarantee is collateralized by
U.S. government securities; or

(3) securities in which the proceeds of the issuance are invested in mortgage
securities and payment of the principal and interest are supported by the credit
of an agency or instrumentality of the U.S. government.

RESETS. The interest rates paid on ARMS and CMOs in which the Portfolio
primarily invests generally are readjusted at intervals of one year or less to
an increment over some predetermined interest rate index, although some may have
intervals as long as 5 years. There are three main categories of indices: those
based on the London Interbank Offered Rate (LIBOR); those based on U.S. Treasury
securities and those derived from a calculated measure such as a cost of funds
index or a moving average of mortgage rates. Commonly utilized indices include
the one, three- and five-year constant maturity Treasury rates, the three-month
Treasury bill rate, the 180-day Treasury bill rate, rates on longer-term
Treasury securities, the 11th District Federal Home Loan Bank Cost of Funds, the
National Median Cost of Funds, the one-, three-, six-month or one-year LIBOR,
the prime rate of a specific bank, or commercial paper rates. Some indices, such
as the one-year constant maturity Treasury rate, closely mirror changes in
market interest rate levels. Others, such as the 11th District Home Loan Bank
Cost of Funds index, tend to lag behind changes in market rate levels and tend
to be somewhat less volatile.

CAPS AND FLOORS. The underlying mortgages which collateralize ARMS and CMOs in
which the Portfolio invests will frequently have caps and floors that limit the
maximum amount by which the loan rate to the residential borrower may change up
or down (1) per reset or adjustment interval, and (2) over the life of the loan.
Some residential mortgage loans restrict periodic adjustments by limiting
changes in the borrower's monthly principal and interest payments rather than
limiting interest rate changes. These payment caps may result in negative
amortization.

OTHER INVESTMENT POLICIES OF THE PORTFOLIO

REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase transactions in
which the Portfolio buys a U.S. government security subject to resale to a bank
or dealer at an agreed-upon price and date. The transaction requires the
collateralization of the seller's obligation by the transfer of securities with
an initial market value, including accrued interest, equal to at least 102% of
the dollar amount invested by the Portfolio in each agreement, with the value of
the underlying security marked-to-market daily to maintain coverage of at least
100%. A default by the seller might cause the Portfolio to experience a loss or
delay in the liquidation of the collateral securing the repurchase agreement.
The Portfolio might also incur disposition costs in liquidating the collateral.
The Portfolio, however, intends to enter into repurchase agreements only with
financial institutions such as broker-dealers and banks that are deemed
creditworthy by Advisers. A repurchase agreement is deemed to be a loan by the
Portfolio under the 1940 Act. The U.S. government security subject to resale
(the collateral) will be held on behalf of the Portfolio by a custodian bank
approved by the Portfolio's Board of Trustees and will be held pursuant to a
written agreement.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Portfolio may buy U.S.
government obligations on a "when-issued" or "delayed delivery" basis. These
transactions are arrangements under which the Portfolio buys securities with
payment and delivery scheduled for a future time, generally within 30 to 60
days. The price is subject to market fluctuation, and the value at delivery may
be more or less than the purchase price. Although the Portfolio will generally
buy U.S. government securities on a when-issued basis with the intention of
acquiring the securities, it may sell the securities before the settlement date
if it is deemed advisable. When the Portfolio is the buyer in such a
transaction, it will maintain, in a segregated account with its custodian bank,
cash or high-grade marketable securities having an aggregate value equal to the
amount of its purchase commitments until payment is made. To the extent the
Portfolio engages in when-issued and delayed delivery transactions, it will do
so only for the purpose of acquiring portfolio securities consistent with the
Portfolio's investment objective and policies, and not for the purpose of
investment leverage. In when-issued and delayed delivery transactions, the
Portfolio relies on the seller to complete the transaction. The other party's
failure may cause the Portfolio to miss a price or yield considered
advantageous. Securities purchased on a when-issued or delayed delivery basis do
not generally earn interest until their scheduled delivery date. The Portfolio
is not subject to any percentage limit on the amount of its assets that it may
invest in when-issued purchase obligations.

