ADJUSTABLE RATE SECURITIES PORTFOLIOS, POS AMI, 1995-02-28

ADJUSTABLE RATE SECURITIES PORTFOLIOS
POS AMI, 1995-02-28

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As filed with the Securities and Exchange Commission on
February 28, 1995

File No. 811-6242

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 8

This Amendment is being filed only under
the Investment Company Act of 1940

ADJUSTABLE RATE SECURITIES PORTFOLIOS
(Exact Name of Registrant as Specified in
Charter)

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

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

Deborah R. Gatzek 777 Mariners Island Blvd., San Mateo, CA
94404 (Name and Address of Agent for Service of
Process)

Please Send Copy of Communications to:

Mark H. Plafker, Esq.
Stradley, Ronon, Stevens & Young
2600 One Commerce Square
Philadelphia, Pennsylvania 19102

ADJUSTABLE RATE SECURITIES PORTFOLIOS
U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE
PORTFOLIO

FORM N-1A, PART A:

ITEM

Responses to Items 1 through 3 have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to
Form N-1A.

4. GENERAL DESCRIPTION OF REGISTRANT

ABOUT THE PORTFOLIO

The U.S. Government Adjustable Rate Mortgage Portfolio
("Portfolio") is one of two no-load, open-end, diversified
series of the Adjustable Rate Securities Portfolios (the
"Trust"), a management investment company, or mutual fund.
The Trust is a Delaware business trust organized on February
15, 1991 and registered with the Securities and Exchange
Commission ("SEC") under the Investment Company Act of 1940,
as amended (the "1940 Act").The Trust's other series is the
Adjustable Rate Securities Portfolio. As permitted by
applicable law, the Portfolio's shares of beneficial
interest, par value of $.01 per share, are sold only to
other investment companies.

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

INVESTMENT OBJECTIVE AND POLICIES OF THE PORTFOLIO

The investment objective of the Portfolio is to seek a high
level of current income, consistent with lower volatility of
principal. The Portfolio pursues its investment objective by
investing primarily (at least 65% of its total assets) in
adjustable-rate mortgage securities ("ARMS") or other
securities collateralized by or representing an interest in
mortgages (collectively, "mortgage securities"), which have
interest rates which reset at periodic intervals. All such
mortgage securities in which the Portfolio invests are
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. In addition to these mortgage securities,
the Portfolio may invest up to 35% of its total assets in
(a) notes, bonds and discount notes of the following U.S.
government agencies or instrumentalities: Federal Home Loan
Banks, Federal National Mortgage Association, Government
National Mortgage Association, Federal Home Loan Mortgage
Corporation, and Small Business Administration, (b)
obligations of or guaranteed by the full faith and credit of
the United States and repurchase agreements collateralized
by such obligations, and (c) time and savings deposits
issued by commercial or savings banks or institutions whose
accounts are insured by the FDIC. There is, of course, no
assurance that the Portfolio's investment objective will be
achieved. As the value of the Portfolio's portfolio
securities fluctuate, its net asset value per share also
fluctuates.

ADVANTAGES OF INVESTING IN THE PORTFOLIO

The Portfolio enables its shareholders to, in effect, invest
easily in mortgage securities which are issued or guaranteed
by the U.S. Government, its agencies or instrumentalities.
Any such guarantee extends to the payment of interest and
principal due on the mortgage securities and does not
provide any protection from fluctuations in the market value
of such mortgage securities. However, the Portfolio's
investment manager believes that by investing primarily in
mortgage securities which provide for variable rates of
interest, the Portfolio achieves a higher, more consistent
and less volatile net asset value than is characteristic of
mutual funds that invest primarily in mortgage securities
paying a fixed rate of interest.

Principal payments received on the Portfolio's mortgage
securities are reinvested by the Portfolio in other
securities. Such securities may have a higher or lower yield
than the mortgage securities already held by the Portfolio,
depending upon market conditions.

An investment in the Portfolio provides liquidity for the
investor, who may redeem at the current net asset value at
any time in accordance with procedures described under the
caption "How to Sell Shares of the Portfolio" discussed
under Item 8 below.

CHARACTERISTICS OF THE MORTGAGE SECURITIES
IN WHICH THE PORTFOLIO INVESTS

ADJUSTABLE-RATE MORTGAGE SECURITIES. ARMS, like traditional
mortgage securities, are interests in pools of mortgage
loans. Most mortgage securities are pass-through securities,
which means that they provide investors with payments
consisting of both principal and interest as mortgages in
the underlying mortgage pool are paid off by the borrower.
The dominant issuers or
guarantors of mortgage securities today are the Government
National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA"), and the Federal Home Loan
Mortgage Corporation ("FHLMC"). GNMA creates mortgage
securities from pools of government guaranteed or insured
(Federal Housing Authority or Veterans Administration)
mortgages originated by mortgage bankers, commercial banks,
and savings and loan associations. FNMA and FHLMC issue
mortgage securities from pools of conventional and federally
insured and/or guaranteed residential mortgages obtained
from various entities, including savings and loan
associations, savings banks, commercial banks, credit
unions, and mortgage bankers.

The adjustable interest rate feature of the mortgages
underlying the mortgage securities in which the Portfolio
invests generally acts as a buffer to reduce sharp changes
in the Portfolio's net asset value in response to normal
interest rate fluctuations. As the interest rates on the
mortgages underlying the Portfolio's investments are reset
periodically, yields of portfolio securities gradually align
themselves to reflect changes in market rates so that the
market value of the Portfolios securities will remain
relatively stable as compared to fixedrate instruments and
should cause the net asset value of the Portfolio to
fluctuate less dramatically than it would if the Portfolio
invested in more traditional long-term, fixed-rate debt
securities. However, during periods of rising interest
rates, changes in the coupon rate lag behind changes in the
market rate, resulting in possibly a lower net asset value
until the coupon resets to market rates. Thus, investors
could suffer some principal loss if they sold their
Portfolio shares before the interest rates on the underlying
mortgages are adjusted to reflect current market rates.
During periods of extreme fluctuations in interest rates,
the Portfolio's net asset value fluctuates as well. Since
most mortgage securities in the Portfolio's portfolio
generally have annual reset caps of 100 to 200 basis points,
fluctuation in interest rates above these levels could cause
such mortgage securities to "cap out" and to behave more
like long-term, fixed-rate debt securities.

Unlike fixed-rate mortgages, which generally decline in
value during periods of rising interest rates, adjustable-
rate mortgage securities allow the Portfolio to participate
in increases in interest rates through periodic adjustments
in the coupons of the underlying mortgages, resulting
generally in both higher current yields and lower price
fluctuations. Furthermore, if prepayments of principal are
made on the underlying mortgages during periods of rising
interest rates, the Portfolio generally is able to reinvest
such amounts in securities with a higher current rate of
return. However, the Portfolio does not benefit from
increases in interest rates to the extent that interest
rates rise to the point where they cause the current coupon
of adjustable-rate mortgages held by the Portfolio to exceed
the maximum allowable annual or lifetime reset limits (or
"cap rates") for a particular mortgage. Also, the
Portfolio's net asset value could vary to the extent that
current yields on mortgage-backed securities are different
from market yields during interim periods between coupon
reset dates.

During periods of declining interest rates, of course, the
coupon rates may readjust downward, resulting in lower
yields to the Portfolio. Further, 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. As with other
mortgage-backed securities, interest rate declines may
result in accelerated prepayment of mortgages, and the
proceeds from such prepayments must be reinvested at lower
prevailing interest rates.

One additional difference between ARMS and fixed-rate
mortgages is that for certain types of ARMS the rate of
amortization of principal, as well as interest payments, can
and does change in accordance with movements in a
particular, pre-specified, published interest rate index.
The amount of interest due to an ARMS holder is calculated
by adding a specified additional amount, the "margin," to
the index, subject to limitations or "caps" on the maximum
and minimum interest that is charged to the mortgagor during
the life of the mortgage or to maximum and minimum changes
to that interest rate during a given period. It is these
special characteristics which are unique to adjustablerate
mortgages that the Portfolio's investment manager believes
make them attractive investments in seeking to accomplish
the Portfolio's objective.

Many of the mortgage securities which are either issued or
guaranteed by GNMA, FHLMC, or FNMA ("Certificates") are
called pass-through Certificates because a pro rata share of
both regular interest and principal payments (less GNMA's,
FHLMC's, or FNMA's fees and any applicable loan servicing
fees), as well as unscheduled early prepayments on the
underlying mortgage pool, are passed through monthly to the
holder of the Certificate (i.e., the Portfolio). Principal
and interest on GNMA securities are guaranteed by GNMA,
which guarantee is backed by the full faith and credit of
the U.S. government. FNMA guarantees full and timely
payment of all interest and principal, while FHLMC
guarantees timely payment of interest and ultimate
collection of principal. Mortgage securities issued or
guaranteed by FNMA and FHLMC are not backed by the full
faith and credit of the United States; however, they are
generally considered to offer minimal credit risks. The
yields provided by these mortgage securities have
historically exceeded the yields on other types of U.S.
government securities with comparable maturities in large
measure due to the prepayment risks. (See "Risks of Mortgage
Securities" below.)

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). The Portfolio
may also invest in CMOs but only those issued and guaranteed
by U.S. government agencies or instrumentalities. A CMO is a
mortgagebacked security that separates mortgage pools into
short, medium and long-term components. Each component pays
a fixed rate of interest at regular intervals. These
components enable an investor such as the Portfolio to more
accurately predict the pace at which principal is returned.
The Portfolio will not invest in privately issued CMOs
except to the extent that it invests in the securities of
entities that are instrumentalities of the U.S. Government.
CMOs purchased by the Portfolio may be:

(1) collateralized by pools of mortgages in which each
mortgage is guaranteed as to payment of principal and
interest by an agency or instrumentality of the U.S.
government;

(2) collateralized by pools of mortgages in which payment of
principal and interest are guaranteed by the issuer, and the
guarantee is collateralized by U.S. government securities;
or

(3) securities in which the proceeds of the issuance are
invested in mortgage securities, and payment of the
principal and interest are supported by the credit of an
agency or instrumentality of
the U.S. Government.

RESETS. The interest rates paid on the ARMS and CMOs in
which the Portfolio invests generally are readjusted at
intervals of one year or less to an increment over some
predetermined interestrate index. There are three main
categories of indices: those based on U.S. Treasury
securities, those derived from a calculated measure such as
a cost of funds index, and those derived from a moving
average of mortgage rates. Commonly utilized indices include
the one-year, three-year and five-year constant maturity
Treasury rates, the three-month Treasury bill rate, the 180
day Treasury bill rate, rates on longer-term Treasury
securities, the 11th District Federal Home Loan Bank Cost of
Funds, the National Median Cost of Funds, the one-month,
three-month, six-month or one-year London Interbank Offered
Rate (LIBOR), the prime rate of a specific bank, or
commercial paper rates. Some indices, such as the one-year
constant maturity Treasury rate, closely mirror changes in
market interest rate levels. Others, such as the 11th
District Home Loan Bank Cost of Funds index, tend to lag
behind changes in market rate levels and tend to be somewhat
less volatile.

CAPS AND FLOORS. The underlying mortgages which
collateralize the ARMs and CMOs in which the Portfolio
invests 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.

STRIPPED MORTGAGE SECURITIES. The Portfolio may also invest
in stripped mortgage securities, which are derivative multi-
class mortgage securities. The stripped mortgage securities
in which the Portfolio may invest are issued and guaranteed
by agencies or instrumentalities of the U.S. Government.
Stripped mortgage securities have greater market volatility
than other types of mortgage securities in which the
Portfolio invests.

Stripped mortgage securities are usually structured with two
classes that receive different proportions of the interest
and principal distributions on a pool of mortgage assets. A
common type of stripped mortgage security has one class
receiving some of the interest and most of the principal
from the mortgage assets, while the other class receives
most of the interest and the remainder of the principal. In
the most extreme case, one class receives all of the
interest (the interest-only or "IO" class), while the other
class receives all of the principal (the principal-only or
"PO" class). The yield to maturity on an IO 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, and, accordingly, a rapid rate of principal payments
may have a material adverse effect on the Portfolio's yield
to maturity. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, the
Portfolio may fail to fully recoup its initial investment in
these securities even if the securities are rated in the
highest rating categories, "AAA" or "Aaa", by Standard &
Poor's Corporation or Moody's Investors Service,
respectively.

Stripped mortgage securities are purchased and sold by
institutional investors through several investment banking
firms acting as brokers or dealers. As these securities were
only
recently developed, traditional trading markets have not yet
been established for all such securities. Accordingly, some
of these securities may generally be illiquid. The staff of
the SEC (the "Staff") has indicated that only government-
issued IO or PO securities which 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 Portfolio's Board of Trustees may, in the future,
adopt procedures which would permit the Portfolio to
acquire, hold, and treat as liquid governmentissued IO and
PO securities. At the present time, however, all such
securities will continue to be treated as illiquid and will,
together with any other illiquid investments, not exceed 10%
of the Portfolio's net assets. Such 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.

RISKS OF MORTGAGE SECURITIES

The mortgage securities in which the Portfolio principally
invests differ from conventional bonds in that principal is
paid back over the life of the mortgage security rather than
at maturity. As a result, the holder of the mortgage
securities (i.e., the Portfolio) receives monthly scheduled
payments of principal and interest, and may receive
unscheduled principal payments representing prepayments on
the underlying mortgages. When the holder reinvests the
payments and any unscheduled prepayments of principal it
receives, it may receive a rate of interest which is lower
than the rate on the existing mortgage securities. For this
reason, mortgage securities may be less effective than other
types of U.S. government securities as a means of "locking
in" long-term interest rates.

In addition, to the extent mortgage securities are purchased
at a premium, mortgage foreclosures and unscheduled
principal prepayments may result in some loss of the
holders' 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
increases current and total returns and accelerates the
recognition of income which, when distributed to
shareholders, is taxable as ordinary income.

OTHER INVESTMENT POLICIES

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

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Portfolio
may purchase U.S. government obligations on a "when-issued"
or "delayed delivery" basis. These transactions are
arrangements under which the Portfolio purchases securities
with payment and delivery scheduled for a future time,
generally within 30 to 60 days. Purchases of U.S. government
securities on a when-issued or delayed delivery basis are
subject to market fluctuation and 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 effected. Although the Portfolio generally
purchases U.S. government securities on a when-issued basis
with the intention of acquiring such securities, it may sell
such securities before the settlement date if it is deemed
advisable. When the Portfolio is the buyer in such a
transaction, it maintains, in a segregated account with its
custodian, cash or high-grade marketable securities having
an aggregate value equal to the amount of such purchase
commitments until payment is made. To the extent the
Portfolio engages in when-issued and delayed delivery
transactions, it does so only for the purpose of acquiring
portfolio securities consistent with the Portfolio's
investment objectives and policies, and not for the purpose
of investment leverage. In when-issued and delayed delivery
transactions, the Portfolio relies on the seller to complete
the transaction. The other party's failure may cause the
Portfolio to miss a price or yield considered advantageous.
Securities purchased on a "when-issued" or "delayed
delivery" basis do not generally earn interest until their
scheduled delivery date. The Portfolio is not subject to any
percentage limit on the amount of its assets which may be
invested in when-issued purchase obligations.

MORTGAGE DOLLAR ROLLS. The Portfolio may enter into mortgage
"dollar rolls" in which the Portfolio sells mortgage-backed
securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar
(name, type, coupon roll period, the Portfolio forgoes
principal and interest paid on and maturity) securities on a
specified future date. During the roll period, the Portfolio
foregoes principal and interest paid on the mortgage-backed
securities. The Portfolio is compensated by the difference
between the current sales price and the lower forward price
for the future purchase (often referred to as the "drop") as
well as by the interest earned on the cash proceeds of the
initial sale. A covered roll is a specific type of dollar
roll for which there is an offsetting cash position or a
cash equivalent security position.

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

OTHER PERMITTED INVESTMENTS. Other investments permitted by
the Portfolio include: obligations of the United States,
notes, bonds, and discount notes of the following U.S.
government agencies or instrumentalities: Federal Home Loan
Banks, Federal National Mortgage Association, Government
National Mortgage Association, Federal Home Loan Mortgage
Corporation, Small Business Administration; and time and
savings deposits (including fixed or adjustable rate
certificates of deposit) issued by commercial or savings
banks or institutions whose accounts are insured by the
FDIC. The Portfolio's investments in savings deposits with
maturities in excess of seven days are generally deemed to
be illiquid and will, together with any other illiquid
investments, not exceed 10% of the Portfolio's total net
assets. The Portfolio's investments in time deposits will
not exceed 10% of its total assets.

ILLIQUID SECURITIES. It is the policy of the Portfolio that
illiquid securities, a term which means securities that
cannot be disposed of within seven days in the normal course
of business at approximately the amount at which the
Portfolio has valued the securities and includes, among
other things, repurchase agreements and time deposits of
more than seven days duration, may not constitute, at the
time of purchase or at any time, more than 10% of the value
of the total net assets of the Portfolio.
TEMPORARY DEFENSIVE POSITIONS. When maintaining a temporary
defensive position, the Portfolio may invest its assets,
without limit, in U.S. government securities, certificates
of deposit of banks having total assets in excess of $5
billion, and repurchase agreements.

INVESTMENT RESTRICTIONS

The Portfolio is subject to a number of additional
investment restrictions, some of which, like the Portfolio's
investment objective and investment policies, have been
adopted as fundamental policies of the Portfolio and may
only be changed with the approval of a majority of the
outstanding voting
securities of the Portfolio. A list of these restrictions
and more information concerning the policies are discussed
in Part B of this registration statement.

GENERAL INFORMATION

The Trust is an open-end, management investment company,
commonly called a "mutual fund", and is a Delaware business
trust organized on February 15, 1991. The Trust is
authorized to issue an unlimited number of shares of
beneficial interest, with a par value of $.01 per share. All
shares of the Trust have one vote, and, when issued, are
fully paid and non-assessable.

The Trust has two series and was formerly named the Franklin
Institutional U.S. Government ARM Fund. On October 18, 1991,
the Board of Trustees approved a change in the Trust's name
and the addition of a second series of the Trust, the
Adjustable Rate Securities Portfolio, the shares of
beneficial interest of which are available only to other
investment companies. Additional series may be added in the
future by the Board of Trustees, the assets and liabilities
of which will be separate and distinct from any other
series. On June 15, 1993, the Board of Trustees approved a
change in the fiscal year end of the Trust to October 31 of
each year from January 31.

5. MANAGEMENT OF THE FUND

MANAGEMENT OF THE PORTFOLIO

The Board of Trustees has the primary responsibility for the
overall management of the Trust and for electing the
officers of the Trust who are responsible for administering
its day-to-day operations.

Franklin Advisers, Inc. ("Advisers" or "Manager"), at the
address shown on the cover of this amendment to the
registration statement, serves as the Portfolio's investment
manager. Advisers is a wholly owned subsidiary of Franklin
Resources, Inc. ("Resources"), a publicly owned holding
company, the principal shareholders of which are Charles B.
Johnson, Rupert H. Johnson, Jr., and R. Martin Wiskemann,
who own 20%, 16%, and 10%, respectively, of Resources'
outstanding shares. Through its subsidiaries, Resources is
engaged in various aspects of the financial services
industry. Advisers acts as investment manager to 33 U.S.
registered investment companies (111 separate series) with
aggregate assets of over $73 billion.

Pursuant to the management agreement, the Manager supervises
and implements the Portfolio's investment activities and
provides certain administrative services and facilities
which are necessary to conduct the Portfolio's business.

The Portfolio is responsible for its own operating expenses
including, but not limited to, the Manager's fee; taxes, if
any; custodian, legal and auditing fees; fees and expenses
of trustees who are not members of, affiliated with or
interested persons of the Manager; salaries of any personnel
not affiliated with the Manager; insurance premiums; trade
association dues; expenses of obtaining quotations for
calculating the value of the Portfolio's net assets; and
printing and other expenses which are not expressly assumed
by the Manager.

Under the management agreement with the Portfolio, for the
services provided and expenses assumed by it, the Manager is
entitled to receive a fee, computed daily and payable
monthly, at the annual rate as follows: 40/100 of 1% for the
first $5 billion of its average daily net assets; plus
35/100 of 1% of its average daily net assets in excess of $5
billion up through $10 billion; 33/100 of 1% of its average
daily net assets in excess of $10 billion up through $15
billion; and 30/100 of 1% of its average daily net assets in
excess of $15 billion.

During the fiscal year ended October 31, 1994, fees
totalling 0.40% of the average daily net assets would have
accrued to Advisers. For such period, total operating
expenses, including management fees, would have represented
0.42% of the average daily net assets of the Portfolio.
Pursuant to a fee reduction by Advisers, the Portfolio paid
no management fees, and paid total operating expenses of
0.02% of the average daily net assets of the Portfolio. This
action by Advisers to limit its management fees or reimburse
expenses, if necessary, may be terminated by Advisers at any
time. The Manager's determination to voluntarily limit its
fee or reimburse certain of the Portfolio's expenses will
have the effect of increasing the yield to the Portfolio's
shareholders.

The management agreement specifies that the management fee
will be reduced to the extent necessary to comply with the
most stringent limits on the expenses which may be borne by
the Portfolio as prescribed by any state in which the
Portfolio's shares are offered for sale. Currently, the most
restrictive of such provisions limits a Portfolio's
allowable expenses as a percentage of its average net assets
for each fiscal year to 2 1/2% of the first $30 million in
assets, 2% of the next $70 million and 1 1/2% of assets in
excess of $100 million. Expense reductions based on state
requirements were not necessary for the fiscal year ended
October 31, 1994.

It is not anticipated that the Portfolio will incur a
significant amount of brokerage expenses because mortgage
securities are generally traded on a "net" basis, that is,
in principal transactions without the addition or deduction
of brokerage commissions. To the extent that the Portfolio
does participate in transactions involving brokerage
commissions, it is the Manager's responsibility to select
brokers through which such transactions are effected.

The Manager tries to obtain the best execution on all such
transactions. If it is felt that more than one broker is
able to provide the best execution, the Manager considers
the furnishing of quotations and of other market services,
research, statistical and other data for the Manager and its
affiliates, as well as the sale of shares of the Portfolio,
as factors in selecting a broker. (Further information is
included under "The Portfolio's Policies Regarding Brokers
Used on Portfolio Transactions" under Item 17 in this
amendment to the registration statement.)

