FRANKLIN INVESTORS SECURITIES TRUST, 485APOS, 1998-05-20

FRANKLIN INVESTORS SECURITIES TRUST
485APOS, 1998-05-20

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As filed with the Securities and Exchange Commission on May 20, 1998

File Nos.
33-11444
811-4936

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. 23 (X)

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 25 (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 (650) 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)
[ ] on (date) 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)
[x] on August 3, 1998 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.

Title of Securities Being Registered:

Franklin Bond Fund - Class I
Franklin Bond Fund - Advisor Class

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

PART A: INFORMATION REQUIRED IN THE PROSPECTUS
Franklin Bond Fund - Class I

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

1. Cover Page Cover Page

2. Synopsis "Expense Summary"

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

4. General Description "How Is the Trust Organized?"; "How
of Registrant Does the Fund Invest Its Assets?";
"What Are the Risks of Investing in
the Fund?"

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

5A. Management's Discussion of Fund Contained in Registrant's Annual
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 Offered "How Do I Buy Shares?"; "May I
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"; "Useful Terms and
Definitions"

9. Pending Legal Proceedings Not Applicable

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

PART A: INFORMATION REQUIRED IN THE PROSPECTUS
Franklin Bond Fund - Advisor Class

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

1. Cover Page Cover Page

2. Synopsis "Expense Summary"

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

4. General Description "How Is the Trust Organized?"; "How
of Registrant Does the Fund Invest Its Assets?";
"What Are the Risks of Investing in
the Fund?"

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

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

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 Bond Fund - Class I

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

10. Cover Page Cover Page

11. Table of Contents Table of Contents

12. General Information and History Not Applicable

13. Investment Objectives and Policies "How Does the Fund Invest Its
Assets?"; "Investment Restrictions"

14. Management of the Registrant "Officers and Trustees"

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

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

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

18. Capital Stock and Other Securities Not Applicable

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

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

21. Underwriters "The Fund's Underwriter"

22. Calculation of Performance Data "How Does the Fund Measure
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 Bond Fund - Advisor Class

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

10. Cover Page Cover Page

11. Table of Contents Table of Contents

12. General Information and History Not Applicable

13. Investment Objectives and Policies "How Does the Fund Invest Its
Assets?"; "Investment Restrictions"

14. Management of the Registrant "Officers and Trustees"

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

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

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

18. Capital Stock and Other Securities Not Applicable

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

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

21. Underwriters "The Fund's Underwriter"

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

23. Financial Statements "Financial Statements"

PROSPECTUS & APPLICATION
FRANKLIN BOND FUND
FRANKLIN INVESTORS SECURITIES TRUST
AUGUST 3, 1998
INVESTMENT STRATEGY: INCOME

Please read this prospectus before investing, and keep it for future
reference. It contains important information, including how the fund invests
and the services available to shareholders.

This prospectus describes the fund's Class I shares. The fund currently
offers another share class with a different sales charge and expense
structure, which affects performance.

To learn more about the fund and its policies, you may request a copy of the
fund's Statement of Additional Information ("SAI"), dated August 3, 1998,
which we may amend from time to time. We have filed the SAI with the SEC and
have incorporated it by reference into this prospectus.

For a free copy of the SAI or a larger print version of this prospectus, or
to receive a free copy of the prospectus for the fund's other share class,
contact your investment representative or call 1-800/DIAL BEN.

MUTUAL FUND SHARES 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. MUTUAL FUND SHARES INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.

LIKE ALL MUTUAL FUND SHARES, THE SEC HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

THE FUND MAY INVEST UP TO 35% 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 RISKS OF INVESTING IN THE FUND?"

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 BOND FUND
August 3, 1998

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..........................................
Financial Highlights.....................................
How Does the Fund Invest Its Assets?.....................
What Are the Risks of Investing in the Fund?.............
Who Manages the Fund?....................................
How Does the Fund Measure Performance?...................
How Taxation Affects the Fund and Its Shareholders.......
How Is the Trust Organized?.......................

ABOUT YOUR ACCOUNT
How Do I Buy Shares?.....................................
May I Exchange Shares for Shares of Another Fund?........
How Do I Sell Shares?....................................
What Distributions Might I Receive From the Fund?........
Transaction Procedures and Special Requirements..........
Services to Help You Manage Your Account.................
What If I Have Questions About My Account?...............

GLOSSARY
Useful Terms and Definitions.............................

APPENDIX........................................
Description of Ratings..................................

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 estimated expenses for the current fiscal
year. The fund's actual expenses may vary.

A. SHAREHOLDER TRANSACTION EXPENSES+
Maximum Sales Charge Imposed on Purchases
(as a percentage of Offering Price) 4.25%++
Deferred Sales Charge None+++
Exchange Fee (per transaction) $5.00*

B. ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.47%**
Rule 12b-1 Fees 0.30%***
Other Expenses 0.43%
-----
Total Fund Operating Expenses 1.20%**
=====

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
$54**** $79 $106 $182

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. A Contingent Deferred
Sales Charge may also apply to purchases by certain retirement plans that
qualify to buy shares without a front-end sales charge. 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.
** Advisers has agreed in advance to limit its management fees and make
certain payments to reduce the fund's expenses so that the fund's total
operating expenses do not exceed 1.20% for the current fiscal year. Without
this reduction, contractual and expected management fees would be 0.63% and
total fund operating expenses would be 1.36%. After October 31, 1999,
Advisers may end this arrangement at any time.
*** 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.

HOW DOES THE FUND INVEST ITS ASSETS?

WHAT IS THE FUND'S GOAL?

The investment goal of the fund is to provide a high level of current income
consistent with the preservation of capital, with capital appreciation over
the long term as a secondary goal. This goal is fundamental, which means that
it may not be changed without shareholder approval.

WHAT IS THE FUND'S INVESTMENT STRATEGY?

The fund will allocate assets among securities in various market sectors
based on Advisers' assessment of changing economic, market, industry and
issuer conditions. Advisers will use a "top-down" analysis of macroeconomic
trends, combined with a "bottom-up" fundamental analysis of market sectors,
industries and issuers to attempt to take advantage of varying sector
reactions to economic events. Advisers will evaluate business cycles, changes
in yield curves and apparent imbalances in values between and within markets,
as well as the risks of investing in particular foreign markets.

WHAT KINDS OF SECURITIES DOES THE FUND BUY?

The fund tries to achieve its investment goal by investing at least 65% of
its total assets in investment grade fixed-income securities, including debt
securities and mortgage-backed and asset-backed securities. Up to 35% of the
fund's total assets may be invested in non-investment grade fixed-income
securities.

DEBT SECURITIES represent an obligation of the issuer to repay a loan of
money to it, and generally, provide for the payment of interest. These
include bonds, notes and debentures; commercial paper; and bankers'
acceptances.

The fund may buy both rated and unrated debt securities. Independent rating
organizations rate debt securities based upon their assessment of the
financial soundness of the issuer. Generally, a lower rating indicates higher
risk. Non-investment grade securities are those rated lower than BBB by S&P
or Baa by Moody's. The fund may buy debt securities which are rated B or
better by Moody's or S&P or unrated debt which it determines to be of
comparable quality. The fund may buy debt securities of issuers in any
foreign country, developed or developing.

MORTGAGE-BACKED SECURITIES represent an ownership interest in mortgage loans
made by banks and other financial institutions to finance purchases of homes,
commercial buildings or other real estate. These mortgage loans may have
either fixed or adjustable interest rates. The individual mortgage loans are
packaged or "pooled" together for sale to investors. As the underlying
mortgage loans are paid off, investors receive principal and interest
payments.

The fund may invest in mortgage-backed securities that are issued by U.S.
government agencies, foreign government agencies, and private institutions.
The payment of interest and principal on securities issued by U.S. government
agencies generally is guaranteed either by the full faith and credit of the
U.S. government or by the credit of the agency. The guarantee applies only to
the timely repayment of principal and interest and not to the market prices
and yields of the securities or to the Net Asset Value or performance of the
fund, which will vary with changes in interest rates and other market
conditions. Mortgage-backed securities issued by foreign government agencies
and private institutions are not guaranteed by the U.S. government or its
agencies. The fund may also invest in collateralized mortgage obligations,
which are described in the SAI.

ASSET-BACKED SECURITIES. The fund may invest in asset-backed securities.
These are securities backed by credit card receivables, automobile, mobile
home and recreational vehicle loans and leases, and other receivables.

GOVERNMENT SECURITIES. The fund may invest in Treasury bills, notes and
bonds, which are direct obligations of the U.S. government, backed by the
full faith and credit of the U.S. Treasury, and in securities issued or
guaranteed by federal agencies. The fund may also invest in securities issued
or guaranteed by foreign governments and their agencies.

SHORT-TERM INVESTMENTS. The fund may invest cash being held for liquidity
purposes in short-term debt instruments, including U.S. government
securities, high grade commercial paper, repurchase agreements and other
money market equivalents.

Please see the SAI for more details on the types of securities the fund
invests in.

WHAT ARE SOME OF THE FUND'S OTHER INVESTMENT STRATEGIES AND PRACTICES?

TEMPORARY INVESTMENTS. When Advisers believes that the securities trading
markets or the economy are experiencing excessive volatility or a prolonged
general decline, or other adverse conditions exist, it may invest the fund's
portfolio in a temporary defensive manner. Under such circumstances, the fund
may invest up to 100% of its assets in short-term debt instruments, including
U.S. government securities, high grade commercial paper, repurchase
agreements and other money market equivalents.

REPURCHASE AGREEMENTS. The fund will generally have a portion of its assets
in cash or cash equivalents for a variety of reasons including waiting for a
special investment opportunity or taking a defensive position. To earn
income on this portion of its assets, the fund may enter into repurchase
agreements with certain banks and broker-dealers. Under a repurchase
agreement, the fund agrees to buy a U.S. government security from one of
these issuers and then to sell the security back to the issuer after a short
period of time (generally, less than seven days) at a higher price. The bank
or broker-dealer must transfer to the fund's custodian securities with an
initial value of at least 102% of the dollar amount invested by the Fund in
each repurchase agreement.

FUTURES CONTRACTS. Changes in interest rates, securities prices or foreign
currency valuations may affect the value of the fund's investments. To reduce
its exposure to these factors and/or to earn additional income, the fund may
buy and sell financial futures contracts and foreign currency futures
contracts and options on these contracts. A financial futures contract is an
agreement to buy or sell a specific security or commodity at a specified
future date and price. A futures contract on a foreign currency is an
agreement to buy or sell a specific amount of a currency for a set price on a
future date. Under ordinary circumstances, the fund does not expect that it
will invest more than 10% of its total assets in futures and related options
contracts; however, during the fund's initial period of operations, it is
anticipated that the fund's investment in these contracts will not exceed 25%
of total assets.

FOREIGN CURRENCY EXCHANGE TRANSACTIONS. To help protect its portfolio against
adverse changes in foreign currency exchange rates, the fund may (1) buy and
sell foreign currency at the prevailing rate in the foreign currency exchange
market; and (2) enter into forward foreign currency contracts which are
agreements to buy or sell a specific currency at a set price on a future date
(generally within one year).

SWAP AGREEMENTS. Swap agreements typically are individually negotiated
agreements that are structured to enable the parties to shift ("swap")
investment exposure from one type of investment to another. The fund may
enter into swap agreements in order to attempt to obtain a particular return,
possibly at a lower cost to the fund than if the fund were to invest directly
in assets that yielded the desired return. Under ordinary circumstances, the
fund does not expect that it will invest more than 5% of its total assets in
swap agreements; however, during the fund's initial period of operations, it
is anticipated that the fund's investment in swap agreements will not exceed
25% of total assets.

SECURITIES LENDING. To generate additional income, the fund may lend its
portfolio securities to qualified securities dealers or other institutional
investors. Such loans may not exceed 33-1/3% of the value of the fund's
total assets measured at the time of the most recent loan. For each loan the
fund must receive in return collateral with a value at least equal to 100% of
the current market value of the loaned securities.

PORTFOLIO TURNOVER. It is anticipated that the fund's annual portfolio
turnover rate generally will be below 100%, although this rate may be higher
or lower, in relation to market conditions. A portfolio turnover rate of
100% means that in a one year period, all of the fund's portfolio is being
changed.

OTHER POLICIES AND RESTRICTIONS. The fund has a number of additional
investment policies and restrictions that govern its activities. Those that
are identified as "fundamental" may only be changed with shareholder
approval. The others may be changed by the Board alone. For a list of these
restrictions and more information about the fund's investment policies,
including those described above, please see "How Does the Fund Invest Its
Assets?" and "Investment Restrictions" in the SAI.

Generally, the policies and restrictions discussed in this prospectus and in
the SAI apply when the fund makes an investment. In most cases, the fund is
not required to sell a security because circumstances change and the security
no longer meets one or more of these guidelines.

WHAT ARE THE RISKS OF INVESTING IN THE FUND?

GENERAL RISK. There is no assurance that the fund's investment goal will be
met. The fund will seek to spread investment risk by diversifying its
investments but the possibility of losses remains. Generally, if the
securities owned by the fund increase in value, the value of the shares of
the fund which you own will increase. Similarly, if the securities owned by
the fund decrease in value, the value of your shares will also decline. In
this way, you participate in any change in the value of the securities owned
by the fund.

FOREIGN SECURITIES RISK. The value of foreign (and U.S.) securities is
affected by general economic conditions and individual company and industry
earnings prospects. While foreign securities may offer significant
opportunities for gain, they also involve additional risks that can increase
the potential for losses in the fund. These risks can be significantly
greater for investments in emerging markets.

The political, economic and social structures of some countries in which the
fund invests may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of the
imposition of exchange controls, expropriation, restrictions on removal of
currency or other assets, nationalization of assets, and punitive taxes.

There may be less publicly available information about a foreign company or
government than about a U.S. company or public entity. Certain countries'
financial markets and services are less developed than those in the U.S. or
other major economies. As a result, they may not have uniform accounting,
auditing and financial reporting standards and may have less government
supervision of financial markets. Foreign securities markets may have
substantially lower trading volumes than U.S. markets, resulting in less
liquidity and more volatility than experienced in the U.S. Transaction costs
on foreign securities markets are generally higher than in the U.S. The
settlement practices may be cumbersome and result in delays that may affect
portfolio liquidity. The fund may have greater difficulty voting proxies,
exercising shareholder rights, pursuing legal remedies and obtaining
judgments with respect to foreign investments in foreign courts than with
respect to domestic issuers in U.S. courts.

Some of the countries in which the fund may invest are considered developing
or emerging markets. Investments in these markets are subject to all of the
risks of foreign investing generally, and have additional and heightened
risks due to a lack of legal, business and social frameworks to support
securities markets.

Emerging markets involve additional significant risks, including political
and social uncertainty (for example, regional conflicts and risk of war),
currency exchange rate volatility, pervasiveness of corruption and crime,
delays in settling portfolio transactions and risk of loss arising out of the
system of share registration and custody. The fund may invest up to 5% of its
total assets in emerging markets.

MARKET, CURRENCY, AND INTEREST RATE RISK. General market movements in any
country where the fund has investments are likely to affect the value of the
securities which the fund owns in that country and the fund's share price may
also be affected. The fund's investments may be denominated in foreign
currencies so that changes in foreign currency exchange rates will also
affect the value of what the fund owns, and thus the price of its shares.
Changes in interest rates in any country where the fund is invested will
affect the value of the fund's fixed-income investments and, consequently,
its share price. Rising interest rates, which often occur during times of
inflation or a growing economy, are likely to cause the value of a
fixed-income security to decrease, having a negative effect on the value of
the fund's shares. Of course, individual and worldwide stock markets,
interest rates and currency valuations have both increased and decreased,
sometimes very dramatically, in the past. These changes are likely to occur
again in the future at unpredictable times.

CREDIT AND ISSUER RISK. The fund's investments in fixed-income securities
involve credit risk. This is the risk that the issuer of a debt security or
the borrower on the underlying mortgage or debt obligation will be unable to
make principal and interest payments in a timely manner and the security will
go into default.

The fund's investments in fixed-income securities rated below investment
grade, sometimes called "junk bonds," generally have more credit risk than
higher-rated securities. The risk of default or price changes due to changes
in the issuer's credit quality is greater. Issuers of lower-rated securities
are typically in weaker financial health than issuers of higher-rated
securities, and their ability to make interest payments or repay principal is
less certain. These issuers are also more likely to encounter financial
difficulties and to be materially affected by these difficulties when they do
encounter them. The market price of lower-rated securities may fluctuate more
than higher-rated securities and may decline significantly in periods of
general or regional economic difficulty. Lower-rated securities may also be
less liquid than higher-rated securities.

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES RISK. The fund's investment in
mortgage-backed securities differs from conventional debt securities because
principal is paid back over the life of the security rather than at maturity.
The fund may receive unscheduled prepayments of principal due to voluntary
prepayments, refinancing or foreclosure on the underlying mortgage loans.
During periods of declining interest rates, the volume of principal
prepayments generally increases as borrowers refinance their mortgages at
lower rates. The fund may be forced to reinvest returned principal at lower
interest rates, reducing the fund's income. For this reason, mortgage-backed
securities may be less effective than other types of securities as a means of
"locking in" long-term interest rates and may have less potential for capital
appreciation during periods of falling interest rates than other investments
with similar maturities. A reduction in the anticipated rate of principal
prepayments, especially during periods of rising interest rates, may increase
the effective maturity of mortgage-backed securities, making them more
susceptible than other debt securities to a decline in market value when
interest rates rise. This could increase the volatility of the fund's returns
and share price.

Issuers of asset-backed securities may have limited ability to enforce the
security interest in the underlying assets and credit enhancements provided
to support these securities, if any, may be inadequate to protect investors
in the event of a default. Like mortgage-backed securities, asset-backed
securities are subject to prepayment risk.

DERIVATIVE SECURITIES RISK. Derivative investments are those whose values are
dependent upon the performance of one or more other securities or investments
or indices; in contrast to common stock, for example, whose value is
dependent upon the operations of the issuer. Option transactions, foreign
currency exchange transactions, futures contracts and swap agreements are
considered derivative investments. To the extent the fund enters into these
transactions, their success will depend upon Advisers' ability to predict
pertinent market movements. These securities are subject to the risk that the
other party to the transaction may fail to perform, resulting in losses to
the fund.

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 among
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 $242 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, Investment Counsel is the sub-advisor of
the fund. Investment Counsel provides Advisers with investment management
advice and assistance. Investment Counsel'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: Mr. Bayston and Mr. Dickson 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 in 1991.

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.

Thomas J. Dickson
Portfolio Manager of Investment Counsel

Mr. Dickson is currently a portfolio manager for several Franklin Templeton
mutual funds. He holds a Bachelor of Science degree in Managerial Economics
from the University of California at Davis. Prior to joining the Templeton
organization in 1994, Mr. Dickson worked as a fixed-income analyst and trader
for Franklin Advisers, Inc. Mr. Dickson's current research responsibilities
include country coverage of Australia, Canada, Japan and New Zealand.

MANAGEMENT FEES. The fund pays its own operating expenses. These expenses
include Advisers' management fees; taxes, if any; custodian, legal and
auditing fees; the fees and expenses of Board members who are not members of,
affiliated with, or interested persons of Advisers; fees of any personnel not
affiliated with Advisers; insurance premiums; trade association dues;
expenses of obtaining quotations for calculating the fund's Net Asset Value;
and printing and other expenses that are not expressly assumed by Advisers.

Under its management agreement, the fund pays Advisers a management fee equal
to an annual rate of 0.625% of the value of its average daily net assets up
to and including $100 million; 0.50% of the value of its average daily net
assets over $100 million up to and including $250 million; and 0.45% of the
value of its average daily net assets over $250 million. The fee is computed
at the close of business on the last business day of each month. Under the
sub-advisory agreement, Advisers pays Investment Counsel a sub-advisory fee
equal to an annual rate of 0.3125% of the fund's average daily net assets up
to and including $100 million; 0.25% of the value of the fund's average daily
net assets over $100 million up to and including $250 million; and 0.225% of
the value of the fund's average daily net assets over $250 million. This fee
is not a separate expense of the fund but is paid by Advisers from the
management fees it receives from the fund.

During the fund's start-up period, Advisers has agreed in advance to limit
its management fees and make certain payments to reduce expenses so the
fund's total operating expenses do not exceed 1.20% for the current fiscal
year. After October 31, 1999, Advisers may end this agreement at any time.

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, 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. FT Services provides certain administrative services
and facilities for the fund. Under its administration agreement, the fund
pays FT Services a monthly administration fee equal to an annual rate of
0.20% of the fund's average daily net assets up to $200 million, 0.135% of
average daily net assets over $200 million up to $700 million, 0.10% of
average daily net assets over $700 million up to $1.2 billion, and 0.075% of
average daily net assets over $1.2 billion. 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" for its Class I shares
under which it may reimburse Distributors or others for the expenses of
activities that are 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; a prorated portion of Distributors'
overhead expenses; and the expenses of printing prospectuses and reports used
for sales purposes, and preparing and distributing sales literature and
advertisements.

Payments by the fund under the plan may not exceed 0.30% per year of Class
I's average daily net assets. Of this amount, the fund may reimburse up to
0.30% to Distributors or others, out of which 0.05% will generally be
retained by Distributors for its distribution expenses. 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,
Securities Dealers may not be eligible to receive 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. Commonly used
measures of performance include 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

ON AUGUST 5, 1997, PRESIDENT CLINTON SIGNED INTO LAW THE TAXPAYER RELIEF ACT OF
1997 (THE "1997 ACT"). THIS NEW LAW MAKES SWEEPING CHANGES IN THE CODE. A
DISCUSSION OF THESE COMPLEX CHANGES APPEARS IN THE SAI.

<TABLE>
<CAPTION>
<S> <C>
TAXATION OF THE FUND'S INVESTMENTS.
-----------------------------------------------
The fund invests your money in the bonds HOW DOES THE FUND EARN INCOME AND GAINS?
and other securities that are described in The fund earns interest (the fund's "income")
the section "How Does the Fund Invest Its on its investments. When the fund sells a
Assets?" Special tax rules may apply in security for a price that is higher than it
determining the income and gains that the paid, it has a gain. When the fund sells a
fund earns on its investments. These security for a price that is lower than it
rules may, in turn, affect the amount of paid, it has a loss. If the fund has held
distributions that the fund pays to you. the security for more than one year, the gain
These special tax rules are discussed in or loss will be a long-term capital gain or
the SAI. loss. Under IRS rules, the fund must further
break down long term gains and losses between
TAXATION OF THE FUND. As a regulated securities held for more than one year but
investment company, the fund generally for only eighteen months or less, and those
pays no federal income tax on the income held for more than eighteen months. If the
and gains that it distributes to you. fund has held the security for one year or
less, the gain or loss will be a short-term
capital gain or loss. The fund's gains and
losses are netted together under special
rules, and, if the fund has a net gain (the
fund's "gains"), that gain will generally be
distributed to you.
-----------------------------------------------

FOREIGN TAXES. Foreign governments may impose taxes on the income and gains from the
fund's investments in foreign bonds. These taxes will reduce the amount of the fund's
distributions to you.

TAXATION OF SHAREHOLDERS.
-----------------------------------------------
DISTRIBUTIONS. Distributions from the WHAT IS A DISTRIBUTION?
fund, whether you receive them in cash or As a shareholder, you will receive your share
in additional shares, are generally of the fund's income and gains on its
subject to income tax. The fund will send investments in bonds and other securities.
you a statement in January of the current The fund's income and short term capital
year that reflects the amount of ordinary gains are paid to you as ordinary dividends.
dividends, capital gain distributions and The fund's long-term capital gains are paid
non-taxable distributions you received to you as capital gain distributions. If the
from the fund in the prior year. This fund pays you an amount in excess of its
statement will include distributions income and gains, this excess will generally
declared in December and paid to you in be treated as a non-taxable distribution.
January of the current year, but which are These amounts, taken together, are what we
taxable as if paid on December 31 of the call the fund's distributions to you.
prior year. The IRS requires you to
report these amounts on your income tax
return for the prior year. The fund's
statement for the prior year will tell you
how much of your capital gain distribution
represents 28% rate gain. The remainder
of the capital gain distribution
represents 20% rate gain.
-----------------------------------------------

DISTRIBUTIONS TO RETIREMENT PLANS. Fund distributions received by your qualified
retirement plan, such as a Section 401(k) plan or IRA, are generally tax-deferred; this
means that you are not required to report fund distributions on your income tax return
when paid to your plan, but, rather, when your plan makes payments to you. Special rules
apply to payouts from Roth and education IRAs.

DIVIDENDS-RECEIVED DEDUCTION. It is anticipated that no portion of the fund's
distributions will qualify for the corporate dividends-received deduction.

-----------------------------------------------
REDEMPTIONS AND EXCHANGES. If you redeem WHAT IS A REDEMPTION?
your shares or if you exchange your shares A redemption is a sale by you to the fund of
in the fund for shares in another Franklin some or all of your shares in the fund. The
Templeton Fund, you will generally have a price per share you receive when you redeem
gain or loss that the IRS requires you to fund shares may be more or less than the
report on your income tax return. If you price at which you purchased those shares.
exchange fund shares held for 90 days or An exchange of shares in the fund for shares
less and pay no sales charge, or a reduced of another Franklin Templeton Fund is treated
sales charge, for the new shares, all or a as a redemption of fund shares and then a
portion of the sales charge you paid on purchase of shares of the other fund. When
the purchase of the shares you exchanged you redeem or exchange your shares, you will
is not included in their cost for purposes generally have a gain or loss, depending upon
of computing gain or loss on the whether the amount you receive for your
exchange. If you hold your shares for six shares is more or less than your cost or
months or less, any loss you have will be other basis in the shares. Call Fund
treated as a long-term capital loss to the Information for a free shareholder Tax
extent of any capital gain distributions Information Handbook if you need more
received by you from the fund. All or a information in calculating the gain or loss
portion of any loss on the redemption or on the redemption or exchange of your shares.
exchange of your shares will be disallowed
by the IRS if you purchase other shares in
the fund within 30 days before or after
your redemption or exchange.
-----------------------------------------------

U.S. GOVERNMENT INTEREST. Many states
grant tax-free status to dividends paid
from interest earned on direct obligations
of the U.S. Government, subject to certain
restrictions. The fund will provide you
with information after the end of each
calendar year on the amount of such
dividends that may qualify for exemption
from reporting on your individual income
tax returns.
-----------------------------------------------

NON-U.S. INVESTORS. Ordinary dividends generally will be subject to U.S. income tax
withholding. Your home country may also tax ordinary dividends, capital gain
distributions and gains arising from redemptions or exchanges of your fund shares. Fund
shares held by the estate of a non-U.S. investor may be subject to U.S. estate tax. You
may wish to contact your tax advisor to determine the U.S. and non-U.S. tax consequences
of your investment in the fund.