MORTGAGE DOLLAR ROLLS. The Portfolio may enter into mortgage "dollar rolls" in
which the Portfolio sells mortgage-backed securities for delivery in the current
month and simultaneously contracts to repurchase substantially similar (name,
type, coupon and maturity) securities on a specified future date. During the
roll period, the Portfolio forgoes principal and interest paid on the
mortgage-backed securities. The Portfolio is compensated by the difference
between the current sales price and the lower forward price for the future
purchase (often referred to as the "drop"), as well as by the interest earned on
the cash proceeds of the initial sale. A "covered roll" is a specific type of
dollar roll for which there is an offsetting cash position or a cash equivalent
security position.

ILLIQUID INVESTMENTS. The Portfolio's policy is not to invest more than 10% of
its net assets, at the time of purchase, in illiquid securities. Illiquid
securities are generally securities that cannot be sold within seven days in the
normal course of business at approximately the amount at which the Portfolio has
valued them. They include, among others, repurchase agreements and time and
savings deposits of more than seven days duration.

OTHER POLICIES AND RESTRICTIONS. The Fund and the Portfolio have a number of
additional investment restrictions that limit their activities to some extent.
Some of these restrictions may only be changed with shareholder approval. For a
list of these restrictions and more information about the Fund's and the
Portfolio's investment policies, please see "How does the Fund Invest its
Assets?" and "Investment Restrictions" in the SAI.

THE ADVANTAGES OF INVESTING IN THE FUND

The Fund enables you to invest easily in mortgage securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities by allowing
an initial investment of as low as $100. Any guarantee will extend to the
payment of interest and principal due on the mortgage securities and will not
provide any protection from fluctuations in the market value of the mortgage
securities. The Fund believes that by investing in the Portfolio, which in turn
invests primarily in mortgage securities that provide for variable rates of
interest, it will achieve a higher, more consistent and less volatile Net Asset
Value than is characteristic of mutual funds that invest primarily in mortgage
securities paying a fixed rate of interest.

The dividends from the Fund's net investment income are declared and distributed
monthly. Some change in the Net Asset Value per share during the month may be
expected due to the accumulation of undistributed income and the pay out of such
income once a month as a dividend. Please see "How are Fund Shares Valued?" in
the SAI. Principal payments received on the Portfolio's mortgage securities will
be reinvested by the Portfolio in other securities. These securities may have a
higher or lower yield than the mortgage securities already held by the
Portfolio, depending upon market conditions. An investment in the Fund provides
liquidity since you may redeem shares of the Fund at the current Net Asset Value
at any time in accordance with procedures described under "How Do I Sell
Shares?" in this prospectus. An investment in the Fund may be a permissible
investment for national banks, federal credit unions, federally chartered
savings and loan associations and some state savings and loan associations. Any
regulated institution considering an investment in the Fund should refer to the
applicable laws and regulations governing its operations in order to determine
if the Fund is a permissible investment. Municipal investors considering
investment of proceeds of bond offerings into the Fund should consult with
expert counsel to determine the effect, if any, of various payments made by the
Fund, Advisers or Distributors on arbitrage rebate calculations.

WHAT ARE THE FUND'S POTENTIAL RISKS?

The value of your shares will increase as the value of the securities owned by
the Fund increases and will decrease as the value of the Fund's investments
decrease. In this way, you participate in any change in the value of the
securities owned by the Fund. Since the Fund invests its assets in shares of the
Portfolio, as the value of the securities owned by the Portfolio fluctuates, the
Portfolio's Net Asset Value per share, and thus the Fund's Net Asset Value per
share, will also fluctuate.

MORTGAGE SECURITIES. The mortgage securities in which the Portfolio invests
differ from conventional bonds in that principal is paid back over the life of
the mortgage security rather than at maturity. As a result, the holder of the
mortgage securities (i.e., the Portfolio) receives monthly scheduled payments of
principal and interest and may receive unscheduled principal payments
representing prepayments on the underlying mortgages. When the holder reinvests
the payments and any unscheduled prepayments of principal it receives, it may
receive a rate of interest that is lower than the rate on the existing mortgage
securities. For this reason, mortgage securities may be less effective than
other types of U.S. government securities as a means of "locking in" long-term
interest rates.