The following persons are primarily responsible for the
day to day portfolio management of the Portfolio in which
the Fund invests: Tony Coffey since 1989, Roger Bayston
since 1991 and Jack Lemein since inception.

Tony Coffey
Portfolio Manager
Franklin Advisers, Inc.

Mr. Coffey holds a Master of Business Administration from
the University of California at Los Angeles. He earned his
Bachelor
of Arts degree from Harvard University. Prior to joining
Franklin, Mr. Coffey was an associate with the Analysis
Group. He is a member of several securities industry
associations and joined Franklin in 1989.

Roger Bayston
Portfolio Manager
Franklin Advisers, Inc.

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. Prior to
joining Franklin, Mr. Bayston was an Assistant Treasurer for
Bankers Trust Company. Following completion of the Masters
degree program, Mr. Bayston joined Franklin in 1991.

Jack Lemein
Senior Vice President
Franklin Advisers, Inc.

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

Shareholder accounting and many of the clerical functions
for the Portfolio are performed by Franklin/Templeton
Investor Services, Inc. ("Investor Services" or "Shareholder
Services Agent"), at the address for the Portfolio shown on
the cover of this amendment to the registration statement,
in its capacity as transfer agent and dividend-paying agent
on a fixed fee per account basis. Investor Services is a
wholly owned subsidiary of Resources.

During the fiscal year ended October 31, 1994, total
expenses borne by the Portfolio, including fees paid to
Advisers and to Investor Services, aggregated 0.02% (after
waivers of 0.40%, of the average net assets of the
Portfolio.

The response to Item 5A has been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to
Form N-1A.

6. CAPITAL STOCK AND OTHER SECURITIES

As discussed above, the Trust is a Delaware Business trust.
The Agreement and Declaration of Trust permits the trustees
to issue an unlimited number of full and fractional shares
of beneficial interest, with a par value of $.01 per share,
which may be issued in any number of series. Currently the
Trust has two series: one series representing interests in
the Portfolio and the other series representing interests in
the Adjustable Rate Securities Portfolio. When issued for
payment as described in this registration statement as
amended, shares are validly issued, fully paid, and non-
assessable and have no preemptive, conversion, or sinking
rights. Shares of each series have equal and exclusive
rights as to dividends and distributions as declared by each
series and the net assets of such series upon liquidation or
dissolution.

Shares of each series have equal rights as to voting and
vote separately as to issues affecting that series or the
Trust unless otherwise permitted by the 1940 Act. Voting
rights are not
cumulative, so that the holders of more than 50% of the
shares voting in any election of trustees, can, if they
choose to do so, elect all of the trustees. Meetings of
shareholders may be called by the trustees in their
discretion or upon demand of the holders of 10% or more of
the outstanding shares of the Trust for the purpose of
electing or removing trustees. Shareholders may receive
assistance in communicating with other shareholders in
connection with the election or removal of trustees such as
that provided in Section 16(c) of the 1940 Act.

CONTROL PERSONS

As of February 7, 1995, the Franklin Adjustable U.S.
Government Securities Fund held 66,638,953.20 shares (or
94.56%) of the Portfolio's outstanding shares and,
accordingly, may be deemed to be a controlling person under
the 1940 Act.

DISTRIBUTIONS TO SHAREHOLDERS

As indicated below in response to Items 7 and 8, the
Portfolio's shares have not been registered under the
Securities Act of 1933 (the "1933 Act"), which means that
its shares are restricted securities which may not be sold,
redeemed or reinvested unless registered or pursuant to an
available exemption from that Act. Accordingly, to the
extent distributions to shareholders are reinvested in
additional shares, as discussed below, such transactions are
subject to the requirements of the 1933 Act.

There are two types of distributions which the Portfolio may
make to its shareholders:

1. INCOME DIVIDENDS. The Portfolio receives income primarily
in the form of interest and other income derived from its
investments. This income, less the expenses incurred in the
Fund's operations, is its net investment income from which
income dividends may be distributed. Thus, the amount of
dividends paid per share may vary with each distribution.
The Portfolio ordinarily declares dividends from its net
investment income on each day its net asset value is
calculated. The Portfolio's earnings for Saturdays, Sundays
and holidays are declared as dividends on the next business
day. Daily allocations of dividends will commence on the day
funds are wired to the Portfolio. The amount of the dividend
may fluctuate from day to day depending on changes in the
factors that comprise the Portfolio's net investment income.

Dividends are declared daily and are reinvested monthly in
the form of additional shares of the Portfolio at the net
asset value per share generally at the close of business on
the last business day of the month. Shareholders may request
to have their dividends paid out monthly in cash.
Shareholders redeeming all their shares at any time during
the month will receive all dividends to which they are
entitled together with the redemption check.

2. CAPITAL GAIN DISTRIBUTIONS. The Portfolio may derive
capital gains or losses in connection with sales or other
dispositions of its portfolio securities. Distributions by
the Portfolio derived from net short-term and net long-term
capital gains (after taking into account any net capital
loss carryovers) will generally be made once a year in
December and will reflect any net short-term and net long-
term capital gains realized by the Portfolio as of October
31 of such year. The Portfolio reserves the right to make
more than one distribution derived from net short-term and
net long-term capital gains in any year or to adjust the
timing of
these distributions for operational or other reasons.

TAX EFFECTS ON AN INVESTMENT IN THE PORTFOLIO

The following discussion reflects some of the tax
considerations that affect mutual funds and their
shareholders.

TAXATION OF THE PORTFOLIO

Each separate series of the Trust is treated as a separate
entity for federal income tax purposes. The Portfolio has
elected to be treated as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code"), qualified as such for the taxable
year ended October 31, 1994, and intends to continue to so
qualify as long as such qualification is in the best
interests of shareholders. By distributing all of its net
investment income and any net realized short-term and long-
term capital gains for a fiscal year in accordance with the
timing requirements imposed by the Code and by meeting
certain other requirements relating to the sources of its
income and diversification of its assets, the Portfolio will
not be liable for federal income or excise taxes.

TAXATION OF SHAREHOLDERS

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

It is not expected that any of the distributions to be paid
by the Portfolio will qualify for the corporate dividends
received deduction.

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

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

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

While many states grant tax-free status to dividends paid to
shareholders of mutual funds from interest income earned
from direct obligations of the U.S. Government, none of the
distributions of the Portfolio are expected to qualify for
such tax-free treatment. Investments in mortgage-backed
securities (including GNMA, FNMA and FHLMC securities) and
repurchase agreements collateralized by U.S. government
securities do not
qualify as direct federal obligations in most states.
Shareholders should consult with their own tax advisors with
respect to the applicability of state and local income taxes
to distributions and redemption proceeds received from the
Portfolio.

Additional information in response to this item is contained
under the discussion captioned "General Information" in Item
4, above.

7. PURCHASE OF SECURITIES

The Portfolio's shares have not been registered under the
1933 Act, which means that its shares may not be sold
publicly. However, the Portfolio's shares may be sold
through private placements pursuant to available exemptions
from that Act.

Shares of the Portfolio are sold only to other investment
companies. All shares are sold at net asset value without a
sales charge. Shares are purchased at the net asset value
next determined after the Portfolio receives the order in
proper form. Funds should be wired to the Portfolio's bank
account at Bank of America, the Portfolio's custodian, for
credit to the Portfolio's account. All investments in the
Portfolio are credited to the shareholder's account in the
form of full and fractional shares of the Portfolio (rounded
to the nearest 1/1000 of a share). The Portfolio does not
issue share certificates.

Shares may generally be purchased on business days except
when the New York Stock Exchange (the "Exchange") is closed.
Federal Funds wire purchase orders are not accepted on days
when the Federal Reserve Bank system and the Portfolio's
custodian are closed.

VALUATION OF PORTFOLIO SHARES

The net asset value per share of the Portfolio is determined
as of 1:00 p.m. Pacific time each day that the Exchange is
open for trading.

The net asset value per share of the Portfolio is determined
in the following manner: The aggregate of all liabilities,
including accrued expenses and taxes and any necessary
reserves, are deducted from the aggregate gross value of all
assets, and the difference is divided by the number of
shares of the Portfolio outstanding at the time. For the
purposes of determining the aggregate net assets of the
Portfolio, cash and receivables are valued at their
realizable amounts. Interest is recorded as accrued.
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 asked prices. Other securities for which market
quotations are readily available are valued at current
market value obtained from a pricing service, which is 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 securities. Portfolio securities which
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 the Manager.
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 of Trustees.

With the approval of the Board of Trustees, the Portfolio
may utilize a pricing service, bank or securities dealer to
perform any of the above-described functions.

8. REDEMPTION OR REPURCHASE

HOW TO SELL SHARES OF THE PORTFOLIO

As stated above in response to Item 7, "Purchase of
Securities," the Portfolio's shares are restricted
securities which may not be sold unless registered or
pursuant to an available exemption from the 1933 Act.

Redemptions are processed on any day on which the Portfolio
is open for business and are effected at the Portfolio's net
asset value next determined after the Portfolio receives a
redemption request in good form.

Payment for redeemed shares is made promptly, but in no
event later than seven days after receipt of the redemption
request in good form. Proceeds for redemption orders cannot
be wired on those business days when the Federal Reserve
Bank System and the Custodian are closed. However, the right
of redemption may be suspended or the date of payment
postponed in accordance with the rules under the 1940 Act.
Redemptions are taxable events, and the amount received upon
redemption may be more or less than the amount paid for the
shares depending upon the fluctuations in the market value
of the assets owned by the Portfolio.

9. PENDING LEGAL PROCEEDINGS

Not Applicable

ADJUSTABLE RATE SECURITIES PORTFOLIOS
U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO

FORM N-1A, PART B:
10. COVER PAGE
Not Applicable

11. TABLE OF CONTENTS

Not Applicable

12. GENERAL INFORMATION AND HISTORY

Not Applicable

13. INVESTMENT OBJECTIVES AND POLICIES

As noted in response to Item 4, the Portfolio's investment
objective is to seek a high level of current income,
consistent with lower volatility of principal by following
policies designed to achieve its objective. In addition to
the policies stated in response to Item 4, the following
restrictions (except as noted) have been adopted as
fundamental policies for the Portfolio, which means that
they may not be changed without the approval of a majority
of the Portfolio's outstanding shares. The Portfolio may
not:

1. Borrow money or mortgage or pledge any of its assets,
except
that borrowings (and a pledge of assets therefor) for
temporary or emergency purposes may be made from banks in an
amount up to 20% of total asset value. The Portfolio will
not purchase additional investment securities while
borrowings in excess of 5% of total assets are outstanding.

2. Buy any securities on "margin" or sell any securities
"short," except for any delayed delivery or when-issued
securities as described in the registration statement as
amended.

3. Lend any funds or other assets, except by the purchase of
bonds, debentures, notes or other debt securities as
described in its registration statement as amended, and
except that securities of the Portfolio may be loaned to
qualified broker-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 10% of the value
of the Portfolio's total assets at the time of the most
recent loan. Also, the entry into repurchase agreements is
not considered a loan for purposes of this restriction.

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

5. Invest more than 5% of the value of the total assets of
the Portfolio in the securities of any one issuer, but this
limitation does not apply to investments in securities
issued or guaranteed by the U.S. Government or its agencies
or instrumentalities.

6. Purchase the securities of any issuer which would result
in owning more than 10% of any class of the outstanding
voting securities of such issuer.

7. Purchase from or sell to its officers and trustees, or
any firm of which any officer or trustee is a member, as
principal, any securities, but may deal with such persons or
firms as brokers and pay a customary brokerage commission;
or retain securities of any issuer, if to the knowledge of
the Portfolio, one or more of its officers, trustees or
investment adviser, own beneficially more than 1/2 of 1% of
the securities of such issuer and all such officers and
trustees together own beneficially more than 5% of such
securities.

8. Purchase any securities issued by a corporation which has
not been in continuous operation for three years, but such
period may include the operation of a predecessor.

9. Acquire, lease or hold real estate. (Does not preclude
investments in securities collateralized by real estate or
interests therein.)

10. Invest in commodities and commodity contracts, puts,
calls, straddles, spreads or any combination thereof, or
interests in oil, gas or other mineral exploration or
development program.

11. Invest in companies for the purpose of exercising
control or management.

12. Purchase securities of other investment companies,
except to the extent permitted by the 1940 Act. To the
extent permitted by exemptions which may be granted under
the 1940 Act, the Portfolio may invest in shares of one or
more money market funds managed by Franklin Advisers, Inc.
or its affiliates.

13. Issue senior securities as defined in the 1940 Act
except that this restriction will not prevent the Portfolio
from entering into repurchase agreements or making
borrowings, mortgages and pledges as permitted by
restriction #1 above.

OTHER POLICIES. There are no restrictions or limitations on
investments in obligations of the United States, or of
corporations chartered by Congress as federal government
instrumentalities. The underlying assets of the Portfolio
may be retained in cash, including cash equivalents which
are Treasury bills, and short-term bank obligations such as
certificates of deposit, bankers' acceptances and repurchase
agreements. However, it is intended that only so much of the
underlying assets of the Portfolio be retained in cash as is
deemed desirable or expedient under then-existing market
conditions. As noted in the Prospectus, the Portfolio may
invest up to 10% of its total net assets in illiquid
securities. Investments in savings deposits are generally
considered illiquid and will, together with other illiquid
investments, not exceed 10% of the Portfolios net assets.

The Portfolio may purchase securities issued or guaranteed
by the U.S. Government, or one of its agencies or
instrumentalities. GNMA guarantees are backed by the full
faith and credit of the U.S. Treasury. However, no
assurances can be given that the U.S. government will
provide such financial support to the obligations of the
other U.S. government agencies or instrumentalities in which
the Portfolio invests, since it is not obligated to do so.
These agencies and instrumentalities are supported by either
the issuer's right to borrow an amount limited to a specific
line of credit from the U.S. Treasury, the discretionary
authority of the U.S. Government to purchase certain
obligations of an agency or instrumentality, or the credit
of the agency or instrumentality.

The Portfolio 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, at an accelerated speed, to short-term
interest rates.

Several of the funds in the Franklin Group of
Funds(Registered Trademark), including the Portfolio, are
major purchasers of government securities and seek to
negotiate attractive prices for such securities and to pass
on any savings derived from such negotiations to their
shareholders in the form of higher current yields.

14. MANAGEMENT OF THE REGISTRANT

Trustees and Officers

The Board of Trustees has the responsibility for the overall
management of the Portfolio, including general supervision
and review of its investment activities. The trustees, in
turn, elect the officers of the Trust who are responsible
for administering the day-to-day operations of the Trust and
the Portfolio. The affiliations of the officers and trustees
and their principal occupations for the past five years are
listed below. Trustees who are deemed to be "interested
persons" as defined in the 1940 Act are indicated by an
asterisk (*).

Frank H. Abbott, III
1045 Sansome St.
San Francisco, CA 94111

Trustee

President and Director, Abbott Corporation (an investment
company); Director, Mother Lode Gold Mines Consolidated;
and director, trustee or managing general partner, as the
case may be, of 30 of the investment companies in the
Franklin Group of Funds.

Harris J. Ashton
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045

Trustee

President, Chief Executive Officer and Chairman of the
Board, General Host Corporation (nursery and craft
centers); Director, RBC Holdings, Inc. (a bank holding
company) and Bar-S Foods; and director, trustee or managing
general partner, as the case may be, of 54 of the
investment companies in the Franklin Templeton Group of
Funds.

S. Joseph Fortunato
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 of General Host Corporation; director, trustee or
managing general partner, as the case may be, of 56 of the
investment companies in the Franklin Templeton Group of
Funds.

David W. Garbellano
111 New Montgomery St., #402
San Francisco, CA 94105

Trustee

Private Investor; Assistant Secretary/Treasurer and
Director, Berkeley Science Corporation (a venture capital
company); and director, trustee or managing general
partner, as the case may be, of 29 of the investment
companies in the Franklin Group of Funds.

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

Chairman of the Board and Trustee

President and Director, Franklin Resources, Inc.; Chairman
of the Board and Director, Franklin Advisers, Inc. and
Franklin Templeton Distributors, Inc.; Director,
Franklin/Templeton Investor Services, Inc. and General Host
Corporation; and officer and/or director, trustee or
managing general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of 55 of the
investment companies in the Franklin Templeton Group of
Funds.

*Charles E. Johnson
777 Mariners Island Blvd.
San Mateo CA 94404

President and Trustee

Senior Vice President and Director, Franklin Resources,
Inc.; Senior Vice President, Franklin Templeton
Distributors, Inc.; President and Director, Templeton
Worldwide, Inc. and Franklin Institutional Services
Corporation; officer and/or director, as the case may be, of
some of the subsidiaries of Franklin Resources, Inc. and
officer and/or director or trustee, as the case may be, of
24 of the investment companies in the Franklin Templeton
Group of Funds.

*Rupert H. Johnson, Jr.
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.; Director,
Franklin/Templeton Investor Services, Inc.; and officer
and/or director, trustee or managing general partner, as the
case may be, of most other subsidiaries of Franklin
Resources, Inc. and of 42 of the investment companies in the
Franklin Templeton Group of Funds.

Frank W. T. LaHaye
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 Office Systems, Inc.;
Director, FischerImaging Corporation; and director or
trustee, as the case may be, of 25 of the investment
companies in the Franklin Group of Funds.

*William J. Lippman
One Parker Plaza
Fort Lee, NJ 07024

Trustee

Senior Vice President, Franklin Resources, Inc., Franklin
Advisers, Inc., Franklin Templeton Distributors, Inc. and
Franklin Management, Inc.; officer and/or director or
trustee of six of the investment companies in the Franklin
Group of Funds.

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

Trustee

Chairman, White River Corporation (information services);
Director, Fund American Enterprises Corporation, Martin
Marietta Corporation, MCI Communications Corporation,
MedImmune, Inc. (biotechnology), Infovest Corporation
(information services), and Fusion Systems Corporation
(industrial technology); and director, trustee or managing
general partner, as the case may be, of 51 of the investment
companies in the Franklin Templeton Group of Funds;
formerly, Chairman, Hambrecht and Quist Group; Director, H &
Q Healthcare Investors; and President, National Association
of Securities Dealers, Inc.

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

Vice President

Executive Vice President, Secretary and Director, Franklin
Resources, Inc.; Executive Vice President and Director,
Franklin Templeton Distributors, Inc.; Executive Vice
President, Franklin Advisers, Inc.; Director,
Franklin/Templeton Investor Services, Inc.; officer and/or
director, as the case may be, of other subsidiaries of
Franklin Resources, Inc.; and officer and/or director or
trustee of 41 of the investment companies in the Franklin
Templeton Group of Funds.

Kenneth V. Domingues
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President - Financial Reporting and Accounting
Standards

Senior Vice President, Franklin Resources, Inc., Franklin
Advisers, Inc., and Franklin Templeton Distributors, Inc.;
officer and/or director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and Officer and/or
managing general partner, as the case may be, of 36 of the
investment companies in the Franklin Group of Funds.

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

Vice President and Chief Financial Officer

Senior Vice President, Chief Financial Officer and
Treasurer, Franklin Resources, Inc.; Executive Vice
President, Templeton Worldwide, Inc.; Senior Vice President
and Treasurer, Franklin Advisers, Inc. and Franklin
Templeton Distributors, Inc.; Senior Vice President,
Franklin/Templeton Investor Services, Inc.; officer of most
other subsidiaries of Franklin Resources, Inc.; and officer
of 60 of the investment companies in the Franklin Templeton
Group of Funds.

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

Vice President and Secretary

Senior Vice President - Legal, Franklin Resources, Inc. and
Franklin Templeton Distributors, Inc.; Vice President,
Franklin
Advisers, Inc. and officer of 36 of the investment companies
in the Franklin Group of Funds.

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

Principal Accounting Officer

Employee of Franklin Advisers, Inc.; and officer of 36 of
the investment companies in the Franklin Group of Funds.

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

Vice President

Senior Vice President/National Sales Manager, Franklin
Templeton Distributors, Inc.; and officer of 31 of the
investment companies in the Franklin Group of Funds.

As indicated above, certain of the trustees and officers
hold positions with other companies in the Franklin Group of
Funds(Registered Trademark) and the Templeton Group of
Funds. Trustees not affiliated with the investment manager
are currently paid fees of $50 1per month plus $50 per
meeting attended and are reimbursed for expenses incurred in
connection with attending such meetings. During the calendar
year ended December 31, 1994, fees totaling $7250 were paid
by the Trust to Messrs. Abbott ($1250), Ashton ($1200),
Fortunato ($1200), Garbellano ($1200), LaHaye ($1200) and
Macklin ($1200). As indicated above, certain of the trustees
and officers hold positions with other companies in the
Franklin Group of Funds(Registered Trademark) and the
Templeton Group of Funds. For the calendar year ended
December 31, 1994, Messrs. Abbott, Ashton, Fortunato,
Garbellano, LaHaye and Macklin received total fees of
$176,870, $319,925, $336,065, $153,300, $150,817 and
$303,685, respectively, from the various Franklin and
Templeton Funds for which they serve as directors, trustees
or managing general partners and for which they spent
significant time in preparation for and attendance at the
meetings which are scheduled at least once per month. No
officer or trustee received any other compensation directly
from the Trust. As of February 7, 1995, none of the trustees
and officers, owned of record or beneficially any
outstanding shares of the Portfolio. In addition, many of
the Trust's trustees own shares in various of the other
funds in the Franklin Group of Funds and the Templeton Group
of Funds. Certain officers or trustees who are shareholders
of Franklin Resources, Inc. ("Resources") may be deemed to
receive indirect remuneration by virtue of their
participation, if any, in the fees paid to its subsidiaries.
Messrs. Charles B. Johnson and Rupert H. Johnson, Jr. are
brothers and the father and uncle, respectively, of Charles
E. Johnson.

15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

a. As of February 7, 1995, Franklin Adjustable U.S.
Government Securities Fund, a series of the Franklin
Investors Securities Trust, ("FIST") and Franklin
Institutional Adjustable U.S. Government Securities Fund, a
series of the Institutional Fiduciary Trust, owned 94.56%
and 5.44%, respectively, of the outstanding voting
securities of the Portfolio. Accordingly, the Franklin
Adjustable U.S. Government Securities Fund could be deemed
to control the Portfolio, as that term is defined under
the 1940 Act. FIST was organized as a Massachusetts business
trust and is located at the address set forth on the cover
of this amendment to the registration statement.

b. Except for the companies referred to in this item, no
person was known to hold beneficially or of record more than
5% of the Portfolio's outstanding shares of beneficial
interest.

c. Not Applicable

16. INVESTMENT ADVISORY AND OTHER SERVICES

INVESTMENT ADVISORY AND OTHER SERVICES

The investment manager of the Portfolio is Franklin
Advisers, Inc. ("Advisers" or "Manager"). Advisers is a
wholly owned subsidiary of Franklin Resources, Inc.
("Resources"), a publicly owned holding company whose shares
are listed on the New York Stock Exchange (the "Exchange").
Resources owns several other subsidiaries which are involved
in investment management and shareholder services. The
Manager and other subsidiary companies of Resources
currently manage over $114 billion in assets for
approximately 3.7 million shareholders. Please refer to the
table above which indicates officers and trustees who are
affiliated persons of the Portfolio and who are also
affiliated persons of Advisers.