STATE TAXES. Ordinary dividends and capital gain distributions that you receive from the
fund, and gains arising from redemptions or exchanges of your fund shares will generally
be subject to state and local income tax. The holding of fund shares may also be subject
to state and local intangibles taxes. You may wish to contact your tax advisor to
determine the state and local tax consequences of your investment in the fund.

-----------------------------------------------
BACKUP WITHHOLDING. When you open an WHAT IS A BACKUP WITHHOLDING?
account, IRS regulations require that you Backup withholding occurs when the fund is
provide your taxpayer identification required to withhold and pay over to the IRS
number ("TIN"), certify that it is 31% of your distributions and redemption
correct, and certify that you are not proceeds. You can avoid backup withholding
subject to backup withholding under IRS by providing the fund with your TIN, and by
rules. If you fail to provide a correct completing the tax certifications on your
TIN or the proper tax certifications, the shareholder application that you were asked
fund is required to withhold 31% of all to sign when you opened your account.
the distributions (including ordinary However, if the IRS instructs the fund to
dividends and capital gain distributions), begin backup withholding, it is required to
and redemption proceeds paid to you. The do so even if you provided the fund with your
fund is also required to begin backup TIN and these tax certifications, and backup
withholding on your account if the IRS withholding will remain in place until the
instructs the fund to do so. The fund fund is instructed by the IRS that it is no
reserves the right not to open your longer required.
account, or, alternatively, to redeem your
shares at the current Net Asset Value,
less any taxes withheld, if you fail to
provide a correct TIN, fail to provide the
proper tax certifications, or the IRS
instructs the fund to begin backup
withholding on your account.
-----------------------------------------------

</TABLE>
THIS TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY. PROSPECTIVE INVESTORS
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN THE FUND. A MORE COMPLETE
DISCUSSION OF THESE RULES AND RELATED MATTERS, PLEASE SEE "ADDITIONAL
INFORMATION ON DISTRIBUTIONS AND TAXES" IN THE SAI. THE TAX TREATMENT TO YOU
OF DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS, FOREIGN TAXES PAID AND INCOME TAXES
WITHHELD IS ALSO DISCUSSED IN A FREE FRANKLIN TEMPLETON TAX INFORMATION
HANDBOOK, WHICH YOU MAY REQUEST BY CONTACTING FUND INFORMATION.

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 22,
1986, and is registered with the SEC. The fund offers two classes of shares:
Franklin Bond Fund - Class I and Franklin Bond Fund - Advisor Class.
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 affecting only that class,
or expressly required to be voted on separately by state or federal law.
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. The Trust or a
series of the Trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may also be called by the Board in its
discretion or by shareholders holding at least 10% of the outstanding shares.
In certain circumstances, we are required to help you communicate with other
shareholders about the removal of a Board member.

ABOUT YOUR ACCOUNT

HOW DO I BUY SHARES?

OPENING YOUR ACCOUNT

To open your account, please follow the steps below. This will help avoid any
delays in processing your request.

1. Read this prospectus carefully.

2. Determine how much you would like to invest. The fund's minimum
investments are:

o To open your account: $1,000*
o To add to your account: $50*

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

3. Carefully complete and sign the enclosed shareholder application,
including the optional shareholder privileges section. By applying for
privileges now, you can avoid the delay and inconvenience of having to
send an additional application to add privileges later. It is important
that we receive a signed application since we will not be able to
process any redemptions from your account until we receive your signed
application.

4. Make your investment using the table below.

Return the application to the fund with your check
made payable to the fund.

For additional investments:

Send a check made payable to the fund. Please
include your account number on the check.
- --------------------------------------------------------------------------------
BY WIRE 1. Call Shareholder Services or, if that number is
busy, call 1-650/312-2000 collect, to receive a
wire control number and wire instructions. You
need a new wire control number every time you
wire money into your account. If you do not have
a currently effective wire control number, we
will return the money to the bank, and we will
not credit the purchase to your account.

2. For an initial investment you must also return
your signed shareholder application to the fund.

IMPORTANT DEADLINES: If we receive your call before
1:00 p.m. Pacific time and the bank receives the
wired funds and reports the receipt of wired funds
to the fund by 3:00 p.m. Pacific time, we will
credit the purchase to your account that day. If we
receive your call after 1:00 p.m. or the bank
receives the wire after 3:00 p.m., we will credit
the purchase to your account the following business
day.
- --------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- --------------------------------------------------------------------------------

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 TO
AS A PERCENTAGE OF DEALER AS A
AMOUNT OF PURCHASE OFFERING NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE PRICE INVESTED OFFERING PRICE
Under $100,000 4.25% 4.44% 4.00%
$100,000 but less than 3.50% 3.63% 3.25%
$250,000
$250,000 but less than 2.75% 2.83% 2.50%
$500,000
$500,000 but less than 2.15% 2.20% 2.00%
$1,000,000
$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.

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. 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.

A qualified group does not include a 403(b) plan that only allows salary
deferral contributions. 403(b) plans that only allow salary deferral
contributions and that purchased shares of the fund at a reduced sales charge
under the group purchase privilege before February 1, 1998, however, may
continue to do so.

SALES CHARGE WAIVERS. If one of the following sales charge waivers applies to
you or your purchase of fund shares, you may buy shares of the fund without a
front-end sales charge or a Contingent Deferred Sales Charge.

Certain distributions, payments or redemption proceeds that you receive may
be used to buy shares of the fund without a sales charge if you reinvest them
within 365 days of their payment or redemption date. They include:

1. Dividend and capital gain distributions from any Franklin Templeton
Fund. The distributions generally must be reinvested in the SAME CLASS
of shares. Certain exceptions apply, however, to Class II shareholders
of another Franklin Templeton Fund who chose to reinvest their
distributions in the fund before November 17, 1997, and to Advisor
Class or Class Z shareholders of a Franklin Templeton Fund who may
reinvest their distributions in the fund.

2. Redemption proceeds from the sale of shares of any Franklin Templeton
Fund if you originally paid a sales charge on the shares and you
reinvest the money in the SAME CLASS of shares. This waiver does not
apply to exchanges.

If you paid a Contingent Deferred Sales Charge when you redeemed your
shares from a Franklin Templeton Fund, a Contingent Deferred Sales
Charge will apply to your purchase of fund shares and a new Contingency
Period will begin. We will, however, credit your fund account with
additional shares based on the Contingent Deferred Sales Charge you
paid and the amount of redemption proceeds that you reinvest.

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.

3. Dividend or capital gain distributions from a real estate investment
trust (REIT) sponsored or advised by Franklin Properties, Inc.

4. 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 or the Templeton Variable Products
Series Fund. You should contact your tax advisor for information on any
tax consequences that may apply.

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

Various individuals and institutions also may buy shares of the fund without
a front-end sales charge or Contingent Deferred Sales Charge, including:

1. 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.

2. 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.

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

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

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

6. 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

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

8. Accounts managed by the Franklin Templeton Group

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

10. Group annuity separate accounts offered to retirement plans

11. Chilean retirement plans that meet the requirements described under
"Retirement Plans" below

RETIREMENT PLANS. Retirement plans that (i) are sponsored by an employer with
at least 100 employees, or (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 may buy shares without a front-end sales charge. Retirement
plans that are not Qualified Retirement Plans, SIMPLEs or SEPs must also meet
the requirements described under "Group Purchases" above to be able to buy
shares without a front-end sales charge. We may enter into a special
arrangement with a Securities Dealer, based on criteria established by the
fund, to add together certain small Qualified Retirement Plan accounts for
the purpose of meeting these requirements.

For retirement plan accounts opened on or after May 1, 1997, a Contingent
Deferred Sales Charge may apply if the retirement plan is transferred out of
the Franklin Templeton Funds or terminated within 365 days of the retirement
plan account's initial purchase in the Franklin Templeton Funds. Please see
"How Do I Sell Shares? - Contingent Deferred Sales Charge" for details.

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, call Retirement Plan Services.

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 amount invested.

2. Purchases made without a front-end sales charge by certain retirement
plans described under "Sales Charge Reductions and Waivers - Retirement
Plans" above - up to 1% of the amount invested.

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 amount invested.

4. Purchases by Chilean retirement plans - up to 1% of the amount invested.

A Securities Dealer may receive only one of these payments for each
qualifying purchase. Securities Dealers who receive payments in connection
with investments described in paragraphs 1 or 4 above or a payment of up to
1% for investments described in paragraph 2 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.

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 goal
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.

- --------------------------------------------------------------------------------
METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
BY MAIL 1. Send us signed written instructions
2. Include any outstanding share certificates for
the shares you want to exchange
- --------------------------------------------------------------------------------
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.

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, we will first exchange any shares in your account that are not
subject to the charge. If there are not enough of these to meet your exchange
request, we will exchange shares subject to the charge 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 "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 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 Retirement Plan Services 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 have: (i) requested an
exchange out of the fund within two weeks of an earlier exchange request,
(ii) exchanged shares out of the fund more than twice in a calendar
quarter, or (iii) exchanged 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 have exchanged 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, operations 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. Certain shareholders of Class
Z shares of Franklin Mutual Series Fund Inc. may exchange their Class Z
shares for shares of the fund at Net Asset Value.

HOW DO I SELL SHARES?

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

o The name, address and telephone number of the
bank where you want the proceeds sent
o Your bank account number
o The Federal Reserve ABA routing number
o If you are using a savings and loan or credit
union, the name of the corresponding bank and the
account number

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. If you would like your
redemption proceeds wired to a bank account, other
than an escrow account, you must first sign up for
the wire feature. To sign up, send us written
instructions, with a signature guarantee. To avoid
any delay in processing, the instructions should
include the items listed in "By Mail" above.

Telephone requests will be accepted:

o If the request is $50,000 or less. Institutional
accounts may exceed $50,000 by completing a
separate agreement. Call Institutional Services
to receive 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 the address on your account was changed
by phone within the last 15 days

- If you do not want the ability to redeem by phone
to apply to your account, please let us know.
- --------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- --------------------------------------------------------------------------------

We will send your redemption check within seven days after we receive your
request in proper form. If you would like the check sent to an address other
than the address of record or made payable to someone other than the
registered owners on the account, send us written instructions signed by all
account owners, with a signature guarantee. We are not able to receive or pay
out cash in the form of currency.

The wiring of redemption proceeds is a special service that we make available
whenever possible for redemption requests of $1,000 or more. If we receive
your request in proper form before 1:00 p.m. Pacific time, your wire payment
will be sent the next business day. For requests received in proper form
after 1:00 p.m. Pacific time, the payment will be sent the second business
day. By offering this service to you, the fund is not bound to meet any
redemption request in less than the seven day period prescribed by law.
Neither the fund nor its agents shall be liable to you or any other person
if, for any reason, a redemption request by wire is not processed as
described in this section.

If you sell shares you recently purchased with a check or draft, we may delay
sending you the proceeds until your check or draft has cleared, which may
take seven business days or more. 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 Retirement Plan Services.

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.

Certain retirement plan accounts opened on or after May 1, 1997, and that
qualify to buy shares without a front-end sales charge may also be subject to
a Contingent Deferred Sales Charge if the retirement plan is transferred out
of the Franklin Templeton Funds or terminated within 365 days of the
account's initial purchase in the Franklin Templeton Funds.

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 Account fees

o Sales of shares purchased without a front-end sales charge by certain
retirement plan accounts if (i) the account was opened before May 1, 1997,
or (ii) the Securities Dealer of record received a payment from
Distributors of 0.25% or less, or (iii) Distributors did not make any
payment in connection with the purchase, or (iv) the Securities Dealer of
record has entered into a supplemental agreement with Distributors

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, at a rate of up to 1% a
month of an account's Net Asset Value. For example, if you maintain an
annual balance of $1 million, you can redeem up to $120,000 annually
through a systematic withdrawal plan free of charge.

o Distributions from IRAs 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 Redemptions by Trust Company employee benefit plans or employee benefit
plans serviced by ValuSelect(R)

o Participant initiated distributions from employee benefit plans or
participant initiated exchanges among investment choices in employee
benefit plans

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.

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. 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.

1. 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.

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. 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. For Trust Company retirement
plans, special forms are required to receive distributions in cash.

TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS

SHARE PRICE

When you buy shares, you pay the Offering Price. This is the Net Asset Value
per share, plus any applicable sales charges. When you sell shares, you
receive the Net Asset Value per share.

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.

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 close of the NYSE, normally 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.

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 are 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.

JOINT ACCOUNTS. For accounts with more than one registered owner, we accept
written instructions signed by only one owner for certain types of
transactions or account changes. These include transactions or account
changes that you could also make by phone, such as certain redemptions of
$50,000 or less, exchanges between identically registered accounts, and
changes to the address of record. For most other types of transactions or
changes, written instructions must be signed by all registered owners.

Please keep in mind that if you have previously told us that you do not want
telephone exchange or redemption privileges on your account, then we can only
accept written instructions to exchange or redeem shares if they are signed
by all registered owners on the account.

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. You should
be able to obtain a signature guarantee from a bank, broker, credit union,
savings association, clearing agency, or securities exchange or association.
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 and to send the certificate and assignment form in separate
envelopes.

TELEPHONE TRANSACTIONS

You may initiate many transactions and changes to your account 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 may also record calls. 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.

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. We also will not be liable for
any loss if we follow instructions by phone that we reasonably believe are
genuine or if you are unable to execute a transaction by phone.

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 Retirement Plan Services.

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, we cannot accept instructions to change owners on
the account unless ALL owners agree in writing, even if the law in your state
says otherwise. 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.

IMPORTANT INFORMATION IF YOU HAVE AN INVESTMENT REPRESENTATIVE

If there is a Securities Dealer or other representative of record on your
account, we are authorized: (1) to provide confirmations, account statements
and other information about your account directly to your dealer and/or
representative; and (2) to accept telephone and electronic instructions
directly from your dealer or representative, including instructions to
exchange or redeem your shares. Electronic instructions may be processed
through established electronic trading systems and programs used by the fund.
Telephone instructions directly from your representative will be accepted
unless you have told us that you do not want telephone privileges to apply to
your account.

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 $250, or less than $50
for employee accounts and custodian accounts for minors. 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 $1,000. These minimums do not apply to IRAs and other
retirement accounts or accounts managed by the Franklin Templeton Group.

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.

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. Once your plan is
established, any distributions paid by the fund will be automatically
reinvested in your account.

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 by
mail or by phone 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.

TELEFACTS(R)

From a touch-tone phone, you may call our TeleFACTS(R) 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 (within the same class) between identically registered
Franklin Templeton Class I and Class II accounts; and

o request duplicate statements and deposit slips for Franklin Templeton
accounts.

You will need the fund's code number to use TeleFACTS(R). The fund's code
number is 460.

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.

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. Investment Counsel 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 Plan Services 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

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. The holding period begins on the day you buy your
shares. For example, if you buy shares on the 18th of the month, they will
age one month on the 18th day of the next 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, Templeton Capital Accumulator Fund, Inc., 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

INVESTMENT COUNSEL - Templeton Investment Counsel, Inc., the fund's
investment manager

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

IRA - Individual retirement account or annuity qualified under section 408 of
the Code

IRS - Internal Revenue Service

LETTER - Letter of Intent

MARKET TIMERS - Market Timers generally include market timing or asset
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 or whose transactions include
frequent or large exchanges.

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 and includes the front-end sales charge. The maximum front-end
sales charge is 4.25%.

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.

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

SIMPLE (Savings Incentive Match Plan for Employees) - An employer sponsored
salary deferral plan established under section 408(p) 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.

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 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 that 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
that 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. These 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.

PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

COMMERCIAL PAPER RATINGS

MOODY'S

Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually their promissory obligations not having an original maturity
in excess of nine months. Moody's employs the following designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:

P-1 (PRIME-1): Superior capacity for repayment.

P-2 (PRIME-2): Strong capacity for repayment.

S&P

S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:

A-1: This designation indicates the degree of safety regarding timely payment
is very strong. A "plus" (+) designation indicates an even stronger
likelihood of timely payment.

A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.

A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.

PROSPECTUS & APPLICATION
FRANKLIN BOND FUND - ADVISOR CLASS
FRANKLIN INVESTORS SECURITIES TRUST
AUGUST 3, 1998
INVESTMENT STRATEGY: INCOME

Please read this prospectus before investing, and keep it for future
reference. It contains important information, including how the fund invests
and the services available to shareholders.

This prospectus describes the fund's Advisor Class shares. The fund currently
offers another share class with a different sales charge and expense
structure, which affects performance.

LIKE ALL MUTUAL FUND SHARES, THE SEC HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

FRANKLIN BOND FUND - ADVISOR CLASS
August 3, 1998

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

GLOSSARY
Useful Terms and Definitions.............................

APPENDIX
Description of Ratings.................................

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 estimated expenses for the current fiscal
year. The fund's actual expenses may vary.

A. SHAREHOLDER TRANSACTION EXPENSES+
Maximum Sales Charge Imposed on Purchases None
Exchange Fee (per transaction) $5.00*

B. ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.47%**
Rule 12b-1 Fees None
Other Expenses 0.43%
-------
Total Fund Operating Expenses 0.90%**
=======

C. EXAMPLE

Assume the annual return for the 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
$9 $29 $50 $111

+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.
*$5.00 fee is only for Market Timers. We process all other exchanges without
a fee.
** Advisers has agreed in advance to limit its management fees and make
certain payments to reduce the fund's expenses so the fund's total operating
expenses do not exceed 0.90% for the current fiscal year. Without this
reduction, contractual and expected management fees would be 0.63% and total
fund operating expenses would be 1.06%. After October 31, 1999, Advisers may
end this arrangement at any time.

HOW DOES THE FUND INVEST ITS ASSETS?

WHAT IS THE FUND'S GOAL?

WHAT IS THE FUND'S INVESTMENT STRATEGY?

WHAT KINDS OF SECURITIES DOES THE FUND BUY?

Please see the SAI for more details on the types of securities the fund
invests in.

WHAT ARE SOME OF THE FUND'S OTHER INVESTMENT STRATEGIES AND PRACTICES?

Foreign Currency Exchange Transactions. To help protect its portfolio against
adverse changes in foreign currency exchange rates, the fund may (1) buy and
sell foreign currency at the prevailing rate in the foreign currency exchange
market; and (2) enter into forward foreign currency contracts which are
agreements to buy or sell a specific currency at a set price on a future date
(generally within one year).

WHAT ARE THE RISKS OF INVESTING IN THE FUND?

WHO MANAGES THE FUND?

MANAGEMENT TEAM. The team responsible for the day-to-day management of the
fund's portfolio is: Mr. Bayston and Mr. Dickson since inception.

Roger Bayston
Portfolio Manager of Advisers

Jack Lemein
Senior Vice President of Advisers

Thomas J. Dickson
Portfolio Manager of Investment Counsel

During the fund's start-up period, Advisers has agreed in advance to limit
its management fees and make certain payments to reduce expenses so the
fund's total operating expenses do not exceed 0.90% for the current fiscal
year. After October 31, 1999, Advisers may end this agreement at any time.

HOW DOES THE FUND MEASURE PERFORMANCE?

From time to time, the Advisor Class of the fund advertises its performance.
Commonly used measures of performance include total return, current yield and
current distribution rate.

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 Advisor Class. The current distribution rate
shows the dividends or distributions paid to shareholders of Advisor Class.
This rate is usually computed by annualizing the dividends paid per share
during a certain period and dividing that amount by the current Net Asset
Value 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 the Advisor 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

<S> <C>
TAXATION OF THE FUND'S INVESTMENTS.
-----------------------------------------------
The fund invests your money in the bonds HOW DOES THE FUND EARN INCOME AND GAINS?
and other securities that are described in The fund earns interest (the fund's "income")
the section "How Does the Fund Invest Its on its investments. When the fund sells a
Assets?" Special tax rules may apply in security for a price that is higher than it
determining the income and gains that the paid, it has a gain. When the fund sells a
fund earns on its investments. These security for a price that is lower than it
rules may, in turn, affect the amount of paid, it has a loss. If the fund has held
distributions that the fund pays to you. the security for more than one year, the gain
These special tax rules are discussed in or loss will be a long-term capital gain or
the SAI. loss. Under IRS rules, the fund must further
break down long term gains and losses between
TAXATION OF THE FUND. As a regulated securities held for more than one year but
investment company, the fund generally for only eighteen months or less, and those
pays no federal income tax on the income held for more than eighteen months. If the
and gains that it distributes to you. fund has held the security for one year or
less, the gain or loss will be a short-term
capital gain or loss. The fund's gains and
losses are netted together under special
rules, and, if the fund has a net gain (the
fund's "gains"), that gain will generally be
distributed to you.
-----------------------------------------------

FOREIGN TAXES. Foreign governments may impose taxes on the income and gains from the
fund's investments in foreign bonds. These taxes will reduce the amount of the fund's
distributions to you.

DIVIDENDS-RECEIVED DEDUCTION. It is anticipated that no portion of the fund's
distributions will qualify for the corporate dividends-received deduction.

-----------------------------------------------
REDEMPTIONS AND EXCHANGES. If you redeem WHAT IS A REDEMPTION?
your shares or if you exchange your shares A redemption is a sale by you to the fund of
in the fund for shares in another Franklin some or all of your shares in the fund. The
Templeton Fund, you will generally have a price per share you receive when you redeem
gain or loss that the IRS requires you to fund shares may be more or less than the
report on your income tax return. If you price at which you purchased those shares.
exchange fund shares held for 90 days or An exchange of shares in the fund for shares
less and pay no sales charge, or a reduced of another Franklin Templeton fund is treated
sales charge, for the new shares, all or a as a redemption of fund shares and then a
portion of the sales charge you paid on purchase of shares of the other fund. When
the purchase of the shares you exchanged you redeem or exchange your shares, you will
is not included in their cost for purposes generally have a gain or loss, depending upon
of computing gain or loss on the whether the amount you receive for your
exchange. If you hold your shares for six shares is more or less than your cost or
months or less, any loss you have will be other basis in the shares. Call Fund
treated as a long-term capital loss to the Information for a free shareholder Tax
extent of any capital gain distributions Information Handbook if you need more
received by you from the fund. All or a information in calculating the gain or loss
portion of any loss on the redemption or on the redemption or exchange of your shares.
exchange of your shares will be disallowed
by the IRS if you purchase other shares in
the fund within 30 days before or after
your redemption or exchange.
-----------------------------------------------

U.S. GOVERNMENT INTEREST. Many states
grant tax-free status to dividends paid
from interest earned on direct obligations
of the U.S. Government, subject to certain
restrictions. The fund will provide you
with information at the end of each
calendar year on the amount of such
dividends that may qualify for exemption
from reporting on your individual income
tax returns.
-----------------------------------------------

HOW IS THE TRUST ORGANIZED?

ABOUT YOUR ACCOUNT

HOW DO I BUY SHARES?

OPENING YOUR ACCOUNT

Shares of the fund may be purchased without a sales charge. Please note that
shares of the fund are not available to retirement plans through Franklin
Templeton's ValuSelect(R) program.

To open your account, please follow the steps below. This will help avoid any
delays in processing your request.

1. Read this prospectus carefully.

2. Determine how much you would like to invest. The fund's minimum
investments are:

o To open your account: $5,000,000*
o To add to your account: $25*

*We may waive or lower these minimums for certain investors. Please see
"Minimum Investments" below. We also reserve the right to refuse any
order to buy shares.

4. Make your investment using the table below.

Return the application to the fund with your
check made payable to the fund.

For additional investments:

Send a check made payable to the fund. Please
include your account number on the check.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BY WIRE 1. Call Shareholder Services or, if that number is
busy, call 1-650/312-2000 collect, to receive a
wire control number and wire instructions. You
need a new wire control number every time you
wire money into your account. If you do not have
a currently effective wire control number, we
will return the money to the bank, and we will
not credit the purchase to your account.

2. For an initial investment you must also return
your signed shareholder application to the fund.

MINIMUM INVESTMENTS

To determine if you meet the minimum initial investment requirement of $5
million, 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. At least $1 million of this amount, however, must be invested in
Advisor Class or Class Z shares of any of the Franklin Templeton Funds.

The fund may waive or lower its minimum investment requirement for certain
purchases. A lower minimum initial investment requirement applies to
purchases by:

1. Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for
clients participating in comprehensive fee programs, subject to a
$250,000 minimum initial investment requirement or a $100,000 minimum
initial investment requirement for an individual client

2. Qualified registered investment advisors or certified financial
planners who have clients invested in the Franklin Mutual Series Fund
Inc. on October 31, 1996, or who buy through a broker-dealer or service
agent who has entered into an agreement with Distributors, subject to a
$1,000 minimum initial investment requirement

3. Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group and their immediate
family members, subject to a $100 minimum investment requirement

4. Each series of the Franklin Templeton Fund Allocator Series, subject to
a $1,000 minimum initial and subsequent investment requirement

5. Governments, municipalities, and tax-exempt entities that meet the
requirements for qualification under Section 501 of the Code, subject
to a $1 million initial investment in Advisor Class shares

No minimum initial investment requirement applies to purchases by:

1. Accounts managed by the Franklin Templeton Group

2. The Franklin Templeton Profit Sharing 401(k) Plan

3. Defined contribution plans such as employer stock, bonus, pension or
profit sharing plans that meet the requirements for qualification under
Section 401 of the Code, including salary reduction plans qualified
under Section 401(k) of the Code, and that (i) are sponsored by an
employer with at least 10,000 employees, or (ii) have plan assets of
$100 million or more

4. Trust companies and bank trust departments initially investing in the
Franklin Templeton Funds 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

5. Any other investor, including a private investment vehicle such as a
family trust or foundation, who is a member of a qualified group, if
the group as a whole meets the $5 million minimum investment
requirement. 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.

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.