The market value of mortgage securities, like other U.S. government securities,
will generally vary inversely with changes in market interest rates, declining
when interest rates rise and rising when interest rates decline. Mortgage
securities, while having less risk of a decline during periods of rapidly rising
rates, may also have less potential for capital appreciation than other
investments of comparable maturities due to the likelihood of increased
prepayments of mortgages as interest rates decline. In addition, to the extent
mortgage securities are purchased at a premium, mortgage foreclosures and
unscheduled principal prepayments may result in some loss of the holder's
principal investment to the extent of the premium paid. On the other hand, if
mortgage securities are purchased at a discount, both a scheduled payment of
principal and an unscheduled prepayment of principal will increase current and
total returns and will accelerate the recognition of income which, when
distributed to shareholders, will be taxable as ordinary income.

INTEREST RATE RISK. Changes in interest rates will affect the value of the
Portfolio's and thus the Fund's holdings and affect both the Portfolio's and
Fund's share prices. Rising interest rates, which often occur during times of
inflation or a growing economy, are likely to have a negative effect on the
value of the Portfolio's and the Fund's shares. Interest rates have increased
and decreased in the past. These changes are unpredictable and may happen again
in the future.

WHO ADMINISTERS THE FUND?

THE BOARD. The Board oversees the management of the Fund and elects its
officers. The officers are responsible for the Fund's day-to-day operations.

The Board, with approval of all disinterested trustees and interested Board
members, has adopted written procedures designed to deal with potential
conflicts of interest that may arise from the Trust and the Portfolio having
substantially the same boards. These procedures call for an annual review of the
Trust's relationship with the Portfolio. If a conflict exists, the boards may
take action which may include the establishment of a new board. The Board has
determined that there are no conflicts of interest at the present time. For more
information, please see "Officers and Trustees" in the SAI.

INVESTMENT MANAGER AND ADMINISTRATOR. Advisers manages the Portfolio's assets
and makes its investment decisions. Advisers also performs similar services for
other funds. It is wholly owned by Resources, a publicly owned company engaged
in the financial services industry through its subsidiaries. Charles B. Johnson
and Rupert H. Johnson, Jr. are the principal shareholders of Resources.
Together, Advisers and its affiliates manage over $179 billion in assets.
Advisers is also the administrator of the Fund. Please see "Investment
Management and Other Services" and "Miscellaneous Information" in the SAI for
information on securities transactions and a summary of the Fund's Code of
Ethics.

MANAGEMENT TEAM. The team responsible for the day-to-day management of the
Portfolio in which the Fund invests is: Roger Bayston since 1991, Anthony Coffey
since 1991, and Jack Lemein since inception.

Roger Bayston
Portfolio Manager of Advisers

Mr. Bayston is a Chartered Financial Analyst and holds a Master of Business
Administration degree from the University of California at Los Angeles. He
earned his Bachelor of Science degree from the University of Virginia. He has
been with the Franklin Templeton Group since earning his MBA degree in 1991.

T. Anthony Coffey
Portfolio Manager of Advisers

Mr. Coffey is a Chartered Financial Analyst and holds a Master of Business
Administration from the University of California at Los Angeles. He earned his
Bachelor of Arts degree in applied mathematics and economics from Harvard
University. Mr. Coffey has been with the Franklin Templeton Group since 1989. He
is a member of several securities industry-related associations.

Jack Lemein
Senior Vice President of Advisers

MANAGEMENT FEES. You will bear a portion of the Portfolio's operating expenses,
including its management fees, to the extent that the Fund, as a shareholder of
the Portfolio, bears these expenses. The portion of the Portfolio's expenses
borne by the Fund depends on the Fund's proportionate share of the Portfolio's
net assets.

During the fiscal year ended October 31, 1996, the Fund's proportionate share of
the Portfolio's management fees and the Fund's administration fees before any
advance waiver, totaled 0.40% and 0.10%, respectively, of the average daily net
assets of the Fund. Total operating expenses, including fees paid to Advisers
before any advance waiver, totaled 0.86%. Under an agreement by Advisers to
limit its fees and to make certain payments to reduce expenses so that the
Fund's and the Portfolio's total operating expenses are not more than if the
Fund invested directly in the securities held by the Portfolio, the Fund paid a
proportionate share of the Portfolio's management fees and administration fees
totaling 0.23% and 0.10%. Total expenses of the Fund were 0.69%. Advisers may
end this arrangement at any time upon notice to the Board.