Pursuant to the management agreement, the Manager provides
investment research and portfolio management services,
including the selection of securities for the Portfolio to
purchase, hold or sell, and the selection of brokers and
dealers through whom the Portfolio's portfolio transactions
are executed. The Manager's activities are subject to the
review and supervision of the Portfolio's Board of Trustees
to whom the Manager renders periodic reports of the
Portfolio's investment activities. The Manager, at its own
expense, furnishes the Portfolio with office space and
office furnishings, facilities and equipment required for
managing the business affairs of the Portfolio; maintains
all internal bookkeeping, clerical, secretarial and
administrative personnel and services. The Manager is
covered by fidelity insurance on its officers, directors and
employees for the protection of the Trust and its
Portfolios.

The Portfolio bears all expenses related to its operation
not borne by the Manager. (See the Statement of Operations
in the Financial Statements at the end of this Part B for
additional details of these expenses.)

The Manager has limited its management fees and has agreed
to reimburse the Portfolio, if necessary, for certain of its
operating expenses. This action by the Manager to limit its
management fees and reimburse expenses may be terminated by
the Manager at any time. For the fiscal year ended October
31, 1994, the Portfolio was contractually obligated to pay
the Manager a management fee of $4,787,133. The Portfolio
paid no management fees for such period.

The management agreement is in effect until April 30, 1995.
Thereafter, it may continue in effect for successive annual
periods, providing such continuance is specifically approved
at least annually by a vote of the Trust's Board of Trustees
or by a vote of the holders of a majority of the Portfolio's
outstanding voting securities, and in either event by a
majority of the
Trust's trustees who are not parties to the management
agreement or interested persons of any such party (other
than as trustees of the Trust), cast in person at a meeting
called for that purpose. The management agreement may be
terminated without penalty at any time by the Portfolio or
by the Manager on 60days' written notice and automatically
terminates in the event of its assignment as defined in the
1940 Act.

Franklin/Templeton Investor Services, Inc. ("Investor
Services" or "Shareholder Services Agent"), a wholly owned
subsidiary of Resources, is the shareholder servicing agent
for the Trust and acts as the Trust's transfer agent and
dividend-paying agent. Investor Services is compensated on
the basis of a fixed fee per account.

Bank of America NT & SA, 555 California Street, 4th Floor,
San Francisco, California 94104, acts as custodian of the
securities and other assets of the Portfolio. The custodian
does not participate in decisions relating to the purchase
and sale of portfolio securities.

Coopers & Lybrand, L.L.P., 333 Market Street, San Francisco,
California 94105, is the Portfolio's independent auditor.
During the fiscal year ended October 31, 1994, their
auditing services consisted of rendering an opinion on the
financial statements for such fiscal year.

17. BROKERAGE ALLOCATION

THE PORTFOLIO'S POLICIES REGARDING BROKERS USED ON PORTFOLIO
TRANSACTIONS

Under the management agreement with Advisers, the selection
of brokers and dealers to execute transactions in the
Portfolio's portfolio is made by the Manager in accordance
with the management agreement and any directions which the
Board of Trustees may give. However, the Portfolio does not
anticipate that it will incur a significant amount of
brokerage expense because brokerage commissions are not
normally incurred on investments in mortgage securities
which are generally traded on a "net" basis, that is, in
principal amounts without the addition or deduction of
brokerage commissions.

When placing a portfolio transaction, the Manager attempts
to obtain the best net price and execution of the
transaction. On portfolio transactions which are done on a
securities exchange, the amount of commission paid by the
Portfolio is negotiated between the Manager and the broker
executing the transaction. The Manager seeks to obtain the
lowest commission rate available from brokers which are felt
to be capable of efficient execution of the transactions.
The determination and evaluation of the reasonableness of
the brokerage commissions paid in connection with portfolio
transactions are based to a large degree on the professional
opinions of the persons responsible for the placement and
review of such transactions. These opinions are formed on
the basis of, among other things, the experience of these
individuals in the securities industry and information
available to them concerning the level of commissions being
paid by other institutional investors of comparable size.
The Manager ordinarily places orders for the purchase and
sale of over-thecounter securities on a principal rather
than agency basis with a principal market maker unless, in
the opinion of the Manager, a better price and execution can
otherwise be obtained. Purchases of portfolio securities
from underwriters include a commission or concession paid by
the issuer to the underwriter, and purchases
from dealers include a spread between the bid and ask price.
As a general rule, the Portfolio does not purchase bonds in
underwritings where it is not given any choice, or only
limited choice, in the designation of dealers to receive the
commission. The Portfolio's Manager seeks to obtain prompt
execution of orders at the most favorable net price.

Purchase of portfolio securities may be made directly from
issuers or from underwriters. Where possible, purchase and
sale transactions are effected through dealers (including
banks) which specialize in the types of securities which the
Portfolio holds, unless better executions are available
elsewhere. Dealers and underwriters usually act as principal
for their own account. Purchases from underwriters include a
concession paid by the issuer to the underwriter, and
purchases from dealers include the spread between the bid
and the ask price. No broker or dealer affiliated with the
Portfolio or with the Manager may purchase securities from,
or sell securities to, the Portfolio.

The amount of commission is not the only relevant factor to
be considered in the selection of a broker to execute a
trade. If it is felt to be in the Portfolio's best
interests, the Manager may place portfolio transactions with
brokers which provide the types of services described below,
even if it means the Portfolio has to pay a higher
commission than would be the case if no weight were given to
the brokers' furnishing of these services. However, this is
done only if, in the opinion of the Manager, the amount of
any additional commission is reasonable in relation to the
value of the services. Higher commissions are paid only when
the brokerage and research services received are bona fide
and produce a direct benefit to the Portfolio or assist the
Manager in carrying out its responsibilities to the
Portfolio, or when it is otherwise in the best interest of
the Portfolio to do so, whether or not such data may also be
useful to the Manager in advising other clients.

When it is felt that several brokers or dealers are equally
able to provide the best net price and execution, the
Manager may decide to execute transactions through brokers
or dealers who provide quotations and other services to the
Portfolio, specifically including the quotations necessary
to determine the value of the Portfolio's net assets, in
such amount of total brokerage as may reasonably be required
in light of such services, and through brokers and dealers
who supply research, statistical and other data to the
Portfolio and Manager in such amount of total brokerage as
may reasonably be required.

It is not possible to place a dollar value on the special
executions or on the research services received by Advisers
from brokers or 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, the Manager and its
affiliates may use this research and data in their
investment advisory capacities with other clients. Provided
that the Portfolio's officers are satisfied that the best
execution is obtained, the sale of Portfolio shares may also
be considered as a factor in the selection of broker/dealers
to execute the Portfolio's portfolio transactions.

Because Franklin/Templeton Distributors, Inc.
("Distributors"), a subsidiary of Resources, is a member of
the National Association of Securities Dealers, Inc.,
Distributors is sometimes entitled to obtain certain fees
when the Portfolio tenders portfolio
securities pursuant to a tender-offer solicitation. As a
means of recapturing brokerage for the benefit of the
Portfolio, any portfolio securities tendered by the
Portfolio are tendered through Distributors if it is legally
permissible to do so. In turn, the next management fee
payable to Advisers under the management agreement is
reduced by the amount of any fees received by Distributors
in cash, less any costs and expenses incurred in connection
therewith.

If purchases or sales of securities by the Portfolio and one
or more other investment companies or clients supervised by
the Manager or its affiliates are considered at or about the
same time, transactions in such securities will be allocated
among the several investment companies and clients in a
manner deemed equitable to all by the Manager, taking into
account the respective sizes of the Portfolio, the other
investment company or client and the amount of securities to
be purchased or sold. It is recognized that in some cases
this procedure could possibly have a detrimental effect on
the price or volume of the security so far as the Portfolio
is concerned. However, in other cases it is possible that
the ability to participate in volume transactions and to
negotiate lower brokerage commissions will be beneficial to
the Portfolio.

During the fiscal period ended October 31, 1994, the
Portfolio paid no brokerage commissions. As of such date,
the Portfolio did not hold any securities of its regular
broker-dealers.

18. CAPITAL STOCK AND OTHER SECURITIES

The information provided in response to this item is in
addition to the information provided in response to Item 4
in Part A.

All shares of each series of the Trust have equal voting,
dividend and liquidation rights. Shares of each series vote
separately as to issues affecting that series, unless
otherwise permitted by the 1940 Act. The shares have
noncumulative voting rights, which means that holders of
more than 50% of the shares voting for the election of
trustees can elect 100% of the trustees if they choose to do
so.

The Portfolio does not intend to hold annual meetings; it
may, however, hold a meeting for such purposes as changing
fundamental investment restrictions, approving a new
management agreement or any other matters which are required
to be acted on by shareholders under the 1940 Act. A meeting
may also be called by a majority of the Board of Trustees or
by shareholders holding at least ten percent of the shares
entitled to vote at the meeting. Shareholders may receive
assistance in communicating with other shareholders in
connection with the election or removal of Trustees similar
to the provisions contained in Section 16(c) of the 1940
Act.

Shares for an initial investment as well as subsequent
investments, including the reinvestment of dividends and
capital gain distributions, are credited to an account in
the name of an investor on the books of the Portfolio. The
Portfolio does not issue share certificates.

Shares have no preemptive, subscription or conversion
rights. An investment in the Portfolio is not a deposit
insured by the FDIC and is not an obligation of or
guaranteed by any bank.

19. PURCHASE, REDEMPTION AND PRICING OF
SECURITIES BEING OFFERED

The information provided in response to this item is in
addition to the information provided in response to Items 7
and 8 in Part A.

REDEMPTIONS IN KIND

The Trust has committed itself to pay in cash 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 either series's net assets at
the beginning of such period. Such commitment is irrevocable
without the prior approval of the Securities and Exchange
Commission. In the case of requests for redemption in excess
of such amounts, the trustees reserve the right to make
payments in whole or in part in securities or other assets
of the Portfolio in case of an emergency, or if the payment
of such redemption in cash would be detrimental to the
existing shareholders of the Portfolio. In such
circumstances, the securities distributed would be valued at
the price used to compute the Portfolio's net assets. Should
the Portfolio do so, a shareholder may incur brokerage fees
or other transaction costs in converting the securities to
cash. The Portfolio does not intend to redeem illiquid
securities in kind; however, should it happen, shareholders
may not be able to timely recover their investment and may
also incur brokerage costs in selling such securities.

CALCULATION OF NET ASSET VALUE

As noted elsewhere in this amendment to the registration
statement, the Portfolio generally calculates net asset
value as of 1:00 p.m. Pacific time each day that the
Exchange is open for trading. As of the date hereof, the
Portfolio is informed that the Exchange intends to observe
the following holidays: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day (observed),
Labor Day, Thanksgiving Day and Christmas Day (observed).
Wire purchases and redemptions are not effected on those
days when the Federal Reserve Bank System is closed
(currently, New Year's Day, Martin Luther King, Jr.'s
Birthday, Washington's Birthday, Memorial Day, Independence
Day (observed), Labor Day, Columbus Day (observed),
Veteran's Day, Thanksgiving Day, and Christmas Day
(observed)).

REINVESTMENT DATE

The dividend reinvestment date is the date on which
additional shares are purchased for the investor who has
elected to have dividends reinvested. This date varies from
month to month based on operational considerations and is
not necessarily the same date as the record date or the
payable date for cash dividends.

20. TAX STATUS

The information provided in response to this item is in
addition to the information provided in response to Item 6
in Part A.

As stated in response to Item 6, the Portfolio intends to
qualify and elect to be treated as a regulated investment
company under Subchapter M of the Code during the current
fiscal year. The trustees reserve the right not to maintain
the qualification of the Portfolio as a regulated investment
company if they determine such course of action to be
beneficial to the shareholders. In such case, the Portfolio
would be subject to federal and possibly state corporate
taxes on its taxable income and gains, and
distributions to shareholders would be ordinary dividend
income to the extent of the Portfolio's available earnings
and profits.

The Code required all funds to distribute at least 98% of
their taxable ordinary income earned during the calendar
year and at least 98% of their capital gain net income
earned during the twelve-month period ending October 31 of
each year (in addition to amounts from the prior year that
were neither distributed nor taxed to the Portfolio) to
shareholders by December 31 of each year in order to avoid
the imposition of a federal excise tax. Under these rules,
certain distributions which are declared in October,
November or December but which, for operational reasons, may
not be paid to the shareholder until the following January,
are treated for tax purposes as if paid by the Portfolio and
received by the shareholder on December 31 of the calendar
year in which they are declared. The Portfolio intends, as a
matter of policy, to declare dividends in December as
necessary to avoid the imposition of this tax, but the
Portfolio does not guarantee that its distributions will be
sufficient to avoid any or all federal excise taxes.

Redemptions and exchanges of the Portfolio's shares are
taxable transactions for federal and state income tax
purposes. For most shareholders, gain or loss will be
recognized in an amount equal to the difference between the
shareholder's basis in its shares and the amount received,
subject to the rules described below. If such shares are a
capital asset in the hands of the shareholder, gain or loss
is capital gain or loss and is longterm for federal income
tax purposes if the shares have been held for more than one
year.

All or a portion of a loss realized upon a redemption of
shares is disallowed to the extent other shares of the
Portfolio are purchased (through reinvestment of dividends
or otherwise) within 30 days before or after such
redemption.

Any loss realized upon the redemption of shares within six

months from the date of their purchase will be treated as a

long-term capital loss to the extent of amounts treated as

distributions of net long-term capital gain with respect to

such shares.

21. UNDERWRITERS

Not Applicable

22. CALCULATION OF PERFORMANCE DATA

Not Applicable

23. FINANCIAL STATEMENTS

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994

<TABLE>
<CAPTION>
FACE VALUE
AMOUNT U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES 95.8%
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) 28.8%
$ 7,354,680 FHLMC, Cap 11.253%, Margin 1.75% + CMT, Resets Annually, 5.125%, 11/01/16 ..... $ 7,288,194
8,470,613 FHLMC, Cap 11.60%, Margin 2.25% + CMT, Resets Annually, 5.716%, 11/01/21 ...... 8,682,336
3,806,379 FHLMC, Cap 11.939%, Margin 2.127% + CMT, Resets Annually, 6.992%, 07/01/20 .... 3,828,958
22,475,592 FHLMC, Cap 12.17%, Margin 2.18% + CMT, Resets Annually, 6.022%, 03/01/23 ...... 23,220,096
1,413,476 FHLMC, Cap 12.176%, Margin 2.015% + CMT, Resets Annually, 6.466%, 04/01/20 .... 1,419,653
4,818,550 FHLMC, Cap 12.177%, Margin 2.265% + CMT, Resets Annually, 6.593%, 07/01/20 .... 4,857,677
5,357,065 FHLMC, Cap 12.616%, Margin 2.167% + CMT, Resets Annually, 7.252%, 09/01/21 .... 5,464,179
1,120,550 FHLMC, Cap 12.68%, Margin 2.195% + CMT, Resets Annually, 6.717%, 02/01/19 ..... 1,133,693
3,324,146 FHLMC, Cap 12.723%, Margin 2.189% + CMT, Resets Annually, 6.463%, 04/01/19 .... 3,358,322
7,350,239 FHLMC, Cap 12.79%, Margin 2.07% + CMT, Resets Annually, 6.107%, 04/01/19 ...... 7,472,142
1,181,863 FHLMC, Cap 12.80%, Margin 2.05% + CMT, Resets Annually, 5.933%, 11/01/18 ...... 1,188,161
9,571,131 FHLMC, Cap 12.806%, Margin 2.23% + CMT, Resets Annually, 6.209%, 04/01/18 ..... 9,658,362
4,996,418 FHLMC, Cap 12.875%, Margin 1.875% + CMT, Resets Annually, 5.856%, 07/01/17 .... 5,146,286
8,305,049 FHLMC, Cap 13.006%, Margin 2.00% + CMT, Resets Annually, 6.187%, 09/01/19 ..... 8,379,686
8,524,163 FHLMC, Cap 13.045%, Margin 1.875% + CMT, Resets Annually, 6.166%, 12/01/18 .... 8,779,845
6,639,317 FHLMC, Cap 13.07%, Margin 2.12% + CMT, Resets Annually, 6.210%, 04/01/22 ...... 6,784,552
4,564,155 FHLMC, Cap 13.156%, Margin 1.915% + CMT, Resets Annually, 5.328%, 12/01/16 .... 4,543,360
2,640,188 FHLMC, Cap 13.16%, Margin 2.115% + CMT, Resets Annually, 6.289%, 07/01/19 ..... 2,665,473
4,887,886 FHLMC, Cap 13.246%, Margin 2.175% + CMT, Resets Annually, 6.87%, 10/01/18 ..... 4,953,384
2,190,279 FHLMC, Cap 13.269%, Margin 2.249% + CMT, Resets Annually, 6.005%, 05/01/19 .... 2,205,611
1,057,517 FHLMC, Cap 13.286%, Margin 2.164% + CMT, Resets Annually, 6.031%, 10/01/19 .... 1,066,018
3,368,250 FHLMC, Cap 13.292%, Margin 2.115% + CMT, Resets Annually, 5.816%, 03/01/19 .... 3,375,977
985,931 FHLMC, Cap 13.302%, Margin 2.04% + CMT, Resets Annually, 5.632%, 04/01/18 ..... 985,985
2,241,214 FHLMC, Cap 13.306%, Margin 2.057% + CMT, Resets Annually, 5.637%, 12/01/18 .... 2,239,981
3,460,141 FHLMC, Cap 13.36%, Margin 2.242% + CMT, Resets Annually, 6.472%, 07/01/20 ..... 3,495,279
6,895,684 FHLMC, Cap 13.364%, Margin 2.225% + CMT, Resets Annually, 6.256%, 07/01/19 .... 6,954,849
13,106,095 FHLMC, Cap 13.37%, Margin 2.04% + CMT, Resets Annually, 5.969%, 04/01/19 ...... 13,171,560
8,742,793 FHLMC, Cap 13.562%, Margin 2.388% + CMT, Resets Annually, 6.587%, 07/01/21 .... 8,834,252
12,418,183 FHLMC, Cap 13.65%, Margin 2.249% + CMT, Resets Annually, 6.457%, 07/01/20 ..... 12,542,513
16,272,820 FHLMC, Cap 13.74%, Margin 2.306% + CMT, Resets Annually, 6.407%, 04/01/21 ..... 16,476,149
963,999 FHLMC, Cap 13.77%, Margin 2.057% + CMT, Resets Annually, 5.686%, 02/01/19 ..... 963,907
7,166,308 FHLMC, Cap 13.793%, Margin 2.214% + CMT, Resets Annually, 7.042%, 11/01/19 .... 7,274,405
5,619,083 FHLMC, Cap 14.277%, Margin 2.412% + CMT, Resets Annually, 7.115%, 07/01/19 .... 5,705,948
3,940,234 FHLMC, Cap 14.307%, Margin 1.957% + 3CMT, Resets Annually, 7.601%, 12/01/21 ... 4,058,421
1,945,647 FHLMC, Cap 14.451%, Margin 2.00% + CMT, Resets Annually, 6.70%, 12/01/18 ...... 2,007,654
4,736,717 FHLMC, Cap 14.90%, Margin 2.546% + CMT, Resets Annually, 6.212%, 02/01/19 ..... 4,776,159
------------
TOTAL FEDERAL HOME LOAN MORTGAGE CORP. (COST $218,827,414) ................ 214,959,027
------------
</TABLE>

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

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994 (CONT.)