PAYMENTS TO SECURITIES DEALERS

Securities Dealers who initiate and are responsible for purchases of Advisor
Class shares may receive up to 0.25% of the amount invested. The payment is
subject to the sole discretion of Distributors, and is paid by Distributors
or one of its affiliates and not by the fund or its shareholders.

For 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?

- 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.

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.

LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES

If you want to exchange into a fund that does not currently offer an Advisor
Class, you may exchange your Advisor Class shares for Class I shares of that
fund at Net Asset Value. If you do not qualify to buy Advisor Class shares of
Templeton Developing Markets Trust, Templeton Foreign Fund or Templeton
Growth Fund, you may exchange the Advisor Class shares you own for Class I
shares of those funds or of Templeton Institutional Funds, Inc. 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. You may also exchange your Advisor Class
shares for Class Z shares of Franklin Mutual Series Fund Inc.

HOW DO I SELL SHARES?

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

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

3. Provide a signature guarantee if required

Telephone requests will be accepted:

o If the request is $50,000 or less. Institutional
accounts may exceed $50,000 by completing a
separate agreement. Call Institutional Services
to receive 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 15 days

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

WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?

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 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. 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.

TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS

SHARE PRICE

You buy and sell Advisor Class shares at the Net Asset Value per share. 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.

HOW AND WHEN SHARES ARE PRICED

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. 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.

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 are 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

To obtain any required forms or more information about distribution or
transfer procedures, please call Retirement Plan Services.

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.

IMPORTANT INFORMATION IF YOU HAVE AN INVESTMENT REPRESENTATIVE

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]. These minimums do not apply to accounts managed by
the Franklin Templeton Group, the Franklin Templeton Profit Sharing 401(k)
Plan, [or] the series of Franklin Templeton Fund Allocator Series[, or
certain defined contribution plans that qualify to buy shares with no minimum
initial investment requirement].

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 shareholder 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.

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.

TELEFACTS(R)

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

o obtain information about your account;

o obtain price information about any Franklin Templeton Fund; and

o request duplicate statements and deposit slips for Franklin Templeton
accounts.

You will need the fund's code number to use TeleFACTS(R). The fund's code
number is 660.

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?

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

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

BOARD - The Board of Trustees of the Trust

CD - Certificate of deposit

CLASS I 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.

CODE - Internal Revenue Code of 1986, as amended

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

INVESTMENT COUNSEL - Templeton Investment Counsel, Inc., the fund's
investment manager

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

IRS - Internal Revenue Service

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

NASD - National Association of Securities Dealers, Inc.

NSCC - National Securities Clearing Corporation

NYSE - New York Stock Exchange

RESOURCES - Franklin Resources, Inc.

SAI - Statement of Additional Information

S&P - Standard & Poor's Corporation

SEC - U.S. Securities and Exchange Commission

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.

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

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.

Caa - Bonds rated Caa are of poor standing. These 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 that are speculative in a high
degree. These 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.

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 these bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties or major risk
exposures to adverse conditions.

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

PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

COMMERCIAL PAPER RATINGS

MOODY'S

P-1 (PRIME-1): Superior capacity for repayment.

P-2 (PRIME-2): Strong capacity for repayment.

S&P

A-1: This designation indicates the degree of safety regarding timely payment
is very strong. A "plus" (+) designation indicates an even stronger
likelihood of timely payment.

A-2: Capacity for timely payment on issues with this designation is strong.
The relative degree of safety, however, is not as overwhelming as for issues
designated A-1.

FRANKLIN BOND FUND
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 3, 1998
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN

TABLE OF CONTENTS

How Does the Fund Invest Its Assets?..............................
What Are the Risks of Investing in the Fund?......................
Investment Restrictions...........................................
Officers and Trustees.............................................
Investment Management
and Other Services...............................................
How Does the Fund Buy
Securities for Its Portfolio?....................................
How Do I Buy, Sell and Exchange Shares?...........................
How Are Fund Shares Valued?.......................................
Additional Information on
Distributions and Taxes..........................................
The Fund's Underwriter............................................
How Does the Fund Measure Performance?............................
Miscellaneous Information.........................................
Financial Statements..............................................
Useful Terms and Definitions......................................

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When reading this SAI, you will see certain terms beginning with
capital letters. This means the term is explained under "Useful
Terms and Definitions."
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The fund is a diversified series of Franklin Investors Securities Trust (the
"Trust"), an open-end management investment company. The Prospectus, dated
August 3, 1998, which we may amend from time to time, contains the basic
information you should know before investing in the fund. For a free copy,
call 1-800/DIAL BEN.

This SAI describes the fund's Class I shares. The fund currently offers
another share class with a different sales charge and expense structure,
which affects performance. To receive more information about the fund's other
share class, contact your investment representative or call 1-800/DIAL BEN.

THIS SAI IS NOT A PROSPECTUS. IT CONTAINS INFORMATION IN ADDITION TO AND IN
MORE DETAIL THAN SET FORTH IN THE PROSPECTUS. THIS SAI IS INTENDED TO PROVIDE
YOU WITH ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF
THE FUND, AND SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS.

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MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
o ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
o ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK;
o ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
- ------------------------------------------------------------------------------

HOW DOES THE FUND INVEST ITS ASSETS?

WHAT IS THE FUND'S GOAL?

The investment goal of the fund is to provide a high level of current income
consistent with the preservation of capital, with capital appreciation over
the long term as a secondary objective. This goal is fundamental, which means
that it may not be changed without shareholder approval.

The following gives more detailed information about the fund's investment
policies and the types of securities that it may buy. Please read this
information together with the section "How Does the Fund Invest Its Assets?"
in the Prospectus.

MORE INFORMATION ABOUT THE KINDS OF SECURITIES THE FUND BUYS

DEBT SECURITIES. A debt security typically has a fixed payment schedule which
obligates the issuer to pay interest to the lender and to return the lender's
money over a certain period of time. A company typically meets its payment
obligations associated with its outstanding debt securities before it
declares and pays any dividends to holders of its equity securities. Bonds,
notes, debentures and commercial paper differ in the length of the issuer's
payment schedule, with bonds carrying the longest repayment schedule and
commercial paper the shortest.

The market value of debt securities generally varies in response to changes
in interest rates and the financial condition of each issuer. During periods
of declining interest rates, the value of debt securities generally
increases. Conversely, during periods of rising interest rates, the value of
these securities generally declines. These changes in market value will be
reflected in the fund's Net Asset Value.

MORTGAGE-BACKED SECURITIES. The fund may invest in mortgage-backed securities
issued or guaranteed by the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA") and the Federal
Home Loan Mortgage Corporation ("FHLMC"), as well as mortgage-backed
securities issued or guaranteed by foreign governments or governmental
agencies or by private institutions.

A mortgage-backed security is an interest in a pool of mortgage loans. The
primary issuers or guarantors of these securities are GNMA, FNMA and FHLMC.
GNMA creates mortgage-backed 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
principal and interest on GNMA securities are guaranteed by GNMA and backed
by the full faith and credit of the U.S. government. Mortgage securities from
FNMA and FHLMC are not backed by the full faith and credit of the U.S.
government. FNMA guarantees full and timely payment of all interest and
principal, and FHLMC guarantees timely payment of interest and the ultimate
collection of principal. Securities issued by FNMA are supported by the
agency's right to borrow money from the U.S. Treasury under certain
circumstances. Securities issued by FHLMC are supported only by the credit of
the agency. There is no guarantee that the government would support
government agency securities and, accordingly, they may involve a risk of
non-payment of principal and interest. Nonetheless, because FNMA and FHLMC
are instrumentalities of the U.S. government, these securities are generally
considered to be high quality investments having minimal credit risks.

Most mortgage-backed securities are pass-through securities, which means that
they provide investors with monthly payments consisting of a pro rata share
of both regular interest and principal payments, as well as unscheduled early
prepayments, on the underlying mortgage pool. The fund invests in both
"modified" and "straight" pass-through securities. For "modified
pass-through" type mortgage securities, principal and interest are
guaranteed, whereas such guarantee is not available for "straight
pass-through" securities.

Guarantees as to the timely payment of principal and interest do not extend
to the value or yield of mortgage-backed securities nor do they extend to the
value of the fund's shares. In general, the value of fixed-income securities
varies with changes in market interest rates. Fixed-rate mortgage securities
generally decline in value during periods of rising interest rates, whereas
coupon rates of adjustable rate mortgage securities move with market interest
rates, and thus their value tends to fluctuate to a lesser degree. In view of
these factors, the ability of the fund to obtain a high level of total return
may be limited under varying market conditions.

ADJUSTABLE RATE MORTGAGE SECURITIES. The fund may invest in adjustable rate
mortgage securities ("ARMs"). ARMs, like traditional mortgage-backed
securities, are an interest in a pool of mortgage loans and are issued or
guaranteed by a federal agency or by private issuers. Unlike fixed-rate
mortgages, which generally decline in value during periods of rising interest
rates, the interest rates on the mortgages underlying ARMs are reset
periodically and thus allow the fund to participate in increases in interest
rates, resulting in both higher current yields and lower price fluctuations.
During periods of declining interest rates, of course, the coupon rates may
readjust downward, resulting in lower current yields. Because of this
feature, the value of an ARM is unlikely to rise during periods of declining
interest rates to the same extent as a fixed-rate instrument. The rate of
amortization of principal, as well as interest payments, for certain types of
ARMs change in accordance with movements in a pre-specified, published
interest rate index. There are several categories of indices, including those
based on U.S. Treasury securities, those derived from a calculated measure,
such as a cost of funds index, or a moving average of mortgage rates and
actual market rates. The amount of interest due to an ARM security 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. The
interest rates paid on the ARMs in which the fund may invest are generally
readjusted at intervals of one year or less, although instruments with longer
resets such as three, five, seven and ten years are also permissible
investments.

The underlying mortgages that collateralize the ARMs in which the fund may
invest will frequently have caps and floors which 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, which can extend the average life of the securities. Since most
ARMs in the fund's portfolio will generally have annual reset limits or caps
of 100 to 200 basis points, fluctuations in interest rates above these levels
could cause the mortgage securities to "cap out" and to behave more like
long-term, fixed-rate debt securities.

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"), REAL ESTATE MORTGAGE INVESTMENT
CONDUITS ("REMICS") AND MULTI-CLASS PASS-THROUGHS. The fund may invest in
certain debt obligations that are collateralized by mortgage loans or
mortgage pass-through securities. These obligations may be issued or
guaranteed by U.S. government agencies or issued by certain financial
institutions and other mortgage lenders. CMOs and REMICs are debt instruments
issued by special purpose entities and are secured by pools of mortgages
backed by residential and various types of commercial properties. Multi-class
pass-through securities are equity interests in a trust composed of mortgage
loans or other mortgage-backed securities. Payments of principal and interest
on the underlying collateral provides the funds to pay debt service on the
CMO or REMIC or make scheduled distributions on the multi-class pass-through
securities.

CMOs are collateralized by pools of mortgage loans created by commercial
banks, savings and loan institutions, private mortgage insurance companies,
mortgage bankers and other issuers in the U.S. Timely payment of interest and
principal (but not the market value and yield) of some of these pools is
supported by various forms of insurance or guarantees issued by private
issuers, those who pool the mortgage assets and, in some cases, by U.S.
government agencies. Prepayments of the mortgages underlying a CMO, which
usually increase when interest rates decrease, will generally reduce the life
of the mortgage pool, thus impacting the CMO's yield. Under these
circumstances, the reinvestment of prepayments will generally be at a rate
lower than the rate applicable to the original CMO.

With a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of a CMO, often referred to as a "tranche," is issued at a
specified coupon rate or adjustable rate and has a stated maturity or final
distribution date. Principal prepayments on collateral underlying a CMO,
however, may cause it to be retired substantially earlier than the stated
maturities or final distribution dates. Interest is paid or accrues on all
classes of a CMO on a monthly, quarterly or semiannual basis. The principal
and interest on the underlying mortgages may be allocated among several
classes of a series in many ways. In a common structure, payments of
principal, including any principal prepayments, on the underlying mortgages
are applied to the classes of a series of a CMO in the order of their
respective stated maturities or final distribution dates, so that no payment
of principal will be made on any class of a CMO until all other classes
having an earlier stated maturity or final distribution date have been paid
in full.

To the extent any privately issued CMOs in which the fund invests are
considered by the SEC to be an investment company, the fund will limit its
investments in such securities in a manner consistent with the provisions of
the 1940 Act.

REMICs, which are authorized under the Tax Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured
by an interest in real property. REMICs are similar to CMOs in that they
issue multiple classes of securities. As with CMOs, the mortgages that
collateralize the REMICs in which the fund may invest include mortgages
backed by GNMAs or other mortgage pass-throughs issued or guaranteed by the
U.S. government, its agencies or instrumentalities or issued by private
entities, which are not guaranteed by any government agency.

Yields on privately-issued CMOs have been historically higher than the yields
on CMOs issued or guaranteed by U.S. government agencies. However, the risk
of loss due to default on such instruments is higher since they are not
guaranteed by the U.S. government.

STRIPPED MORTGAGE-BACKED SECURITIES. The fund may invest in stripped
mortgage-backed securities to achieve a higher yield than may be available
from fixed-rate mortgage securities. The stripped mortgage-backed securities
in which the fund may invest will not be limited to those issued or
guaranteed by agencies or instrumentalities of the U.S. government, although
such securities are more liquid than privately issued stripped
mortgage-backed securities. Stripped mortgage-backed securities are usually
structured with two classes, each receiving different proportions of the
interest and principal distributions on a pool of mortgage assets. Typically,
one class will receive some of the interest and most of the principal from
the mortgage assets, while the other class will receive most of the interest
and the remainder of the principal. In the most extreme case, one class will
receive all of the interest (the interest-only or "IO" class), while the
other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity of an IO and PO class is extremely sensitive
not only to changes in prevailing interest rates but also to the rate of
principal payments (including prepayments) on the related underlying mortgage
assets.

Stripped mortgage-backed securities have greater market volatility than other
types of mortgage securities in which the fund invests and are purchased and
sold by institutional investors, such as the fund, through several investment
banking firms acting as brokers or dealers. Some of these securities may be
illiquid. The staff of the SEC has indicated that only government-issued IO
or PO securities that are backed by fixed-rate mortgages may be deemed to be
liquid, if procedures with respect to determining liquidity are established
by a fund's Board. The Board may, in the future, adopt procedures that would
permit the fund to acquire, hold, and treat as liquid government-issued IO
and PO securities. At the present time, however, all such securities will be
treated as illiquid and will, together with any other illiquid investments,
not exceed 15% of the fund's net assets. This position may be changed in the
future, without notice to shareholders, in response to the staff's continued
reassessment of this matter, as well as to changing market conditions.

As new types of mortgage-backed securities are developed and offered to
investors, the fund may invest in them if they are consistent with the fund's
objectives, policies and quality standards.

OTHER STRUCTURED INVESTMENTS. In addition to CMOs and stripped
mortgage-backed securities, the fund may invest in other structured
investments such as collateralized loan obligations and collateralized bond
obligations. These securities typically are issued in one or more classes
that are backed by or represent an interest in certain underlying instruments
with the cash flows on the underlying instruments apportioned among the
classes to create securities with different investment characteristics such
as varying maturities, payment priorities or interest rate provisions. The
fund may invest in structured investments that are either subordinated or
unsubordinated to the right of payment of another class. Subordinated
structured investments typically have higher yields and present greater risks
than unsubordinated structured investments. Although the fund's purchase of
subordinated structured investments would have a similar economic effect to
that of borrowing against the underlying securities, the purchase will not be
deemed to be leverage for purposes of the limitations placed on the extent of
the fund's assets that may be used for borrowing activities.

Certain issuers of structured investments may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, the fund's investment in
these structured investments may be limited by the restrictions contained in
the 1940 Act. Structured investments are often sold in private placement
transactions. To the extent such investments are illiquid, they will be
subject to the fund's restrictions on investments in illiquid securities.

ASSET-BACKED SECURITIES. The fund may invest in asset-backed securities. The
assets underlying these securities may include, but are not limited to,
receivables on home equity and credit card loans, and automobile, mobile home
and recreational vehicle loans and leases. There may be other types of
asset-backed securities that are developed in the future in which the fund
may invest. Asset-backed securities are issued in either a pass-through
structure (similar to a mortgage pass-through structure) or in a pay-through
structure (similar to a CMO structure). In general, asset-backed securities
contain shorter maturities than bonds or mortgage loans. The rate of
principal payment on asset-backed securities generally depends on the rate of
principal payments received on the underlying assets. The payment rate may be
affected by various economic and other factors. Therefore, the yield may be
difficult to predict, and actual yield to maturity may be more or less than
the anticipated yield to maturity.

The credit quality of most asset-backed securities depends primarily on the
credit quality of the underlying assets, how well the issuers of the
securities are insulated from the credit risk of the originator or affiliated
entities, and the amount of credit support provided to the securities.
Asset-backed securities entail certain risks not presented by mortgage-backed
securities as they do not have the benefit of the same type of security
interests in the underlying collateral. Credit card receivables are generally
unsecured and a number of state and federal consumer credit laws give debtors
the right to set off certain amounts owed on the credit cards, thereby
reducing the outstanding balance. In the case of automobile receivables,
there is a risk that the holders may not have either a proper or first
security interest in all of the obligations backing such receivables due to
the large number of vehicles involved in a typical issuance and the technical
requirements imposed under state laws. Therefore, recoveries on repossessed
collateral may not always be available to support payments on securities
backed by these receivables.

Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. To lessen the effect of
failures by obligors on the underlying assets to make payments, asset-backed
securities may contain elements of credit support. Credit support falls into
two categories: (i) liquidity protection and (ii) protection against losses
from the default by an obligor on the underlying assets. Liquidity protection
refers to advances, generally provided by the entity administering the pool
of assets, to ensure that the receipt of payments due on the underlying pool
is timely. Protection against losses from the default by an obligor enhances
the likelihood of payments of the obligations on at least some of the assets
in the pool. This protection may be provided through guarantees, insurance
policies, or letters of credit obtained by the issuer or sponsor from third
parties, through various means of structuring the transaction, or through a
combination of these approaches. The fund will not pay any additional fees
for credit support, although the existence of credit support may increase the
price of a security.

Examples of credit support arising out of the structure of the transaction
include "senior subordinated securities" (multiple class securities with one
or more classes that are subordinate to the other classes with respect to the
payment of principal and interest, with the result that defaults on the
underlying assets are borne first by the holders of the subordinated class),
creation of "reserve funds" (where cash or investments, sometimes funded from
a portion of the payments on the underlying assets, are held in reserve
against future losses), and "over-collateralization" (where the scheduled
payments on, or the principal amount of, the underlying assets exceeds that
required to make payments on the securities and pay any servicing or other
fees). The degree of credit support provided is generally based on historical
information respecting the level of credit risk associated with the
underlying assets. Delinquencies or losses in excess of those anticipated
could adversely affect the return on an investment in the securities.

WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS. The fund may buy U.S.
government obligations on a "when issued" or "delayed delivery" basis. These
transactions are arrangements under which the fund buys securities that have
been authorized but not yet issued with payment for and delivery of the
security scheduled for a future time, generally in 30 to 60 days. Purchases
of U.S. government securities on a when issued or delayed delivery basis are
subject to 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 U.S. government securities
on a when issued basis with the intention of holding the securities, it may
sell the securities before the settlement date if it is deemed advisable.
When the fund is the buyer in this type of 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 the fund's
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 its investment
objectives 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 seller's failure to do so may cause the fund
to miss a price or yield considered advantageous to the fund. Securities
purchased on a when issued or delayed delivery basis do not generally earn
interest until their scheduled delivery date. Entering into a when issued or
delayed delivery transaction is a form of leverage that may affect changes in
Net Asset Value to a greater extent.

MORTGAGE DOLLAR ROLLS. The fund may enter into mortgage dollar rolls in which
the fund 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 period
between the sale and repurchase, the fund forgoes principal and interest paid
on the mortgage-backed securities. The fund is compensated by the difference
between the current sale price and the lower 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
mortgage dollar roll for which there is an offsetting cash position or a cash
equivalent security position. The fund could suffer a loss if the contracting
party fails to perform the future transaction in that the fund may not be
able to buy back the mortgage-backed securities it initially sold. The fund
intends to enter into mortgage dollar rolls only with government securities
dealers recognized by the Federal Reserve Board or with member banks of the
Federal Reserve System.

INVERSE FLOATERS. The fund may invest up to 5% of its total assets in inverse
floaters. Inverse floaters are instruments with floating or variable interest
rates that move in the opposite direction, usually at an accelerated speed,
to short-term interest rates or interest rate indices.

FUTURES CONTRACTS. The fund may enter into contracts for the purchase or sale
for future delivery of financial futures and foreign currency futures and
options on these contracts. Financial futures contracts are commodity
contracts that obligate the long or short holder to take or make delivery of
a specified quantity of a financial instrument, such as a security, or the
cash value of a securities index during a specified future period at a
specified price. A "sale" of a futures contract means the acquisition of a
contractual obligation to deliver the securities called for by the contract
at a specified price on a specified date. A "purchase" of a futures contract
means the acquisition of a contractual obligation to acquire the securities
called for by the contract at a specified price on a specified date. Futures
contracts have been designed by exchanges that have been designated
"contracts markets" by the Commodity Futures Trading Commission ("CFTC") and
must be executed through a futures commission merchant, or brokerage firm,
which is a member of the relevant contract market.

At the time of delivery of securities on the settlement date of a contract,
adjustments are made to recognize differences in value arising from the
delivery of securities with different interest rates from that specified in
the contract. In some (but not many) cases, securities called for by a
futures contract may not have been issued when the contract was written.

Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The termination of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same
month. Such a transaction, which is effected through a member of an exchange,
cancels the obligation to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts are traded,
the fund will incur brokerage fees when it buys or sells futures contracts.

To the extent the fund enters into a futures contract, it will deposit in a
segregated account with its custodian bank cash or U.S. Treasury obligations
equal to a specified percentage of the value of the futures contract (the
"initial margin"), as required by the relevant contract market and futures
commission merchant. The futures contract will be marked to the market daily.
Should the value of the futures contract decline relative to the fund's
position, the fund will be required to pay the futures commission merchant an
amount equal to such change in value. The fund may also cover its futures
position by holding a call option on the same futures contract permitting the
fund to purchase the instrument or currency at a price no higher than the
price established in the futures contract which it sold.

Generally, the purpose of the acquisition or sale of a futures contract is to
attempt to protect the fund from fluctuations in the price of portfolio
securities without actually buying or selling the underlying security,
although the fund may engage in futures and related options to earn
additional income. For example, if the fund owns long-term bonds, and
interest rates were expected to increase, the fund might enter into futures
contracts for the sale of debt securities. Such a sale would have much the
same effect as selling an equivalent value of the long-term bonds owned by
the fund. If interest rates did increase, the value of the debt securities
owned by the fund would decline, but the value of the futures contracts to
the fund would increase at approximately the same rate, thereby keeping the
Net Asset Value of the fund from declining as much as it otherwise would
have. The fund could accomplish similar results by selling bonds with long
maturities and investing in bonds with short maturities when interest rates
are expected to increase. However, since the futures market is often more
liquid than the cash (securities) market, the use of futures contracts as an
investment technique allows the fund to maintain a defensive position without
having to sell its portfolio securities. Similarly, if the fund expects that
a foreign currency in which its securities are denominated will decline in
value against the U.S. dollar, the fund may sell futures contracts on that
currency. If the foreign currency does decline in value, the decrease in
value of the security denominated in that currency will be offset by an
increase in the value of the fund's futures position.

Alternatively, when it expects that interest rates may decline, the fund may
purchase futures contracts in an attempt to hedge against the anticipated
purchase of long-term bonds at higher prices. Since the fluctuations in the
value of futures contracts should be similar to that of long-term bonds, the
fund could take advantage of the anticipated rise in the value of long-term
bonds without actually buying them until the market had stabilized. At that
time, the futures contracts could be liquidated and the fund could then buy
long-term bonds on the cash (securities) market. Similarly, if the fund
intends to acquire a security or other asset denominated in a currency that
is expected to appreciate against the U.S. dollar, the fund may purchase
futures contracts on that currency. If the value of the foreign currency does
appreciate, the increase in the value of the futures position will offset the
increased U.S. dollar cost of acquiring the asset denominated in that
currency.

The ordinary spreads between prices in the cash and futures markets, due to
differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit
and variation margin requirements. Rather than meeting additional variation
margin requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or
taking delivery. To the extent participants decide to make or take delivery,
liquidity in the futures market could be reduced, thus causing distortion.
Third, from the point of view of speculators, the margin deposit requirements
in the futures market are less onerous than margin requirements in the
securities market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility
of distortion, a correct forecast of general interest rate trends by Advisers
may still not result in a successful transaction.

OPTIONS ON FUTURES CONTRACTS. The fund may buy and sell (write) options on
futures contracts. Depending on the pricing of the option compared to either
the price of the futures contract upon which it is based or the price of the
underlying debt securities or currency, it may or may not be less risky than
direct ownership of the futures contract of the underlying debt securities or
currency.

If the fund writes a call option on a futures contract and the futures price
at expiration of the option is below the exercise price, the fund will retain
the full amount of the option premium, which may provide a partial hedge
against any decline that may have occurred in the value of the fund's
portfolio holdings. If the futures price at expiration of the option is
higher than the exercise price, the fund will retain the full amount of the
option premium, which may provide a partial hedge against any increase in the
price of securities which the fund intends to purchase. If a put or call
option the fund has written is exercised, the fund will incur a loss, which
will be reduced by the amount of the premium it received. The fund may lose
the entire amount of the premium (plus related transaction costs) paid for
options it has purchased if the option expires worthless. Depending on the
degree of correlation between changes in the value of its portfolio
securities and changes in the value of its futures positions, the fund's
losses from existing options on futures may to some extent be reduced or
increased by changes in the value of its portfolio securities.

The fund's ability to engage in the options on futures strategies described
above will depend on the availability of liquid markets in such instruments.
Markets in options on futures are relatively new and still developing, and it
is impossible to predict the amount of trading interest that may exist in
various types of options on futures. Therefore, no assurance can be given
that the fund will be able to utilize these instruments effectively for the
purposes set forth above. Furthermore, the fund's ability to engage in
options on futures transactions may be limited by tax considerations.