ADMINISTRATIVE SERVICES. Advisers provides certain administrative services and
facilities for the Fund. Please see "Investment Management and Other Services"
in the SAI for more information.

THE RULE 12B-1 PLAN

The Fund has a distribution plan or "Rule 12b-1 Plan" under which it may
reimburse Distributors or others for activities primarily intended to sell
shares of the Fund. These expenses may include, among others, distribution or
service fees paid to Securities Dealers or others who have executed a servicing
agreement with the Fund, Distributors or its affiliates, printing prospectuses
and reports used for sales purposes, preparing and distributing sales literature
and advertisements, and a prorated portion of Distributors' overhead expenses.

Payments by the Fund under the plan may not exceed 0.25% per year of the Fund's
average daily net assets. All distribution expenses over this amount will be
borne by those who have incurred them. During the first year after certain
purchases made without a sales charge, Distributors may keep the Rule 12b-1 fees
associated with the purchase. For more information, please see "The Fund's
Underwriter" in the SAI.

HOW DOES THE FUND MEASURE PERFORMANCE?

HOW TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS

The Fund is treated as a separate entity for federal income tax purposes. The
Fund has elected and intends to continue to qualify as a regulated investment
company under Subchapter M of the Code. By distributing all of its income and
meeting certain other requirements relating to the sources of its income and
diversification of its assets, the Fund will not be liable for federal income or
excise taxes.

For federal income tax purposes, any income dividends that you receive from the
Fund, as well as any distributions derived from the excess of net short-term
capital gain over net long-term capital loss, are treated as ordinary income
whether you have elected to receive them in cash or in additional shares.
Distributions derived from the excess of net long-term capital gain over net
short-term capital loss are treated as long-term capital gain regardless of the
length of time you have owned Fund shares and regardless of whether such
distributions are received in cash or in additional shares.

None of the distributions paid by the Fund for the fiscal year ended October 31,
1996, qualified for the corporate dividends-received deduction and it is not
expected that distributions for the current fiscal year will so qualify.

Pursuant to the Code, certain distributions which are declared in October,
November or December, but which, for operational reasons, may not be paid to you
until the following January, will be treated as if received by you on December
31 of the calendar year in which they are declared.

Redemptions and exchanges of Fund shares are taxable events on which you may
realize a gain or loss. Any loss incurred on the sale or exchange of Fund
shares, held for six months or less, will be treated as a long-term capital loss
to the extent of capital gain dividends received with respect to such shares.
You should consult with your tax advisor concerning the tax rules applicable to
the redemption and exchange of Fund shares. The Fund will inform you of the
source of your dividends and distributions at the time they are paid and will
promptly after the close of each calendar year advise you of the tax status for
federal income tax purposes of such dividends and distributions.

While many states grant tax-free status to dividends paid to shareholders of
mutual funds from interest income earned by the Fund from direct obligations of
the U.S. government, none of the distributions of the Fund during the fiscal
year ended October 31, 1996 qualified for such tax-free treatment. Investments
in mortgage-backed securities (including GNMA, FNMA and FHLMC securities) and
repurchase agreements collateralized by U.S. government securities do not
qualify as direct federal obligations in most states. You should consult with
your own tax advisor with respect to the applicability of state and local
intangible property or income taxes to your shares of the Fund and distributions
and redemption proceeds received from the Fund.

If you are not considered a U.S. person for federal income tax purposes, you
should consult with your financial or tax advisor regarding the applicability of
U.S. withholding taxes to distributions received by you from the Fund and the
application of foreign tax laws to these distributions.

HOW IS THE TRUST ORGANIZED?