<TABLE>
<CAPTION>
FACE VALUE
AMOUNT U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES (CONT.)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)aa59.2%
$ 2,453,276 FNMA, Cap 11.49%, Margin 2.225% + CMT, Resets Annually, 7.60%, 09/01/21 ....... $ 2,501,924
5,728,096 FNMA, Cap 12.26%, Margin 1.725% + CMT, Resets Semi-Annually, 6.329%, 01/01/19 5,786,705
3,682,423 FNMA, Cap 12.605%, Margin 2.536% + 6 Month DR, Resets Semi-Annually, 6.585%,
11/01/18 ..................................................................... 3,802,084
19,924,714 FNMA, Cap 12.637%, Margin 2.00% + NCI, Resets Annually, 6.05%, 11/01/17 ....... 20,173,674
7,120,214 FNMA, Cap 12.64%, Margin 2.00% + CMT, Resets Annually, 6.47%, 03/01/19 ........ 7,200,886
16,186,106 FNMA, Cap 12.66%, Margin 1.75% + 6 Month DR, Resets Annually, 5.79%, 01/01/19 . 16,317,537
11,960,782 FNMA, Cap 12.705%, Margin 1.25% + COFI, Resets Monthly, 5.054%, 09/01/18 ...... 11,639,276
12,715,988 FNMA, Cap 12.729%, Margin 1.875% + NOI, Resets Annually, 5.823%, 07/01/29 ..... 12,890,769
5,239,485 FNMA, Cap 12.787%, Margin 1.25% + COFI, Resets Monthly, 7.454%, 01/01/19 ...... 5,272,205
5,977,277 FNMA, Cap 12.788%, Margin 2.11% + CMT, Resets Annually, 6.533%, 11/01/20 ...... 6,045,155
20,649,548 FNMA, Cap 12.797%, Margin 1.75% + NCI, Resets Monthly, 5.625%, 12/01/28 ....... 20,881,752
9,193,762 FNMA, Cap 12.804%, Margin 1.75% + CMT, Resets Annually, 5.842%, 05/01/19 ...... 9,244,143
4,549,263 FNMA, Cap 12.84%, Margin 2.762% + 6 Month DR, Resets Semi-Annually, 6.842%,
06/01/17 ..................................................................... 4,654,465
8,921,850 FNMA, Cap 12.85%, Margin 2.078% + CMT, Resets Annually, 7.981%, 10/01/17 ...... 9,200,613
9,544,282 FNMA, Cap 12.89%, Margin 2.125% + 6 Month DR, Resets Semi-Annually, 6.114%,
07/01/17 ..................................................................... 9,681,433
2,871,726 FNMA, Cap 12.911%, Margin 2.00% + 6 Month DR, Resets Semi-Annually, 6.27%,
02/01/18 ..................................................................... 2,961,453
10,815,481 FNMA, Cap 12.938%, Margin 1.25% + COFI, Resets Monthly, 5.054%, 02/01/19 ...... 10,524,761
5,473,844 FNMA, Cap 12.993%, Margin 2.092% + CMT, Resets Annually, 6.387%, 12/01/19 ..... 5,532,255
7,709,689 FNMA, Cap 13.01%, Margin 2.10% + CMT, Resets Monthly, 6.019%, 06/01/19 ........ 7,772,854
16,053,770 FNMA, Cap 13.017%, Margin 1.25% + COFI, Resets Monthly, 5.11%, 07/01/17 ....... 15,632,278
10,547,437 FNMA, Cap 13.021%, Margin 1.986% + CMT, Resets Annually, 6.465%, 07/01/22 ..... 10,778,162
16,751,007 FNMA, Cap 13.03%, Margin 1.25% + COFI, Resets Monthly, 6.836%, 02/01/20 ....... 16,855,617
8,694,386 FNMA, Cap 13.03%, Margin 1.75% + 6 Month TB, Resets Semi-Annually, 5.846%,
12/01/20 ..................................................................... 8,786,720
7,998,755 FNMA, Cap 13.063%, Margin 2.175% + CMT, Resets Monthly, 5.694%, 04/01/19 ...... 8,026,310
9,050,349 FNMA, Cap 13.099%, Margin 1.75% + 6 Month TB, Resets Semi-Annually, 5.847%,
07/01/20 ..................................................................... 9,157,777
5,870,361 FNMA, Cap 13.108%, Margin 2.246% + CMT, Resets Annually, 6.424%, 01/01/20 ..... 5,932,141
33,918,927 FNMA, Cap 13.125%, Margin 1.25% + COFI, Resets Monthly, 5.109%, 04/01/18 ...... 33,007,186
6,321,511 FNMA, Cap 13.147%, Margin 1.895% + CMT, Resets Annually, 6.328%, 04/01/19 ..... 6,386,193
4,661,550 FNMA, Cap 13.202%, Margin 2.478% + 6 Month DR, Resets Semi-Annually, 6.443%,
11/01/26 ..................................................................... 4,834,890
4,661,069 FNMA, Cap 13.249%, Margin 2.00% + CMT, Resets Annually, 6.031%, 06/01/19 ...... 4,699,854
6,570,495 FNMA, Cap 13.281%, Margin 2.00% + CMT, Resets Annually, 6.338%, 10/01/19 ...... 6,638,204
</TABLE>

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

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994 (CONT.)

<TABLE>
<CAPTION>
FACE VALUE
AMOUNT U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES (CONT.)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) (CONT.)
$ 8,886,885 FNMA, Cap 13.32%, Margin 1.25% + COFI, Resets Semi-Annually, 7.433%, 04/01/03.. $ 8,931,275
18,407,487 FNMA, Cap 13.452%, Margin 2.148% + CMT, Resets Annually, 6.322%, 09/01/22 ..... 18,602,975
15,652,775 FNMA, Cap 13.644%, Margin 2.011% + CMT, Resets Annually, 6.242%, 01/01/18 ..... 15,812,231
9,596,917 FNMA, Cap 13.662%, Margin 2.177% + CMT, Resets Annually, 6.382%, 03/01/21 ..... 9,690,103
12,065,101 FNMA, Cap 13.791%, Margin 2.143% + CMT, Resets Annually, 6.416%, 12/01/20 ..... 12,191,085
5,399,057 FNMA, Cap 13.797%, Margin 2.20% + CMT, Resets Annually, 5.801%, 03/01/19 ...... 5,425,069
6,828,249 FNMA, Cap 13.80%, Margin 0.94% + 6 Month DR, Resets Semi-Annually, 6.786%,
07/01/24 ..................................................................... 6,836,751
6,265,875 FNMA, Cap 13.887%, Margin 2.25% + CMT, Resets Annually, 5.756%, 02/01/19 ...... 6,290,876
4,635,385 FNMA, Cap 13.896%, Margin 2.25% + CMT, Resets Annually, 5.639%, 12/01/18 ...... 4,651,818
10,298,111 FNMA, Cap 14.069%, Margin 2.089% + CMT, Resets Annually, 6.429%, 01/01/19 ..... 10,411,019
3,166,559 FNMA, Cap 14.142%, Margin 2.118% + CMT, Resets Annually, 5.977%, 03/01/21 ..... 3,250,298
17,224,751 FNMA, Cap 14.354%, Margin 2.07% + 5CMT, Resets Annually, 8.033%, 05/01/21 ..... 17,762,938
11,838,930 FNMA, Cap 14.887%, Margin 1.720% + CMT, Resets Annually, 5.94%, 01/01/16 ...... 12,238,435
5,078,261 FNMA, Cap 14.952%, Margin 2.523% + CMT, Resets Annually, 6.926%, 05/01/19 ..... 5,154,481
2,767,292 FNMA, Cap 15.381%, Margin 2.168% + CMT, Resets Annually, 6.529%, 02/01/20 ..... 2,798,554
------------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION (COST $453,687,272) ......... 442,867,184
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) 7.8%
12,471,767 GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 6.50%, 07/20/23 ........ 12,221,209
7,917,654 GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 6.50%, 08/20/23 ........ 7,758,589
10,000,000 dGNMA, Cap 12.00%, Margin 1.50% + CMT, Resets Annually, 7.00%, 10/20/17 ........ 9,956,251
19,736,825 GNMA, Cap 13.00%, Margin 1.50% + CMT, Resets Annually, 5.75%, 02/20/16 ........ 18,868,405
9,979,713 GNMA, Cap 13.00%, Margin 1.50% + CMT, Resets Annually, 5.75%, 03/20/16 ........ 9,540,606
------------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (COST $62,556,073) ....... 58,345,060
------------
TOTAL ADJUSTABLE RATE MORTGAGE SECURITIES (COST $735,070,759) ........... 716,171,271
------------
GOVERNMENT SECURITIES 1.3%
10,000,000 U.S. Treasury Notes, 4.00% - 4.25%, 01/31/96 - 05/15/96 (COST $9,777,084) ..... 9,710,431
------------
Total Long Term Investments (COST $744,847,843) ......................... 725,881,702
------------
aSHORT TERM INVESTMENTS
GOVERNMENT SECURITIES 3.4%
26,630,000 U.S. Treasury Bills, 5.54% - 5.855%, 09/21/95 - 10/19/95 (COST $25,153,213) ... 25,156,431
------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS (COST $770,001,056) ...... 751,038,133
------------
</TABLE>

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

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994 (CONT.)

<TABLE>
<CAPTION>
FACE VALUE
AMOUNT U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO (NOTE 1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
b,cRECEIVABLES FROM REPURCHASE AGREEMENTS
$ 5,634 Joint Repurchase Agreement, 4.824%, 11/01/94 (Maturity Value $5,355)
(COST $5,354)
Collateral: U.S. Treasury Notes, 4.00% - 11.625%, 11/15/94 - 07/31/99 ............ $ 5,354
------------
TOTAL INVESTMENTS (COST $770,006,410) 100.5% ........................ 751,043,487
LIABILITIES IN EXCESS OF OTHERS ASSETS, NET (.5)% ................... (3,572,373)
------------
NET ASSETS 100.0% ................................................... $747,471,114
============
At October 31, 1994, the net unrealized depreciation based on the cost of
investments for income tax purposes of $770,011,327 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
was an excess of value over tax cost .......................................... $ 386,754
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value .......................................... (19,354,594)
------------
Net unrealized depreciation .................................................... $(18,967,840)
============
</TABLE>

PORTFOLIO ABBREVIATIONS:

CMT - 1 Year Constant Maturity Treasury Index
3CMT - 3 Year Constant Maturity Treasury Index
5CMT - 5 Year Constant Maturity Treasury Index
COFI - 11th District Cost of Funds Index
DR - Discount Rate
NCI - National Median Cost of Funds Index
TB - Treasury Bill Rate

aCertain short-term securities are traded on a discount basis; the rates
shown are the discount rates at the time of purchase by the Fund. Other
securities bear interest at the rates shown, payable at fixed dates or upon
maturity.
bFace amount for repurchase agreements is for the underlying collateral.
cSee Note 1(f) regarding Joint Repurchase Agreement.
dSee Note 1(g) regarding securities purchased on a when-issued or delayed
delivery basis.

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

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994

<TABLE>
<CAPTION>
FACE VALUE
AMOUNT ADJUSTABLE RATE SECURITIES PORTFOLIO (NOTE 1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
b,cADJUSTABLE RATE MORTGAGE SECURITIES 85.3%
$4,290,610 FBMS, Cap 10.816%, Margin 1.06% + 6 Month LIBOR, Resets Semi-Annually, 6.67%,
07/25/09............................................................................. $ 4,258,431
3,456,496 Glendale Federal Bank, Cap 12.25%, Margin 1.78% + CMT, Resets Annually, 7.39%,
03/25/30............................................................................. 3,462,977
1,442,684 Homeowners Federal Savings, Cap 13.00%, Margin 1.75% + CMT, Resets Annually,
6.00%, 01/25/18 ..................................................................... 1,426,453
2,599,638 PHMS, Cap 10.88%, Margin 2.50% + CMT, Resets Annually, 7.00%, 01/25/23 ............... 2,606,137
3,349,085 PHMS, Cap 11.67%, Margin 2.67% + CMT, Resets Annually, 6.86%, 07/25/22 ............... 3,365,830
3,771,292 RFC, Cap 11.46%, Margin 2.25% + CMT, Resets Annually, 7.39%, 11/25/22 ................ 3,717,079
3,546,603 RFC, Cap 11.73%, Margin 1.00% + COFI, Resets Semi-Annually, 4.86%, 07/25/19 .......... 3,333,807
1,931,004 RTC, Cap 12.66%, Margin 1.75% + 6 Month TB, Resets Semi-Annually, 6.99%, 04/26/21..... 1,902,039
3,894,880 RTC, Cap 13.35%, Margin .90% + CMT, Resets Annually, 6.93%, 04/25/22 ................. 3,838,891
2,712,404 RTC, Cap 14.69%, Margin 1.55% + CMT, Resets Annually, 7.36%, 06/25/22 ................ 2,671,718
1,856,660 RTC, Cap 16.48%, Margin NACR - 0.13%, Resets Annually, 7.44%, 07/25/20 ............... 1,827,650
3,098,163 Salomon Brothers Mortgage Securities, Cap 14.00%, Margin 0.96%+ NACR, Resets Annually,
7.39%, 12/25/17...................................................................... 3,109,782
-----------
TOTAL ADJUSTABLE RATE MORTGAGE SECURITIES (COST $36,966,456) ................... 35,520,794
-----------
GOVERNMENT SECURITIES 6.2%
2,625,000 U.S. Treasury Notes, 3.875%, 10/31/95 (COST $2,574,468) .............................. 2,567,578
-----------
TOTAL LONG TERM INVESTMENTS (COST $39,540,924) ................................. 38,088,372
-----------
SHORT TERM INVESTMENTS
aGOVERNMENT SECURITIES 7.9%
3,460,000 U.S. Treasury Bills, 5.335%, 08/24/95 (COST $3,303,173) ............................. 3,298,411
-----------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS (COST $42,844,097) ............. 41,386,783
-----------
b,cRECEIVABLES FROM REPURCHASE AGREEMENTS .1%
23,951 Joint Repurchase Agreement, 4.824%, 11/01/94 (Maturity Value $23,061) (Cost $23,058)
Collateral: U.S. Treasury Notes, 4.00% - 11.625%, 11/15/94 - 07/31/99 ............. 23,058
-----------
TOTAL INVESTMENTS (COST $42,867,155)aa99.5% ............................... 41,409,841
OTHER ASSETS AND LIABILITIES, NET .5% .................................... 208,912
-----------
NET ASSETS 100.0% ........................................................ $41,618,753
===========
</TABLE>

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

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994 (CONT.)

<TABLE>
<CAPTION>
VALUE
ADJUSTABLE RATE SECURITIES PORTFOLIO (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
At October 31, 1994, the net unrealized depreciation based on the cost of investments
for income tax purposes of $42,873,764 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost ................................................... $ --
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value ................................................... (1,463,923)
-----------
Net unrealized depreciation ....................................................... $(1,463,923)
===========
</TABLE>

PORTFOLIO ABBREVIATIONS:
CMT - 1 Year Constant Maturity Treasury Index
COFI - 11th District Cost of Funds Index
FBMS - First Boston Mortgage Securities Corp.
LIBOR - London Interbank Offered Rate
NACR - National Average Contract Rate
PHMS - Prudential Home Mortgage Securities
RFC - Residential Finance Corp.
RTC - Resolution Trust Corp.
TB - Treasury Bill Rate

aCertain short-term securities are traded on a discount basis; the rates
shown are the discount rates at the time of purchase by the Fund. Other
securities bear interest at the rates shown, payable a fixed dates or upon
maturity.
bFace amount for repurchase agreements is for the underlying collateral.
cSee Note 1(f) regarding Joint Repurchase Agreement.

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

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

FINANCIAL STATEMENTS

STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 1994

<TABLE>
<CAPTION>
U.S. GOVERNMENT
ADJUSTABLE RATE ADJUSTABLE RATE
MORTGAGE PORTFOLIO SECURITIES PORTFOLIO
------------------ --------------------
<S> <C> <C>
Assets:
Investments in securities:
At identified cost....................................................... $770,001,056 $42,844,097
============ ===========
At value................................................................. 751,038,133 41,386,783
Receivables from repurchase agreements, at value and cost................. 5,354 23,058
Receivables:
Capital shares sold...................................................... -- 21,008
Interest................................................................. 4,947,930 120,253
Investment securities sold............................................... 3,598,800 213,186
Unamortized organization costs (Note 2)................................... -- 4,941
------------ -----------
Total assets......................................................... 759,590,217 41,769,229
------------ -----------
Liabilities:

Payables:

Investment securities purchased on a when-issued basis (Note 1).......... 9,992,778 --
Capital shares repurchased............................................... 2,012,228 133,138
Management fees.......................................................... -- 8,199
Accrued expenses and other liabilities.................................... 114,097 9,139
------------ -----------
Total liabilities.................................................... 12,119,103 150,476
------------ -----------
Net assets, at value....................................................... $747,471,114 $41,618,753
============ ===========
Net assets consist of:
Unrealized depreciation on investments.................................... $(18,962,923) $(1,457,314)
Accumulated net realized loss............................................. (129,728,595) (2,103,106)
Capital shares............................................................ 813,678 42,970
Additional paid-in capital................................................ 895,348,954 45,136,203
------------ -----------
Net assets, at value....................................................... $747,471,114 $41,618,753
============ ===========
Shares outstanding......................................................... 81,367,809 4,297,010
============ ===========
Net asset value per share.................................................. $9.19 $9.69
============ ===========
Representative computation (U.S. Government Adjustable Rate Mortgage
Portfolio) of net asset value, offering price and redemption price per share:
(747,471,114 (/) 81,367,809).............................................. $9.19
============
</TABLE>

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

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

FINANCIAL STATEMENTS (CONT.)

STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1994

<TABLE>
<CAPTION>
U.S. GOVERNMENT
ADJUSTABLE RATE ADJUSTABLE RATE
MORTGAGE PORTFOLIO SECURITIES PORTFOLIO
------------------ --------------------
<S> <C> <C>
Investment income:
Interest (Note 1)......................................................... $ 48,150,402 $ 4,454,519
------------ -----------
Expenses:
Management fees, net (Note 6)............................................. -- 205,735
Custodian fees............................................................ 112,471 9,279
Professional fees......................................................... 61,443 9,756
Trustees' fees and expenses............................................... 9,319 55
Reports to shareholders................................................... 3,063 3,432
Amortization of organization costs (Note 2)............................... -- 2,196
Registration and filing fees.............................................. -- 1,250
Other..................................................................... -- 849
------------ -----------
Total expenses....................................................... 186,296 232,552
------------ -----------
Net investment income............................................... 47,964,106 4,221,967
------------ -----------
Realized and unrealized loss on investments:
Net realized loss......................................................... (67,057,492) (1,993,495)
Net unrealized depreciation............................................... (12,751,845) (1,410,266)
------------ -----------
Net realized and unrealized loss on investments............................ (79,809,337) (3,403,761)
------------ -----------
Net increase (decrease) in net assets resulting from operations............ $(31,845,231) $ 818,206
============ ===========
</TABLE>

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

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

FINANCIAL STATEMENTS (CONT.)

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED OCTOBER 31, 1994
AND THE NINE MONTHS ENDED OCTOBER 31, 1993

<TABLE>
<CAPTION>
U.S. GOVERNMENT ADJUSTABLE RATE
ADJUSTABLE RATE MORTGAGE PORTFOLIO SECURITIES PORTFOLIO
---------------------------------- --------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED NINE MONTHS YEAR ENDED NINE MONTHS
10/31/94 ENDED 10/31/93 10/31/94 ENDED 10/31/93
--------------- --------------- ------------ --------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income................... $ 47,964,106 $ 106,502,915 $ 4,221,967 $ 2,658,795
Net realized gain (loss) from security
transactions.......................... (67,057,492) 7,294,889 (1,993,495) (51,910)
Net unrealized depreciation on
investments........................... (12,751,845) (31,684,300) (1,410,266) (61,448)
--------------- --------------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations......... (31,845,231) 82,113,504 818,206 2,545,437
Distributions to shareholders from
undistributed net investment income
(Note 1)................................ (47,964,106) (106,502,915) (4,221,967) (2,658,795)
Increase (decrease) in net assets from
capital share transactions (Note 4)..... (1,302,948,561) (2,046,792,768) (79,286,725) 79,767,042
--------------- --------------- ------------ ------------
Net increase (decrease) in net
assets............................ (1,382,757,898) (2,071,182,179) (82,690,486) 79,653,684

Net assets (there is no undistributed net
investment income at beginning or end
of year):
Beginning of year...................... 2,130,229,012 4,201,411,191 124,309,239 44,655,555
--------------- --------------- ------------ ------------
End of year............................ $ 747,471,114 $ 2,130,229,012 $ 41,618,753 $124,309,239
=============== =============== ============ ============
</TABLE>

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

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

NOTES TO FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

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

On June 15, 1993, the Board of Trustees authorized a change in the fiscal
year end of the Trust from January 31 of each year to October 31.

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

A. SECURITIES VALUATIONS:

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 asked
prices. Other securities for which market quotations are readily
available are valued at current market values, obtained from a pricing
service, which are 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 securities.
Portfolio securities which are traded both in the over-the-counter market and
on a securities exchange are valued according to the broadest and most
representative market as determined by the Manager. Securities for which
market quotations are not readily available, if any, are valued at their fair
value as determined following procedures approved by the Board of Trustees.
Short-term securities and similar investments with remaining maturities of 60
days or less are valued at amortized cost, which approximates value.

B. INCOME TAXES:

The Trust intends to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make
the requisite distributions to its shareholders which will be sufficient to
relieve it from income and excise taxes. Therefore, no income tax provision
is required. Each Portfolio is treated as a separate entity in the
determination of compliance with the Internal Revenue Code.

C. SECURITY TRANSACTIONS:

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

D. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:

Distributions to shareholders are recorded on the ex-dividend date.
Interest income and estimated expenses are accrued daily. Bond discount, if
any, is amortized as required by the Internal Revenue Code. The Fund normally
declares dividends from its net investment income daily and distributes
monthly. Daily allocations of net investment income will commence on the date
of receipt of an investor's funds. Dividends are normally declared each day
the New York Stock Exchange is open for business equal to the Portfolio's
total net investment income and are payable to shareholders of record at
the beginning of business on the ex-date. Once each month, dividends are
reinvested in additional shares of the Portfolio or paid in cash as requested
by the shareholders.

Net realized capital losses differ for financial statement and tax purposes
primarily due to losses deferred from wash sale transactions.

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

NOTES TO FINANCIAL STATEMENTS (CONT.)

1. SIGNIFICANT ACCOUNTING POLICIES (CONT.)

E. EXPENSE ALLOCATION:

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

F. REPURCHASE AGREEMENTS:

The Trust may enter into a Joint Repurchase Agreement whereby its uninvested
cash balance is deposited into a joint cash account to be used to invest in one
or more repurchase agreements with government securities dealers
recognized by the Federal Board and/or member banks of the Federal Reserve
System. The value and face amount of the Joint Repurchase Agreement has been
allocated to the Trust based on its pro-rata interest at October 31, 1994.

In a repurchase agreement, the Trust purchases a U.S. Government security
from a dealer or bank subject to an agreement to resell it at a mutually
agreed upon price and date. Such a transaction is accounted for as a loan by
the Trust to the seller, collateralized by the underlying security. The
transaction requires the initial collateralization of the seller's obligation
by U.S. Government securities with market value, including accrued
interest, of at least 102% of the dollar amount invested by the Trust, with
the value of the underlying security marked to market daily to maintain
coverage of at least 100%. The collateral is delivered to the Trust's
custodian and held until resold to the dealer or bank. At October 31, 1994, all
outstanding joint repurchase agreements held by the Trust had been entered into
on that date.

G. SECURITIES PURCHASED ON A WHEN-ISSUED (WI) OR DELAYED DELIVERY BASIS:

The Trust may trade securities on a when-issued or delayed delivery basis,
with payment and delivery scheduled for a future date. These transactions are
subject to market fluctuations and are subject to the risk that the value at
delivery may be more or less than the trade date purchase price. Although the
Trust will generally purchase these securities with the intention of
acquiring such securities, they may sell such securities before the
settlement date. These securities are identified on the accompanying
statement of investments in securities and net assets. The Trust has set
aside sufficient investment securities as collateral for these purchase
commitments.

2. UNAMORTIZED ORGANIZATION COSTS

The organization costs of the Securities Portfolio are amortized on a
straight-line basis over a period of five years, from December 26, 1991, the
effective date of registration. In the event Franklin Resources, Inc.
(which was the sole shareholder prior to December 26, 1991) redeems its seed
money shares within the five-year period, the pro rata share of the
then-unamortized deferred organization cost will be deducted from the
redemption price paid to Franklin Resources, Inc. New investors purchasing
shares of the portfolio subsequent to that date bear such costs during the
amortization period only as such charges are accrued daily against investment
income.