OPTIONS ON FOREIGN CURRENCIES. The fund may purchase and write options on
foreign currencies for hedging purposes in a manner similar to that in which
futures contracts on foreign currencies, or forward contracts, will be
utilized. For example, a decline in the dollar value of a foreign currency in
which portfolio securities are denominated will reduce the dollar value of
such securities, even if their value in the foreign currency remains
constant. In order to protect against such reductions in the value of
portfolio securities, the fund may purchase put options on the foreign
currency. If the value of the currency does decline, the fund will have the
right to sell such currency for a fixed amount in dollars and will thereby
offset, in whole or in part, the adverse effect on its portfolio which
otherwise would have resulted.

Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing
the cost of the securities, the fund may purchase call options on such
currency. The purchase of options could offset, at least partially, the
effects of the adverse movements in currency exchange rates. As with other
types of options, however, the benefit the fund derives from purchases of
foreign currency options will be reduced by the amount of the premium and
related transaction costs. In addition, where currency exchange rates do not
move in the direction or to the extent anticipated, the fund could sustain
losses on transactions in foreign currency options that would require the
fund to forego a portion or all of the benefits of advantageous changes in
such rates.

The fund may also write options on foreign currencies for hedging purposes.
For example, where the fund anticipates a decline in the dollar value of
foreign currency-denominated securities due to adverse fluctuations in
currency exchange rates the fund could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected decline occurs,
the option will most likely not be exercised, and the diminution in value of
portfolio securities will be offset by the amount of the premium received.

Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the
fund could write a put option on the relevant currency. If currency exchange
rates increase as projected, the put option will expire unexercised and the
premium received will offset the increased cost. As with other types of
options, however, the writing of a foreign currency option will constitute
only a partial hedge up to the amount of the premium received, and only if
rates move in the expected direction. If this does not occur, the option may
be exercised and the fund would be required to purchase or sell the
underlying currency at a loss, which may not be fully offset by the amount of
the premium received. As a result of writing options on foreign currencies,
the fund may also be required to forego all or a portion of the benefits that
might otherwise have been obtained from favorable changes in currency
exchange rates.

All call options written on foreign currencies will be covered. A call option
on foreign currencies written by the fund is "covered" if the fund owns (or
has an absolute right to acquire) the underlying foreign currency covered by
the call. A call option is also covered if the fund has a call on the same
foreign currency in the same principal amount as the call written where 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 and U.S.
government securities in a segregated account with its custodian.

The fund proposes to take advantage of investment opportunities in the area
of futures contracts and options on futures contracts that are not presently
contemplated for use by the fund or that are not currently available but
which may be developed in the future, to the extent such opportunities are
both consistent with the fund's investment objective and policies and are
legally permissible transactions for the fund. These opportunities, if they
arise, may involve risks that are different from those involved in the
options and futures activities described above.

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. 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 same currency.

For example, an Italian lira-denominated position could be constructed by
buying a German mark-denominated debt security and simultaneously entering
into a Forward Contract to exchange an equal amount of marks for lira at a
future date and at a specified exchange rate. With such a transaction, the
fund may be able to receive a return that is substantially similar from a
yield and currency perspective to a direct investment in lira debt securities
while achieving other benefits from holding the underlying security. The fund
may experience slightly different results from its use of such combined
investment positions as compared to its purchase of a debt security
denominated in the particular currency subject to the Forward Contract. This
difference may be enhanced or offset by premiums that may be available in
connection with the Forward Contract.

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 usually effects forward currency exchange contracts on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign exchange market. Some
price spread on currency exchange (to cover service charges) will be incurred
when the fund converts assets from one currency to another.

To limit potential risks in connection with the purchase of currency under
Forward Contracts, cash, cash equivalents or readily marketable debt
securities equal to the amount of the purchase will be held in segregated
accounts with the fund's custodian bank to be used to pay for the commitment,
or the fund will cover any commitments under these contracts to sell currency
by owning the underlying currency (or an absolute right to acquire such
currency). The segregated account will be marked-to-market daily.

SWAP AGREEMENTS. The fund may enter into swap agreements, which can be
individually negotiated agreements and are structured to include exposure to
a variety of different types of investments or market factors. Swap
agreements may be used by the fund in an attempt to obtain a particular
return, possibly at a lower cost to the fund than if the fund were to invest
directly in assets that yielded the desired return. Swap agreements may take
many different forms and are known by a variety of names. The fund is not
limited to any particular form of swap agreement if Advisers determines it is
consistent with the fund's investment goal and policies.

Swap agreements will tend to shift the fund's investment exposure from one
type of investment to another. Depending on how they are used, swap
agreements may increase or decrease the overall volatility of the fund's
investments and its share price and yield. The most significant factors in
the performance of swap agreements are the change in the specific interest
rate, currency or other factors that determine the amounts of payments due to
and from the fund.
To the extent investments in swap agreements are illiquid, they will be
subject to the fund's restrictions on investments in illiquid securities.

The fund will enter into swap agreements on a net basis, which means that the
two payment streams are netted out, with the fund receiving or paying, as the
case may be, only the net amount of the two payments. If a swap agreement
calls for payments by the fund, the fund must be prepared to make such
payments when due. Swap agreements entered into by the fund do not involve
the delivery of securities, other underlying assets or principal.
Accordingly, the risk of loss with respect to swap agreements is limited to
the net amount of payments that the fund is contractually obligated to make.
If the other party to a swap agreement defaults, the fund's risk of loss
consists of the net amount of payments that the fund is contractually
entitled to receive.

One type of swap agreement the fund may participate in is an interest rate
swap. An interest rate swap is the transfer between two counterparties of
interest rate obligations, one of which has an interest rate fixed to
maturity, while the other has an interest rate that changes in accordance
with changes in a designated benchmark (i.e., London Interbank Offered Rate
("LIBOR"), prime, commercial paper, or other benchmarks). The obligations to
make repayment of principal on the underlying securities are not exchanged.
These transactions generally require the participation of an intermediary,
frequently a bank. The entity holding the fixed-rate obligation will transfer
the obligation to the intermediary, and such entity will then be obligated to
pay to the intermediary a floating rate of interest, generally including a
fractional percentage as a commission for the intermediary. The intermediary
also makes arrangements with a second entity that has a floating-rate
obligation that substantially mirrors the obligation desired by the first
party. In return for assuming a fixed obligation, the second entity will pay
the intermediary all sums that the intermediary pays on behalf of the first
entity, plus an arrangement fee and other agreed upon fees.

SHORT SELLING. In a short sale, the fund sells a security it does not own in
anticipation of a decline in the market value of that security. To complete
the transaction, the fund must borrow the security to make delivery to the
buyer. The fund is then obligated to replace the security borrowed by
purchasing it at the market price at the time of replacement. Until the
security is replaced, the fund must pay the lender any dividends or interest
that accrues during the period of the loan. To borrow the security, the fund
may also be required to pay a premium, which would increase the cost of the
security sold. The proceeds of the short sale will be retained by the broker,
to the extent necessary to meet margin requirements, until the short position
is closed out.

The fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which
the fund replaces the borrowed security, and the fund will realize a gain if
the security declines in price between those same dates. The amount of any
gain will be decreased, and the amount of any loss increased, by the amount
of any premium, dividends or interest the fund is required to pay in
connection with the short sale.

The fund will place in a segregated account with its custodian bank an amount
equal to the difference between (a) the market value of the securities sold
short at the time they were sold short and (b) any cash or securities
required to be deposited as collateral with the broker in connection with the
short sale (not including the proceeds from the short sale). The segregated
account will be marked-to-market daily and at no time will the amount
deposited in the segregated account and with the broker as collateral be less
than the market value of the securities at the time they sold short. Under
amendments made by the Revenue act of 1997, entering into a short sale could
cause immediate recognition of gain (but not loss) on the date the
constructive sale of an appreciated financial position is entered.

ILLIQUID AND RESTRICTED SECURITIES. The fund may invest up to 15% of its net
assets in illiquid securities. Illiquid securities are securities that
cannot be disposed of within seven days in the normal course of business at
approximately the amount at which the fund has valued the securities and
include, among other things, repurchase agreements of more than seven days
duration and other securities which are not readily marketable. Investments
in savings deposits are generally considered illiquid and will, together with
other illiquid investments, not exceed 15% of the fund's total net assets.
Notwithstanding this limitation, the fund may invest in securities that
cannot be offered to the public for sale without first being registered under
the Securities Act of 1933, as amended (the "1933 Act") ("restricted
securities"), where such investment is consistent with the fund's investment
objective and Advisers determines that there is a liquid institutional or
other market for such securities. For example, restricted securities that may
be freely transferred among qualified institutional buyers pursuant to Rule
144A under the 1933 Act and for which a liquid institutional market has
developed will be considered liquid even though such securities have not been
registered pursuant to the 1933 Act.

The Board will review any determination by Advisers to treat a restricted
security as a liquid security on an ongoing basis, including Advisers'
assessment of current trading activity and the availability of reliable price
information. In determining whether a restricted security is properly
considered a liquid security, Advisers and the Board will take into account
the following factors: (i) the frequency of trades and quotes for the
security; (ii) the number of dealers willing to purchase or sell the security
and the number of other potential purchasers; (iii) dealer undertakings to
make a market in the security; and (iv) the nature of the security and the
nature of the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers, and the mechanics of transfer). To
the extent the fund invests in restricted securities that are deemed liquid,
the general level of illiquidity in the fund may be increased if qualified
institutional buyers become uninterested in purchasing these securities or
the market for these securities contracts.

REPURCHASE AGREEMENTS. Repurchase agreements are contracts under which the
buyer of a security simultaneously commits to resell the security to the
seller at an agreed-upon price and date. Under a repurchase agreement, the
seller is required to maintain the value of the securities subject to
repurchase at not less than their repurchase price. Advisers will monitor
the value of such securities daily to determine that the value equals or
exceeds the repurchase price. Repurchase agreements may involve risks in the
event of default or insolvency of the seller, including possible delays or
restrictions upon the fund's ability to dispose of the underlying securities.
The fund will enter into repurchase agreements only with parties who meet the
creditworthiness standards approved by the Board, I.E. banks or broker
dealers which have been determined by Advisers to present no serious risk of
becoming involved in bankruptcy proceedings within the time frame
contemplated by the repurchase transaction. Each bank or broker-dealer is
treated as the issuer for purchases of the tax diversification test for
qualification as a regulated investment company.

LOANS OF PORTFOLIO SECURITIES. The fund may lend to banks and broker-dealers
portfolio securities with an aggregate market value of up to one-third of its
total assets. Such loans must be secured by collateral (consisting of any
combination of cash, U.S. government securities or irrevocable letters of
credit) in an amount at least equal (on a daily marked-to-market basis) to
the currenct market value of the securities loaned. The fund retains all or
a portion of the interest received on investment of the cash collateral or
receives a fee from the borrower. The fund may terminate the loans at any
time and obtain the return of the securities loaned within five business
days. The fund will continue to receive any interest or dividends paid on
the loaned securities and will continue to have voting rights with respect to
the securities. However, as with other extensions of credit, there are risks
of delay in recovery or even loss of rights in collateral should the borrower
fail.

BORROWING. The fund does not borrow money or mortgage or pledge any of its
assets, except that the fund may borrow for temporary or emergency purposes,
in an amount not to exceed 30% of its total assets.

WHAT ARE THE RISKS OF INVESTING IN THE FUND?

HIGH YIELD SECURITIES. Because the fund may invest in fixed-income securities
below investment grade, an investment in the fund is subject to a higher
degree of risk than an investment in a fund that invests primarily in
higher-quality securities. You should 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. 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.

The market value of high yield, lower-quality fixed-income securities,
commonly known as junk bonds, tends to reflect individual developments
affecting the issuer to a greater degree than the market value of
higher-quality securities, which react primarily to fluctuations in the
general level of interest rates. Lower-quality securities also tend to be
more sensitive to economic conditions than higher-quality securities.

Issuers of high yield, fixed-income securities are often highly leveraged and
may not have more traditional methods of financing available to them.
Therefore, the risk associated with buying the securities of these issuers is
generally greater than the risk associated with higher-quality securities.
For example, during an economic downturn or a sustained period of rising
interest rates, issuers of lower-quality securities may experience financial
stress and may not have sufficient cash flow to make interest payments. The
issuer's ability to make timely interest and principal payments may also be
adversely affected by specific developments affecting the issuer, including
the issuer's inability to meet specific projected business forecasts or the
unavailability of additional financing.

The risk of loss due to default may also be considerably greater with
lower-quality securities because they are generally unsecured and are often
subordinated to other creditors of the issuer. If the issuer of a security in
the fund's portfolio defaults, the fund may have unrealized losses on the
security, which may lower the fund's Net Asset Value. Defaulted securities
tend to lose much of their value before they default. Thus, the fund's Net
Asset Value may be adversely affected before an issuer defaults. In addition,
the fund may incur additional expenses if it must try to recover principal or
interest payments on a defaulted security.

High yield, fixed-income securities frequently have call or buy-back features
that allow an issuer to redeem the securities from the fund. Although these
securities are typically not callable for a period of time, usually for three
to five years from the date of issue, if an issuer calls its securities
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 for the fund. The premature disposition of a high
yield security due to a call or buy-back feature, the deterioration of an
issuer's creditworthiness, or a default by an issuer may make it more
difficult for the fund to manage the timing of its income. Under the Code and
U.S. Treasury regulations, the fund may have to accrue income on defaulted
securities and distribute the income to shareholders for tax purposes, even
though the fund is not currently receiving interest or principal payments on
the defaulted securities. To generate cash to satisfy these distribution
requirements, the fund may have to sell portfolio securities that it
otherwise may have continued to hold or use cash flows from other sources,
such as the sale of fund shares.

Lower-quality, fixed-income securities may not be as liquid as higher-quality
securities. Reduced liquidity in the secondary market may have an adverse
impact on market price of a security and on the fund's ability to sell a
security in response to a specific economic event, such as a deterioration in
the creditworthiness of the issuer, or if necessary to meet the fund's
liquidity needs. Reduced liquidity may also make it more difficult to obtain
market quotations based on actual trades for purposes of valuing the fund's
portfolio.

The fund may buy high yield, 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 also incur special costs in
disposing of restricted securities, although the fund will generally not
incur any costs when the issuer is responsible for registering the securities.

The fund may buy high yield, 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.

The high yield securities market is relatively new and much of its growth
before 1990 paralleled a long economic expansion. The recession that began in
1990 disrupted the market for high yield securities and adversely affected
the value of outstanding securities, as well as the ability of issuers of
high yield securities to make timely principal and interest payments.
Although the economy has improved and high yield securities have performed
more consistently since that time, the adverse effects previously experienced
may reoccur. For example, the highly publicized defaults on some high yield
securities during 1989 and 1990 and concerns about a sluggish economy that
continued into 1993 depressed the prices of many of these securities. While
market prices may be temporarily depressed due to these factors, the ultimate
price of any security generally reflects the true operating results of the
issuer. Factors adversely impacting the market value of high yield securities
may lower the fund's Net Asset Value.

The fund relies on Advisers' judgment, analysis and experience in evaluating
the creditworthiness of an issuer. In this evaluation, Advisers takes 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.

The credit risk factors above also apply to lower-quality zero-coupon,
deferred interest and pay-in-kind securities. These securities have an
additional risk, however, because unlike securities that pay interest
throughout the time until maturity, the fund will not receive any cash until
the cash payment date. If the issuer defaults, the Fund may not obtain any
return on its investment.

Zero-coupon or deferred interest securities are debt obligations that make no
periodic interest payments before maturity or a specified date when the
securities begin paying current interest (the "cash payment date"), and
therefore are generally issued and traded at a discount from their face
amount or par value. The discount varies depending on the time remaining
until maturity or the cash payment date, as well as prevailing interest
rates, liquidity of the security, and the perceived credit quality of the
issuer. The discount, in the absence of financial difficulties of the issuer,
typically decreases as the final maturity or cash payment date approaches.

The value of zero-coupon securities is generally more volatile than the value
of other fixed-income securities that pay interest periodically. Zero-coupon
securities are also likely to respond to changes in interest rates to a
greater degree than other fixed-income securities having similar maturities
and credit quality.

Current federal income tax law requires a holder of a zero-coupon security to
report as income each year the portion of original issue discount on the
security that accrues that year, even though the holder receives no cash
payments of interest during the year. Pay-in-kind securities pay interest by
issuing more bonds. The fund is deemed to receive interest over the life of
these bonds and is treated as if the interest were paid on a current basis
for federal income tax purposes, although the fund does not receive any cash
interest payments until maturity or the cash payment date. Accordingly,
during times when the fund does not receive any cash interest payments on its
zero-coupon, deferred interest or pay-in-kind securities, it may have to sell
portfolio securities to meet distribution requirements and these sales may be
subject to the risk factors discussed above. The fund is not limited in the
amount of its assets that may be invested in these types of securities.

MORTGAGE-BACKED SECURITIES. To the extent mortgage securities are purchased
at a premium, unscheduled principal prepayments, including prepayments
resulting from mortgage foreclosures, 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 you, will be taxable as ordinary income.

FUTURES CONTRACTS. Futures contracts entail risks. Although the fund believes
that use of such contracts will benefit the fund, if Advisers' investment
judgment about pertinent market movements is incorrect, the fund's overall
performance would be poorer than if it had not entered into any such
contract. For example, if the fund has hedged against the possibility of an
increase in interest rates which would adversely affect the price of bonds
held in its portfolio and interest rates decrease instead, the fund will lose
part or all of the benefit of the increased value of its bonds which it has
hedged because it will have offsetting losses in its futures positions.
Similarly, if the fund sells a foreign currency futures contract and the U.S.
dollar value of the currency unexpectedly increases, the fund will lose the
beneficial effect of the increase on the value of the security denominated in
that currency. In addition, in such situations, if the fund has insufficient
cash, it may have to sell securities from its portfolio to meet daily
variation margin requirements. These sales may be, but will not necessarily
be, at increased prices which reflect the rising market. The fund may have to
sell securities at a time when it may be disadvantageous to do so.

The fund's ability to hedge effectively all or a portion of its securities
through transactions in financial futures and related options also depends on
the degree to which price movements in the underlying index or underlying
securities correlate with price movements in the relevant portion of the
fund's portfolio. Inasmuch as these securities will not duplicate the
components of any index or underlying securities, the correlation will not be
perfect. Consequently, the fund bears the risk that the prices of the
securities being hedged will not move in the same amount as the hedging
instrument. It is also possible that there may be a negative correlation
between the index or other securities underlying the hedging instrument and
the hedged securities which would result in a loss on both the securities and
the hedging instrument.

Positions in financial futures and related options may be closed out only on
an exchange that provides a secondary market. There can be no assurance that
a liquid secondary market will exist for any particular futures contract or
related option at any specific time. Thus, it may not be possible to close a
futures or option position. The inability to close futures or options
positions could have an adverse impact on the fund's ability to effectively
hedge its securities. The fund will enter into a futures or option position
only if there appears to be a liquid secondary market for such futures or
option.

The CFTC and the various exchanges have established limits referred to as
"speculative position limits" on the maximum net long or net short position
that any person may hold or control in a particular futures contract. Trading
limits are imposed on the maximum number of contracts that any person may
trade on a particular trading day. An exchange may order the liquidation of
positions found to be in violation of these limits and it may impose other
sanctions or restrictions. The fund does not believe that these trading and
positions limits will have an adverse impact on the fund's futures strategies.

OPTIONS ON FUTURES. The amount of risk the fund assumes when it purchases an
option on a futures contract is the premium paid for the option plus related
transaction costs. In addition to the correlation risks discussed above, the
purchase of an option also entails the risk that changes in the value of the
underlying futures contract will not be fully reflected in the value of the
option purchased.

ADDITIONAL RISKS OF FORWARD CONTRACTS, OPTIONS ON FOREIGN CURRENCIES, AND
OPTIONS ON FUTURES CONTRACTS. Forward Contracts are not traded on contract
markets regulated by the CFTC or by the SEC. The ability of the fund to use
Forward Contracts could be restricted to the extent that Congress authorized
the CFTC or the SEC to regulate such transactions. Forward Contracts are
traded through financial institutions acting as market makers.

The fund may enter into forward currency exchange contracts in order to limit
the risk from adverse changes in the relationship between currencies.
However, these 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.

The purchase and sale of exchange-traded foreign currency options are subject
to the risks of the availability of a liquid secondary market, as well as the
risks of adverse market movements, margins of options written, the nature of
the foreign currency market, possible intervention by governmental
authorities, and the effects of other political and economic events.

Futures contracts on currencies, options on futures contracts, and options on
foreign currencies may be traded on foreign exchanges. These transactions are
subject to the risk of governmental actions affecting trading in or the
prices of foreign currencies. The value of such positions could also be
adversely affected by (i) other foreign political and economic factors, (ii)
less available data than in the U.S. on which to base trading decisions,
(iii) delays in the fund's ability to act upon economic events occurring in
foreign markets during non-business hours in the U.S., (iv) the imposition of
exercise and settlement terms and procedures, and margin requirements
different from those in the U.S., and (v) lesser trading volume.

INVESTMENT RESTRICTIONS

The fund has adopted the following restrictions as fundamental policies.
These restrictions may not be changed without the approval of a majority of
the outstanding voting securities of the fund. Under the 1940 Act, this means
the approval of (i) more than 50% of the outstanding shares of the fund or
(ii) 67% or more of the shares of the fund present at a shareholder meeting
if more than 50% of the outstanding shares of the fund are represented at the
meeting in person or by proxy, whichever is less. The fund MAY NOT:

1. Borrow money or mortgage or pledge any of the assets of the fund, except
that it may borrow from banks, for temporary or emergency purposes, up to 30%
of its total assets and pledge up to 30% of its total assets in connection
therewith.

2. Buy any securities on "margin," except that the fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities and except that the fund may make margin deposits in
connection with options and futures contracts.

3. Lend any funds or other assets, except by the purchase of publicly
distributed bonds, debentures, notes or other debt or fixed-income securities
and except that portfolio securities of the fund may be loaned to securities
dealers or other institutional investors if at least 102% cash collateral is
pledged and maintained by the borrower, provided such loans may not be made
if, as a result, the aggregate of such loans exceeds 33-1/3% of the value of
the fund's total assets (taken at market value) at the time of the most
recent loan. A repurchase agreement is not considered a loan for purposes of
this restriction.

4. Act as underwriter of securities issued by other persons except insofar
as the fund may be technically deemed an underwriter under the federal
securities laws in connection with the disposition of portfolio securities.

5. Invest more than 25% of its assets in the securities of issuers in any
one industry.

6. Acquire, lease or hold real estate (except such as may be necessary or
advisable for the maintenance of its offices).

7. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (a) making any
permitted borrowings, mortgages or pledges, or (b) entering into options,
futures contracts, forward contracts or repurchase transactions.

If a bankruptcy or other extraordinary event occurs concerning a particular
security owned by the fund, the fund may receive stock, real estate, or other
investments that the fund would not, or could not, buy. In this case, the
fund intends to dispose of the investment as soon as practicable while
maximizing the return to shareholders.

If a percentage restriction is met at the time of investment, a later
increase or decrease in the percentage due to a change in the value or
liquidity of portfolio securities or the amount of assets will not be
considered a violation of any of the foregoing restrictions.

OFFICERS AND TRUSTEES

The Board has the responsibility for the overall management of the fund,
including general supervision and review of its investment activities. The
Board, in turn, elects the officers of the fund who are responsible for
administering the fund's day-to-day operations. The affiliations of the
officers and Board members and their principal occupations for the past five
years are shown below. Members of the Board who are considered "interested
persons" of the fund under the 1940 Act are indicated by an asterisk (*).

POSITIONS AND OFFICES PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS WITH THE TRUST DURING THE PAST FIVE YEARS

Frank H. Abbott, III (77)
1045 Sansome Street
San Francisco, CA 94111

Trustee

President and Director, Abbott Corporation (an investment company); director
or trustee, as the case may be, of 28 of the investment companies in the
Franklin Templeton Group of Funds; and formerly, Director, MotherLode Gold
Mines Consolidated (gold mining) and Vacu-Dry Co. (food processing).

Harris J. Ashton (66)
191 Clapboard Ridge Road
Greenwich, CT 06830

Trustee

Director, RBC Holdings, Inc. (a bank holding company) and Bar-S Foods (a meat
packing company); director or trustee, as the case may be, of 50 of the
investment companies in the Franklin Templeton Group of Funds; and formerly
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers).

S. Joseph Fortunato (66)
Park Avenue at Morris County
P.O. Box 1945
Morristown, NJ 07962-1945

Trustee

Member of the law firm of Pitney, Hardin, Kipp & Szuch; director or trustee,
as the case may be, of 52 of the investment companies in the Franklin
Templeton Group of Funds; and formerly Director, General Host Corporation
(nursery and craft centers).

Edith E. Holiday (46)
3239 38th Street, N.W.
Washington, DC 20016

Trustee

Director (1993-present) of Amerada Hess Corporation and Hercules Incorporated;
Director of Beverly Enterprises, Inc. (1995-present) and H.J. Heinz Company
(1994-present); director or trustee of 25 of the investment companies in the
Franklin Templeton Group of Funds; formerly, chairman (1995-1997) and trustee
(1993-1997) of National Child Research Center, assistant to the President of the
United States and Secretary of the Cabinet (1990-1993), general counsel to the
United States Treasury Department (1989-1990) and counselor to the Secretary and
Assistant Secretary for Public Affairs and Public Liaison-United States Treasury
Department (1988-1989).

*Edward B. Jamieson (50)
777 Mariners Island Blvd.
San Mateo, CA 94404

President and Trustee

Senior Vice President and Portfolio Manager, Franklin Advisers, Inc.; and
officer and trustee of five of the investment companies in the Franklin
Templeton Group of Funds.

*Charles B. Johnson (65)
777 Mariners Island Blvd.
San Mateo, CA 94404

Chairman of the Board and Trustee

President, Chief Executive Officer and Director, Franklin Resources, Inc.;
Chairman of the Board and Director, Franklin Advisers, Inc., Franklin
Advisory Services, Inc., Franklin Investment Advisory Services, Inc. and
Franklin Templeton Distributors, Inc.; Director, Franklin/Templeton Investor
Services, Inc. and Franklin Templeton Services, Inc. officer and/or director
or trustee, as the case may be, of most of the other subsidiaries of Franklin
Resources, Inc. and of 51 of the investment companies in the Franklin
Templeton Group of Funds; and formerly, Director, General Host Corporation
(nursery and craft centers).