The Fund is a diversified series of Franklin Investors Securities Trust ("the
Trust"), an open-end management investment company, commonly called a mutual
fund. It was organized as a Massachusetts business trust on December 16, 1986,
and is registered with the SEC under the 1940 Act. Until March 13, 1990, the
Fund was known as the Franklin Adjustable Rate Mortgage Fund. Shares of each
series of the Trust have equal and exclusive rights to dividends and
distributions declared by that series and the net assets of the series in the
event of liquidation or dissolution. Shares of the Fund are considered Class I
shares for redemption, exchange and other purposes. Additional series and
classes of shares may be offered in the future.

Shares of each class of a series have the same voting and other rights and
preferences as the other classes and series of the Trust for matters that affect
the Trust as a whole.

ABOUT YOUR ACCOUNT

HOW DO I BUY SHARES?

OPENING YOUR ACCOUNT

To open your account, contact your investment representative or complete and
sign the enclosed shareholder application and return it to the Fund with your
check.

MINIMUM
INVESTMENTS*

To Open Your Account $100
To Add to Your Account $ 25

*We may waive these minimums for retirement plans. We may also refuse any order
to buy shares.

SALES CHARGE REDUCTIONS AND WAIVERS

- - If you qualify to buy shares under one of the sales charge reduction or waiver
categories described below, please include a written statement with each
purchase order explaining which privilege applies. If you don't include this
statement, we cannot guarantee that you will receive the sales charge reduction
or waiver.

QUANTITY DISCOUNTS. The sales charge you pay depends on the dollar amount you
invest, as shown in the table below.

TOTAL SALES CHARGE AMOUNT PAID
AS A PERCENTAGE OF TO DEALER AS A
AMOUNT OF PURCHASE OFFERING NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE PRICE INVESTED OFFERING PRICE*

Under $100,000 2.25% 2.30% 2.00%
$100,000 but less than $250,000 1.75% 1.78% 1.50%
$250,000 but less than $500,000 1.25% 1.26% 1.00%
$500,000 but less than $1,000,000 1.00% 1.00% 0.85%
$1,000,000 or more** None None None

BY COMPLETING THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION, YOU
ACKNOWLEDGE AND AGREE TO THE FOLLOWING:

o You authorize Distributors to reserve 5% of your total intended purchase in
Fund shares registered in your name until you fulfill your Letter.

o You give Distributors a security interest in the reserved shares and appoint
Distributors as attorney-in-fact.

o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the Letter.

o Although you may exchange your shares, you may not sell reserved shares until
you complete the Letter or pay the higher sales charge.

If you would like more information about the Letter of Intent privilege, please
see "How Do I Buy, Sell and Exchange Shares? - Letter of Intent" in the SAI or
call Shareholder Services.

A qualified group is one that:

o Was formed at least six months ago,

o Has a purpose other than buying Fund shares at a discount,

o Has more than 10 members,

o Can arrange for meetings between our representatives and group members,

o Agrees to include Franklin Templeton Fund sales and other materials in
publications and mailings to its members at reduced or no cost to Distributors,

o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the Fund, and

o Meets other uniform criteria that allow Distributors to achieve cost savings
in distributing shares.

SALES CHARGE WAIVERS. The Fund's sales charges (front-end and contingent
deferred) will not apply to certain purchases. For waiver categories 1, 2 or 3
below: (i) the distributions or payments must be reinvested within 365 days of
their payment date and (ii) Class II distributions may be reinvested in either
Class I or Class II shares. Class I distributions may only be reinvested in
Class I shares. The Fund's sales charges will not apply if you are buying shares
with money from the following sources:

1. Dividend and capital gain distributions from any Franklin Templeton Fund or
a REIT sponsored or advised by Franklin Properties, Inc.

2. Distributions from an existing retirement plan invested in the Franklin
Templeton Funds

4. Redemptions from any Franklin Templeton Fund if you:

o Originally paid a sales charge on the shares,

o Reinvest the money within 365 days of the redemption date, and

o Reinvest the money in the same class of shares.

5. Redemptions from other mutual funds

The Fund's sales charges will also not apply to purchases by:

7. Group annuity separate accounts offered to retirement plans

8. Retirement plans that (i) are sponsored by an employer with at least 100
employees, (ii) have plan assets of $1 million or more or (iii) agree to invest
at least $500,000 in the Franklin Templeton Funds over a 13 month period.
Retirement plans that are not Qualified Retirement Plans or SEPS, such as 403(b)
or 457 plans, must also meet the requirements described under "Group Purchases"
above.

10. Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for clients
participating in comprehensive fee programs

11. Registered Securities Dealers and their affiliates, for their investment
accounts only

12. Current employees of Securities Dealers and their affiliates and their
family members, as allowed by the internal policies of their employer

13. Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family members,
consistent with our then-current policies

14. Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer

15. Accounts managed by the Franklin Templeton Group

16. Certain unit investment trusts and their holders reinvesting distributions
from the trusts

HOW DO I BUY SHARES IN CONNECTION WITH RETIREMENT PLANS?

Please consult your legal, tax or retirement plan specialist before choosing a
retirement plan. Your investment representative or advisor can help you make
investment decisions within your plan.

OTHER PAYMENTS TO SECURITIES DEALERS

The payments described below may be made to Securities Dealers who initiate and
are responsible for certain purchases made without a sales charge. A Securities
Dealer may only receive one of these payments for each qualifying purchase.
Securities Dealers who receive payments in connection with investments described
in paragraphs 1 or 2 below will be eligible to receive the Rule 12b-1 fee
associated with the purchase starting in the thirteenth calendar month after the
purchase. The payments are subject to the sole discretion of Distributors, and
are paid by Distributors or one of its affiliates and not by the Fund or its
shareholders.

1. Purchases of $1 million or more - Securities Dealers may receive up to 0.75%
of the purchase price.

2. Purchases made under waiver category 8 above - Securities Dealers may receive
up to 1% of the purchase price.

3. Purchases made under waiver categories 6, 9 and 10 above - Securities Dealers
may receive up to 0.25% of the purchase price.

MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?

METHOD STEPS TO FOLLOW

BY MAIL 1. Send us written instructions signed by all account owners

2. Include any outstanding share certificates for the shares
you're exchanging

BY PHONE Call Shareholder Services or TeleFACTS(R)

- If you do not want the ability to exchange by phone to apply
to your account, please let us know.

THROUGH YOUR DEALER Call your investment representative

Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.

WILL SALES CHARGES APPLY TO MY EXCHANGE?

EXCHANGE RESTRICTIONS

Please be aware that the following restrictions apply to exchanges:

o You may only exchange shares within the SAME CLASS, except as noted below.

o The fund you are exchanging into must be eligible for sale in your state.

o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.

Because excessive trading can hurt Fund performance and shareholders, we may
refuse any exchange purchase if (i) we believe the Fund would be harmed or
unable to invest effectively or (ii) the Fund receives or anticipates
simultaneous orders that may significantly affect the Fund.

LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES

Certain funds in the Franklin Templeton Funds offer classes of shares not
offered by the Fund, such as "Advisor Class" or "Class Z" shares. Because the
Fund does not currently offer an Advisor Class, you may exchange Advisor Class
shares of any Franklin Templeton Fund for shares of the Fund at Net Asset Value.
If you do so and you later decide you would like to exchange into a fund that
offers an Advisor Class, you may exchange your Fund shares for Advisor Class
shares of that fund. Beginning on or about May 1, 1997, you may also exchange
Class Z shares of Franklin Mutual Series Fund Inc. for shares of the Fund at Net
Asset Value.

HOW DO I SELL SHARES?

You may sell (redeem) your shares at any time.

METHOD STEPS TO FOLLOW

BY MAIL 1. Send us written instructions signed by all account owners

2. Include any outstanding share certificates for the shares
you are selling

3. Provide a signature guarantee if required

4. Corporate, partnership and trust accounts may need to send
additional documents. Accounts under court jurisdiction may
have other requirements.

BY PHONE Call Shareholder Services

(Only available Telephone requests will be accepted:
if you have
completed and o If the request is $50,000 or less. Institutional accounts
sent to us the may exceed $50,000 by completing a separate agreement.
telephone Call Institutional Services to receive a copy.
redemption
agreement o If there are no share certificates issued for the shares
included with you want to sell or you have already returned them to
this prospectus) the Fund