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

NOTES TO FINANCIAL STATEMENTS (CONT.)

3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS

At October 31, 1994, for tax purposes, the Portfolios had accumulated capital
loss carryovers as follows:

<TABLE>
<CAPTION>
U.S. GOVERNMENT ADJUSTABLE ADJUSTABLE RATE
RATE MORTGAGE PORTFOLIO SECURITIES PORTFOLIO
-------------------------- --------------------
<S> <C> <C>
Capital loss carryovers
Expiring in: 2000.................... $ 45,446,278 $ 57,701
2001.................... 17,175,340 50,908
2002.................... 67,102,060 1,987,888
------------ ----------
$129,723,678 $2,096,497
============ ==========
</TABLE>

For income tax purposes, the aggregate cost of securities is higher (and
unrealized depreciation is higher) than for financial reporting purposes
at October 31, 1994 by $4,917 in the Mortgage Portfolio and $6,609 in the
Securities Portfolio.

4. TRUST SHARES

At October 31, 1994, there was an unlimited number of $.01 par value
shares of beneficial interest authorized. Transactions in each of the
Portfolio's shares for the year ended October 31, 1994, and the nine months
ended October 31, 1993 were as follows:

<TABLE>
<CAPTION>
U.S. GOVERNMENT ADJUSTABLE ADJUSTABLE RATE
RATE MORTGAGE PORTFOLIO SECURITIES PORTFOLIO
------------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ --------------- ----------- -------------
<S> <C> <C> <C> <C>
Year ended October 31, 1994

Shares sold.................................. 3,234,621 $ 31,184,230 9,103,489 $ 90,799,027
Shares issued in reinvestment of distributions 5,053,223 47,948,131 426,689 4,211,388
Shares redeemed.............................. (143,954,457) (1,382,080,922) (17,497,118) (172,994,477)
Changes from exercise of the exchange
privilege:
Shares redeemed............................ -- -- (132,789) (1,302,663)
------------ --------------- ----------- -------------
Net decrease................................. (135,666,613) $(1,302,948,561) (8,099,729) $ (79,286,725)
============ =============== =========== =============
Nine months ended October 31, 1993
Shares sold.................................. 35,150,104 $ 347,867,956 12,949,265 $ 130,092,823
Shares issued in reinvestment of distributions 10,857,572 107,414,657 263,368 2,646,062
Shares redeemed.............................. (253,133,809) (2,502,075,381) (5,271,267) (52,971,843)
------------ --------------- ----------- -------------
Net increase (decrease)...................... (207,126,133) $(2,046,792,768) 7,941,366 $ 79,767,042
============ =============== =========== =============
</TABLE>

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

NOTES TO FINANCIAL STATEMENTS (CONT.)

5. PURCHASES AND SALES OF SECURITIES

Aggregate purchases and sales of securities (excluding purchases and sales
of short-term securities) for the year ended October 31, 1994, were as
follows:

<TABLE>
<CAPTION>
U.S. GOVERNMENT ADJUSTABLE ADJUSTABLE RATE
RATE MORTGAGE PORTFOLIO SECURITIES PORTFOLIO
-------------------------- --------------------
<S> <C> <C>
Purchases..................... $ 669,730,162 $177,224,773
============== ============
Sales......................... $1,976,011,176 $266,835,786
============== ============
</TABLE>

6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

Franklin Advisers, Inc., under the terms of a management agreement, provides
investment advice, administrative services, office space and facilities to the
Trust, and receives fees computed monthly on the average daily net assets of
the Trust during the month. The Trust pays a fee equal to an annualized
rate of 40/100 of 1% for the first $5 billion of net assets, 35/100 of 1%
of net assets in excess of $5 billion up to and including $10 billion, 33/100
of 1% of net assets in excess of $10 billion up to and including $15 billion,
and 30/100 of 1% of net assets in excess of $15 billion. The terms of the
management agreement provide that aggregate annual expenses of the Trust
be limited to the extent necessary to comply with the limitations set forth in
the laws, regulations and administrative interpretations of the states in
which the Trust's shares are registered. The Trust's expenses did not exceed
these limitations; however, for the year ended October 31, 1994, Franklin
Advisers, Inc. agreed in advance to waive a portion of the management fees of
$4,787,133 and $166,584, for the Mortgage Portfolio and Securities Portfolio,
respectively.

As of October 31, 1994, 76,822,612 shares of the Mortgage Portfolio were owned
by the Franklin Adjustable U.S. Government Securities Fund and 4,545,197
shares were owned by the Franklin Institutional Adjustable U.S. Government
Securities Fund. This represents 94% and 6%, respectively, of the outstanding
shares of the Mortgage Portfolio.

As of October 31, 1994, 2,542,902 shares of the Securities Portfolio
were owned by the Franklin Adjustable Rate Securities Fund and 1,752,851
shares were owned by the Franklin Institutional Adjustable Rate Securities
Fund. This represents 59% and 41%, respectively, of the outstanding shares
of the Securities Portfolio. The remaining 1,257 shares of the Securities
Portfolio were owned by Franklin Resources, Inc.

Certain officers and Trustees of the Trust are also officers and/or directors
of Franklin Advisers, Inc., a wholly-owned subsidiary of Franklin Resources,
Inc.

<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS

NOTES TO FINANCIAL STATEMENTS (CONT.)

7. FINANCIAL HIGHLIGHTS

Selected data for a share of beneficial interest outstanding throughout the
year by Fund are as follows:

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------------------
NET
REALIZED & DISTRI- DISTRI- NET
NET ASSET NET UNREALIZED BUTIONS BUTIONS ASSET
YEAR VALUES AT INVEST- GAIN TOTAL FROM FROM NET FROM VALUES
ENDED BEGINNING MENT (LOSS) ON INVESTMENT INVESTMENT CAPITAL TOTAL AT END TOTAL
JAN. 31, OF YEAR INCOME SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR RETURN+
- -------- --------- ------ ---------- ---------- ---------- ------- ------------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government Adjustable Rate Mortgage Portfolio
1992(1) $10.00 $.493 $ .013 $ .506 $(.493) $(.003) $(.496) $10.01 5.13%
1993 10.01 .544 (.100) .444 (.544) -- (.544) 9.91 4.53
1993** 9.91 .313 (.090) .223 (.313) -- (.313) 9.82 2.28
1994*** 9.82 .415 (.630) (.215) (.415) -- (.415) 9.19 (2.22)
Adjustable Rate Securities Portfolio
1992(2) 10.00 -- -- -- -- -- -- 10.00 --
1993 10.00 .599 .020 .619 (.599) -- (.599) 10.02 6.36
1993** 10.02 .368 .010 .378 (.368) -- (.368) 10.03 3.83
1994*** 10.03 .469 (.340) .129 (.469) -- (.469) 9.69 1.32
</TABLE>

<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------------
RATIO OF
NET EXPENSES RATIO OF NET
ASSETS TO AVERAGE INVESTMENT
YEAR AT END NET INCOME TO PORTFOLIO
ENDED OF YEAR ASSETS++ AVERAGE TURNOVER
JAN. 31, (IN 000'S) (SEE NOTE 6) NET ASSETS RATE
- -------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
U.S. Government Adjustable Rate Mortgage Portfolio
1992(1) $4,315,658 .31%* 7.25%* 48.96%
1993 4,201,411 .30 5.49 66.44
1993** 2,130,229 .27* 4.15* 76.55
1994*** 747,471 .02 4.01 58.43
Adjustable Rate Securities Portfolio
1992(2) -- -- -- --
1993 44,656 -- 5.80 88.92
1993** 124,309 .11* 4.76* 158.70
1994*** 41,619 .25 4.55 192.06
</TABLE>

*Annualized.
**For the nine months ended October 31, 1993.
***For the year ended October 31, 1994.
1For the period May 20, 1991 (effective date) to January 31, 1992.
2For the period December 26, 1991 (effective date) to January 31, 1992.
+Total return measures the change in value of an investment over the
period indicated. It assumes reinvestment of dividends and capital gains,
if any, at net asset value.
++During the periods indicated below, Franklin Advisers, Inc., the
investment manager, agreed to waive in advance a portion of its management
fees and made payments of other expenses incurred by the Portfolio. Had such
action not been taken, the ratios of expenses to average net assets would have
been as follows:

<TABLE>
<CAPTION>
RATIO OF EXPENSES
TO AVERAGE NET ASSETS
---------------------
<S> <C>
U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO
1992.................................................................. .41%*
1993.................................................................. .42
1993**................................................................ .41*
1994***............................................................... .42
ADJUSTABLE RATE SECURITIES PORTFOLIO
1993.................................................................. .64
1993**................................................................ .47*
1994***............................................................... .43
</TABLE>

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Trustees of
Adjustable Rate Securites Portfolios:

We have audited the accompanying statements of assets and liabilities of
the two portfolios comprising the Adjustable Rate Securities Portfolios (the
Trust), including each Portfolio's statement of investments in securities and
net assets, as of October 31, 1994, and the related statements of operations
for the year then ended, the statements of changes in net assets for the year
then ended and for the nine months ended October 31, 1993 and the financial
highlights for each of the periods indicated in Note 7. These financial
statements and financial highlights are the responsibility of the Trusts'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation
of securities owned as of October 31, 1994, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of the two Portfolios comprising the Adjustable Rate Securities Portfolios as
of October 31, 1994, the results of each Portfolio's operations for the
year then ended, the changes in their net assets for the year then ended and
for the nine months ended October 31, 1993, and the financial highlights
for each of the periods indicated in Note 7 in conformity with generally
accepted accounting principles.

COOPERS & LYBRAND L.L.P.

San Francisco, California
December 7, 1994

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS
ADJUSTABLE RATE SECURITIES PORTFOLIO

FORM N-1A, PART A:

ITEM

Responses to Items 1 through 3 have been
omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to
Form N-1A.

4. GENERAL DESCRIPTION OF REGISTRANT

ABOUT THE PORTFOLIO

The Adjustable Rate Securities Portfolio ("Portfolio") is
one of two no-load, open-end, diversified series of the
Adjustable Rate Securities Portfolios (the "Trust"), a
management investment company, or mutual fund. The Trust is
a Delaware business trust organized on February 15, 1991 and
registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940, as amended
(the "1940 Act"). The Trust's other series is the U.S.
Government Adjustable Rate Mortgage Portfolio. As permitted
by applicable law, the Portfolio's shares of beneficial
interest, par value of $.01 per share, are sold only to
other investment companies.

INVESTMENT OBJECTIVE AND POLICIES OF THE PORTFOLIO

The investment objective of the Portfolio is to seek a high
level of current income, consistent with lower volatility of
principal. The Portfolio pursues its objective by investing
primarily (at least 65% of its total assets) in adjustable-
rate securities, including adjustable-rate mortgage
securities, which are issued or guaranteed by private
institutions or by the U.S. Government, its agencies or
instrumentalities, collateralized by or representing an
interest in mortgages, and other adjustable-rate asset-
backed securities (collectively, "ARS," or with respect only
to adjustable-rate mortgage securities, "ARMS"), which have
interest rates which reset at periodic intervals. All
securities in which the Portfolio invests will be rated at
least "AA" by Standard & Poor's Corporation ("S&P") or "Aa"
by Moody's Investors Service ("Moody's"), or if unrated,
will be deemed to be of comparable quality by the investment
manager. Nongovernmental issuers of the ARMS in which the
Portfolio may invest include commercial banks, savings and
loan institutions, insurance companies, including private
mortgage insurance companies, mortgage bankers, mortgage
conduits of investment banks, finance companies, real estate
companies and private corporations and others, so long as
the securities which they issue are consistent with the
Portfolio's investment objective ("private mortgage
securities"). Such private mortgage securities which are not
issued or guaranteed by the U.S. government are generally
structured with one or more types of credit enhancement. The
Portfolio may from time to time increase its investments by
borrowing from banks (see "Borrowing" for further
information). In addition, the Portfolio may invest up to 35%
of its total assets in the following fixed-rate securities:
(a) notes, bonds and discount notes of the following U.S.
government agencies or instrumentalities: Federal Home Loan
Banks, Federal National Mortgage Association, Government
National Mortgage Association, Federal Home Loan Mortgage
Corporation, and Small Business Administration; (b)
obligations of or guaranteed by the full faith and credit of
the United States and repurchase agreements collateralized by
such obligations; (c) privately issued fixed-rate mortgage
backed securities (d) privately issued asset-backed
securities; and (e) time and savings deposits in commercial
or savings banks or institutions whose accounts are insured
by the FDIC. Investments in certain bank obligations may be
considered illiquid and, as such, are further restricted as
noted under "Other Permitted Investments" below. There is, of
course, no assurance that the Portfolio's investment
objective will be achieved. Investments in fixed-rate
securities generally decline in value during periods of
rising interest rates and, conversely, increase in value when
interest rates fall. To the extent any portfolio assets are
invested in such fixed-rate securities, the Portfolio's
values are more sensitive to interest rate changes than if
its assets were fully invested in adjustablerate securities.
As the value of the securities held by the Portfolio
fluctuates, the Portfolio's net asset value per share will
also fluctuate.

ADVANTAGES OF INVESTING IN THE PORTFOLIO

The Portfolio enables its shareholders to invest easily in
ARS which are rated at least "AA" by S&P or "Aa" by Moody's
or, if unrated, will be deemed to be of comparable quality by
the investment manager, or such ARS which are issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities. The Portfolio's investment manager
believes that by investing primarily in ARS which provide for
variable rates of interest, the Portfolio will achieve a more
consistent and less volatile net asset value than is
characteristic of mutual funds that invest primarily in
securities paying a fixed rate of interest.

ADJUSTABLE-RATE SECURITIES

Adjustable-Rate Securities are debt securities with interest
rates which, rather than being fixed, are adjusted
periodically pursuant to a pre-set formula and interval. As
stated above, the Portfolio invests primarily in ARS. The
interest paid on ARS and, therefore, the current income
earned by the Portfolio by investing in such securities, is a
function primarily of the indexes upon which adjustments are
based and the applicable spread relating to such securities.
(See the discussion of "Resets" below.)

The interest rates paid on ARS are generally readjusted
periodically to a number representing an increment over a
chosen interest rate index. Such readjustments occur at
intervals ranging from one to sixty months. The degree of
volatility in the market value of the Portfolio's holding and
of the net asset value of Portfolio shares is a function
primarily of the length of the adjustment period and the
degree of volatility in the applicable indexes. It is also a
function of the maximum increase or decrease of the interest-
rate adjustment on any one adjustment date, in any one year
and over the life of the securities. These maximum increases
and decreases are typically referred to as "caps" and
"floors", respectively. The Portfolio does not seek to
maintain an overall average cap or floor, although the
Portfolio's investment manager considers caps and floors in
selecting ARS for the Portfolio.

While the Portfolio does not attempt to maintain a constant
net asset value per share, during periods in which short-
term interest rates move within the caps and floors of the
securities held by the Portfolio the fluctuation in market
value of the ARS held is expected to be relatively limited,
since the interest rate on the Portfolio's ARS generally
adjust to market rates within a short period of time. In
periods of substantial shortterm volatility in the short-
term interest rate, the value of the Portfolio's holdings
may fluctuate more substantially since the caps and floors
of its ARS may not permit the Portfolio's interest rate to
adjust to the full extent of the movements in short-term
rates during any one adjustment period. In the event of
dramatic increases in interest rates, the lifetime caps on
the ARS may prevent such securities from adjusting to
prevailing rates over the term of the loans. In this
circumstance, the market values of the ARS may be
substantially reduced with a corresponding decline in the
Portfolio's net asset value.

For a discussion of the Portfolio's investments in
adjustablerate asset-backed securities, including the risk
of such investments, see "Investment Objective and Policies
of the Portfolio - Asset-Backed Securities" below.

RISK OF ADJUSTABLE-RATE SECURITIES

ARS have several characteristics that should be considered
before investing in the Portfolio. As indicated above, the
interest rate reset features of ARS held by the Portfolio
reduces the effect on the net asset value of Portfolio
shares caused by changes in market interest rates. However,
the market value of ARS and, therefore, the Portfolio's net
asset value, may vary to the extent that the current
interest rate on such securities differs from market
interest rates during periods between the interest reset
dates. A portion of the ARS in which the Portfolio may
invest may not reset for up to five years. These variations
in value occur inversely to changes in the market interest
rates. Thus, if market interest rates rise above the current
rates on the securities, the value of the securities
generally decreases; conversely, if market interest rates
fall below the current rate on the securities, the value of
the securities generally rises. If investors in the
Portfolio sold their shares during periods of rising rates
before an adjustment occurred, such investors may suffer
some loss. The longer the adjustment intervals on ARS held
by the Portfolio, the greater the potential for fluctuations
in the Portfolio's net asset value.

Investors in the Portfolio receive increased income as a
result of upward adjustments of the interest rates on ARS
held by the Portfolio in response to market interest rates.
However, the Portfolio and its shareholders do not benefit
from increases in market interest rates once such rates rise
to the point where they cause the rates on such ARS to reach
their maximum adjustment rate, annual or lifetime caps. In
addition, because of their interest rate adjustment feature,
ARS are not an effective means of "locking-in" attractive
interest rates for periods in excess of the adjustment
period. The largest class of the ARS in which the Portfolio
will invest is ARMS which possess unique risks. For
example, in the case of privately issued ARMS where the
underlying mortgage assets carry no agency or
instrumentality
guarantee, the mortgagors on the loans underlying the ARS
are often qualified for such loans on the basis of the
original payment amounts. The mortgagor's income may not be
sufficient to enable the mortgagor to continue making the
loan payments as such payments increase, resulting in a
greater likelihood of default. Conversely, any benefits to
the Portfolio and its shareholders from an increase in the
Portfolio's net asset value caused by falling market
interest rates is reduced by the potential for a decline in
the interest rates paid on ARS held by the Portfolio. In
this regard, the Portfolio is not designed for investors
seeking capital appreciation.

ADJUSTABLE-RATE MORTGAGE SECURITIES

IN GENERAL. ARMS, like traditional mortgage securities, are
interests in pools of mortgage loans. Most mortgage
securities are pass-through securities, which means that
they provide investors with payments consisting of both
principal and interest as mortgages in the underlying
mortgage pool are paid off by the borrower. The dominant
issuers or guarantors of mortgage securities today are the
Government National Mortgage Association ("GNMA"), the
Federal National Mortgage Association ("FNMA"), and the
Federal Home Loan Mortgage Corporation ("FHLMC"). GNMA
creates mortgage securities from pools of government-
guaranteed or insured (Federal Housing Authority or Veterans
Administration) mortgages originated by mortgage bankers,
commercial banks, and savings and loan associations. FNMA
and FHLMC issue mortgage securities from pools of
conventional and federally insured and/or guaranteed
residential mortgages obtained from various entities,
including savings and loan associations, savings banks,
commercial banks, credit unions, and mortgage bankers. Non
governmental issuers of mortgage pools may be the
originators of the underlying mortgage loans as well as the
guarantors of the private mortgage securities.

The adjustable interest rate feature of the mortgages
underlying the mortgage securities in which the Portfolio
invests generally will act as a buffer to reduce sharp
changes in the Portfolio's net asset value in response to
normal interest rate fluctuations. As interest rates on the
mortgages underlying the Portfolio's investments are reset
periodically, yields of portfolio securities gradually align
themselves to reflect changes in market rates so that the
market value of the Portfolio's portfolio securities will
remain relatively stable as compared to fixed-rate
instruments and should cause the net asset value of the
Portfolio to fluctuate less significantly than it would if
the Portfolio invested in more traditional long-term, fixed-
rate debt securities. During periods of rising interest
rates, however, changes in the coupon rate lag behind
changes in the market rate, resulting in possibly a lower
net asset value until the coupon resets to market rates.
Thus, investors could suffer some principal loss if they
sold their Portfolio shares before the interest rates on the
underlying mortgages are adjusted to reflect current market
rates. A portion of the ARMS in which the Portfolio may
invest may not reset for up to five years. During periods of
extreme fluctuation in interest rates, the Portfolio's net
asset value fluctuates as well. Since most mortgage
securities in the Portfolio's portfolio generally have
annual reset caps of 100 to 200 basis points, short-term
fluctuation in interest rates above these levels could cause
such mortgage securities to "cap out" and to behave more
like long-term fixedrate debt securities.

Unlike fixed-rate mortgages which generally decline in value
during periods of rising interest rates, adjustable-rate
mortgage securities allow the Portfolio to participate in
increases in interest rates through periodic adjustments in
the coupons of the underlying mortgages, resulting in both
higher current yields and lower price fluctuations.
Furthermore, if prepayments of principal are made on the
underlying mortgages during periods of rising interest
rates, the Portfolio generally is able to reinvest such
amounts in securities with a higher current rate of return.
The Portfolio, however, does not benefit from increases in
interest rates to the extent that interest rates rise to the
point where they cause the current coupon of adjustable-rate
mortgages held as investments by the Portfolio to exceed the
maximum allowable annual or lifetime reset limits (or "cap
rates") for a particular mortgage. Also, the Portfolio's net
asset value could vary to the extent that current yields on
mortgage-backed securities are different than market yields
during interim periods between coupon reset dates.

During periods of declining interest rates, of course, the
coupon rates may readjust downward, resulting in lower
yields to the Portfolio. Further, because of this feature,
the value of ARMS is unlikely to rise during periods of
declining interest rates to
the same extent as fixed-rate instruments. As with other
mortgagebacked securities, interest rate declines may result
in accelerated prepayment of mortgages, and the proceeds from
such prepayments must be reinvested at lower prevailing
interest rates.

One additional difference between ARMS and fixed-rate
mortgages is that for certain types of ARMS, the rate of
amortization of principal, as well as interest payments, can
and does change in accordance with movements in a particular,
pre-specified, published interest rate index. The amount of
interest due to an ARMS holder is calculated by adding a
specified additional amount, the "margin," to the index,
subject to limitations or "caps" on the maximum and minimum
interest that is charged to the mortgagor during the life of
the mortgage or to maximum and minimum changes to that
interest rate during a given period. It is these special
characteristics which are unique to adjustablerate mortgages
that the Portfolio's investment manager believes make them
attractive investments in seeking to accomplish the
Portfolio's objective.