*Rupert H. Johnson, Jr. (57)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President and Trustee

Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers,
Inc.; Senior Vice President and Director, Franklin Advisory Services, Inc.
and Franklin Investment Advisory Services, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; and officer and/or director or trustee, as the case
may be, of most of the other subsidiaries of Franklin Resources, Inc. and of
54 of the investment companies in the Franklin Templeton Group of Funds.

Frank W.T. LaHaye (69)
20833 Stevens Creek Blvd., Suite 102
Cupertino, CA 95014

Trustee

General Partner, Peregrine Associates and Miller & LaHaye, which are General
Partners of Peregrine Ventures and Peregrine Ventures II (venture capital
firms); Chairman of the Board and Director, Quarterdeck Corporation (software
firm); Director, Fischer Imaging Corporation (medical imaging systems) and
Digital Transmission Systems, Inc. (wireless communications); and director or
trustee, as the case may be, of 28 of the investment companies in the
Franklin Templeton Group of Funds.

Gordon S. Macklin (70)
8212 Burning Tree Road
Bethesda, MD 20817

Trustee

Chairman, White River Corporation (financial services); Director, Fund
American Enterprises Holdings, Inc., MCI Communications Corporation, CCC
Information Services Group, Inc. (information services), MedImmune, Inc.
(biotechnology), Spacehab, Inc. (aerospace services) and Real 3D (software);
director or trustee, as the case may be, of 50 of the investment companies in
the Franklin Templeton Group of Funds; and FORMERLY, Chairman, Hambrecht and
Quist Group, Director, H & Q Healthcare Investors and Lockheed Martin
Corporation and President, National Association of Securities Dealers, Inc.

Harmon E. Burns (53)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President

Executive Vice President and Director, Franklin Resources, Inc.; Executive
Vice President and Director, Franklin Templeton Distributors, Inc. and
Franklin Templeton Services, Inc.; Executive Vice President, Franklin
Advisers, Inc.; Director, Franklin/Templeton Investor Services, Inc.; and
officer and/or director or trustee, as the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and of 54 of the investment
companies in the Franklin Templeton Group of Funds.

Martin L. Flanagan (38)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President and Chief Financial Officer

Senior Vice President and Chief Financial Officer, Franklin Resources, Inc.;
Executive Vice President and Director, Templeton Worldwide, Inc.; Executive
Vice President, Chief Operating Officer and Director, Templeton Investment
Counsel, Inc.; Senior Vice President and Treasurer, Franklin Advisers, Inc.;
Treasurer, Franklin Advisory Services, Inc.; Treasurer and Chief Financial
Officer, Franklin Investment Advisory Services, Inc.; President, Franklin
Templeton Services, Inc.; Senior Vice President, Franklin/Templeton Investor
Services, Inc.; and officer and/or director or trustee, as the case may be,
of 54 of the investment companies in the Franklin Templeton Group of Funds.

Deborah R. Gatzek (49)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President and Secretary

Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior
Vice President, Franklin Templeton Services, Inc. and Franklin Templeton
Distributors, Inc.; Vice President, Franklin Advisers, Inc. and Franklin
Advisory Services, Inc.; Vice President, Chief Legal Officer and Chief
Operating Officer, Franklin Investment Advisory Services, Inc.; and officer
of 54 of the investment companies in the Franklin Templeton Group of Funds.

Charles E. Johnson (42)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091

Vice President

Senior Vice President and Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; President and Director,
Templeton Worldwide, Inc.; President, Chief Executive Officer, Chief
Investment Officer and Director, Franklin Institutional Services Corporation;
Chairman and Director, Templeton Investment Counsel, Inc.; Vice President,
Franklin Advisers, Inc.; officer and/or director of some of the subsidiaries
of Franklin Resources, Inc.; and officer and/or director or trustee, as the
case may be, of 35 of the investment companies in the Franklin Templeton
Group of Funds.

Diomedes Loo-Tam (59)
777 Mariners Island Blvd.
San Mateo, CA 94404

Treasurer and Principal Accounting Officer

Senior Vice President, Franklin Templeton Services, Inc.; and officer of 33
of the investment companies in the Franklin Templeton Group of Funds.

Edward V. McVey (61)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President

Senior Vice President and National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 29 of the investment companies in the
Franklin Templeton Group of Funds.

The table above shows the officers and Board members who are affiliated with
Distributors and Advisers. Nonaffiliated members of the Board are currently
paid $925 per month plus $925 per meeting attended. As shown above, the
nonaffiliated Board members also serve as directors or trustees of other
investment companies in the Franklin Templeton Group of Funds. They may
receive fees from these funds for their services. The following table
provides the total fees paid to nonaffiliated Board members by the Trust and
by other funds in the Franklin Templeton Group of Funds.

NUMBER OF BOARDS
TOTAL FEES TOTAL FEES RECEIVED IN THE FRANKLIN
RECEIVED FROM THE FRANKLIN TEMPLETON GROUP
NAME FROM THE TEMPLETON GROUP OF OF FUNDS ON WHICH
TRUST*** FUNDS**** EACH SERVES*****
Frank H. Abbott, III $21,275 $165,937 28
Harris J. Ashton 21,275 344,642 50
S. Joseph Fortunato 21,275 361,562 52
David W. Garbellano* 16,650 91,317 N/A
Edith Holiday** 0 72,875 25
Frank W.T. LaHaye 20,350 141,433 28
Gordon S. Macklin 21,275 337,292 50

*Deceased, September 27, 1997.
**Elected to the Board, January 15, 1998.
***For the fiscal year ended October 31, 1997.
****For the calendar year ended December 31, 1997.
*****We base the number of boards on the number of registered investment
companies in the Franklin Templeton Group of Funds. This number does not
include the total number of series or funds within each investment company
for which the Board members are responsible. The Franklin Templeton Group of
Funds currently includes 56 registered investment companies, with
approximately 169 U.S. based funds or series.

Nonaffiliated members of the Board are reimbursed for expenses incurred in
connection with attending board meetings, paid pro rata by each fund in the
Franklin Templeton Group of Funds for which they serve as director or
trustee. No officer or Board member received any other compensation,
including pension or retirement benefits, directly or indirectly from the
fund or other funds in the Franklin Templeton Group of Funds. Certain
officers or Board members who are shareholders of Resources may be deemed to
receive indirect remuneration by virtue of their participation, if any, in
the fees paid to its subsidiaries.

Many of the Board members own shares in other funds in the Franklin Templeton
Group of Funds. Charles B. Johnson and Rupert H. Johnson, Jr. are brothers
and the father and uncle, respectively, of Charles E. Johnson.

INVESTMENT MANAGEMENT AND OTHER SERVICES

INVESTMENT MANAGER AND SERVICES PROVIDED. The fund's investment manager is
Advisers. Advisers provides investment research and portfolio management
services, including the selection of securities for the fund to buy, hold or
sell and the selection of brokers through whom the fund's portfolio
transactions are executed. Advisers' activities are subject to the review and
supervision of the Board to whom Advisers renders periodic reports of the
fund's investment activities. Advisers and its officers, directors and
employees are covered by fidelity insurance for the protection of the fund.

Advisers and its affiliates act as investment manager to numerous other
investment companies and accounts. Advisers may give advice and take action
with respect to any of the other funds it manages, or for its own account,
that may differ from action taken by Advisers on behalf of the fund.
Similarly, with respect to the fund, Advisers is not obligated to recommend,
buy or sell, or to refrain from recommending, buying or selling any security
that Advisers and access persons, as defined by the 1940 Act, may buy or sell
for its or their own account or for the accounts of any other fund. Advisers
is not obligated to refrain from investing in securities held by the fund or
other funds that it manages. Of course, any transactions for the accounts of
Advisers and other access persons will be made in compliance with the fund's
Code of Ethics. Please see "Miscellaneous Information - Summary of Code of
Ethics."

Under an agreement with Advisers, Investment Counsel is the fund's
sub-advisor. Investment Counsel provides Advisers with investment management
advice and assistance.

MANAGEMENT AGREEMENTS. The management and sub-advisory agreements are in
effect until [], 2000. They may continue in effect for successive annual
periods if their continuance is specifically approved at least annually by a
vote of the Board or by a vote of the holders of a majority of the fund's
outstanding voting securities, and in either event by a majority vote of the
Board members who are not parties to either agreement or interested persons
of any such party (other than as members of the Board), cast in person at a
meeting called for that purpose. The management agreement may be terminated
without penalty at any time by the Board or by a vote of the holders of a
majority of the fund's outstanding voting securities on [60] days' written
notice to Advisers, or by Advisers on [60] days' written notice to the fund,
and will automatically terminate in the event of its assignment, as defined
in the 1940 Act. The sub-advisory agreement may be terminated without penalty
at any time by the Board or by vote of the holders of a majority of the
fund's outstanding voting securities, or by either Advisers or Investment
Counsel on not less than [60] days' written notice, and will automatically
terminate in the event of its assignment, as defined in the 1940 Act.

ADMINISTRATIVE SERVICES. FT Services provides certain administrative services
and facilities for the fund. These include preparing and maintaining books,
records, and tax and financial reports, and monitoring compliance with
regulatory requirements. FT Services is a wholly owned subsidiary of
Resources.

SHAREHOLDER SERVICING AGENT. Investor Services, a wholly owned subsidiary of
Resources, is the fund's shareholder servicing agent and acts as the fund's
transfer agent and dividend-paying agent. Investor Services is compensated on
the basis of a fixed fee per account. The fund may also reimburse Investor
Services for certain out-of-pocket expenses, which may include payments by
Investor Services to entities, including affiliated entities, that provide
sub-shareholder services, recordkeeping and/or transfer agency services to
beneficial owners of the fund. The amount of reimbursements for these
services per benefit plan participant fund account per year may not exceed
the per account fee payable by the fund to Investor Services in connection
with maintaining shareholder accounts.

CUSTODIAN. Bank of New York, Mutual Funds Division, 90 Washington Street, New
York, New York 10286, acts as custodian of the securities and other assets of
the fund. The custodian does not participate in decisions relating to the
purchase and sale of portfolio securities.

AUDITORS. Coopers & Lybrand L.L.P., 333 Market Street, San Francisco,
California 94105, are the fund's independent auditors.

HOW DOES THE FUND BUY SECURITIES FOR ITS PORTFOLIO?

Advisers selects brokers and dealers to execute the fund's portfolio
transactions in accordance with criteria set forth in the management
agreement and any directions that the Board may give.

When placing a portfolio transaction, Advisers seeks to obtain prompt
execution of orders at the most favorable net price. For portfolio
transactions on a securities exchange, the amount of commission paid by the
fund is negotiated between Advisers and the broker executing the transaction.
The determination and evaluation of the reasonableness of the brokerage
commissions paid are based to a large degree on the professional opinions of
the persons responsible for placement and review of the transactions. These
opinions are based on the experience of these individuals in the securities
industry and information available to them about the level of commissions
being paid by other institutional investors of comparable size. Advisers will
ordinarily place orders to buy and sell over-the-counter securities on a
principal rather than agency basis with a principal market maker unless, in
the opinion of Advisers, a better price and execution can otherwise be
obtained. Purchases of portfolio securities from underwriters will include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers will include a spread between the bid and ask price.

Advisers may pay certain brokers commissions that are higher than those
another broker may charge, if Advisers determines in good faith that the
amount paid is reasonable in relation to the value of the brokerage and
research services it receives. This may be viewed in terms of either the
particular transaction or Advisers' overall responsibilities to client
accounts over which it exercises investment discretion. The services that
brokers may provide to Advisers include, among others, supplying information
about particular companies, markets, countries, or local, regional, national
or transnational economies, statistical data, quotations and other securities
pricing information, and other information that provides lawful and
appropriate assistance to Advisers in carrying out its investment advisory
responsibilities. These services may not always directly benefit the fund.
They must, however, be of value to Advisers in carrying out its overall
responsibilities to its clients.

It is not possible to place a dollar value on the special executions or on
the research services Advisers receives from dealers effecting transactions
in portfolio securities. The allocation of transactions in order to obtain
additional research services permits Advisers to supplement its own research
and analysis activities and to receive the views and information of
individuals and research staffs of other securities firms. As long as it is
lawful and appropriate to do so, Advisers and its affiliates may use this
research and data in their investment advisory capacities with other clients.
If the fund's officers are satisfied that the best execution is obtained, the
sale of fund shares, as well as shares of other funds in the Franklin
Templeton Group of Funds, may also be considered a factor in the selection of
broker-dealers to execute the fund's portfolio transactions.

Because Distributors is a member of the NASD, it may sometimes receive
certain fees when the fund tenders portfolio securities pursuant to a
tender-offer solicitation. As a means of recapturing brokerage for the
benefit of the fund, any portfolio securities tendered by the fund will be
tendered through Distributors if it is legally permissible to do so. In turn,
the next management fee payable to Advisers will be reduced by the amount of
any fees received by Distributors in cash, less any costs and expenses
incurred in connection with the tender.

If purchases or sales of securities of the fund and one or more other
investment companies or clients supervised by Advisers are considered at or
about the same time, transactions in these securities will be allocated among
the several investment companies and clients in a manner deemed equitable to
all by Advisers, taking into account the respective sizes of the funds and
the amount of securities to be purchased or sold. In some cases this
procedure could have a detrimental effect on the price or volume of the
security so far as the fund is concerned. In other cases it is possible that
the ability to participate in volume transactions may improve execution and
reduce transaction costs to the fund.

HOW DO I BUY, SELL AND EXCHANGE SHARES?

ADDITIONAL INFORMATION ON BUYING SHARES

The fund continuously offers its shares through Securities Dealers who have
an agreement with Distributors. Securities Dealers may at times receive the
entire sales charge. A Securities Dealer who receives 90% or more of the
sales charge may be deemed an underwriter under the Securities Act of 1933,
as amended.

Securities laws of states where the fund offers its shares may differ from
federal law. Banks and financial institutions that sell shares of the fund
may be required by state law to register as Securities Dealers. Financial
institutions or their affiliated brokers may receive an agency transaction
fee in the percentages indicated in the table under "How Do I Buy Shares? -
Quantity Discounts" in the Prospectus.

When you buy shares, if you submit a check or a draft that is returned unpaid
to the fund we may impose a $10 charge against your account for each returned
item.

Under agreements with certain banks in Taiwan, Republic of China, the fund's
shares are available to these banks' trust accounts without a sales charge.
The banks may charge service fees to their customers who participate in the
trusts. A portion of these service fees may be paid to Distributors or one of
its affiliates to help defray expenses of maintaining a service office in
Taiwan, including expenses related to local literature fulfillment and
communication facilities.

Class I shares of the fund may be offered to investors in Taiwan through
securities advisory firms known locally as Securities Investment Consulting
Enterprises. In conformity with local business practices in Taiwan, Class I
shares may be offered with the following schedule of sales charges:

SIZE OF PURCHASE - U.S. DOLLARS SALES CHARGE
Under $30,000 3%
$30,000 but less than $100,000 2%
$100,000 but less than $400,000 1%
$400,000 or more 0%

OTHER PAYMENTS TO SECURITIES DEALERS. Distributors may pay the following
commissions, out of its own resources, to Securities Dealers who initiate and
are responsible for purchases of Class I shares of $1 million or more: 0.75%
on sales of $1 million to $2 million, plus 0.60% on sales over $2 million to
$3 million, plus 0.50% on sales over $3 million to $50 million, plus 0.25% on
sales over $50 million to $100 million, plus 0.15% on sales over $100
million.

Either Distributors or one of its affiliates may pay the following amounts,
out of its own resources, to Securities Dealers who initiate and are
responsible for purchases of Class I shares by certain retirement plans
without a front-end sales charge, as discussed in the Prospectus: 1% on sales
of $500,000 to $2 million, plus 0.80% on sales over $2 million to $3 million,
plus 0.50% on sales over $3 million to $50 million, plus 0.25% on sales over
$50 million to $100 million, plus 0.15% on sales over $100 million.
Distributors may make these payments in the form of contingent advance
payments, which may be recovered from the Securities Dealer or set off
against other payments due to the dealer if shares are sold within 12 months
of the calendar month of purchase. Other conditions may apply. All terms and
conditions may be imposed by an agreement between Distributors, or one of its
affiliates, and the Securities Dealer.

These breakpoints are reset every 12 months for purposes of additional
purchases.

Distributors and/or its affiliates provide financial support to various
Securities Dealers that sell shares of the Franklin Templeton Group of Funds.
This support is based primarily on the amount of sales of fund shares. The
amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a Securities Dealer's sales and marketing
efforts in the Franklin Templeton Group of Funds; a Securities Dealer's
support of, and participation in, Distributors' marketing programs; a
Securities Dealer's compensation programs for its registered representatives;
and the extent of a Securities Dealer's marketing programs relating to the
Franklin Templeton Group of Funds. Financial support to Securities Dealers
may be made by payments from Distributors' resources, from Distributors'
retention of underwriting concessions and, in the case of funds that have
Rule 12b-1 plans, from payments to Distributors under such plans. In
addition, certain Securities Dealers may receive brokerage commissions
generated by fund portfolio transactions in accordance with the NASD's rules.

Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin
Templeton Funds and are afforded the opportunity to speak with portfolio
managers. Invitation to these meetings is not conditioned on selling a
specific number of shares. Those who have shown an interest in the Franklin
Templeton Funds, however, are more likely to be considered. To the extent
permitted by their firm's policies and procedures, registered
representatives' expenses in attending these meetings may be covered by
Distributors.

LETTER OF INTENT. You may qualify for a reduced sales charge when you buy
fund shares, as described in the Prospectus. At any time within 90 days after
the first investment that you want to qualify for a reduced sales charge, you
may file with the fund a signed shareholder application with the Letter of
Intent section completed. After the Letter is filed, each additional
investment will be entitled to the sales charge applicable to the level of
investment indicated on the Letter. Sales charge reductions based on
purchases in more than one Franklin Templeton Fund will be effective only
after notification to Distributors that the investment qualifies for a
discount. Your holdings in the Franklin Templeton Funds acquired more than 90
days before the Letter is filed will be counted towards completion of the
Letter, but they will not be entitled to a retroactive downward adjustment in
the sales charge. Any redemptions you make during the 13 month period, except
in the case of certain retirement plans, will be subtracted from the amount
of the purchases for purposes of determining whether the terms of the Letter
have been completed. If the Letter is not completed within the 13 month
period, there will be an upward adjustment of the sales charge, depending on
the amount actually purchased (less redemptions) during the period. The
upward adjustment does not apply to certain retirement plans. If you execute
a Letter before a change in the sales charge structure of the fund, you may
complete the Letter at the lower of the new sales charge structure or the
sales charge structure in effect at the time the Letter was filed.

As mentioned in the Prospectus, five percent (5%) of the amount of the total
intended purchase will be reserved in shares of the fund registered in your
name until you fulfill the Letter. This policy of reserving shares does not
apply to certain retirement plans. If the amount of your total purchases,
less redemptions, equals the amount specified under the Letter, the reserved
shares will be deposited to an account in your name or delivered to you or as
you direct. If the amount of your total purchases, less redemptions, exceeds
the amount specified under the Letter and is an amount that would qualify for
a further quantity discount, a retroactive price adjustment will be made by
Distributors and the Securities Dealer through whom purchases were made
pursuant to the Letter (to reflect such further quantity discount) on
purchases made within 90 days before and on those made after filing the
Letter. The resulting difference in Offering Price will be applied to the
purchase of additional shares at the Offering Price applicable to a single
purchase or the dollar amount of the total purchases. If the amount of your
total purchases, less redemptions, is less than the amount specified under
the Letter, you will remit to Distributors an amount equal to the difference
in the dollar amount of sales charge actually paid and the amount of sales
charge that would have applied to the aggregate purchases if the total of the
purchases had been made at a single time. Upon remittance, the reserved
shares held for your account will be deposited to an account in your name or
delivered to you or as you direct. If within 20 days after written request
the difference in sales charge is not paid, the redemption of an appropriate
number of reserved shares to realize the difference will be made. In the
event of a total redemption of the account before fulfillment of the Letter,
the additional sales charge due will be deducted from the proceeds of the
redemption, and the balance will be forwarded to you.

If a Letter is executed on behalf of certain retirement plans, the level and
any reduction in sales charge for these plans will be based on actual plan
participation and the projected investments in the Franklin Templeton Funds
under the Letter. These plans are not subject to the requirement to reserve
5% of the total intended purchase, or to any penalty as a result of the early
termination of a plan, nor are these plans entitled to receive retroactive
adjustments in price for investments made before executing the Letter.

REINVESTMENT DATE. Shares acquired through the reinvestment of dividends will
be purchased at the Net Asset Value determined on the business day following
the dividend record date (sometimes known as the "ex-dividend date"). The
processing date for the reinvestment of dividends may vary and does not
affect the amount or value of the shares acquired.

ADDITIONAL INFORMATION ON EXCHANGING SHARES

If you request the exchange of the total value of your account, declared but
unpaid income dividends and capital gain distributions will be exchanged into
the new fund and will be invested at Net Asset Value. Backup withholding and
information reporting may apply. Information regarding the possible tax
consequences of an exchange is included in the tax section in this SAI and in
the Prospectus.

If a substantial number of shareholders should, within a short period, sell
their shares of the fund under the exchange privilege, the fund might have to
sell portfolio securities it might otherwise hold and incur the additional
costs related to such transactions. On the other hand, increased use of the
exchange privilege may result in periodic large inflows of money. If this
occurs, it is the fund's general policy to initially invest this money in
short-term, interest-bearing money market instruments, unless it is believed
that attractive investment opportunities consistent with the fund's
investment goal exist immediately. This money will then be withdrawn from the
short-term, money market instruments and invested in portfolio securities in
as orderly a manner as is possible when attractive investment opportunities
arise.

The proceeds from the sale of shares of an investment company are generally
not available until the seventh day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange
until that seventh day. The sale of fund shares to complete an exchange will
be effected at Net Asset Value at the close of business on the day the
request for exchange is received in proper form. Please see "May I Exchange
Shares for Shares of Another Fund?" in the Prospectus.

ADDITIONAL INFORMATION ON SELLING SHARES

SYSTEMATIC WITHDRAWAL PLAN. There are no service charges for establishing or
maintaining a systematic withdrawal plan. Payments under the plan will be
made from the redemption of an equivalent amount of shares in your account,
generally on the 25th day of the month in which a payment is scheduled. If
the 25th falls on a weekend or holiday, we will process the redemption on the
next business day.

Redeeming shares through a systematic withdrawal plan may reduce or exhaust
the shares in your account if payments exceed distributions received from the
fund. This is especially likely to occur if there is a market decline. If a
withdrawal amount exceeds the value of your account, your account will be
closed and the remaining balance in your account will be sent to you. Because
the amount withdrawn under the plan may be more than your actual yield or
income, part of the payment may be a return of your investment.

The fund may discontinue a systematic withdrawal plan by notifying you in
writing and will automatically discontinue a systematic withdrawal plan if
all shares in your account are withdrawn or if the fund receives notification
of the shareholder's death or incapacity.

THROUGH YOUR SECURITIES DEALER. If you sell shares through your Securities
Dealer, it is your dealer's responsibility to transmit the order to the fund
in a timely fashion. Any loss to you resulting from your dealer's failure to
do so must be settled between you and your Securities Dealer.

REDEMPTIONS IN KIND. The fund has committed itself to pay in cash (by check)
all requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the
value of the fund's net assets at the beginning of the 90-day period. This
commitment is irrevocable without the prior approval of the SEC. In the case
of redemption requests in excess of these amounts, the Board reserves the
right to make payments in whole or in part in securities or other assets of
the fund, in case of an emergency, or if the payment of such a redemption in
cash would be detrimental to the existing shareholders of the fund. In these
circumstances, the securities distributed would be valued at the price used
to compute the fund's net assets and you may incur brokerage fees in
converting the securities to cash. The fund does not intend to redeem
illiquid securities in kind. If this happens, however, you may not be able to
recover your investment in a timely manner.

GENERAL INFORMATION

If dividend checks are returned to the fund marked "unable to forward" by the
postal service, we will consider this a request by you to change your
dividend option to reinvest all distributions. The proceeds will be
reinvested in additional shares at Net Asset Value until we receive new
instructions.

Distribution or redemption checks sent to you do not earn interest or any
other income during the time the checks remain uncashed. Neither the fund nor
its affiliates will be liable for any loss caused by your failure to cash
such checks. The fund is not responsible for tracking down uncashed checks,
unless a check is returned as undeliverable.

In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional efforts to
find you from your account. These costs may include a percentage of the
account when a search company charges a percentage fee in exchange for its
location services.

All checks, drafts, wires and other payment mediums used to buy or sell
shares of the fund must be denominated in U.S. dollars. We may, in our sole
discretion, either (a) reject any order to buy or sell shares denominated in
any other currency or (b) honor the transaction or make adjustments to your
account for the transaction as of a date and with a foreign currency exchange
factor determined by the drawee bank.

SPECIAL SERVICES. Investor Services may pay certain financial institutions
that maintain omnibus accounts with the fund on behalf of numerous beneficial
owners for recordkeeping operations performed with respect to such owners.
For each beneficial owner in the omnibus account, the fund may reimburse
Investor Services an amount not to exceed the per account fee that the fund
normally pays Investor Services. These financial institutions may also charge
a fee for their services directly to their clients.

Certain shareholder servicing agents may be authorized to accept your
transaction request.

HOW ARE FUND SHARES VALUED?

We calculate the Net Asset Value per share as of the close of the NYSE,
normally 1:00 p.m. Pacific time, each day that the NYSE is open for trading.
As of the date of this SAI, the fund is informed that the NYSE observes the
following holidays: New Year's Day, Martin Luther King Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.

For the purpose of determining the aggregate net assets of the fund, cash and
receivables are valued at their realizable amounts. Interest is recorded as
accrued and dividends are recorded on the ex-dividend date. Portfolio
securities listed on a securities exchange or on the NASDAQ National Market
System for which market quotations are readily available are valued at the
last quoted sale price of the day or, if there is no such reported sale,
within the range of the most recent quoted bid and ask prices.
Over-the-counter portfolio securities are valued within the range of the most
recent quoted bid and ask prices. Portfolio securities that are traded both
in the over-the-counter market and on a stock exchange are valued according
to the broadest and most representative market as determined by Advisers.