Many mortgage securities which are issued or guaranteed by
GNMA, FHLMC, or FNMA ("Certificates") are called pass-through
Certificates because a pro-rata share of both regular
interest and principal payments (less GNMA's, FHLMC's, or
FNMA's fees and any applicable loan servicing fees), as well
as unscheduled early prepayments on the underlying mortgage
pool, are passed through monthly to the holder of the
Certificate (i.e., the Portfolio). The principal and interest
on GNMA securities are guaranteed by GNMA, which guarantee is
backed by the full faith and credit of the U.S. government.
FNMA guarantees full and timely payment of interest and
ultimate collection of principal. Mortgage securities issued
or guaranteed by FNMA and FHLMC are not backed by the full
faith and credit of the United States; however, they are
generally considered to offer minimal credit risks. The
yields provided by these mortgage securities have
historically exceeded the yields on other types of U.S.
government securities with comparable maturities in large
measure due to the risks associated with prepayment features.
(See "Risks of Mortgage Securities" below).

The Portfolio may also invest in pass-through certificates
issued by nongovernmental issuers. Pools of conventional
residential mortgage loans created by such issuers generally
offer a higher rate of interest than government and
government-related pools because there are no direct or
indirect government guarantees of payment. Timely payment of
interest and principal of these pools is, however, generally
supported by various forms of insurance or guarantees,
including individual loan, title, pool and hazard insurance.
The insurance and guarantees are issued by government
entities, private insurance and the mortgage poolers. Such
insurance and guarantees and the creditworthiness of the
issuers thereof is considered in determining whether a
mortgage-related security meets the Portfolio's quality
standards. The Portfolio may buy mortgage-related securities
without insurance or guarantees if through an examination of
the loan experience and practices of the poolers, the
investment manager determines that the securities meet the
Portfolio's quality standards.

The Portfolio expects that governmental, government-related
or private entities may create mortgage loan pools offering
passthrough investments in addition to those described
above. The mortgages underlying these securities may be
alternative mortgage instruments, that is, mortgage
instruments whose principal or interest payments may vary or
whose terms to maturity may differ from customary long-term,
fixed-rate mortgages. As new types of mortgage-related
securities are developed and offered to investors, the
investment manager will, consistent with the Portfolio's
objective, policies and quality standards, consider making
investments in such new types of securities.

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"), REAL ESTATE
MORTGAGE INVESTMENT CONDUITS (REMICS") AND MULTI-CLASS PASS
THROUGHS. The Portfolio may also invest in certain debt
obligations which are collateralized by mortgage loans or
mortgage pass-through securities. Such securities 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 which are secured by pools of
mortgage loans or other mortgagebacked securities. Multi-
class pass-through securities are equity
interests in a trust composed of mortgage loans or other
mortgagebacked securities. Payments of principal and interest
on underlying collateral provides the monies to pay debt
service on the CMO or REMIC or make scheduled distributions
on the multiclass pass-through securities. CMOs, REMICs and
multi-class passthrough securities (collectively CMOs unless
the context indicates otherwise) may be issued by agencies or
instrumentalities of the U.S. government or by private
organizations.

In a CMO, a series of bonds or certificates is issued in
multiple classes. Each class of CMOs, often referred to as a
"tranche", is issued at a specified coupon rate or adjustable-
rate tranche (discussed in the next paragraph) and has a
stated maturity or final distribution date. Principal
prepayments on collateral underlying a CMO 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 semi-annual
basis. The principal and interest on the underlying mortgages
may be allocated among several classes of a series of a CMO
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.

One or more tranches of a CMO may have coupon rates which
reset periodically at a specified increment over an index
such as the London Interbank Offered Rate ("LIBOR"). These
adjustable-rate tranches, known as "floating rate CMOs," are
considered ARMS for purposes of the Portfolio. Floating rate
CMOs may be backed by fixed-rate or adjustable-rate
mortgages; to date, fixed-rate mortgages have been more
commonly utilized for this purpose. Floating rate CMOs are
typically issued with lifetime "caps" on the coupon rate
thereon. These "caps", similar to the "caps" on adjustable-
rate mortgages, represent a ceiling beyond which the coupon
rate on a floating rate CMO may not be increased regardless
of increases in the interest rate index to which the
floating rate CMO is geared.

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
which collateralize the REMICs in which the Portfolio may
invest include mortgages backed by GNMA certificates 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.

The Portfolio's investment manager currently intends to
limit investment in fixed-rate CMOs and REMICS to planned
amortization classes ("PACs") and sequential pay classes. A
PAC is retired according to a payment schedule in order to
have a stable average life and yield even if expected
prepayment rates change. Within a specified broad range of
prepayment possibilities, the retirement of all classes is
adjusted so that the PAC bond amortization schedule will be
met. Thus PAC bonds offer more predictable amortization
schedules at the expense of less predictable cash flows for
the other bonds in the structure. Within a given structure,
the Portfolio currently intends to buy the PAC bond with the
shortest remaining average life. A sequential pay CMO is
structured so that only one class of bonds will receive
principal until it is paid off completely. Then the next
sequential pay CMO class will begin receiving principal
until it is paid off. The Portfolio currently intends to buy
sequential pay CMO securities in the class with the shortest
remaining average life.

Yields on privately-issued CMOs as described above 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. The trustees of
the Portfolio believe that accepting the risk of loss
relating to privately issued CMOs that the Portfolio
acquires is justified by the higher yield the Portfolio
earns in light of the historic loss experience on such
instruments. The Portfolio does not invest in subordinated
privately issued CMOs.

To the extent any privately issued CMOs and REMICs in which
the Portfolio invests are considered by the SEC to be
investment companies, the Portfolio limits its investments
in such
securities consistent with the provisions of the 1940 Act.

RESETS. Interest rates paid on the ARS and floating rate
CMOs in which the Portfolio invests generally are readjusted
at intervals of one year or less to an increment over some
predetermined interest rate index, although some may have
intervals as long as five years. There are three main
categories of indices: those based on U.S. Treasury
securities, those derived from a calculated measure such as
a cost of funds index, and those derived from a moving
average of mortgage rates. Commonly utilized indices include
the one-year, three-year and five-year constant maturity
Treasury rates, the three-month Treasury bill rate, the six-
month Treasury bill rate, rates on longer-term Treasury
securities, the 11th District Federal Home Loan Bank Cost of
Funds, the National Median Cost of Funds, the National
Contract Rate, the one-month, three-month, six-month or one-
year LIBOR, the prime rate of a specific bank, or commercial
paper rates. Some indices, such as the one-year constant
maturity Treasury rate, closely mirror changes in market
interest rate levels. Others, such as the 11th District Home
Loan Bank Cost of Funds index, tend to lag behind changes in
market rate levels and tend to be somewhat less volatile.

CAPS AND FLOORS. The underlying mortgages which
collateralize the ARMS and floating rate CMOs in which the
Portfolio invests 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.

STRIPPED MORTGAGE SECURITIES. The Portfolio may also invest
in stripped mortgage securities, which are derivative multi-
class mortgage securities. The stripped mortgage securities
in which the Portfolio may invest are only those issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities. Stripped mortgage securities have greater
market volatility than other types of mortgage securities in
which the Portfolio invests.

Stripped mortgage securities are usually structured with two
classes that receive different proportions of the interest
and principal distributions on a pool of mortgage assets. A
common type of stripped mortgage security has one class
receiving some of the interest and most of the principal
from the mortgage assets, while the other class receives
most of the interest and the remainder of the principal. In
the most extreme case, one class receives all of the
interest (the interest-only or "IO" class), while the other
class receives all of the principal (the principal-only or
"PO" class). The yield to maturity on an IO 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, and, accordingly, a rapid rate of principal payments
may have a material adverse effect on the yield to maturity
of any such IOs held by the Portfolio. If the underlying
mortgage assets experience greater than anticipated
prepayments of principal, the Portfolio may fail to fully
recoup its initial investment in these securities even if
the securities are rated in the highest rating categories,
"AAA" or "Aaa", by S&P or Moody's, respectively.

Stripped mortgage securities are purchased and sold by
institutional investors, such as the Portfolio, through
several investment banking firms acting as brokers or
dealers. As these securities were only recently developed,
traditional trading markets have not yet been established
for all such securities. Accordingly, some of these
securities may generally be illiquid. The staff of the SEC
(the "Staff") has indicated that only government-issued IO
or PO securities which are backed by fixedrate mortgages may
be deemed to be liquid, if procedures with respect to
determining liquidity are established by a fund's board. The
Portfolio's Board of Trustees may, in the future, adopt
procedures which would permit the Portfolio to acquire,
hold, and treat as liquid government-issued IO and PO
securities. At the present time, however, all such
securities will continue to be treated as illiquid and will,
together with any other illiquid investments, not exceed 10%
of the Portfolio's net assets. Such 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.

RISKS OF MORTGAGE SECURITIES

The mortgage securities in which the Portfolio invests
differ from conventional bonds in that principal is paid
back over the life of the mortgage security rather than at
maturity. As a result, the holder of the mortgage securities
(i.e., the Portfolio) receives monthly scheduled payments of
principal and interest and may receive unscheduled principal
payments representing prepayments on the underlying
mortgages. When the holder reinvests the payments and any
unscheduled prepayments of principal it receives, it may
receive a rate of interest which is lower than the rate on
the existing mortgage securities. For this reason, mortgage
securities may be less effective than other types of U.S.
government securities as a means of "locking in" long-term
interest rates. The fixed rate mortgage securities in which
the Portfolio may invest are generally more exposed to this
"prepayment risk" than adjustable rate mortgage securities.

The market value of mortgage securities, like other U.S.
government securities, generally varies inversely with
changes in market interest rates, declining when interest
rates rise and rising when interest rates decline. However,
mortgage securities, while having less risk of a decline
during periods of rapidly rising rates, may also have less
potential for capital appreciation than other investments of
comparable maturities due to the likelihood of increased
prepayments of mortgages as interest rates decline. To the
extent market interest rates increase beyond the applicable
cap or maximum rate on an adjustable rate mortgage security
or beyond the coupon rate of a fixed-rate mortgage security,
the market value of the mortgage security is likely to
decline to the same extent as a conventional fixed-rate
security.

In addition, to the extent mortgage securities are purchased
at a premium, mortgage foreclosures and unscheduled
principal prepayments may result in some loss of the
holder's principal investment to the extent of the premium
paid. On the other hand, if mortgage securities are
purchased at a discount, both a scheduled payment of
principal and an unscheduled prepayment of principal will
increase current and total returns and will accelerate the
recognition of income which when distributed to shareholders
is taxable as ordinary income.

With respect to pass-through mortgage pools issued by non
governmental issuers, there can be no assurance that the
private insurers associated with such securities can meet
their obligations under the insurance policies. Although the
market for such non-governmental issued or guaranteed
mortgage securities is becoming increasingly liquid,
securities issued by certain private organizations may not
be readily marketable. The purchase of such illiquid
securities is subject to the Portfolio's limit with respect
to investment in illiquid securities, as more fully
described below.

ASSET-BACKED SECURITIES

In addition to the above types of securities, the Portfolio
may invest in asset-backed securities, including adjustable-
and fixed-rate asset-backed securities, which have interest
rates which reset at periodic intervals. Asset-backed
securities are similar to mortgage-backed securities.
However, the underlying assets include assets such as
receivables on home equity and credit card loans, and
receivables regarding automobiles, mobile home and
recreational vehicle loans and leases. The assets are
securitized either in a pass-through structure (similar to a
mortgage pass-through structure) or in a pay-through
structure (similar to the CMO structure). The Portfolio may
invest in these and other types of asset-backed securities
that may be developed in the future. In general, the
collateral supporting asset-backed securities is of a
shorter maturity than mortgage loans and historically has
been less likely to experience substantial prepayment.

Asset-backed securities entail certain risks not presented
by mortgage-backed securities. Asset-backed securities do
not have the benefit of the same type of security interests
in the related 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 technical
requirements under state laws. Therefore, recoveries on
repossessed collateral may not always be available to
support payments on the securities. (For further discussion
concerning the risks of investing in asset-backed
securities, see the discussion in Part B under Item 13.)

OTHER INVESTMENT POLICIES

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

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Portfolio
may purchase any securities for its portfolio on a "when-
issued" or "delayed delivery" basis. These transactions are
arrangements under which the Portfolio purchases securities
with payment and delivery scheduled for a future time,
generally within 30 to 60 days. Purchases of securities on a
when-issued or delayed delivery basis are subject to market
fluctuation and 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
effected. Although the Portfolio generally purchases
securities on a when-issued basis with the intention of
holding such securities, it may sell such securities before
the settlement date if it is deemed advisable. When the
Portfolio is the buyer in such a transaction, it maintains,
in a segregated account with its custodian, cash or high-
grade marketable securities having an aggregate value equal
to the amount of such purchase commitments until payment is
made. To the extent the Portfolio engages in when-issued and
delayed delivery transactions, it does so only for the
purpose of acquiring portfolio securities consistent with
the Portfolio's investment objective and policies and not
for the purpose of investment leverage. In when-issued and
delayed delivery transactions, the Portfolio relies on the
seller to complete the transaction. The other party's
failure to do so may cause the Portfolio to miss a price or
yield considered advantageous. Securities purchased on a
"when-issued" or "delayed delivery" basis do not generally
earn interest until their scheduled delivery date. The
Portfolio is not subject to any percentage limit on the
amount of its assets which may be invested in when-issued
purchase obligations.

BORROWING. The Portfolio is authorized to borrow from banks
from time to time to increase its investments. Borrowings
may be secured or unsecured, and at fixed or variable rates
of interest. The Portfolio will borrow only to the extent
that the value of its assets, less its liabilities other
than borrowings, is equal to at least 300% of its
borrowings. If the Portfolio does not meet the 300% test, it
will be required to reduce its debt within three business
days to the extent necessary to meet that test. This would
require the Portfolio to sell a portion of its investments
at a disadvantageous time.

Borrowing for investment purposes is a speculative
investment technique known as leveraging. When the Portfolio
leverages its assets, the net asset value of the Portfolio
may increase or decrease at a greater rate than would be the
case if the Portfolio were not leveraged. The interest
payable on the amount borrowed increases the Portfolio's
expenses, and if the appreciation and income produced by the
investments purchased with the borrowings exceed the cost of
the borrowing, the investment performance of the Portfolio
is reduced by leveraging.

The Portfolio does not presently intend to borrow for
investment purposes. The Portfolio may, however, borrow from
banks for temporary or defensive purposes up to 20% of its
assets and pledge its assets in connection therewith. The
Portfolio may not, however, purchase any portfolio
securities while borrowings
representing more than 5% of its total assets are
outstanding.
MORTGAGE DOLLAR ROLLS. The Portfolio may enter into mortgage
"dollar rolls" in which the Portfolio sells mortgage-backed
securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar
(name, type, coupon and maturity) securities on a specified
future date. During the roll period, the Portfolio forgoes
principal and interest paid on the mortgage-backed
securities. The Portfolio is compensated by the difference
between the current sales price and the lower forward price
for the future purchase (often referred to as the "drop") as
well as by the interest earned on the cash proceeds of the
initial sale. A "covered roll" is a specific type of dollar
roll for which there is an offsetting cash position or a
cash equivalent security position.

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

OTHER PERMITTED INVESTMENTS. Other investments permitted by
the Portfolio consist of: obligations of the United States,
notes, bonds, and discount notes of the following U.S.
government agencies or instrumentalities: Federal Home Loan
Banks, Federal National Mortgage Association, Government
National Mortgage Association, and time and savings deposits
(including fixed or adjustable rate certificates of deposit)
and or institutions whose accounts are insured by the FDIC,
and other securities which are consistent with the
Portfolio's investment objective. The Portfolio's
investments in time deposits with maturities in excess of
seven days are generally deemed to be illiquid and will,
together with any other illiquid investments, not exceed 10%
of the Portfolio's total net assets. The Portfolio's
investments in time deposits will not exceed 10% of its
total assets.

TEMPORARY DEFENSIVE POSITIONS. When maintaining a temporary
defensive position, the Portfolio may invest its assets
without limit in any U.S. government securities,
certificates of deposit of banks having total assets in
excess of $5 billion, and repurchase agreements.

PORTFOLIO TURNOVER RATE. The Portfolio's portfolio turnover
rate may vary from year to year, as well as within a year.
For the fiscal periods ended October 31, 1994 and October
31, 1993, the Portfolio's rates of portfolio turnover
equaled 192.06% and 158.7% respectively. The higher
portfolio turnover rates for these fiscal periods were due
to substantial volume in mortgage prepayment because of
mortgage refinancings in the low interestrate environment
which existed in 1993 and early 1994 and a high rate of
shareholder redemptions in the rising interest rate
environment in 1994. High portfolio turnover increases
transaction costs which must be paid by the Fund.

INVESTMENT RESTRICTIONS

The Portfolio is subject to a number of additional
investment restrictions, some of which, like the Portfolio's
investment objective and investment policies, have been
adopted as fundamental policies of the Portfolio and may
only be changed with the approval of a majority of the
outstanding voting securities of the Portfolio. A list of
these restrictions and more information concerning the
policies are discussed in Part B of this registration
statement.

GENERAL INFORMATION

The Trust has two series and was formerly named the Franklin
Institutional U.S. Government ARM Fund. On October 18, 1991,
the Board of Trustees approved a change in the Trust's name
and the addition of the Portfolio as the Trust's second
series. Additional series may be added in the future by the
Board of Trustees, the assets and liabilities of which will
be separate and distinct from any other series. On June 15,
1993, the Board of Trustees approved a change in the fiscal
year end of the Trust to October 31 of each year from
January 31.

5. MANAGEMENT OF THE FUND

MANAGEMENT OF THE PORTFOLIO

Franklin Advisers, Inc. ("Advisers" or "Manager"), at the
address shown on the cover of this amendment to the
registration statement, serves as the Portfolio's investment
manager. Advisers is a wholly owned subsidiary of Franklin
Resources, Inc. ("Resources"), a publicly owned holding
company, the principal shareholders of which are Charles B.
Johnson, Rupert H. Johnson,
Jr., and R. Martin Wiskemann, who own 20%, 16%, and 10%,
respectively, of Resources' outstanding shares. Through its
subsidiaries, Resources is engaged in various aspects of the
financial services industry. Advisers acts as investment
manager to 33 U.S. registered investment companies (111
separate series) with aggregate assets of over $73 billion.

Under the management agreement with the Portfolio, for the
services provided and expenses assumed by it, the Manager is
entitled to receive a fee, computed daily and payable
monthly, at the annual rate as follows: 40/100 of 1% for the
first $5 billion of its average daily net assets, plus
35/100 of 1% of its average daily net assets in excess of $5
billion up through $10 billion, 33/100 of 1% of its average
daily net assets in excess of $10 billion up through $15
billion, and 30/100 of 1% of its average daily net assets in
excess of $15 billion.

During the fiscal year ended October 31, 1994, fees totaling
0.40% of the average daily net assets would have accrued to
Advisers. For such period, total operating expenses,
including management fees, would have represented 0.43% of
the average daily net assets of the Portfolio. After fee
waivers, the Portfolio paid management fees of 0.22% and
total operating expenses of 0.25%, respectively, of its
average daily net assets. This action by Advisers to limit
its management fees or reimburse expenses, if necessary, may
be terminated by Advisers at any time. The Manager's
determination to voluntarily limit its fee or reimburse
certain of the Portfolio's expenses will have the effect of
increasing the yield to the Portfolio's shareholders.

The following persons are primarily responsible for the day
to day portfolio management of the Portfolio in which the
Fund invests: Tony Coffey since 1989, Roger Bayston since
1991 and Jack Lemein since inception.

Tony Coffey
Portfolio Manager
Franklin Advisers, Inc.

Mr. Coffey holds a Master of Business Administration from
the University of California at Los Angeles. He earned his
Bachelor of Arts degree from Harvard University. Prior to
joining Franklin, Mr. Coffey was an associate with the
Analysis Group. He is a member of several securities
industry associations and joined Franklin in 1989.

Roger Bayston
Portfolio Manager
Franklin Advisers, Inc.

Jack Lemein
Senior Vice President
Franklin Advisers, Inc.

Shareholder accounting and many of the clerical functions
for the Portfolio are performed by Franklin/Templeton
Investor Services, Inc. ("Investor Services" or "Shareholder
Services Agent"), at the address for the Portfolio shown on
the cover of this amendment to the registration statement,
in its capacity as transfer agent and dividendpaying agent
on a fixed fee per account basis. Investor Services is a
wholly owned subsidiary of Resources.

During the fiscal period ended October 31, 1994, total
expenses borne by the Portfolio, including fees paid to
Advisers and to Investor Services, aggregated 0.25% (after
waivers and expense reimbursements of 0.18%) of the average
net assets of the Portfolio.

The response to Item 5A has been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to
Form N-1A.

6. CAPITAL STOCK AND OTHER SECURITIES

As discussed above, the Trust is a Delaware Business trust.
The Agreement and Declaration of Trust permits the trustees
to issue an unlimited number of full and fractional shares
of beneficial interest, with a par value of $.01 per share,
which may be issued in any number of series. Currently the
Trust has two series: one series representing interests in
the Portfolio and the other series representing interests in
the Adjustable U.S. Government Securities Portfolio. When
issued for payment as described in this registration
statement as amended, shares are validly issued, fully paid,
and non-assessable and have no preemptive, conversion, or
sinking rights. Shares of each series have equal and
exclusive rights as to dividends and distributions as
declared by each series and the net assets of such series
upon liquidation or dissolution.

Shares of each series have equal rights as to voting and
vote separately as to issues affecting that series or the
Trust unless otherwise permitted by the 1940 Act. Voting
rights are not cumulative, so that the holders of more than
50% of the shares voting in any election of trustees, can,
if they choose to do so, elect all of the trustees.
Meetings of shareholders may be called by the trustees in
their discretion or upon demand of the holders of 10% or
more of the outstanding shares of the Trust for the purpose
of electing or removing trustees. Shareholders may receive
assistance in communicating with other shareholders in
connection with the election or removal of trustees such as
that provided in Section 16(c) of the 1940 Act.

CONTROL PERSONS

As of February 7, 1995, the Franklin Adjustable Rate
Securities Fund and the Franklin Institutional Adjustable
Rate Securities Fund held 2,203,326.392 shares (or 68.00%)
and 1,035,393.235 shares (or 31.96%), respectively, of the
Portfolio's outstanding shares and, accordingly, each may be
deemed to be a controlling person under the 1940 Act.