Portfolio securities underlying actively traded call options are valued at
their market price as determined above. The current market value of any
option held by the fund is its last sale price on the relevant exchange
before the time when assets are valued. Lacking any sales that day or if the
last sale price is outside the bid and ask prices, options are valued within
the range of the current closing bid and ask prices if the valuation is
believed to fairly reflect the contract's market value.

The value of a foreign security is determined as of the close of trading on
the foreign exchange on which it is traded or as of the close of trading on
the NYSE, if that is earlier. The value is then converted into its U.S.
dollar equivalent at the foreign exchange rate in effect at noon, New York
time, on the day the value of the foreign security is determined. If no sale
is reported at that time, the foreign security is valued within the range of
the most recent quoted bid and ask prices. Occasionally events that affect
the values of foreign securities and foreign exchange rates may occur between
the times at which they are determined and the close of the exchange and
will, therefore, not be reflected in the computation of the fund's Net Asset
Value. If events materially affecting the values of these foreign securities
occur during this period, the securities will be valued in accordance with
procedures established by the Board.

Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times
before the close of the NYSE. The value of these securities used in computing
the Net Asset Value of the fund's shares is determined as of such times.
Occasionally, events affecting the values of these securities may occur
between the times at which they are determined and the close of the NYSE that
will not be reflected in the computation of the fund's Net Asset Value. If
events materially affecting the values of these securities occur during this
period, the securities will be valued at their fair value as determined in
good faith by the Board.

Other securities for which market quotations are readily available are valued
at the current market price, which may be obtained from a pricing service,
based on a variety of factors including recent trades, institutional size
trading in similar types of securities (considering yield, risk and maturity)
and/or developments related to specific issues. Securities and other assets
for which market prices are not readily available are valued at fair value as
determined following procedures approved by the Board. With the approval of
the Board, the fund may use a pricing service, bank or Securities Dealer to
perform any of the above described functions.

ADDITIONAL INFORMATION ON DISTRIBUTIONS AND TAXES

DISTRIBUTIONS

DISTRIBUTIONS OF NET INVESTMENT INCOME. The fund receives income generally
in the form of interest, and original issue, market and acquisition discount,
and other income derived from its investments. This income, less expenses
incurred in the operation of the fund, constitutes its net investment income
from which dividends may be paid to you. Any distributions by the fund from
such income will be taxable to you as ordinary income, whether you take them
in cash or in additional shares.

DISTRIBUTIONS OF CAPITAL GAINS. The fund may derive capital gains and losses
in connection with sales or other dispositions of its portfolio securities.
Distributions derived from the excess of net short-term capital gain over net
long-term capital loss will be taxable to you as ordinary income.
Distributions paid from long-term capital gains realized by the fund will be
taxable to you as long-term capital gain, regardless of how long you have
held your shares in the fund. Any net short-term or long-term capital gains
realized by the fund (net of any capital loss carryovers) generally will be
distributed once each year, and may be distributed more frequently, if
necessary, in order to reduce or eliminate federal excise or income taxes on
the fund.

Under the Taxpayer Relief Act of 1997 (the "1997 Act"), the fund is required
to report the capital gain distributions paid to you from gains realized on
the sale of portfolio securities using the following categories:

"28% RATE GAINS": gains resulting from securities sold by the fund after July
28, 1997 that were held for more than one year but not more than 18 months,
and securities sold by the fund before May 7, 1997 that were held for more
than one year. These gains will be taxable to individual investors at a
maximum rate of 28%.

"20% RATE GAINS": gains resulting from securities sold by the fund after July
28, 1997 that were held for more than 18 months, and under a transitional
rule, securities sold by the fund between May 7 and July 28, 1997 (inclusive)
that were held for more than one year. These gains will be taxable to
individual investors at a maximum rate of 20% for individual investors in the
28% or higher federal income tax brackets, and at a maximum rate of 10% for
investors in the 15% federal income tax bracket.

The 1997 Act also provides for a new maximum rate of tax on capital gains of
18% for individuals in the 28% or higher federal income tax brackets and 8%
for individuals in the 15% federal income tax bracket for "qualified 5-year
gains." For individuals in the 15% bracket, qualified 5-year gains are net
gains on securities held for more than 5 years which are sold after December
31, 2000. For individuals who are subject to tax at higher rates, qualified
5-year gains are net gains on securities which are purchased after December
31, 2000 and are held for more than 5 years. Taxpayers subject to tax at the
higher rates may also make an election for shares held on January 1, 2001 to
recognize gain on their shares in order to qualify such shares as qualified
5-year property.

The fund will advise you after the end of each calendar year of the amount of
its capital gain distributions paid during the calendar year that qualify for
these maximum federal tax rates. Additional information on reporting these
distributions on your personal income tax returns is available in Franklin
Templeton's Tax Information Handbook. This handbook has been revised to
include 1997 Act tax law changes. Please call Fund Information to request a
copy. Questions concerning each investor's personal tax reporting should be
addressed to the investor's personal tax advisor.

CERTAIN DISTRIBUTIONS PAID IN JANUARY. Distributions which are declared in
October, November or December and paid to you in January of the following
year, will be treated for tax purposes as if they had been received by you on
December 31 of the year in which they were declared. The fund will report
this income to you on your Form 1099-DIV for the year in which these
distributions were declared.

EFFECT OF FOREIGN INVESTMENTS ON DISTRIBUTIONS. Most foreign exchange gains
realized on the sale of debt instruments are treated as ordinary income by
the fund. Similarly, foreign exchange losses realized by the fund on the
sale of debt instruments are generally treated as ordinary losses by the
fund. These gains when distributed will be taxable to you as ordinary
dividends, and any losses will reduce the fund's ordinary income otherwise
available for distribution to you. This treatment could increase or reduce
the fund's ordinary income distributions to you, and may cause some or all of
the fund's previously distributed income to be classified as a return of
capital.

INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS. The fund will inform you
of the amount and character of your distributions at the time they are paid,
and will advise you of the tax status for federal income tax purposes of such
distributions shortly after the close of each calendar year. If you have not
held fund shares for a full year, you may have designated and distributed to
you as ordinary income or capital gain a percentage of income that is not
equal to the actual amount of such income earned during the period of your
investment in the fund.

TAXES

ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY. The fund has elected
to be treated as a regulated investment company under Subchapter M of the
Code, has qualified as such for its most recent fiscal year, and intends to
so qualify during the current fiscal year. The Board reserves the right not
to maintain the qualification of the fund as a regulated investment company
if it determines such course of action to be beneficial to you. In such
case, the fund will be subject to federal, and possibly state, corporate
taxes on its taxable income and gains, and distributions to you will be taxed
as ordinary dividend income to the extent of the fund's available earnings
and profits.

In order to qualify as a regulated investment company for tax purposes, the
fund must meet certain specific requirements, including:

o The fund must maintain a diversified portfolio of securities, wherein no
security (other than U.S. government securities and securities of other
regulated investment companies) can exceed 25% of the fund's total assets,
and, with respect to 50% of the fund's total assets, no investment (other
than cash and cash items, U.S. government securities and securities of
other regulated investment companies) can exceed 5% of the fund's total
assets;

o The fund must derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, and gains from the
sale or disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities, or currencies; and

o The fund must distribute to its shareholders at least 90% of its net
investment income and net tax-exempt income for each of its fiscal years.

EXCISE TAX DISTRIBUTION REQUIREMENTS. The Code requires the fund to
distribute at least 98% of its taxable ordinary income earned during the
calendar year and 98% of its capital gain net income earned during the twelve
month period ending October 31 (in addition to undistributed amounts from the
prior year) to you by December 31 of each year in order to avoid federal
excise taxes. The fund intends to declare and pay sufficient dividends in
December (or in January that are treated by you as received in December) but
does not guarantee and can give no assurances that its distributions will be
sufficient to eliminate all such taxes.

REDEMPTION OF FUND SHARES. Redemptions and exchanges of fund shares are
taxable transactions for federal and state income tax purposes. The tax law
requires that you recognize a gain or loss in an amount equal to the
difference between your tax basis and the amount you received in exchange for
your shares, subject to the rules described below. If you hold your shares
as a capital asset, the gain or loss that you realize will be capital gain or
loss, and will be long-term for federal income tax purposes if you have held
your shares for more than one year at the time of redemption or exchange.
Any loss incurred on the redemption or exchange of shares held for six months
or less will be treated as a long-term capital loss to the extent of any
long-term capital gains distributed to you by the fund on those shares. The
holding periods and categories of capital gain that apply under the 1997 Act
are described above in the "Distributions" section.

All or a portion of any loss that you realize upon the redemption of your
fund shares will be disallowed to the extent that you purchase other shares
in the fund (through reinvestment of dividends or otherwise) within 30 days
before or after your share redemption. Any loss disallowed under these rules
will be added to your tax basis in the new shares you purchase.

DEFERRAL OF BASIS. All or a portion of the sales charge that you paid for
your shares in the fund will be excluded from your tax basis in any of the
shares sold within 90 days of their purchase (for the purpose of determining
gain or loss upon the sale of such shares) if you reinvest the sales proceeds
in the fund or in another of the Franklin Templeton Funds, and the sales
charge that would otherwise apply to your reinvestment is reduced or
eliminated. The portion of the sales charge excluded from your tax basis in
the shares sold will equal the amount that the sales charge is reduced on
your reinvestment. Any portion of the sales charge excluded from your tax
basis in the shares sold will be added to the tax basis of the shares you
acquire from your reinvestment.

U.S. GOVERNMENT OBLIGATIONS. Many states grant tax-free status to dividends
paid to you from interest earned on direct obligations of the U.S.
government, subject in some states to minimum investment requirements that
must be met by the fund. Investments in GNMA/FNMA securities, bankers'
acceptances, commercial paper and repurchase agreements collateralized by
U.S. government securities do not generally qualify for tax-free treatment.
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 treatment on
your personal income tax return. You should consult with your own tax
advisor to determine the application of your state and local laws to these
distributions. Because the rules on exclusion of this income are different
for corporations, corporate shareholders should consult with their corporate
tax advisors about whether any of their distributions may be exempt from
corporate income or franchise taxes.

DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS. Because the fund's income is
derived primarily from interest rather than dividends, no portion of its
distributions generally will be eligible for the intercorporate
dividends-received deduction.

INVESTMENT IN COMPLEX SECURITIES. The fund's investment in options, futures
contracts and forward contracts, and options on these contracts, including
transactions involving actual or deemed short sales or foreign exchange gains
or losses are subject to many complex and special tax rules.
Over-the-counter options on debt securities and equity options, including
options on stock and on narrow-based stock indexes, will be subject to tax
under section 1234 of the Code, generally producing a long-term or short-term
capital gain or loss upon exercise, lapse, or closing out of the option or
sale of the underlying stock or security. Certain other options, futures and
forward contracts entered into by the fund generally are governed by section
1256 of the Code. These "section 1256" positions generally include listed
options on debt securities, options on broad-based stock indexes, options on
securities indexes, options on futures contracts, regulated futures contracts
and certain foreign currency contracts and options thereon.

Absent a tax election to the contrary, each such section 1256 position held
by the fund will be marked-to-market (i.e., treated as if it were sold for
fair market value) on the last business day of the fund's fiscal year (and on
other dates as prescribed by the Code), and all gain or loss associated with
fiscal year transactions and marked-to-market positions at fiscal year end
(except certain currency gain or loss covered by section 988 of the Code)
will generally be treated as 60% long-term capital gain or loss and 40%
short-term capital gain or loss. Under legislation pending in technical
corrections to the 1997 Act, the 60% long-term capital gain portion will
qualify as 20% rate gain and will be subject to tax to individual investors
at a maximum rate of 20% for investors in the 28% or higher federal income
tax brackets, or at a maximum rate of 10% for investors in the 15% federal
income tax bracket. While foreign currency is marked-to-market at year end,
gain or loss realized as a result will always be ordinary. The effect of the
section 1256 marked-to-market rules may be to accelerate income or to convert
what otherwise would have been long-term capital gains into short-term
capital gains or short-term capital losses into long-term capital losses
within the fund. The acceleration of income on section 1256 positions may
require the fund to accrue taxable income without the corresponding receipt
of cash. In order to generate cash to satisfy the distribution requirements
of the Code, 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. In these ways, any or all of these
rules may affect the amount, character and timing of income distributed to
you by the fund.

When the fund holds an option or contract which substantially diminishes the
fund's risk of loss with respect to another position of the fund (as might
occur in some hedging transactions), this combination of positions could be
treated as a "straddle" for tax purposes, possibly resulting in deferral of
losses, adjustments in the holding periods and conversion of short-term
capital losses into long-term capital losses. The fund may make certain tax
elections for mixed straddles (i.e., straddles comprised of at least one
section 1256 position and at least one non-section 1256 position) which may
reduce or eliminate the operation of these straddle rules.

The 1997 Act has also added new provisions for dealing with transactions that
are generally called "Constructive Sale Transactions." Under these rules,
the fund must recognize gain (but not loss) on any constructive sale of an
appreciated financial position in stock, a partnership interest or certain
debt instruments. The fund generally will be treated as making a
constructive sale when it: 1) enters into a short sale on the same property,
2) enters into an offsetting notional principal contract, or 3) enters into a
futures or forward contract to deliver the same or substantially similar
property. Other transactions (including certain financial instruments called
collars) will be treated as constructive sales as provided in Treasury
regulations to be published. There are also certain exceptions that apply
for transactions that are closed before the end of the 30th day after the
close of the taxable year.

Distributions paid to you by the fund of ordinary income and short-term
capital gains arising from the fund's investments, including investments in
options, forwards, and futures contracts and options on these contracts, will
be taxable to you as ordinary income. The fund will monitor its transactions
in such options and contracts and may make certain other tax elections in
order to mitigate the effect of the above rules.

INVESTMENTS IN FOREIGN CURRENCIES AND FOREIGN SECURITIES. The fund is
authorized to invest in foreign currency denominated securities. Such
investments, if made, will have the following additional tax consequences:

Realized gains or losses attributable to fluctuations in foreign currency
exchange rates which occur between the time the fund accrues income, or
accrues expenses which are denominated in a foreign currency, and the time
the fund actually collects such income or pays such expenses generally are
treated as ordinary income or loss. Similarly, on the disposition of debt
securities denominated in a foreign currency and on the disposition of
certain options, futures, and forward contracts, realized gain or loss
attributable to fluctuations in the value of foreign currency between the
date of acquisition of the security or contract and the date of its
disposition are also treated as ordinary gain or loss. These gains or
losses, referred to under the Code as "section 988" gains or losses, may
increase or decrease the amount of the fund's net investment company taxable
income, which, in turn, will affect the amount of income to be distributed to
you by the fund.

If the fund's section 988 losses exceed the fund's other net investment
company taxable income during a taxable year, the fund generally will not be
able to make ordinary dividend distributions to you for that year, or
distributions made before the losses were realized will be recharacterized as
return of capital distributions for federal income tax purposes, rather than
as an ordinary dividend or capital gain distribution. If a distribution is
treated as a return of capital, your tax basis in your fund shares will be
reduced by a like amount (to the extent of such basis), and any excess of the
distribution over your tax basis in your fund shares will be treated as
capital gain to you. If the fund has a net post-October loss in any fiscal
year, Section 988 losses realized after October 31 but before the close of
the fund's fiscal year may be "pushed forward" to the next fiscal year at the
election of the fund under Treasury regulations.

CONVERSION TRANSACTIONS. Gains realized by a fund from transactions that are
deemed to be "conversion transactions" under the Code, and that would
otherwise produce capital gain may be recharacterized as ordinary income to
the extent that such gain does not exceed an amount defined as the
"applicable imputed income amount". A conversion transaction is any
transaction in which substantially all of the fund's expected return is
attributable to the time value of the fund's net investment in such
transaction, and any one of the following criteria are met:

1) there is an acquisition of property with a substantially contemporaneous
agreement to sell the same or substantially identical property in the
future;
2) the transaction is an applicable straddle;
3) the transaction was marketed or sold to the fund on the basis that it
would have the economic characteristics of a loan but would be taxed as
capital gain; or
4) the transaction is specified in Treasury regulations to be promulgated in
the future.

The applicable imputed income amount, which represents the deemed return on
the conversion transaction based upon the time value of money, is computed
using a yield equal to 120 percent of the applicable federal rate, reduced by
any prior recharacterizations under this provision or the provisions of
Section 263(g) of the Code dealing with capitalized carrying costs.

INVESTMENTS IN ORIGINAL ISSUE DISCOUNT (OID) AND MARKET DISCOUNT (MD) BONDS.
The fund's investments in zero coupon bonds, bonds issued or acquired at a
discount, delayed interest bonds, or bonds that provide for payment of
interest-in-kind (PIK) may cause the fund to recognize income and make
distributions to you prior to its receipt of cash payments. Zero coupon and
delayed interest bonds are normally issued at a discount and are therefore
generally subject to tax reporting as OID obligations. The fund is required
to accrue as income a portion of the discount at which these securities were
issued, and to distribute such income each year (as ordinary dividends) in
order to maintain its qualification as a regulated investment company and to
avoid income reporting and excise taxes at the fund level. PIK bonds are
subject to similar tax rules concerning the amount, character and timing of
income required to be accrued by the fund. Bonds acquired in the secondary
market for a price less than their stated redemption price, or revised issue
price in the case of a bond having OID, are said to have been acquired with
market discount. For MD bonds, the fund may elect to accrue market discount
on a current basis, in which case the fund will be required to distribute any
such accrued market discount. If the fund does not elect to accrue market
discount into income currently, gain recognized on sale will be
recharacterized as ordinary income instead of capital gain to the extent of
any accumulated market discount on the obligation.

DEFAULTED OBLIGATIONS. The fund may be required to accrue income on
defaulted obligations and to distribute such income to you even though it is
not currently receiving interest or principal payments on such obligations.
In order to generate cash to satisfy 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'S UNDERWRITER

Pursuant to an underwriting agreement, Distributors acts as principal
underwriter in a continuous public offering of the fund's shares. The
underwriting agreement will continue in effect for successive annual periods
if its continuance is specifically approved at least annually by a vote of
the Board or by a vote of the holders of a majority of the fund's outstanding
voting securities, and in either event by a majority vote of the Board
members who are not parties to the underwriting agreement or interested
persons of any such party (other than as members of the Board), cast in
person at a meeting called for that purpose. The underwriting agreement
terminates automatically in the event of its assignment and may be terminated
by either party on 90 days' written notice.

Distributors pays the expenses of the distribution of fund shares, including
advertising expenses and the costs of printing sales material and
prospectuses used to offer shares to the public. The fund pays the expenses
of preparing and printing amendments to its registration statements and
prospectuses (other than those necessitated by the activities of
Distributors) and of sending prospectuses to existing shareholders.

Distributors may be entitled to reimbursement under the Rule 12b-1 plan, as
discussed below.

THE RULE 12B-1 PLAN

The fund has adopted a distribution plan or "Rule 12b-1 plan" pursuant to
Rule 12b-1 of the 1940 Act for its Class I shares. Under the plan, the fund
may pay up to a maximum of 0.30% per year of its average daily net assets,
payable quarterly, for expenses incurred in the promotion and distribution of
Class I shares. Of this amount, the fund may reimburse up to 0.30% to
Distributors or others, out of which 0.05% will generally be retained by
Distributors for its distribution expenses.

In addition to the payments that Distributors or others are entitled to under
the plan, the plan also provides that to the extent the fund, Advisers or
Distributors or other parties on behalf of the fund, Advisers or Distributors
make payments that are deemed to be for the financing of any activity
primarily intended to result in the sale of Class I shares of the fund within
the context of Rule 12b-1 under the 1940 Act, then such payments shall be
deemed to have been made pursuant to the plan.

In no event shall the aggregate asset-based sales charges, which include
payments made under the plan, plus any other payments deemed to be made
pursuant to the plan, exceed the amount permitted to be paid under the rules
of the NASD.

The terms and provisions of the plan relating to required reports, term, and
approval are consistent with Rule 12b-1.

To the extent fees are for distribution or marketing functions, as
distinguished from administrative servicing or agency transactions, certain
banks will not be entitled to participate in the plan as a result of
applicable federal law prohibiting certain banks from engaging in the
distribution of mutual fund shares. These banking institutions, however, are
permitted to receive fees under the plan for administrative servicing or for
agency transactions. If you are a customer of a bank that is prohibited from
providing these services, you would be permitted to remain a shareholder of
the fund, and alternate means for continuing the servicing would be sought.
In this event, changes in the services provided might occur and you might no
longer be able to avail yourself of any automatic investment or other
services then being provided by the bank. It is not expected that you would
suffer any adverse financial consequences as a result of any of these changes.

The plan has been approved in accordance with the provisions of Rule 12b-1.
The plan is renewable annually by a vote of the Board, including a majority
vote of the Board members who are not interested persons of the fund and who
have no direct or indirect financial interest in the operation of the plan,
cast in person at a meeting called for that purpose. It is also required that
the selection and nomination of such Board members be done by the
non-interested members of the Board. The plan and any related agreement may
be terminated at any time, without penalty, by vote of a majority of the
non-interested Board members on not more than [60] days' written notice, by
Distributors on not more than [60] days' written notice, by any act that
constitutes an assignment of the management agreement with Advisers, or by
vote of a majority of the outstanding shares of Class I. Distributors or any
dealer or other firm may also terminate their respective distribution or
service agreement at any time upon written notice.

The plan and any related agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a
majority of the outstanding shares of Class I, and all material amendments to
the plan or any related agreements shall be approved by a vote of the
non-interested members of the Board, cast in person at a meeting called for
the purpose of voting on any such amendment.

Distributors is required to report in writing to the Board at least quarterly
on the amounts and purpose of any payment made under the plan and any related
agreements, as well as to furnish the Board with such other information as
may reasonably be requested in order to enable the Board to make an informed
determination of whether the plan should be continued.

HOW DOES THE FUND MEASURE PERFORMANCE?

Performance quotations are subject to SEC rules. These rules require the use
of standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the fund be accompanied
by certain standardized performance information computed as required by the
SEC. Average annual total return and current yield quotations used by the
fund are based on the standardized methods of computing performance mandated
by the SEC. If a Rule 12b-1 plan is adopted, performance figures reflect fees
from the date of the plan's implementation. An explanation of these and other
methods used by the fund to compute or express performance follows.
Regardless of the method used, past performance does not guarantee future
results, and is an indication of the return to shareholders only for the
limited historical period used.

TOTAL RETURN

AVERAGE ANNUAL TOTAL RETURN. Average annual total return is determined by
finding the average annual rates of return over the periods indicated below
that would equate an initial hypothetical $1,000 investment to its ending
redeemable value. The calculation assumes the maximum front-end sales charge
is deducted from the initial $1,000 purchase, and income dividends and
capital gain distributions are reinvested at Net Asset Value. The quotation
assumes the account was completely redeemed at the end of each period and the
deduction of all applicable charges and fees. If a change is made to the
sales charge structure, historical performance information will be restated
to reflect the maximum front-end sales charge currently in effect.

These figures will be calculated according to the SEC formula:

n
P(1+T) = ERV

where:

P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of each period at the end of each
period

CUMULATIVE TOTAL RETURN. Like average annual total return, cumulative total
return assumes the maximum front-end sales charge is deducted from the
initial $1,000 purchase, and income dividends and capital gain distributions
are reinvested at Net Asset Value. Cumulative total return, however, will be
based on the actual return for a specified period rather than on the average
return.

YIELD

CURRENT YIELD. Current yield shows the income per share earned by the fund.
It will be calculated by dividing the net investment income per share earned
during a 30-day base period by the maximum Offering Price per share on the
last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base period.

This figure will be obtained using the following SEC formula:

6
Yield = 2 [(a-b + 1) - 1]
---
cd

where:

a = interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the maximum Offering Price per share on the last day of the period

CURRENT DISTRIBUTION RATE

Current yield, which will be calculated according to a formula prescribed by
the SEC, is not indicative of the amounts which were or will be paid to
shareholders. Amounts paid to shareholders are reflected in the quoted
current distribution rate. The current distribution rate is usually computed
by annualizing the dividends paid per share during a certain period and
dividing that amount by the current maximum Offering Price. The current
distribution rate differs from the current yield computation because it may
include distributions to shareholders from sources other than dividends and
interest, such as premium income from option writing and short-term capital
gains, and is calculated over a different period of time.

VOLATILITY

Occasionally statistics may be used to show the fund's volatility or risk.
Measures of volatility or risk are generally used to compare the fund's Net
Asset Value or performance to a market index. One measure of volatility is
beta. Beta is the volatility of a fund relative to the total market, as
represented by an index considered representative of the types of securities
in which the fund invests. A beta of more than 1.00 indicates volatility
greater than the market and a beta of less than 1.00 indicates volatility
less than the market. Another measure of volatility or risk is standard
deviation. Standard deviation is used to measure variability of Net Asset
Value or total return around an average over a specified period of time. The
idea is that greater volatility means greater risk undertaken in achieving
performance.

OTHER PERFORMANCE QUOTATIONS

The fund may also quote the performance of shares without a sales charge.
Sales literature and advertising may quote a current distribution rate,
yield, cumulative total return, average annual total return and other
measures of performance as described elsewhere in this SAI with the
substitution of Net Asset Value for the public Offering Price.

Sales literature referring to the use of the fund as a potential investment
for Individual Retirement Accounts (IRAs), Business Retirement Plans, and
other tax-advantaged retirement plans may quote a total return based upon
compounding of dividends on which it is presumed no federal income tax
applies.

The fund may include in its advertising or sales material information
relating to investment goals and performance results of funds belonging to
the Franklin Templeton Group of Funds. Resources is the parent company of the
advisors and underwriter of the Franklin Templeton Group of Funds.

COMPARISONS

To help you better evaluate how an investment in the fund may satisfy your
investment goal, advertisements and other materials about the fund may
discuss certain measures of fund performance as reported by various financial
publications. Materials may also compare performance (as calculated above) to
performance as reported by other investments, indices, and averages. These
comparisons may include, but are not limited to, the following examples:

a) Salomon Brothers Broad Bond Index or its component indices - measures
yield, price and total return for Treasury, agency, corporate and mortgage
bonds.

b) Lehman Brothers Aggregate Bond Index or its component indices - measures
yield, price and total return for Treasury, agency, corporate, mortgage and
Yankee bonds.

c) Lehman Brothers Municipal Bond Index or its component indices - measures
yield, price and total return for the municipal bond market.

d) Bond Buyer 20 Index - an index of municipal bond yields based upon yields
of 20 general obligation bonds maturing in 20 years.

e) Bond Buyer 40 Index - an index composed of the yield to maturity of 40
bonds. The index attempts to track the new-issue market as closely as
possible, so it changes bonds twice a month, adding all new bonds that meet
certain requirements and deleting an equivalent number according to their
secondary market trading activity. As a result, the average par call date,
average maturity date, and average coupon rate can and have changed over
time. The average maturity generally has been about 29-30 years.

f) Financial publications: The Wall Street Journal, and Business Week,
Financial World, Forbes, Fortune, and Money magazines - provide performance
statistics over specified time periods.

g) Salomon Brothers Composite High Yield Index or its component indices -
measures yield, price and total return for the Long-Term High-Yield Index,
Intermediate-Term High-Yield Index, and Long-Term Utility High-Yield Index.

h) Historical data supplied by the research departments of CS First Boston
Corporation, the J. P. Morgan companies, Salomon Brothers, Merrill Lynch,
Lehman Brothers and Bloomberg L.P.

i) Morningstar - information published by Morningstar, Inc., including
Morningstar proprietary mutual fund ratings. The ratings reflect
Morningstar's assessment of the historical risk-adjusted performance of a
fund over specified time periods relative to other funds within its category.

j) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed Income Fund
Performance Analysis - measure total return and average current yield for the
mutual fund industry and rank individual mutual fund performance over
specified time periods, assuming reinvestment of all distributions, exclusive
of any applicable sales charges.

From time to time, advertisements or information for the fund may include a
discussion of certain attributes or benefits to be derived from an investment
in the fund. The advertisements or information may include symbols,
headlines, or other material that highlights or summarizes the information
discussed in more detail in the communication.

Advertisements or information may also compare the fund's performance to the
return on CDs or other investments. You should be aware, however, that an
investment in the fund involves the risk of fluctuation of principal value, a
risk generally not present in an investment in a CD issued by a bank. For
example, as the general level of interest rates rise, the value of the fund's
fixed-income investments, as well as the value of its shares that are based
upon the value of such portfolio investments, can be expected to decrease.
Conversely, when interest rates decrease, the value of the fund's shares can
be expected to increase. CDs are frequently insured by an agency of the U.S.
government. An investment in the fund is not insured by any federal, state or
private entity.

In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not
be identical to the formula used by the fund to calculate its figures. In
addition, there can be no assurance that the fund will continue its
performance as compared to these other averages.

MISCELLANEOUS INFORMATION

The fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis in order to
have a projected amount available in the future to fund a child's college
education. (Projected college cost estimates are based upon current costs
published by the College Board.) The Franklin Retirement Planning Guide leads
you through the steps to start a retirement savings program. Of course, an
investment in the fund cannot guarantee that these goals will be met.

The fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 50 years
and now services more than 3 million shareholder accounts. In 1992, Franklin,
a leader in managing fixed-income mutual funds and an innovator in creating
domestic equity funds, joined forces with Templeton, a pioneer in
international investing. The Mutual Series team, known for its value-driven
approach to domestic equity investing, became part of the organization four
years later. Together, the Franklin Templeton Group has over $242 billion in
assets under management for more than 6 million U.S. based mutual fund
shareholder and other accounts. The Franklin Templeton Group of Funds offers
119 U.S. based open-end investment companies to the public. The fund may
identify itself by its NASDAQ symbol or CUSIP number.

Currently, there are more mutual funds than there are stocks listed on the
NYSE. While many of them have similar investment goals, no two are exactly
alike. As noted in the Prospectus, shares of the fund are generally sold
through Securities Dealers. Investment representatives of such Securities
Dealers are experienced professionals who can offer advice on the type of
investment suitable to your unique goals and needs, as well as the types of
risks associated with such investment.

From time to time, the number of fund shares held in the "street name"
accounts of various Securities Dealers for the benefit of their clients or in
centralized securities depositories may exceed 5% of the total shares
outstanding.

As a shareholder of a Massachusetts business trust, you could, under certain
circumstances, be held personally liable as a partner for its obligations.
The fund's Agreement and Declaration of Trust, however, contains an express
disclaimer of shareholder liability for acts or obligations of the fund. The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of the fund's assets if you are held personally liable for
obligations of the fund. The Declaration of Trust provides that the fund
shall, upon request, assume the defense of any claim made against you for any
act or obligation of the fund and satisfy any judgment thereon. All such
rights are limited to the assets of the fund. The Declaration of Trust
further provides that the fund may maintain appropriate insurance (for
example, fidelity bonding and errors and omissions insurance) for the
protection of the fund, its shareholders, trustees, officers, employees and
agents to cover possible tort and other liabilities. Furthermore, the
activities of the fund as an investment company, as distinguished from an
operating company, would not likely give rise to liabilities in excess of the
fund's total assets. Thus, the risk of you incurring financial loss on
account of shareholder liability is limited to the unlikely circumstances in
which both inadequate insurance exists and the fund itself is unable to meet
its obligations.

In the event of disputes involving multiple claims of ownership or authority
to control your account, the fund has the right (but has no obligation) to:
(a) freeze the account and require the written agreement of all persons
deemed by the fund to have a potential property interest in the account,
before executing instructions regarding the account; (b) interplead disputed
funds or accounts with a court of competent jurisdiction; or (c) surrender
ownership of all or a portion of the account to the IRS in response to a
Notice of Levy.

SUMMARY OF CODE OF ETHICS. Employees of the Franklin Templeton Group who are
access persons under the 1940 Act are permitted to engage in personal
securities transactions subject to the following general restrictions and
procedures: (i) the trade must receive advance clearance from a compliance
officer and must be completed by the close of the business day following the
day clearance is granted; (ii) copies of all brokerage confirmations and
statements must be sent to a compliance officer; (iii) all brokerage accounts
must be disclosed on an annual basis; and (iv) access persons involved in
preparing and making investment decisions must, in addition to (i), (ii) and
(iii) above, file annual reports of their securities holdings each January
and inform the compliance officer (or other designated personnel) if they own
a security that is being considered for a fund or other client transaction or
if they are recommending a security in which they have an ownership interest
for purchase or sale by a fund or other client.

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

CODE - Internal Revenue Code of 1986, as amended

DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the fund's principal
underwriter

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

INVESTMENT COUNSEL - Templeton Investment Counsel, Inc., the fund's
sub-advisor

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.

NYSE - New York Stock Exchange

OFFERING PRICE - The public offering price is based on the Net Asset Value
per share and includes the front-end sales charge. The maximum front-end
sales charge is 4.25%.

PROSPECTUS - The prospectus for the fund's Class I shares dated August 3,
1998, as may be amended from time to time

RESOURCES - Franklin Resources, Inc.

SAI - Statement of Additional Information

S&P - Standard & Poor's Corporation

SEC - U.S. Securities and Exchange Commission

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

FRANKLIN BOND FUND - ADVISOR CLASS
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 3, 1998
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN

TABLE OF CONTENTS

How Does the Fund Invest Its Assets?.........................
What Are the Risks of Investing in the Fund?.................
Investment Restrictions......................................
Officers and Trustees............................
Investment Management
and Other Services..........................................
How Does the Fund Buy
Securities for Its Portfolio?...............................
How Do I Buy, Sell and Exchange Shares?......................
How Are Fund Shares Valued?..................................
Additional Information on
Distributions and Taxes.....................................
The Fund's Underwriter.......................................
How Does the Fund Measure Performance?.......................
Miscellaneous Information....................................
Financial Statements.........................................
Useful Terms and Definitions.................................

This SAI describes the fund's Advisor Class shares. The fund currently offers
another share class with a different sales charge and expense structure,
which affects performance. To receive more information about the fund's other
share class, contact your investment representative or call 1-800/DIAL BEN.

- ------------------------------------------------------------------------------
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:

o ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
o ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK;
o ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
- ------------------------------------------------------------------------------

HOW DOES THE FUND INVEST ITS ASSETS?

WHAT IS THE FUND'S GOAL?

The investment goal of the fund is to provide a high level of current income
consistent with the preservation of capital, with capital appreciation over
the long term as a secondary objective. This goal is fundamental, which means
that it may not be changed without shareholder approval.

MORE INFORMATION ABOUT THE KINDS OF SECURITIES THE FUND BUYS

As new types of mortgage-backed securities are developed and offered to
investors, the fund may invest in them if they are consistent with the fund's
objectives, policies and quality standards.

WHAT ARE THE RISKS OF INVESTING IN THE FUND?

INVESTMENT RESTRICTIONS

5. Invest more than 25% of its assets in the securities of issuers in any
one industry.

6. Acquire, lease or hold real estate (except such as may be necessary or
advisable for the maintenance of its offices).

OFFICERS AND TRUSTEES

POSITIONS AND OFFICES PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS WITH THE TRUST DURING THE PAST FIVE YEARS

Frank H. Abbott, III (77)
1045 Sansome Street
San Francisco, CA 94111

Trustee

Harris J. Ashton (66)
191 Clapboard Ridge Road
Greenwich, CT 06830

Trustee

S. Joseph Fortunato (66)
Park Avenue at Morris County
P.O. Box 1945
Morristown, NJ 07962-1945

Trustee

Edith E. Holiday (46)
3239 38th Street, N.W.
Washington, DC 20016

Trustee

Director (1993-present) of Amerada Hess Corporation and Hercules
Incorporated; Director of Beverly Enterprises, Inc. (1995-present) and H.J.
Heinz Company (1994-present); director or trustee of 25 of the investment
companies
in the Franklin Templeton Group of Funds; formerly, chairman (1995-1997) and
trustee (1993-1997) of National Child Research Center, assistant to the
President of the United States and Secretary of the Cabinet (1990-1993),
general counsel to the United States Treasury Department (1989-1990) and
counselor to the Secretary and Assistant Secretary for Public Affairs and
Public Liaison-United States Treasury Department (1988-1989).

*Edward B. Jamieson (50)
777 Mariners Island Blvd.
San Mateo, CA 94404

President and Trustee

Senior Vice President and Portfolio Manager, Franklin Advisers, Inc.; and
officer and trustee of five of the investment companies in the Franklin
Templeton Group of Funds.

*Charles B. Johnson (65)
777 Mariners Island Blvd.
San Mateo, CA 94404

Chairman of the Board and Trustee

*Rupert H. Johnson, Jr. (57)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President and Trustee

Frank W.T. LaHaye (69)
20833 Stevens Creek Blvd., Suite 102
Cupertino, CA 95014

Trustee

Gordon S. Macklin (70)
8212 Burning Tree Road
Bethesda, MD 20817

Trustee

Harmon E. Burns (53)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President

Martin L. Flanagan (38)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President and Chief Financial Officer

Deborah R. Gatzek (49)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President and Secretary

Charles E. Johnson (42)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091

Vice President

Diomedes Loo-Tam (59)
777 Mariners Island Blvd.
San Mateo, CA 94404

Treasurer and Principal Accounting Officer

Senior Vice President, Franklin Templeton Services, Inc.; and officer of 33
of the investment companies in the Franklin Templeton Group of Funds.

Edward V. McVey (61)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President

Senior Vice President and National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 29 of the investment companies in the
Franklin Templeton Group of Funds.

TOTAL FEES RECEIVED NUMBER OF BOARDS IN
TOTAL FEES FROM THE FRANKLIN THE FRANKLIN TEMPLETON
RECEIVED FROM TEMPLETON GROUP OF GROUP OF FUNDS ON
NAME THE TRUST*** FUNDS**** WHICH EACH SERVES*****
- ---- ------------- ------------------ ----------------------
Frank H. Abbott, III $21,275 $165,937 28
Harris J. Ashton 21,275 344,642 50
S. Joseph Fortunato 21,275 361,562 52
David W. Garbellano* 16,650 91,317 N/A
Edith Holiday** 0 72,875 25
Frank W.T. LaHaye 20,350 141,433 28
Gordon S. Macklin 21,275 337,292 50

INVESTMENT MANAGEMENT AND OTHER SERVICES

Under an agreement with Advisers, Investment Counsel is the fund's
sub-advisor. Investment Counsel provides Advisers with investment management
advice and assistance.

AUDITORS. Coopers & Lybrand L.L.P., 333 Market Street, San Francisco,
California 94105, are the fund's independent auditors.

HOW DOES THE FUND BUY SECURITIES FOR ITS PORTFOLIO?

HOW DO I BUY, SELL AND EXCHANGE SHARES?

ADDITIONAL INFORMATION ON BUYING SHARES

The fund continuously offers its shares through Securities Dealers who have
an agreement with Distributors. Securities laws of states where the fund
offers its shares may differ from federal law. Banks and financial
institutions that sell shares of the fund may be required by state law to
register as Securities Dealers.

When you buy shares, if you submit a check or a draft that is returned unpaid
to the fund we may impose a $10 charge against your account for each returned
item.

OTHER PAYMENTS TO SECURITIES DEALERS. Distributors and/or its affiliates
provide financial support to various Securities Dealers that sell shares of
the Franklin Templeton Group of Funds. This support is based primarily on the
amount of sales of fund shares. The amount of support may be affected by:
total sales; net sales; levels of redemptions; the proportion of a Securities
Dealer's sales and marketing efforts in the Franklin Templeton Group of
Funds; a Securities Dealer's support of, and participation in, Distributors'
marketing programs; a Securities Dealer's compensation programs for its
registered representatives; and the extent of a Securities Dealer's marketing
programs relating to the Franklin Templeton Group of Funds. Financial support
to Securities Dealers may be made by payments from Distributors' resources,
from Distributors' retention of underwriting concessions and, in the case of
funds that have Rule 12b-1 plans, from payments to Distributors under such
plans. In addition, certain Securities Dealers may receive brokerage
commissions generated by fund portfolio transactions in accordance with the
NASD's rules.

Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin
Templeton Funds and are afforded the opportunity to speak with portfolio
managers. Invitation to these meetings is not conditioned on selling a
specific number of shares. Those who have shown an interest in the Franklin
Templeton Funds, however, are more likely to be considered. To the extent
permitted by their firm's policies and procedures, a registered
representatives' expenses in attending these meetings may be covered by
Distributors.

ADDITIONAL INFORMATION ON EXCHANGING SHARES

ADDITIONAL INFORMATION ON SELLING SHARES

GENERAL INFORMATION

Certain shareholder servicing agents may be authorized to accept your
transaction request.

HOW ARE FUND SHARES VALUED?

The value of a foreign security is determined as of the close of trading on
the foreign exchange on which it is traded or as of the close of trading on
the NYSE, if that is earlier. The value is then converted into its U.S.
dollar equivalent at the foreign exchange rate in effect at noon, New York
time, on the day the value of the foreign security is determined. If no sale
is reported at that time, the foreign security is valued within the range of
the most recent quoted bid and ask prices. Occasionally events that affect
the values of foreign securities and foreign exchange rates may occur between
the times at which they are determined and the close of the exchange and
will, therefore, not be reflected in the computation of the Net Asset Value.
If events materially affecting the values of these foreign securities occur
during this period, the securities will be valued in accordance with
procedures established by the Board.

Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times
before the close of the NYSE. The value of these securities used in computing
the Net Asset Value is determined as of such times. Occasionally, events
affecting the values of these securities may occur between the times at which
they are determined and the close of the NYSE that will not be reflected in
the computation of the Net Asset Value. If events materially affecting the
values of these securities occur during this period, the securities will be
valued at their fair value as determined in good faith by the Board.

ADDITIONAL INFORMATION ON DISTRIBUTIONS AND TAXES

DISTRIBUTIONS

"28% RATE GAINS": gains resulting from securities sold by the fund after
July 28, 1997 that were held for more than one year but not more than 18
months, and securities sold by the fund before May 7, 1997 that were held for
more than one year. These gains will be taxable to individual investors at a
maximum rate of 28%.

"20% RATE GAINS": gains resulting from securities sold by the fund after
July 28, 1997 that were held for more than 18 months, and under a
transitional rule, securities sold by the fund between May 7 and July 28,
1997 (inclusive) that were held for more than one year. These gains will be
taxable to individual investors at a maximum rate of 20% for individual
investors in the 28% or higher federal income tax brackets, and at a maximum
rate of 10% for investors in the 15% federal income tax bracket.

TAXES

In order to qualify as a regulated investment company for tax purposes, the
fund must meet certain specific requirements, including:

o The fund must maintain a diversified portfolio of securities, wherein
no security (other than U.S. government securities and securities of
other regulated investment companies) can exceed 25% of the fund's
total assets, and, with respect to 50% of the fund's total assets, no
investment (other than cash and cash items, U.S. government securities
and securities of other regulated investment companies) can exceed 5%
of the fund's total assets;

o The fund must derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, and gains from the
sale or disposition of stock, securities or foreign currencies, or
other income derived with respect to its business of investing in such
stock, securities, or currencies; and

o The fund must distribute to its shareholders at least 90% of its net
investment income and net tax-exempt income for each of its fiscal
years.

1) there is an acquisition of property with a substantially
contemporaneous agreement to sell the same or substantially identical
property in the future;
2) the transaction is an applicable straddle;
3) the transaction was marketed or sold to the fund on the basis that it
would have the economic characteristics of a loan but would be taxed as
capital gain; or
4) the transaction is specified in Treasury regulations to be promulgated
in the future.

THE FUND'S UNDERWRITER

Advisers selects brokers and dealers to execute the fund's portfolio
transactions in accordance with criteria set forth in the management
agreement and any directions that the Board may give.

When placing a portfolio transaction, Advisers seeks to obtain prompt
execution of orders at the most favorable net price. For portfolio
transactions on a securities exchange, the amount of commission paid by the
fund is negotiated between Advises and the broker executing the transaction.
The determination and evaluation of the reasonableness of the brokerage
commissions paid are based to a large degree on the professional opinions of
the persons responsible for placement and review of the transactions. These
opinions are based on the experience of these individuals in the securities
industry and information available to them about the level of commissions
being paid by other institutional investors of comparable size. Advisers will
ordinarily place orders to buy and sell over-the-counter securities on a
principal rather than agency basis with a principal market maker unless, in
the opinion of Advisers, a better price and execution can otherwise be
obtained. Purchases of portfolio securities from underwriters will include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers will include a spread between the bid and ask price.

Distributors does not receive compensation from the fund for acting as
underwriter of the fund's Advisor Class shares.

HOW DOES THE FUND MEASURE PERFORMANCE?

An explanation of these and other methods used by the fund to compute or
express performance follows. Regardless of the method used, past performance
does not guarantee future results, and is an indication of the return to
shareholders only for the limited historical period used.

TOTAL RETURN

AVERAGE ANNUAL TOTAL RETURN. Average annual total return is determined by
finding the average annual rates of return over the periods indicated below
that would equate an initial hypothetical $1,000 investment to its ending
redeemable value. The calculation assumes income dividends and capital gain
distributions are reinvested at Net Asset Value. The quotation assumes the
account was completely redeemed at the end of each period and the deduction
of all applicable charges and fees. If a change is made to the sales charge
structure, historical performance information will be restated to reflect the
maximum front-end sales charge currently in effect.

These figures will be calculated according to the SEC formula:

n
P(1+T) = ERV

where:

CUMULATIVE TOTAL RETURN. Like average annual total return, cumulative total
return assumes income dividends and capital gain distributions are reinvested
at Net Asset Value. Cumulative total return, however, will be based on the
actual return for a specified period rather than on the average return.

YIELD

CURRENT YIELD. Current yield shows the income per share earned by the fund.
It will be calculated by dividing the net investment income per share earned
during a 30-day base period by the Net Asset Value per share on the last day
of the period and annualizing the result. Expenses accrued for the period
include any fees charged to all shareholders during the base period.

This figure will be obtained using the following SEC formula:

6
Yield = 2 [(a-b + 1) - 1]
---
cd

where:

a = interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the Net Asset Value per share on the last day of the period

CURRENT DISTRIBUTION RATE

Current yield, which will be calculated according to a formula prescribed by
the SEC, is not indicative of the amounts which were or will be paid to
shareholders of the fund. Amounts paid to shareholders are reflected in the
quoted current distribution rate. The current distribution rate is usually
computed by annualizing the dividends paid per share during a certain period
and dividing that amount by the current Net Asset Value. The current
distribution rate differs from the current yield computation because it may
include distributions to shareholders from sources other than dividends and
interest, such as premium income from option writing and short-term capital
gains, and is calculated over a different period of time.

VOLATILITY

OTHER PERFORMANCE QUOTATIONS

COMPARISONS

a) Salomon Brothers Broad Bond Index or its component indices - measures
yield, price and total return for Treasury, agency, corporate and
mortgage bonds.

b) Lehman Brothers Aggregate Bond Index or its component indices -
measures yield, price and total return for Treasury, agency, corporate,
mortgage and Yankee bonds.

c) Lehman Brothers Municipal Bond Index or its component indices -
measures yield, price and total return for the municipal bond market.

d) Bond Buyer 20 Index - an index of municipal bond yields based upon
yields of 20 general obligation bonds maturing in 20 years.

e) Bond Buyer 40 Index - an index composed of the yield to maturity of 40
bonds. The index attempts to track the new-issue market as closely as
possible, so it changes bonds twice a month, adding all new bonds that
meet certain requirements and deleting an equivalent number according to
their secondary market trading activity. As a result, the average par
call date, average maturity date, and average coupon rate can and have
changed over time. The average maturity generally has been about 29-30
years.

f) Financial publications: The WALL STREET JOURNAL, and BUSINESS WEEK,
FINANCIAL WORLD, FORBES, FORTUNE, and MONEY magazines - provide
performance statistics over specified time periods.

g) Salomon Brothers Composite High Yield Index or its component indices -
measures yield, price and total return for the Long-Term High-Yield
Index, Intermediate-Term High-Yield Index, and Long-Term Utility
High-Yield Index.

h) Historical data supplied by the research departments of CS First
Boston Corporation, the J. P. Morgan companies, Salomon Brothers, Merrill
Lynch, Lehman Brothers and Bloomberg L.P.
i) Morningstar - information published by Morningstar, Inc., including
Morningstar proprietary mutual fund ratings. The ratings reflect
Morningstar's assessment of the historical risk-adjusted performance of a
fund over specified time periods relative to other funds within its category.
j) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed Income
Fund Performance Analysis - measure total return and average current
yield for the mutual fund industry and rank individual mutual fund
performance over specified time periods, assuming reinvestment of all
distributions, exclusive of any applicable sales charges.
From time to time, advertisements or information for the fund may include a
discussion of certain attributes or benefits to be derived from an investment
in the fund. The advertisements or information may include symbols,
headlines, or other material that highlights or summarizes the information
discussed in more detail in the communication.

MISCELLANEOUS INFORMATION

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

CODE - Internal Revenue Code of 1986, as amended

DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the fund's principal
underwriter

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

INVESTMENT COUNSEL - Templeton Investment Counsel, Inc., the fund's
sub-advisor

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

IRS - Internal Revenue Service

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

NASD - National Association of Securities Dealers, Inc.

NYSE - New York Stock Exchange

PROSPECTUS - The prospectus for Advisor Class shares of the fund dated August
3, 1998, as may be amended from time to time

RESOURCES - Franklin Resources, Inc.