DISTRIBUTIONS TO SHAREHOLDERS

There are two types of distributions which the Portfolio may
make to its shareholders:

1. INCOME DIVIDENDS. The Portfolio receives income primarily
in the form of interest and other income derived from its
investments. This income, less the expenses incurred in the
Fund's operations, is its net investment income from which
income dividends may be distributed. Thus, the amount of
dividends paid per share may vary with each distribution.
The Portfolio ordinarily declares dividends from its net
investment income on each day its net asset value is
calculated. The Portfolio's
earnings for Saturdays, Sundays and holidays are declared as
dividends on the next business day. Daily allocations of
dividends will commence on the day funds are wired to the
Portfolio. The amount of the dividend may fluctuate from day
to day depending on changes in the factors that comprise the
Portfolio's net investment income.

2. CAPITAL GAIN DISTRIBUTIONS. The Portfolio may derive
capital gains or losses in connection with sales or other
dispositions of its portfolio securities. Distributions by
the Portfolio derived from net short-term and net long-term
capital gains (after taking into account any net capital
loss carryovers) will generally be made once a year in
December to reflect any net short-term and net long-term
capital gains realized by the Portfolio as of October 31,
its fiscal year end. The Portfolio may make more than one
distribution derived from net short-term and net longterm
capital gains in any year or to adjust the timing of these
distributions for operational or other reasons.

TAX EFFECTS ON AN INVESTMENT IN THE PORTFOLIO

The following discussion reflects some of the tax
considerations that affect mutual funds and their
shareholders.

TAXATION OF THE PORTFOLIO

Each separate series of the Trust is treated as a separate
entity for federal income tax purposes. The Portfolio has
elected to be treated as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), qualified as such for the taxable year
ended October 31, 1994, and intends to continue to so
qualify as long as such qualification is in the best
interests of shareholders. By distributing all of its net
investment income and any net realized short-term and long-
term capital gains for a fiscal year in accordance with the
timing requirements imposed by the Code and by meeting
certain other requirements relating to the sources of its
income and diversification of its assets, the Portfolio will
not be liable for federal income or excise taxes.

TAXATION OF SHAREHOLDERS

It is not expected that any of the distributions to be paid
by the Portfolio will qualify for the corporate dividends
received deduction.

While many states grant tax-free status to dividends paid to
shareholders of mutual funds from interest income earned
from direct obligations of the U.S. Government, none of the
distributions of the Portfolio are expected to qualify for
such tax-free treatment. Investments in mortgaged-backed
securities (including GNMA, FNMA, and FHLMC securities) and
repurchase agreements collateralized by U.S. government
securities do not qualify as direct federal obligations in
most states. Shareholders should consult with their own tax
advisors with respect to the application of their state and
local income tax laws to these distributions.

Additional information in response to this item is contained
under the discussion captioned "General Information" in Item
4, above.

7. PURCHASE OF SECURITIES

VALUATION OF PORTFOLIO SHARES

The net asset value per share of the Portfolio is determined
as of 1:00 p.m. Pacific time each day that the Exchange is
open for trading.

With the approval of the Board of Trustees, the Portfolio
may utilize a pricing service, bank or securities dealer to
perform any of the above-described functions.

8. REDEMPTION OR REPURCHASE

HOW TO SELL SHARES OF THE PORTFOLIO

Payment for redeemed shares is made promptly but not later
than seven days after receipt of the redemption request in
good form. Proceeds for redemption orders cannot be wired on
those business days when the Federal Reserve Bank System and
the Custodian are closed. However, the right of redemption
may be suspended or the date of payment postponed in
accordance with the rules under the 1940 Act. Redemptions
are taxable events, and the amount received upon redemption
may be more or less than the amount paid for the shares
depending upon the fluctuations in the market value of the
assets owned by the Portfolio.

9. PENDING LEGAL PROCEEDINGS

Not Applicable
ADJUSTABLE RATE SECURITIES PORTFOLIOS
ADJUSTABLE RATE SECURITIES
PORTFOLIO

FORM N-1A, PART B:

10. COVER PAGE

Not Applicable

11. TABLE OF CONTENTS

Not Applicable

12. GENERAL INFORMATION AND HISTORY

Not Applicable

13. INVESTMENT OBJECTIVES AND POLICIES

1. Borrow money or mortgage or pledge any of its assets in
an amount exceeding 33 1/3% of the value of the Portfolio's
total assets (including the amount borrowed) valued at
market less liabilities (not including the amount borrowed)
at the time the borrowing was made.

2. Buy any securities on "margin" or sell any securities
"short," except for any delayed delivery or when-issued
securities as described in the registration statement as
amended.

3. Lend any funds or other assets, except by the purchase of
bonds, debentures, notes or other debt securities as
described in the registration statement as amended, and
except that securities of the Portfolio may be loaned to
qualified broker-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 10% of the value
of the Portfolio's total assets at the time of the most
recent loan. Also, the entry into repurchase agreements is
not considered a loan for purposes of this restriction.

6. Purchase the securities of any issuer which would result
in owning more than 10% of any class of the outstanding
voting securities of such issuer.

7. Purchase from or sell to its officers and trustees, or
any firm of which any officer or trustee is a member, as
principal, any securities, but may deal with such persons or
firms as brokers and pay a customary brokerage commission;
or retain securities of any issuer, if to the knowledge of
the Portfolio, one or more of its officers, trustees or
investment adviser, own
beneficially more than one-half of 1% of the securities of
such issuer and all such officers and trustees together own
beneficially more than 5% of such securities.

8. Purchase any securities issued by a corporation which has
not been in continuous operation for three years, but such
period may include the operation of a predecessor.

9. Acquire, lease or hold real estate. (Does not preclude
investments in securities collateralized by real estate or
interests therein.)

10. Invest in commodities and commodity contracts, puts,
calls, straddles, spreads or any combination thereof, or
interests in oil, gas or other mineral exploration or
development program.

11. Invest in companies for the purpose of exercising
control or management.

12. Purchase securities of other investment companies,
except to the extent permitted by the 1940 Act or pursuant
to an exemption therefrom, granted by the Securities and
Exchange Commission (the "SEC"). To the extent permitted by
exemptions which may be granted under the 1940 Act, the
Portfolio may invest in shares of one or more money market
funds managed by Franklin Advisors, Inc. or its affiliates.

In order to change any of the foregoing restrictions which
are fundamental policies, approval must be obtained by
shareholders of the Portfolio. Such approval requires the
affirmative vote of the lesser of (i) 67% or more of the
voting securities present at a meeting if the holders of
more than 50% of the Portfolio's voting securities are
represented at that meeting or (ii) more than 50% of the
outstanding voting securities of the Portfolio. If a
percentage restriction contained herein is adhered to at the
time of investment, a later increase or decrease in the
percentage resulting from a change in the value of portfolio
securities or the amount of the Portfolio's assets will not
be considered a violation of any of the foregoing
restrictions.
OTHER POLICIES. There are no restrictions or limitations on
investments in obligations of the United States, or of
corporations chartered by Congress as federal government
instrumentalities. The underlying assets of the Portfolio
may be retained in cash, including cash equivalents which
are Treasury bills, and short-term bank obligations such as
certificates of deposit, bankers' acceptances and repurchase
agreements. However, it is intended that only so much of the
underlying assets of the Portfolio be retained in cash as is
deemed desirable or expedient under then-existing market
conditions. As noted elsewhere in the registration statement
as amended, the Portfolio may invest up to 10% of its total
net assets in illiquid securities, a term which means
securities that cannot be disposed of within seven days in
the normal course of business at approximately the amount at
which the Portfolio has valued the securities and includes,
among other things, repurchase agreements of more than seven
days duration, over-the-counter options and the assets used
to cover such options, certain privately issued mortgage-
backed securities 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 lO% of the Portfolio's total net assets.

To the extent indicated in this amendment to the
registration statement, the Portfolio may invest in CMOs and
REMICs. CMOs and REMICs may be issued by governmental or
government related entities or by non-governmental entities
such as banks, savings and loan institutions, private
mortgage insurance companies, mortgage bankers and other
secondary market issuers. Privately issued CMOs and REMICs
include obligations issued by such nongovernmental entities
which are collateralized by (a) mortgage securities issued
by the Federal Home Loan Mortgage Corporation, the Federal
National Mortgage Association or the Government National
Mortgage Association, (b) pools of mortgages which are
guaranteed by an agency or instrumentality of the U.S.
government, or (c) pools of mortgages which are not
guaranteed by an agency or instrumentality of the U.S.
Government and which may or may not be guaranteed by the
private issuer.

The Portfolio may purchase securities issued or guaranteed
by the U.S. Government, or one of its agencies or
instrumentalities. GNMA guarantees are backed by the full
faith and credit of the U.S. government. However, no
assurances can be given that the U.S. government will
provide such financial support to the obligations of the
other U.S. government agencies or instrumentalities in which
the Portfolio invests, since it is not obligated to do so.
These agencies and instrumentalities are supported by either
the issuer's right to borrow an amount limited to a specific
line of credit from the U.S. Treasury, the discretionary
authority of the U.S. Government to purchase certain
obligations of an agency or instrumentality, or the credit
of the agency or instrumentality.

The Portfolio may invest a portion of its assets in asset-
backed securities. The rate of principal payment on asset-
backed securities generally depends on the rate of principal
payments received on the underlying assets. Such rate of
payments may be affected by economic and various 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 assets underlying such securities, how well
the entities issuing 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 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
underlying assets to make payments, such securities may
contain elements of credit support. Such credit support
falls into two categories: (i) liquidity protection, and
(ii) protection against losses resulting from ultimate
default by an obligor on the underlying assets. Liquidity
protection refers to the provision of advances, generally 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 resulting from ultimate
default enhances the likelihood of payments of the
obligations on at least some of the assets in the pool. Such
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 such
approaches. The Portfolio does not pay any additional fees
for such 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
subordinate to other classes as to the payment of principal
thereof and interest thereon, 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 "overcollateralization" (where
the scheduled payments on, or the principal amount of, the
underlying assets exceeds that required to make payments of
the securities and pay any servicing or other fees). The
degree of credit support provided for each issue 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 such issue.

14. MANAGEMENT OF THE REGISTRANT

Trustees and Officers

Frank H. Abbott, III
1045 Sansome St.
San Francisco, CA 94111

Trustee

Harris J. Ashton
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045

Trustee

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

Trustee

David W. Garbellano
111 New Montgomery St., #402
San Francisco, CA 94105

Trustee

Private Investor; Assistant Secretary/Treasurer and
Director, Berkeley Science Corporation (a venture capital
company); and director, trustee or managing general partner,
as the case may be, of 29 of the investment companies in the
Franklin Group of Funds.

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

Chairman of the Board and Trustee

*Charles E. Johnson
777 Mariners Island Blvd.
San Mateo CA 94404

President and Trustee

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

Vice President and Trustee

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

Trustee

*William J. Lippman
One Parker Plaza
Fort Lee, NJ 07024

Trustee

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

Trustee

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

Vice President

Kenneth V. Domingues
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President - Financial Reporting and Accounting
Standards

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

Vice President and Chief Financial Officer

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

Vice President and Secretary

Senior Vice President - Legal, Franklin Resources, Inc. and
Franklin Templeton Distributors, Inc.; Vice President,
Franklin Advisers, Inc. and officer of 36 of the investment
companies in the Franklin Group of Funds.

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

Principal Accounting Officer

Employee of Franklin Advisers, Inc.; and officer of 36 of
the investment companies in the Franklin Group of Funds.

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

Vice President

Senior Vice President/National Sales Manager, Franklin
Templeton Distributors, Inc.; and officer of 31 of the
investment companies in the Franklin Group of Funds.

As indicated above, certain of the trustees and officers
hold positions with other companies in the Franklin Group of
Funds(Registered Trademark) and the Templeton Group of
Funds. Trustees not affiliated with the investment manager
are currently paid fees of $50 1per month plus $50 per
meeting attended and are reimbursed for expenses incurred in
connection with attending
such meetings. During the calendar year ended December 31,
1994, fees totaling $7250 were paid by the Trust to Messrs.
Abbott ($1250), Ashton ($1200), Fortunato ($1200),
Garbellano ($1200), LaHaye ($1200) and Macklin ($1200). As
indicated above, certain of the trustees and officers hold
positions with other companies in the Franklin Group of
Funds(Registered Trademark) and the Templeton Group of
Funds. For the calendar year ended December 31, 1994,
Messrs. Abbott, Ashton, Fortunato, Garbellano, LaHaye and
Macklin received total fees of $176,870, $319,925, $336,065,
$153,300, $150,817 and $303,685, respectively, from the
various Franklin and Templeton Funds for which they serve as
directors, trustees or managing general partners and for
which they spent significant time in preparation for and
attendance at the meetings which are scheduled at least once
per month. No officer or trustee received any other
compensation directly from the Trust. As of February 7,
1995, the trustees and officers, as a group, did not own any
outstanding shares of the Portfolio. In addition, many of
the Trust's trustees own shares in various of the other
funds in the Franklin Group of Funds and the Templeton Group
of Funds. Certain officers or trustees who are shareholders
of Franklin Resources, Inc. ("Resources") may be deemed to
receive indirect remuneration by virtue of their
participation, if any, in the fees paid to its subsidiaries.
Messrs. Charles B. Johnson and Rupert H. Johnson, Jr. are
brothers and the father and uncle, respectively, of Charles
E. Johnson.

15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

a. As of February 7, 1995, Franklin Adjustable Rate
Securities Fund, a series of the Franklin Investors
Securities Trust ("FIST"), and Franklin Institutional
Adjustable Rate Securities Fund, a series of the
Institutional Fiduciary Trust ("IFT"), owned 68.00% and
31.96%, respectively, of the outstanding voting securities
of the Portfolio and could be deemed to control the
Portfolio, as that term is defined under the 1940 Act. Both
FIST and IFT were organized as Massachusetts business trusts
and are located at the address set forth on the cover of
this amendment to the registration statement.

b. Except for the companies referred to in this item, no

person was known to hold beneficially or of record more than

5% of the Portfolio's outstanding share of beneficial

interest.

c. Not Applicable

16. INVESTMENT ADVISORY AND OTHER SERVICES

INVESTMENT ADVISORY AND OTHER SERVICES

Pursuant to the management agreement, the Manager provides
investment research and portfolio management services,
including
the selection of securities for the Portfolio to purchase,
hold or sell, and the selection of brokers and dealers
through whom the Portfolio's portfolio transactions are
executed. The Manager's activities are subject to the review
and supervision of the Trust's Board of Trustees to whom the
Manager renders periodic reports of the Portfolio's
investment activities. The Manager, at its own expense,
furnishes the Portfolio with office space and office
furnishings, facilities and equipment required for managing
the Portfolio's business affairs; maintains all internal
bookkeeping, clerical, secretarial and administrative
personnel and services; and provides certain telephone and
other mechanical services. The Manager is covered by
fidelity insurance on its officers, directors and employees
for the protection of the Trust and its Portfolios.

The Manager has limited its management fees and has agreed
to reimburse the Portfolio for certain of its operating
expenses. This action by the Manager to limit its management
fees and reimburse expenses may be terminated by the Manager
at any time. For the fiscal year ended October 31, 1994, the
management fees the Portfolio was contractually obligated to
pay the Manager were $372,319. The Portfolio paid
management fees for such period of $205,735 (after waivers
of $166,584).

The management agreement is in effect through April 30,
1995. Thereafter, it may continue in effect for successive
annual periods, provided such continuance is specifically
approved at least annually by a vote of the Trust's Board of
Trustees or by a vote of the holders of a majority of the
Portfolio's outstanding voting securities, and in either
event by a majority of the trustees who are not parties to
the management agreement or interested persons of any such
party (other than as trustees of the Trust), cast in person
at a meeting called for that purpose. The management
agreement may be terminated as to the Portfolio at
any time without penalty by the Portfolio or by the Manager
on 60days' written notice and automatically terminates in the
event of its assignment as defined in the 1940 Act.

Coopers & Lybrand, L.L.P., 333 Market Street, San Francisco,
California 94105, is the Portfolio's independent auditor.
During the fiscal year ended October 31, 1994, their auditing
services consisted of rendering an opinion on the financial
statements for such fiscal year.

17. BROKERAGE ALLOCATION

THE PORTFOLIO'S POLICIES REGARDING BROKERS USED ON PORTFOLIO
TRANSACTIONS

Under the management agreement with Advisers, the selection
of brokers and dealers to execute transactions in the
Portfolio's portfolio are made by the Manager in accordance
with the management agreement and any directions which the
Board of Trustees may give. However, the Trust does not
anticipate that the Portfolio will incur a significant
amount of brokerage expense because brokerage commissions
are not normally incurred on investments in mortgage
securities which are generally traded on a "net" basis, that
is, in principal amounts without the addition or deduction
of brokerage commissions.

When placing a portfolio transaction, the Manager attempts
to obtain the best net price and execution of the
transaction. On portfolio transactions which are done on a
securities exchange, the amount of commission paid by the
Portfolio is negotiated between the Manager and the broker
executing the transaction. The Manager seeks to obtain the
lowest commission rate available from brokers which are felt
to be capable of efficient execution of the transactions.
The determination and evaluation of the reasonableness of
the brokerage commissions paid in connection with portfolio
transactions are based to a large degree on the professional
opinions of the persons responsible for the placement and
review of such transactions. These opinions are formed on
the basis of, among other things, the experience of these
individuals in the securities industry and information
available to them concerning the level of commissions being
paid by other institutional investors of comparable size.
The Manager ordinarily places orders for the purchase and
sale of over-thecounter securities on a principal rather
than agency basis with a principal market maker unless, in
the opinion of the Manager, a better price and execution can
otherwise be obtained. Purchases of portfolio securities
from underwriters include a commission or concession paid by
the issuer to the underwriter, and purchases from dealers
include a spread between the bid and ask price. As a general
rule, the Portfolio does not purchase bonds in underwritings
where it is not given any choice, or only limited choice, in
the designation of dealers to receive the commission. The
Portfolio"s Manager seeks to obtain prompt execution of
orders at the most favorable net price.

The amount of commission is not the only relevant factor to
be considered in the selection of a broker to execute a
trade. If it is felt to be in the Portfolio's best
interests, the Manager may place portfolio transactions with
brokers which provide the types of services described below,
even if it means the Portfolio has to pay a higher
commission than would be the case if no weight were given to
the brokers' furnishing of these services. However, this is
done only if, in the opinion of the Manager, the amount of
any additional commission is reasonable in relation to the
value of the services. Higher commissions are paid only when
the brokerage and research services received are bona fide
and produce a direct benefit to the Portfolio or assist the
Manager in carrying out its responsibilities to that
Portfolio, or when
it is otherwise in the best interest of the Portfolio to do
so, whether or not such data may also be useful to the
Manager in advising other clients.

When it is felt that several brokers or dealers are equally
able to provide the best net price and execution, the
Manager may decide to execute transactions through brokers
or dealers who provide quotations and other services to the
Portfolio, specifically including the quotations necessary
to determine the value of the Portfolio's net assets, in
such amount of total brokerage as may reasonably be required
in light of such services, and through brokers and dealers
who supply research, statistical and other data to the
Portfolio and the Manager in such amount of total brokerage
as may reasonably be required.

It is not possible to place a dollar value on the special
executions or on the research services received by Advisers
from brokers or 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, the Manager and its
affiliates may use this research and data in their
investment advisory capacities with other clients. Provided
that the Trust's officers are satisfied that the best
execution is obtained, the sale of the Portfolio's shares
may also be considered as a factor in the selection of
broker/dealers to execute portfolio transactions.

Because Franklin/Templeton Distributors, Inc.
("Distributors"), a subsidiary of Resources, is a member of
the National Association of Securities Dealers, Inc.,
Distributors is sometimes entitled to obtain certain fees
when the Portfolio tenders portfolio securities pursuant to
a tender offer solicitation. As a means of recapturing
brokerage for the benefit of the Portfolio, any portfolio
securities tendered by the Portfolio are tendered through
Distributors if it is legally permissible to do so. In turn,
the next management fee payable to Advisers under the
management agreement is reduced by the amount of any fees
received by Distributors in cash, less any costs and
expenses incurred in connection therewith.

During the fiscal year ended October 31, 1994, the Portfolio
paid no brokerage commissions. As of such date, the
Portfolio did not own securities of its regular broker-
dealers

18. CAPITAL STOCK AND OTHER SECURITIES

The information provided in response to this item is in
addition to the information provided in response to Item 4
in Part A.

19. PURCHASE, REDEMPTION AND PRICING OF
SECURITIES BEING OFFERED

The information provided in response to this item is in
addition to the information provided in response to Items 7
and 8 in Part A.

REDEMPTIONS IN KIND

The Trust has committed itself to pay in cash 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 either series's net assets at
the beginning of such period. Such commitment is irrevocable
without the prior approval of the SEC. In the case of
requests for redemption in excess of such amounts, the
trustees reserve the right to make payments in whole or in
part in securities or other assets of the Portfolio in case
of an emergency, or if the payment of such redemption in
cash would be detrimental to the existing shareholders of
the Portfolio. In such circumstances, the securities
distributed would be valued at the price used to compute the
Portfolio's net assets. Should the Portfolio do so, a
shareholder may incur brokerage fees or other transaction
costs in converting the securities to cash. The Portfolio
does not intend to redeem illiquid securities in kind;
however, should it happen, shareholders may not be able to
timely recover their investment and may also incur brokerage
costs in selling such securities.

CALCULATION OF NET ASSET VALUE

As noted elsewhere in this amendment to the registration
statement, the Portfolio generally calculates its net asset
value as of the close of trading each day that the Exchange
is open for trading. As of the date hereof, the Portfolio is
informed that the Exchange intends to observe the following
holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day (observed), Labor Day,
Thanksgiving Day and Christmas Day (observed). Wire
purchases and redemptions are not
effected on those days when the Federal Reserve Bank System
is closed (currently, New Year's Day, Martin Luther King,
Jr.'s Birthday, Washington's Birthday, Memorial Day,
Independence Day (observed), Labor Day, Columbus Day
(observed), Veteran's Day, Thanksgiving Day, and Christmas
Day (observed)).

REINVESTMENT DATE

20. TAX STATUS

The information provided in response to this item is in
addition to the information provided in response to Item 6
in Part A.

As stated in response to Item 6, the Portfolio intends to
qualify and elect to be treated as a regulated investment
company under Subchapter M of the Code during the current
fiscal year. The trustees reserve the right not to maintain
the qualification of the Portfolio as a regulated investment
company if they determine such course of action to be
beneficial to the shareholders. In such case, the Portfolio
would be subject to federal and possibly state corporate
taxes on its taxable income and gains, and distributions to
shareholders would be ordinary dividend income to the extent
of the Portfolio's available earnings and profits.