SAI - Statement of Additional Information

S&P - Standard & Poor's Corporation

SEC - U.S. Securities and Exchange Commission

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

FRANKLIN INVESTORS SECURITIES TRUST

File Nos. 33-11444 & 811-4936

FORM N-1A
PART C
OTHER INFORMATION

ITEM 24 FINANCIAL STATEMENTS AND EXHIBITS

a) Not Applicable

b) Exhibits:

The following exhibits are incorporated by reference, except exhibits
10(i), 17(i) and 17(ii), which are attached herewith:

(1) Copies of the charter as now in effect;

(i) Agreement and Declaration of Trust dated December 16, 1986
Filing: Post-Effective Amendment No. 15 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: April 24, 1995

(ii) Certificate of Amendment of Agreement and Declaration of
Trust dated March 21, 1995
Filing: Post-Effective Amendment No. 15 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: April 24, 1995

(iii) Certificate of Amendment of Agreement and Declaration of
Trust dated March 13, 1990
Filing: Post-Effective Amendment No. 15 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: April 24, 1995

(i) Certificate of Amendment of Agreement and Declaration of
Trust dated March 21, 1989
Filing: Post-Effective Amendment No. 22 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: February 26, 1998

(2) Copies of the existing By-Laws or instruments corresponding
thereto;

(i) By-Laws
Filing: Post-Effective Amendment No. 15 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: April 24, 1995

(ii) Amendment to By-Laws dated January 18, 1994
Filing: Post-Effective Amendment No. 15 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: April 24, 1995

(3) Copies of any voting trust agreement with respect to more than
five percent of any class of equity securities of the Registrant;

Not Applicable

(4) Specimens or copies of each security issued by the Registrant,
including copies of all constituent instruments, defining the
rights of the holders of such securities, and copies of each
security being registered;

Not Applicable

(5) Copies of all investment advisory contracts relating to the
management of the assets of the Registrant;

(i) Management Agreement between Registrant and Franklin
Advisers, Inc., dated April 15, 1987
Filing: Post-Effective Amendment No. 15 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: April 24, 1995

(ii) Administration Agreement between Franklin Adjustable U.S.
Government Securities Fund and Franklin Advisers, Inc.,
dated June 3, 1991
Filing: Post-Effective Amendment No. 15 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: April 24, 1995

(iii) Administration Agreement between Franklin Adjustable Rate
Securities Fund and Franklin Advisers, Inc., dated December
26, 1991
Filing: Post-Effective Amendment No. 15 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: April 24, 1995

(iv) Subadvisory Agreement between Franklin Advisers, Inc., and
Templeton Investment Counsel, Inc., providing for service
to Franklin Investors Securities Trust on behalf of
Franklin Global Government Income Fund dated May 1, 1994
Filing: Post-Effective Amendment No. 15 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: April 24, 1995

(v) Amendment dated August 1, 1995 to the Administration
Agreement between Registrant on behalf of Franklin
Adjustable Rate Securities Fund and Franklin Advisers,
Inc., dated June 3, 1991
Filing: Post-Effective Amendment No. 17 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: December 29, 1995

(vi) Amendment dated August 1, 1995 to the Administration
Agreement between Registrant on behalf of Franklin
Adjustable U.S. Government Securities Fund and Franklin
Advisers, Inc., dated December 26, 1991
Filing: Post-Effective Amendment No. 17 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: December 29, 1995

(vii) Form of Management Agreement

[To be supplied by amendment]

(viii) Form of Subadvisory Agreement

[To be supplied by amendment]

(ix) Form of Administration Agreement

[To be supplied by amendment]

(6) Copies of each underwriting or distribution contract between the
Registrant and a principal underwriter, and specimens or copies
of all agreements between principal underwriters and dealers;

(i) Amended and Restated Distribution Agreement between
Registrant and Franklin/Templeton Distributors, Inc., dated
March 29, 1995
Filing: Post-Effective Amendment No. 18 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: November 27, 1996

(ii) Forms of Dealer Agreement between Franklin/Templeton
Distributors, Inc., and securities dealers
Registrant: Franklin Tax-Free Trust
Filing: Post-Effective Amendment No. 22 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: March 14, 1996

(7) Copies of all bonus, profit sharing, pension or other similar
contracts or arrangements wholly or partly for the benefit of
trustees or officers of the Registrant in their capacity as such;
any such plan that is not set forth in a formal document, furnish
a reasonably detailed description thereof;

Not Applicable

(8) Copies of all custodian agreements and depository contracts under
Section 17(f) of the 1940 Act, with respect to securities and
similar investments of the Registrant, including the schedule of
remuneration;

(i) Global Custody Agreement between The Chase Manhattan Bank,
N.A. and Franklin Investors Securities Trust on behalf of
Franklin Global Government Income Fund dated July 28, 1995
Filing: Post-Effective Amendment No. 17 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: December 29, 1995

(ii) Master Custody Agreement between Registrant and Bank of New
York dated February 16, 1996
Filing: Post-Effective Amendment No. 18 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: November 27, 1996

(iii) Amendment dated May 7, 1997 to Master Custody Agreement
between Registrant and Bank of New York dated February 16,
1996
Filing: Post-Effective Amendment No. 22 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: February 26, 1998

(iv) Amendment dated October 15, 1997 to Exhibit A in the Master
Custody Agreement between Registrant and Bank of New York
dated February 16, 1996
Filing: Post-Effective Amendment No. 22 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: February 26, 1998

(v) Terminal Link Agreement between Registrant and Bank of New
York dated February 16, 1996
Filing: Post-Effective Amendment No. 18 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: November 27, 1996

(9) Copies of all other material contracts not made in the ordinary
course of business which are to be performed in whole or in part
at or after the date of filing the Registration Statement;

Not Applicable

(10) An opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will when
sold be legally issued, fully paid and nonassessable;

(i) Opinion and Consent of Counsel

(11) Copies of any other opinions, appraisals or rulings and consents
to the use thereof relied on in the preparation of this
Registration Statement and required by Section 7 of the 1933 Act;

Not Applicable

(12) All financial statements omitted from Item 23;

Not Applicable

(13) Copies of any agreements or understandings made in consideration
for providing the initial capital between or among the
Registrant, the underwriter, adviser, promoter or initial
stockholders and written assurances from promoters or initial
stockholders that their purchases were made for investment
purposes without any present intention of redeeming or reselling;

(i) Letter of Understanding relating to Franklin Global
Government Fund - Class II and Franklin Equity Income Fund
- Class II dated April 12, 1995
Filing: Post-Effective Amendment No. 15 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: April 24, 1995

(ii) Letter of Understanding relating to Franklin Adjustable
Rate Securities Fund
Filing: Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A
File No. 33-11444 and 811-4986
Filing Date: June 1, 1992

(iii) Letter of understanding relating to Franklin Bond Fund

[To be supplied by amendment]

(14) Copies of the model plan used in the establishment of any
retirement plan in conjunction with which Registrant offers its
securities, any instructions thereto and any other documents
making up the model plan. Such form(s) should disclose the costs
and fees charged in connection therewith;

(i) Copy of Model Retirement Plan
Registrant: Franklin High Income Trust
Filing: Post-effective amendment No. 26 to
Registration Statement on Form N-1A
File No. 2-30203
Filing Date: August 1, 1989

(15) Copies of any plan entered into by Registrant pursuant to Rule
12b-1 under the 1940 Act, which describes all material aspects of
the financing of distribution of Registrant's shares, and any
agreements with any person relating to implementation of such
plan.

(i) Distribution Plan between Franklin Global Government Income
Fund and Franklin/Templeton Distributors, Inc., dated May
1, 1994
Filing: Post-Effective Amendment No. 15 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: April 24, 1995

(ii) Distribution Plan between Franklin Short- Intermediate U.S.
Government Securities Fund and Franklin/Templeton
Distributors, Inc., dated May 1, 1994
Filing: Post-Effective Amendment No. 15 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: April 24, 1995

(iii) Distribution Plan between Franklin Convertible Securities
Fund and Franklin/Templeton Distributors, Inc., dated May
1, 1994
Filing: Post-Effective Amendment No. 15 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: April 24, 1995

(iv) Amended and restated Distribution Plan between Franklin
Adjustable U.S. Government Securities Fund and
Franklin/Templeton Distributors, Inc., dated July 1, 1993
Filing: Post-Effective Amendment No. 15 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: April 24, 1995

(v) Distribution Plan between Franklin Equity Income Fund and
Franklin/Templeton Distributors, Inc., dated May 1, 1994
Filing: Post-Effective Amendment No. 15 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: April 24, 1995

(vi) Amended and restated Distribution Plan between Franklin
Adjustable Rate Securities Fund and Franklin/Templeton
Distributors, Inc., dated July 1, 1993
Filing: Post-Effective Amendment No. 15 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: April 24, 1995

(vii) Class II Distribution Plan pursuant to Rule 12b-1 on behalf
of Franklin Global Government Income Fund dated March 30,
1995
Filing: Post-Effective Amendment No. 15 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: April 24, 1995

(viii) Class II Distribution Plan pursuant to Rule 12b-1 on behalf
of Franklin Convertible Securities Fund dated September 29,
1995
Filing: Post-Effective Amendment No. 17 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: December 29, 1995

(ix) Class II Distribution Plan pursuant to Rule 12b-1 on behalf
of Franklin Equity Income Fund dated March 30, 1995
Filing: Post-Effective Amendment No. 17 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: December 29, 1995

(x) Form of Distribution Plan

[To be supplied by amendment]

(16) Schedule for computation of each performance quotation provided
in the Registration Statement in response to Item 22 (which need
not be audited).

(i) Schedule for Computation of Performance Quotation
Filing: Post-Effective Amendment No. 17 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: December 29, 1995

(17) Power of Attorney

(i) Power of Attorney for Franklin Investors Securities Trust
dated April 16, 1998

(ii) Certificate of Secretary for Franklin Investors Securities
Trust dated April 16, 1998

(iii) Power of Attorney for Adjustable Rate Securities Portfolios
dated February 16, 1995
Filing: Post-Effective Amendment No. 17 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: December 29, 1995

(iv) Certificate of Secretary for Adjustable Rate Securities
Portfolios dated February 16, 1995
Filing: Post-Effective Amendment No. 17 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: December 29, 1995

(18) Copies of any plan entered into by registrant pursuant to Rule
18f-3 under the 1940 Act

(i) Multiple Class Plan for Franklin Short- Intermediate U.S.
Government Securities Fund dated June 18, 1996
Filing: Post-Effective Amendment No. 20 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: December 31, 1996

(ii) Multiple Class Plan for Franklin Global Government Income
Fund dated June 18, 1996
Filing: Post-Effective Amendment No. 20 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: December 31, 1996

(iii) Multiple Class Plan for Franklin Convertible Securities
Fund dated August 15, 1995
Filing: Post-Effective Amendment No. 21 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: February 28, 1997

(iv) Multiple Class Plan for Franklin Equity Income Fund dated
August 15, 1995
Filing: Post-Effective Amendment No. 21 to
Registration Statement on Form N-1A
File No. 33-11444
Filing Date: February 28, 1997

(v) Form of Multiple Class Plan for Franklin Bond Fund

[To be supplied by amendment]

ITEM 25 PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT

None

ITEM 26 NUMBER OF HOLDERS OF SECURITIES

As of March 31, 1998, the number of shareholders of record of Registrant's
shares were as follows:

NUMBER OF RECORD HOLDERS
CLASS I CLASS II ADVISOR CLASS
Franklin Global Government Income Fund 8,274 442 14
Franklin Short-Intermediate U.S. Government
Securities Fund 7,103 N/A 19
Franklin Convertible Securities Fund 11,953 3,010 N/A
Franklin Adjustable U.S. Government
Securities Fund 16,872 N/A N/A
Franklin Equity Income Fund 23,958 5,395 N/A
Franklin Adjustable Rate Securities Fund 1,234 N/A N/A
Franklin Bond Fund 0 N/A 0

ITEM 27 INDEMNIFICATION

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

ITEM 28 BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

a) The officers and directors of the Registrant's manager, Administrator,
and the Master Fund's investment adviser, Franklin Advisers, Inc.
("Advisers") also serve as officers and/or directors for (1) Advisers'
corporate parent, Franklin Resources, Inc., and/or (2) other investment
companies in the Franklin Templeton Group of Funds. In addition, Mr. Charles
B. Johnson is a director of General Host Corporation. For additional
information please see Part B and Schedules A and D of Form ADV of Advisers
(SEC File 801-26292), incorporated herein by reference, which sets forth the
officers and directors of Advisers and information as to any business,
profession, vocation or employment of a substantial nature engaged in by
those officers and directors during the past two years.

b) Templeton Investment Counsel, Inc.

Templeton Investment Counsel, Inc., an indirect, wholly owned subsidiary of
Franklin Resources, Inc., serves as the Franklin Global Government Income
Fund's Sub-adviser, furnishing to Franklin Advisers, Inc. in that capacity,
portfolio management services and investment research. For additional
information please see part B and Schedules A and D of Form ADV of the
Franklin Global Government Income Fund's Sub-adviser (SEC File 801-15125),
incorporated herein by reference, which sets forth the officers and directors
of the Sub-adviser and information as to any business, profession, vocation
or employment of a substantial nature engages in by those officers and
directors during the past two years.

Item 29 Principal Underwriters

a) Franklin/Templeton Distributors, Inc., ("Distributors") also acts as
principal underwriter of shares of:

Franklin Asset Allocation Fund
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Floating Rate Trust
Franklin Gold Fund
Franklin High Income Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Mutual Series Fund Inc.
Franklin Municipal Securities Trust
Franklin New York Tax-Free Income Fund
Franklin New York Tax-Free Trust
Franklin Real Estate Securities Trust
Franklin Strategic Mortgage Portfolio
Franklin Strategic Series
Franklin Tax-Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton Fund Allocator Series
Franklin Templeton Global Trust
Franklin Templeton International Trust
Franklin Templeton Money Fund Trust
Franklin Value Investors Trust
Institutional Fiduciary Trust

Franklin Templeton Japan Fund
Templeton American Trust, Inc.
Templeton Capital Accumulator Fund, Inc.
Templeton Developing Markets Trust
Templeton Funds, Inc.
Templeton Global Investment Trust
Templeton Global Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller Companies Fund, Inc.
Templeton Growth Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
Templeton Variable Products Series Fund

b) The information required by this Item 29 with respect to each director
and officer of Distributors is incorporated by reference to Part B of this
N-1A and Schedule A of Form BD filed by Distributors with the Securities and
Exchange Commission pursuant to the Securities Act of 1934 (SEC File No.
8-5889).

c) Not Applicable. Registrant's principal underwriter is an affiliated
person of an affiliated person of the Registrant.

ITEM 30 LOCATION OF ACCOUNTS AND RECORDS

The accounts, books or other documents required to be maintained by Section
31 (a) of the Investment Company Act of 1940 are kept by the Fund or its
shareholder services agent, Franklin Templeton Investor Services, Inc., both
of whose address is 777 Mariners Island Blvd., San Mateo, CA. 94404.

ITEM 31 MANAGEMENT SERVICES

There are no management-related service contracts not discussed in Part A or
Part B.

ITEM 32 UNDERTAKINGS

a) The Registrant hereby undertakes to comply with the information
requirement in Item 5A of the Form N-1A including the required information in
the Fund's annual report and to furnish each person to whom a prospectus is
delivered a copy of the annual report upon request and without charge.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of San Mateo and the State of
California, on the 20th day of May, 1998.

FRANKLIN INVESTORS SECURITIES TRUST
(Registrant)

By: EDWARD B. JAMIESON*
Edward B. Jamieson,
President

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
and on the dates indicated.

EDWARD B. JAMIESON* Trustee and Principal
Edward B. Jamieson Executive Officer
Dated: May 20, 1998

MARTIN L. FLANAGAN* Principal Financial Officer
Martin L. Flanagan Dated: May 20, 1998

DIOMEDES LOO-TAM* Principal Accounting Officer
Diomedes Loo-Tam Dated: May 20, 1998

FRANK H. ABBOTT III* Trustee
Frank H. Abbott III Dated: May 20, 1998

HARRIS J. ASHTON* Trustee
Harris J. Ashton Dated: May 20, 1998

S. JOSEPH FORTUNATO* Trustee
S. Joseph Fortunato Dated: May 20, 1998

EDITH E. HOLIDAY Trustee
Edith E. Holiday Dated: May 20, 1998

CHARLES B. JOHNSON* Trustee
Charles B. Johnson Dated: May 20, 1998

RUPERT H. JOHNSON, JR.* Trustee
Rupert H. Johnson, Jr. Dated: May 20, 1998

FRANK W.T. LAHAYE* Trustee
Frank W.T. LaHaye Dated: May 20, 1998

GORDON S. MACKLIN* Trustee
Gordon S. Macklin Dated: May 20, 1998

*By /s/ Larry L. Greene
Attorney-in-Fact
(Pursuant to Powers of Attorney previously filed)

FRANKLIN INVESTORS SECURITIES TRUST
REGISTRATION STATEMENT
EXHIBITS INDEX

EXHIBIT NO. DESCRIPTION LOCATION

EX-99.B1(i) Agreement and Declaration of Trust dated *
December 16, 1986

EX-99.B1(ii) Certificate of Amendment of Agreement and *
Declaration of Trust dated March 21, 1995

EX-99.B1(iii) Certificate of Amendment of Agreement and *
Declaration of Trust dated March 13, 1990

EX-99.B1(iv) Certificate of Amendment of Agreement and *
Declaration of Trust dated March 21, 1989

EX-99.B2(i) By-Laws *

EX-99.B2(ii) Amendment to By-Laws dated January 18, *
1994

EX-99.B5(i) Management Agreement between Registrant *
and Franklin Advisers, Inc., dated April
15, 1987

EX-99.B5(ii) Administration Agreement between Franklin *
Adjustable U.S. Government Securities
Fund and Franklin Advisers, Inc., dated
June 3, 1991

EX-99.B5(iii) Administration Agreement between Franklin *
Adjustable Rate Securities Fund and
Franklin Advisers, Inc., dated December
26, 1991

EX-99.B5(iv) Subadvisory Agreement between Franklin *
Advisers, Inc. and Templeton Investment
Counsel, Inc., dated May 1, 1994

EX-99.B5(v) Amendment to Administration Agreement *
between the Registrant on behalf of
Franklin Adjustable Rate Securities Fund
and Franklin Advisers, Inc., dated August
1, 1995

EX-99.B5(vi) Amendment to Administration Agreement *
between Registrant on behalf of Franklin
Adjustable U.S. Government Securities
Fund and Franklin Advisers, Inc., dated
August 1, 1995

EX-99.B5(vii) Form of Management Agreement **

EX-99.B5(viii) Form of Subadvisory Agreement **

EX-99.B5(ix) Form of Administration Agreement **

EX-99.B6(i) Amended and Restated Distribution *
Agreement between Registrant and
Franklin/Templeton Distributors, Inc.,
dated March 29, 1995

EX-99.B6(ii) Forms of Dealer Agreement between *
Franklin/Templeton Distributors, Inc.,
and securities dealers

EX-99.B8(i) Global Custody Agreement between The *
Chase Manhattan Bank, N.A. and Franklin
Investors Securities Trust on behalf of
Franklin Global Government Income Fund
dated July 28, 1995

EX-99.B8(ii) Master Custody Agreement between *
Registrant and Bank of New York dated
February 16, 1996

EX-99.B8(iii) Amendment dated May 7, 1997 to Master *
Custody Agreement between Registrant and
Bank of New York dated February 16, 1996

EX-99.B8(iv) Amendment dated October 15, 1997 to *
Exhibit A in Master Custody Agreement
dated February 16, 1996

EX-99.B8(v) Terminal Link Agreement between *
Registrant and Bank of New York dated
February 16, 1996

EX-99.B10(i) Opinion and Consent of Counsel Attached

EX-99.B13(i) Letter of Understanding dated April 12, *
1995

EX-99.B13(ii) Letter of Understanding relating to *
Franklin Adjustable Rate Securities Fund

EX-99.B13(iii) Letter of Understanding relating to **
Franklin Bond Fund

EX-99.B14(i) Copy of Model Retirement Plan *

EX-99.B15(i) Distribution Plan between Franklin Global *
Government Income Fund and
Franklin/Templeton Distributors, Inc.,
dated May 1, 1994

EX-99.B15(ii) Distribution Plan between Franklin *
Short-Intermediate U.S. Government
Securities Fund and Franklin/Templeton
Distributors, Inc., dated May 1, 1994

EX-99.B15(iii) Distribution Plan between Franklin *
Convertible Securities Fund and
Franklin/Templeton Distributors, Inc.,
dated May 1, 1994

EX-99.B15(iv) Amended and Restated Distribution Plan *
between Franklin Adjustable U.S.
Government Securities Fund and
Franklin/Templeton Distributors, Inc.,
dated July 1, 1993

EX-99.B15(v) Distribution Plan between Franklin Equity *
Income Fund and Franklin/Templeton
Distributors, Inc., dated May 1, 1994

EX-99.B15(vi) Amended and Restated Distribution Plan *
between Franklin Adjustable Rate
Securities Fund and Franklin/Templeton
Distributors, Inc., dated July 1, 1993

EX-99.B15(vii) Class II Distribution Plan pursuant to *
Rule 12b-1 on behalf of Franklin Global
Government Income Fund dated March 30,
1995

EX-99.B15(viii) Class II Distribution Plan pursuant to *
Rule 12b-1 on behalf of Franklin
Convertible Securities Fund dated
September 29, 1995

EX-99.B15(ix) Class II Distribution Plan pursuant to *
Rule 12b-1 on behalf of Franklin Equity
Income Fund dated March 30, 1995

EX-99.B15(x) Form of Distribution Plan **

EX-99.B16(i) Schedule for Computation of Performance *
Quotation

EX-99.B17(i) Power of Attorney for Franklin Investors Attached
Securities Trust dated April 16, 1998

EX-99.B17(ii) Certificate of Secretary for Franklin Attached
Investors Securities Trust dated April
16, 1997

EX-99.B17(iii) Power of Attorney for Adjustable Rate *
Securities Portfolios dated February 16,
1995

EX-99.B17(iv) Certificate of Secretary for Adjustable *
Rate Securities Portfolios dated February
16, 1995

EX-99.B18(i) Multiple Class Plan for Franklin *
Short-Intermediate U.S. Government
Securities Fund dated June 18, 1996

EX-99.B18(ii) Multiple Class Plan for Franklin Global *
Government Income Fund dated June 18,
1996

EX-99.B18(iii) Multiple Class Plan for Franklin *
Convertible Securities Fund dated August
15, 1995

EX-99.B18(iv) Multiple Class Plan for Franklin Equity *
Income Fund dated August 15, 1995

EX-99.B18(v) Form of Multiple Class Plan for Franklin **
Bond Fund

*Incorporated by Reference
**To be supplied by amendment

LAW OFFICES

STRADLEY, RONON, STEVENS & YOUNG, LLP

2600 One Commerce Square
Philadelphia, Pennsylvania 19103-7098
(215) 564-8000

Direct Dial: (215) 564-8115

May 14, 1998

Franklin Investors Securities Trust
777 Mariners Island Blvd.
San Mateo, CA 94403-7777

Re: LEGAL OPINION-SECURITIES ACT OF 1933

Ladies and Gentlemen:

We have examined the Agreement and Declaration of Trust (the "Declaration
of Trust") of Franklin Investors Securities Trust (the "Trust"), a business
trust organized under the laws of the State of Massachusetts on December 16,
1986, the By-Laws of the Trust, and the various pertinent proceedings we deem
material. We have also examined the Notification of Registration and the
Registration Statements filed under the Investment Company Act of 1940 (the
"Investment Company Act") and the Securities Act of 1933 (the "Securities
Act"), all as amended to date, as well as other items we deem material to
this opinion.

The Trust is authorized by its Declaration of Trust to issue an unlimited
number of shares of beneficial interest with a par value of $ .01 per share.
The Trust issues shares of Franklin Global Government Income Fund, Franklin
Short-Intermediate U.S. Government Securities Fund, Franklin Convertible
Securities Fund, Franklin Adjustable U.S. Government Securities Fund,
Franklin Equity Income Fund, Franklin Adjustable Rate Securities Fund, and
intends to issue shares of Franklin Bond Fund. The Declaration of Trust
designates, or authorizes the Trustees to designate, one or more series or
classes of shares of the Trust, and allocates, or authorizes the Trustees to
allocate, shares of beneficial interest to each such series or class. The
Declaration of Trust also empowers the Trustees to designate any additional
series or classes and allocate shares to such series or classes.

The Trust has filed with the U.S. Securities and Exchange Commission (the
"Commission"), a Registration Statement under the Securities Act, which
Registration Statement is deemed to register an indefinite number of shares
of the Trust pursuant to the provisions of Rule 24f-2 under the Investment
Company Act. You have further advised us that the Trust has filed, and each
year hereafter will timely file, a Notice pursuant to Rule 24f-2 perfecting
the registration of the shares sold by the Trust during each fiscal year
during which such registration of an indefinite number of shares remains in
effect.

You have also informed us that the shares of the Trust have been, and will
continue to be, sold in accordance with the Trust's usual method of
distributing its registered shares, under which prospectuses are made
available for delivery to offerees and purchasers of such shares in
accordance with Section 5(b) of the Securities Act.

Based upon the foregoing information and examination, so long as the Trust
remains a valid and subsisting trust under the laws of the State of
Massachusetts, and the registration of an indefinite number of shares of the
Trust remains effective, the authorized shares of the Trust when issued for
the consideration set by the Board of Trustees pursuant to the Declaration of
Trust, and subject to compliance with Rule 24f-2, will be legally
outstanding, fully-paid, and non-assessable shares, and the holders of such
shares will have all the rights provided for with respect to such holding by
the Declaration of Trust and the laws of the State of Massachusetts.

We hereby consent to the use of this opinion as an exhibit to the
Registration Statement of the Trust, and any amendments thereto, covering the
registration of the shares of the Trust under the Securities Act and the
applications, registration statements or notice filings, and amendments
thereto, filed in accordance with the securities laws of the several states
in which shares of the Trust are offered, and we further consent to reference
in the registration statement of the Trust to the fact that this opinion
concerning the legality of the issue has been rendered by us.

Very truly yours,

STRADLEY, RONON, STEVENS & YOUNG, LLP

BY: /S/ BRUCE G. LETO
Bruce G. Leto

POWER OF ATTORNEY

The undersigned officers and trustees of Franklin Investors Securities
Trust (the "Registrant") hereby appoint MARK H. PLAFKER, HARMON E. BURNS,
DEBORAH R. GATZEK, KAREN L. SKIDMORE AND LARRY L. GREENE (with full power to
each of them to act alone) his attorney-in-fact and agent, in all capacities,
to execute, and to file any of the documents referred to below relating to
Post-Effective Amendments to the Registrant's registration statement on Form
N-1A under the Investment Company Act of 1940, as amended, and under the
Securities Act of 1933 covering the sale of shares by the Registrant under
prospectuses becoming effective after this date, including any amendment or
amendments increasing or decreasing the amount of securities for which
registration is being sought, with all exhibits and any and all documents
required to be filed with respect thereto with any regulatory authority.
Each of the undersigned grants to each of said attorneys, full authority to
do every act necessary to be done in order to effectuate the same as fully,
to all intents and purposes as he could do if personally present, thereby
ratifying all that said attorneys-in-fact and agents, may lawfully do or
cause to be done by virtue hereof.

The undersigned officers and trustees hereby execute this Power of
Attorney as of this 16 day of April 1998.

/S/ EDWARD B. JAMIESON /S/ CHARLES B. JOHNSON
Edward B. Jamieson, Charles B. Johnson,
Principal Executive Officer Trustee
and Trustee

/S/ FRANK H. ABBOTT, III /S/ HARRIS J. ASHTON
Frank H. Abbott, III, Harris J. Ashton,
Trustee Trustee

/S/ S. JOSEPH FORTUNATO /S/ EDITH E. HOLIDAY
S. Joseph Fortunato, Edith E. Holiday,
Trustee Trustee

/S/ RUPERT H. JOHNSON, JR. /S/ FRANK W. T. LAHAYE
Rupert H. Johnson, Jr., Frank W. T. LaHaye,
Trustee Trustee

/S/ GORDON S. MACKLIN /S/ DIOMEDES LOO-TAM
Gordon S. Macklin, Diomedes Loo-Tam,
Trustee Principal Accounting Officer

/S/ MARTIN L. FLANAGAN
Martin L. Flanagan,
Principal Financial Officer

CERTIFICATE OF SECRETARY

I, Deborah R. Gatzek, certify that I am Secretary of Franklin Investors
Securities Trust (the "Trust").

As Secretary of the Trust, I further certify that the following
resolution was adopted by a majority of the Trustees of the Trust present at
a meeting held at 777 Mariners Island Boulevard, San Mateo, California, on
April 16, 1998.

RESOLVED, that a Power of Attorney, substantially in the form of
the Power of Attorney presented to this Board, appointing Harmon
E. Burns, Deborah R. Gatzek, Karen L. Skidmore, Larry L. Greene
and Mark H. Plafker as attorneys-in-fact for the purpose of
filing documents with the Securities and Exchange Commission, be
executed by each Trustee and designated officer.

I declare under penalty of perjury that the matters set forth in this
certificate are true and correct of my own knowledge.

Dated: April 16, 1998
/s/ Deborah R. Gatzek
Secretary