Any loss realized upon the redemption of shares within six
months from the date of their purchase will be treated as a
longterm capital loss to the extent of amounts treated as
distributions of
net longterm capital gain with respect to such shares.

21. UNDERWRITERS

Not Applicable

22. CALCULATION OF PERFORMANCE DATA

Not Applicable

23. FINANCIAL STATEMENTS
<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994

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

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994 (CONT.)

<TABLE>
<CAPTION>
FACE VALUE
AMOUNT U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES (CONT.)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)aa59.2%
$ 2,453,276 FNMA, Cap 11.49%, Margin 2.225% + CMT, Resets Annually, 7.60%, 09/01/21 ....... $ 2,501,924
5,728,096 FNMA, Cap 12.26%, Margin 1.725% + CMT, Resets Semi-Annually, 6.329%, 01/01/19 5,786,705
3,682,423 FNMA, Cap 12.605%, Margin 2.536% + 6 Month DR, Resets Semi-Annually, 6.585%,
11/01/18 ..................................................................... 3,802,084
19,924,714 FNMA, Cap 12.637%, Margin 2.00% + NCI, Resets Annually, 6.05%, 11/01/17 ....... 20,173,674
7,120,214 FNMA, Cap 12.64%, Margin 2.00% + CMT, Resets Annually, 6.47%, 03/01/19 ........ 7,200,886
16,186,106 FNMA, Cap 12.66%, Margin 1.75% + 6 Month DR, Resets Annually, 5.79%, 01/01/19 . 16,317,537
11,960,782 FNMA, Cap 12.705%, Margin 1.25% + COFI, Resets Monthly, 5.054%, 09/01/18 ...... 11,639,276
12,715,988 FNMA, Cap 12.729%, Margin 1.875% + NOI, Resets Annually, 5.823%, 07/01/29 ..... 12,890,769
5,239,485 FNMA, Cap 12.787%, Margin 1.25% + COFI, Resets Monthly, 7.454%, 01/01/19 ...... 5,272,205
5,977,277 FNMA, Cap 12.788%, Margin 2.11% + CMT, Resets Annually, 6.533%, 11/01/20 ...... 6,045,155
20,649,548 FNMA, Cap 12.797%, Margin 1.75% + NCI, Resets Monthly, 5.625%, 12/01/28 ....... 20,881,752
9,193,762 FNMA, Cap 12.804%, Margin 1.75% + CMT, Resets Annually, 5.842%, 05/01/19 ...... 9,244,143
4,549,263 FNMA, Cap 12.84%, Margin 2.762% + 6 Month DR, Resets Semi-Annually, 6.842%,
06/01/17 ..................................................................... 4,654,465
8,921,850 FNMA, Cap 12.85%, Margin 2.078% + CMT, Resets Annually, 7.981%, 10/01/17 ...... 9,200,613
9,544,282 FNMA, Cap 12.89%, Margin 2.125% + 6 Month DR, Resets Semi-Annually, 6.114%,
07/01/17 ..................................................................... 9,681,433
2,871,726 FNMA, Cap 12.911%, Margin 2.00% + 6 Month DR, Resets Semi-Annually, 6.27%,
02/01/18 ..................................................................... 2,961,453
10,815,481 FNMA, Cap 12.938%, Margin 1.25% + COFI, Resets Monthly, 5.054%, 02/01/19 ...... 10,524,761
5,473,844 FNMA, Cap 12.993%, Margin 2.092% + CMT, Resets Annually, 6.387%, 12/01/19 ..... 5,532,255
7,709,689 FNMA, Cap 13.01%, Margin 2.10% + CMT, Resets Monthly, 6.019%, 06/01/19 ........ 7,772,854
16,053,770 FNMA, Cap 13.017%, Margin 1.25% + COFI, Resets Monthly, 5.11%, 07/01/17 ....... 15,632,278
10,547,437 FNMA, Cap 13.021%, Margin 1.986% + CMT, Resets Annually, 6.465%, 07/01/22 ..... 10,778,162
16,751,007 FNMA, Cap 13.03%, Margin 1.25% + COFI, Resets Monthly, 6.836%, 02/01/20 ....... 16,855,617
8,694,386 FNMA, Cap 13.03%, Margin 1.75% + 6 Month TB, Resets Semi-Annually, 5.846%,
12/01/20 ..................................................................... 8,786,720
7,998,755 FNMA, Cap 13.063%, Margin 2.175% + CMT, Resets Monthly, 5.694%, 04/01/19 ...... 8,026,310
9,050,349 FNMA, Cap 13.099%, Margin 1.75% + 6 Month TB, Resets Semi-Annually, 5.847%,
07/01/20 ..................................................................... 9,157,777
5,870,361 FNMA, Cap 13.108%, Margin 2.246% + CMT, Resets Annually, 6.424%, 01/01/20 ..... 5,932,141
33,918,927 FNMA, Cap 13.125%, Margin 1.25% + COFI, Resets Monthly, 5.109%, 04/01/18 ...... 33,007,186
6,321,511 FNMA, Cap 13.147%, Margin 1.895% + CMT, Resets Annually, 6.328%, 04/01/19 ..... 6,386,193
4,661,550 FNMA, Cap 13.202%, Margin 2.478% + 6 Month DR, Resets Semi-Annually, 6.443%,
11/01/26 ..................................................................... 4,834,890
4,661,069 FNMA, Cap 13.249%, Margin 2.00% + CMT, Resets Annually, 6.031%, 06/01/19 ...... 4,699,854
6,570,495 FNMA, Cap 13.281%, Margin 2.00% + CMT, Resets Annually, 6.338%, 10/01/19 ...... 6,638,204
</TABLE>

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

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994 (CONT.)

<TABLE>
<CAPTION>
FACE VALUE
AMOUNT U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES (CONT.)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) (CONT.)
$ 8,886,885 FNMA, Cap 13.32%, Margin 1.25% + COFI, Resets Semi-Annually, 7.433%, 04/01/03.. $ 8,931,275
18,407,487 FNMA, Cap 13.452%, Margin 2.148% + CMT, Resets Annually, 6.322%, 09/01/22 ..... 18,602,975
15,652,775 FNMA, Cap 13.644%, Margin 2.011% + CMT, Resets Annually, 6.242%, 01/01/18 ..... 15,812,231
9,596,917 FNMA, Cap 13.662%, Margin 2.177% + CMT, Resets Annually, 6.382%, 03/01/21 ..... 9,690,103
12,065,101 FNMA, Cap 13.791%, Margin 2.143% + CMT, Resets Annually, 6.416%, 12/01/20 ..... 12,191,085
5,399,057 FNMA, Cap 13.797%, Margin 2.20% + CMT, Resets Annually, 5.801%, 03/01/19 ...... 5,425,069
6,828,249 FNMA, Cap 13.80%, Margin 0.94% + 6 Month DR, Resets Semi-Annually, 6.786%,
07/01/24 ..................................................................... 6,836,751
6,265,875 FNMA, Cap 13.887%, Margin 2.25% + CMT, Resets Annually, 5.756%, 02/01/19 ...... 6,290,876
4,635,385 FNMA, Cap 13.896%, Margin 2.25% + CMT, Resets Annually, 5.639%, 12/01/18 ...... 4,651,818
10,298,111 FNMA, Cap 14.069%, Margin 2.089% + CMT, Resets Annually, 6.429%, 01/01/19 ..... 10,411,019
3,166,559 FNMA, Cap 14.142%, Margin 2.118% + CMT, Resets Annually, 5.977%, 03/01/21 ..... 3,250,298
17,224,751 FNMA, Cap 14.354%, Margin 2.07% + 5CMT, Resets Annually, 8.033%, 05/01/21 ..... 17,762,938
11,838,930 FNMA, Cap 14.887%, Margin 1.720% + CMT, Resets Annually, 5.94%, 01/01/16 ...... 12,238,435
5,078,261 FNMA, Cap 14.952%, Margin 2.523% + CMT, Resets Annually, 6.926%, 05/01/19 ..... 5,154,481
2,767,292 FNMA, Cap 15.381%, Margin 2.168% + CMT, Resets Annually, 6.529%, 02/01/20 ..... 2,798,554
------------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION (COST $453,687,272) ......... 442,867,184
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) 7.8%
12,471,767 GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 6.50%, 07/20/23 ........ 12,221,209
7,917,654 GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 6.50%, 08/20/23 ........ 7,758,589
10,000,000 dGNMA, Cap 12.00%, Margin 1.50% + CMT, Resets Annually, 7.00%, 10/20/17 ........ 9,956,251
19,736,825 GNMA, Cap 13.00%, Margin 1.50% + CMT, Resets Annually, 5.75%, 02/20/16 ........ 18,868,405
9,979,713 GNMA, Cap 13.00%, Margin 1.50% + CMT, Resets Annually, 5.75%, 03/20/16 ........ 9,540,606
------------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (COST $62,556,073) ....... 58,345,060
------------
TOTAL ADJUSTABLE RATE MORTGAGE SECURITIES (COST $735,070,759) ........... 716,171,271
------------
GOVERNMENT SECURITIES 1.3%
10,000,000 U.S. Treasury Notes, 4.00% - 4.25%, 01/31/96 - 05/15/96 (COST $9,777,084) ..... 9,710,431
------------
Total Long Term Investments (COST $744,847,843) ......................... 725,881,702
------------
aSHORT TERM INVESTMENTS
GOVERNMENT SECURITIES 3.4%
26,630,000 U.S. Treasury Bills, 5.54% - 5.855%, 09/21/95 - 10/19/95 (COST $25,153,213) ... 25,156,431
------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS (COST $770,001,056) ...... 751,038,133
------------
</TABLE>

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

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994 (CONT.)

<TABLE>
<CAPTION>
FACE VALUE
AMOUNT U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO (NOTE 1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
b,cRECEIVABLES FROM REPURCHASE AGREEMENTS
$ 5,634 Joint Repurchase Agreement, 4.824%, 11/01/94 (Maturity Value $5,355)
(COST $5,354)
Collateral: U.S. Treasury Notes, 4.00% - 11.625%, 11/15/94 - 07/31/99 ............ $ 5,354
------------
TOTAL INVESTMENTS (COST $770,006,410) 100.5% ........................ 751,043,487
LIABILITIES IN EXCESS OF OTHERS ASSETS, NET (.5)% ................... (3,572,373)
------------
NET ASSETS 100.0% ................................................... $747,471,114
============
At October 31, 1994, the net unrealized depreciation based on the cost of
investments for income tax purposes of $770,011,327 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
was an excess of value over tax cost .......................................... $ 386,754
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value .......................................... (19,354,594)
------------
Net unrealized depreciation .................................................... $(18,967,840)
============
</TABLE>

PORTFOLIO ABBREVIATIONS:

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

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994

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

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994 (CONT.)

aCertain short-term securities are traded on a discount basis; the rates
shown are the discount rates at the time of purchase by the Fund. Other
securities bear interest at the rates shown, payable a fixed dates or upon
maturity.
bFace amount for repurchase agreements is for the underlying collateral.
cSee Note 1(f) regarding Joint Repurchase Agreement.

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

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

FINANCIAL STATEMENTS

STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 1994

Payables:

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

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

FINANCIAL STATEMENTS (CONT.)

STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1994

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

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

FINANCIAL STATEMENTS (CONT.)

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED OCTOBER 31, 1994
AND THE NINE MONTHS ENDED OCTOBER 31, 1993

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

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

NOTES TO FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

On June 15, 1993, the Board of Trustees authorized a change in the fiscal
year end of the Trust from January 31 of each year to October 31.

A. SECURITIES VALUATIONS:

B. INCOME TAXES:

C. SECURITY TRANSACTIONS:

D. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:

Net realized capital losses differ for financial statement and tax purposes
primarily due to losses deferred from wash sale transactions.

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

NOTES TO FINANCIAL STATEMENTS (CONT.)

1. SIGNIFICANT ACCOUNTING POLICIES (CONT.)

E. EXPENSE ALLOCATION:

F. REPURCHASE AGREEMENTS:

G. SECURITIES PURCHASED ON A WHEN-ISSUED (WI) OR DELAYED DELIVERY BASIS:

2. UNAMORTIZED ORGANIZATION COSTS

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

NOTES TO FINANCIAL STATEMENTS (CONT.)

3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS

At October 31, 1994, for tax purposes, the Portfolios had accumulated capital
loss carryovers as follows:

4. TRUST SHARES

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

NOTES TO FINANCIAL STATEMENTS (CONT.)

5. PURCHASES AND SALES OF SECURITIES

Aggregate purchases and sales of securities (excluding purchases and sales
of short-term securities) for the year ended October 31, 1994, were as
follows:

6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

Certain officers and Trustees of the Trust are also officers and/or directors
of Franklin Advisers, Inc., a wholly-owned subsidiary of Franklin Resources,
Inc.

<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS

NOTES TO FINANCIAL STATEMENTS (CONT.)

7. FINANCIAL HIGHLIGHTS

Selected data for a share of beneficial interest outstanding throughout the
year by Fund are as follows:

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS

REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Trustees of
Adjustable Rate Securites Portfolios:

COOPERS & LYBRAND L.L.P.

San Francisco, California
December 7, 1994

<PAGE>

ADJUSTABLE RATE SECURITIES PORTFOLIOS
U.S. Government Adjustable Rate Mortgage Portfolio
Adjustable Rate Securities Portfolio

FORM N-1A

PART C. OTHER INFORMATION

ITEM 24 Financial Statements and Exhibits

(a) Financial Statements incorporated herein by reference to the
Registrant's Annual Report to Shareholders dated December
31, 1994 as filed on February 27, 1995

(i) Report of Independent Auditors - December 7, 1994

(ii) Statement of Investments in Securities and Net Assets -
October 31, 1994

(iii)Statements of Assets and Liabilities - October 31,
1994

(iv) Statements of Operations - for the year ended October
31, 1994

(v) Statements of Changes in Net Assets - for the years
ended October 31, 1994 and 1993

(b) Exhibits:

The following exhibits are attached hereto, except as otherwise
noted:

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

(i) Agreement and Declaration of Trust of Franklin
Institutional U.S. Government ARM Fund dated
February 12, 1991

(ii) Certificate of Trust of Franklin Institutional
U.S. Government ARM Fund dated February 12, 1991

(iii)Certificate of Amendment to the Certificate of
Trust of Franklin Institutional U.S. Government
ARM Fund dated October 18, 1991 as filed with the
office of the Secretary of the State of Delaware
on February 15, 1991

(iv) Certificate of Amendment to the Certificate of
Trust of Franklin Institutional U.S. Government
ARM Fund dated March 7, 1991 as filed with the
Office of the Secretary of State of Delaware on
March 14, 1991

(v) Certificate of Amendment to the Certificate of
Trust of Adjustable Rate Securities Portfolio
dated May 14, 1992 as filed with the Office of the
Secretary of State of Delaware on June 12, 1992

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

(i) By-Laws of Franklin Institutional U.S.
Government ARM Fund

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

N/A

(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 as Registrant no longer issues share
certificates

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

(i) Management Agreement between Franklin
Institutional U.S. Government ARM Fund and
Franklin Advisers, Inc. dated June 3, 1991

(ii) Management Agreement between Adjustable Rate
Securities Portfolios and Franklin Advisers, Inc.
dated November 5, 1991

(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) Not Applicable

(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) Custodian Agreement between Registrant and Bank of
America NT & SA dated May 1, 1991

(ii) Amendment to Custodian Agreement between
Registrant and Bank of America NT & SA dated
December 1, 1994
Incorporated herein by reference to:
Registrant: Franklin Premier Return Fund
Filing: Post-Effective Amendment No. 54 to
Registration on Form N-1A
File No. 2-12647
Filing Date: February 27, 1995

(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;

Not Applicable

(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;

Not Applicable

(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;

Not Applicable

(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.

Not Applicable

(16) schedule for computation of each performance quotation
provided in the registration statement in response to
Item 22 (which need not be audited).

Not applicable

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT.

None

<TABLE>

<S> <C>
Number of Record Holders
Title of Class as of January 31, 1994
Shares of Beneficial
Interest
of:

Adjustable Rate Securities Three
Portfolio
U.S. Government Two
Adjustable Rate Mortgage
Portfolio
</TABLE>

ITEM 27. INDEMNIFICATION.

Reference is made to Article VI of the Registrant's Amended
and Restated By-Laws (Exhibit 2), which is incorporated herein by
reference. Pursuant to Rule 484 under the Securities Act of 1933,
as amended, the Registrant furnishes the following undertaking:

"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 the 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 by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue."

Notwithstanding the provisions contained in the Registrant's
Amended and Restated By-Laws, in the absence of authorization by
the appropriate court on the merits pursuant to Section 5 of
Article VI of said Amended and Restated By-Laws, any
indemnification under said Article shall be made by Registrant
only if authorized in the manner provided in either subsection
(a) or (b) of Section 6 of Article VI.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

Franklin Advisers, Inc., a wholly owned subsidiary of
Franklin Resources, Inc., the investment manager for the
Registrant, is the investment manager for 26 other registered
open-end investment companies and four closed-end investment
companies. The officers and directors of the Registrant's
investment advisor also serve as officers and/or directors,
and/or portfolio managers for (1) the advisor's corporate parent,
Franklin Resources, Inc., and/or (2) other investment companies
in the Franklin Group of Funds(Registered Trademark). In
addition, Messrs. Charles B. Johnson and Harris J. Ashton are
directors of General Host Corporation. For additional information
please see Part B.

ITEM 29. PRINCIPAL UNDERWRITERS

Not Applicable

ITEM 30. LOCATIONS 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
and the Rules thereunder are kept by the Registrant or its
shareholder services agent, Franklin Administrative Services,
Inc., at their respective principal business offices, both of
which are at 777 Mariners Island Blvd., San Mateo, California
94404.

ITEM 31. MANAGEMENT SERVICES.

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

ITEM 32. UNDERTAKING.

The Registrant hereby undertakes to promptly call a meeting
of shareholders for the purpose of voting upon the question of
removal of any trustee or trustees when requested in writing to
do so by the record holders of not less than 10 per centrum of
the Registrant's outstanding shares and to assist its
shareholders in accordance with the requirements of Section 16(c)
of the Investment Company Act of 1940 relating to shareholder
communications.

SIGNATURE

Pursuant to the requirements of the Investment Company Act
of 1940, as amended, 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, the State of California, on the 27th day of
February 1995.

ADJUSTABLE RATE SECURITIES PORTFOLIOS

By Charles E. Johnson*
Charles E. Johnson,
President

By /s/ Larry L. Greene
Larry L. Greene, Attorney-in-Fact
pursuant to a Power of Attorney
filed herewith.

<TABLE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
REGISTRATION STATEMENT
<CAPTION>
<S> <C> <C>
EXHIBIT NO. DESCRIPTION LOCATION

EX-99.B1(i) Agreement and Declaration of Attached
Trust of Franklin Institutional
U.S. Government ARM Fund dated
February 12, 1991

EX-99.B1(ii) Certificate of Trust of Attached
Franklin Institutional U.S.
Government ARM Fund dated
February 12, 1991

EX-99.B1(iii) Certificate of Amendment to the Attached
Certificate of Trust of
Franklin Institutional U.S.
Government ARM Fund dated
October 18, 1991

EX-99.B(iv) Certificate of Amendment to the Attached
Certificate of Trust of
Franklin Institutional U.S.
Government ARM Fund dated March
7, 1991

EX-99.B1(v) Certificate of Amendment to the Attached
Certificate of Trust of
Adjustable Rate Securities
Portfolio dated May 14, 1992

EX-99.B2(i) By-Laws of Franklin Attached
Institutional U.S. Government
ARM Fund

EX-99.B5(i) Management Agreement between Attached
Franklin Institutional U.S.
Government ARM Fund and
Franklin Advisers Inc.
effective November 5, 1991

EX-99.B5(ii) Management Agreement between Attached
Adjustable Rate Securities
Portfolios and Franklin and
Franklin Advisers Inc.
effective June 3, 1991

EX-99.B8(i) Custodian Agreement between Attached
Registrant and Bank of America
NT & SA dated May 6, 1991

EX-99.B8(ii) Amendment to Custodian *
Agreement between Registrant
and Bank of America NT & SA
dated December 1, 1994

EX-99.27(i) Financial Data Schedules Attached
</TABLE>
*Incorporated by Reference

Effective as of
February 15, 1991

AGREEMENT AND DECLARATION OF TRUST

FRANKLIN INSTITUTIONAL U.S. GOVERNMENT ARM FUND

a Delaware Business Trust

Principal Place of Business:

777 Mariners Island Boulevard
San Mateo, California 94404

TABLE OF CONTENTS

FRANKLIN INSTITUTIONAL U.S GOVERNMENT ARM FUND

AGREEMENT AND DECLARATION OF TRUST

ARTICLE I Name and Definitions
1. Name
2. Definitions
(a) Trust
(b) Trust Property
(c) Trustees
(d) Shares
(e) Shareholder
(f) Person
(g) 1940 Act
(h) Commission and Principal Underwriter
(i) Declaration of Trust
(j) By-Laws
(k) Interested Person
(1) Investment Manager
(m) Series

ARTICLE II Purpose of Trust

ARTICLE III Shares

1. Division of Beneficial Interest
2. Ownership of Shares
3. Investments in the Trust
4. Status of Shares and Limitation of Personal Liability
5. Power of Board of Trustees to Change Provisions
Relating to Shares
6. Establishment and Designation of Series
(a) Assets With Respect to a Particular Series
(b) Liabilities Held With Respect to a Particular
Series
(c) Dividends, Distributions, Redemptions, and
Repurchases
(d) Voting
(e) Equality
(f) Fractions
(g) Exchange Privilege
(h) Combination of Series
(i) Elimination of Series
7. Indemnification of Shareholders

ARTICLE IV The Board of Trustees

1. Number, Election and Tenure
2. Effect of Death, Resignation, etc. of a Trustee
3. Powers
4. Payment of Expenses by the Trust
5. Payment of Expenses by Shareholders
6. Ownership of Assets of the Trust
7. Service Contracts

ARTICLE V Shareholders' Voting Powers and Meetings

1. Voting Powers
2. Voting Power and Meetings
3. Quorum and Required Vote
4. Action by Written Consent
5. Record Dates
6. Additional Provisions

ARTICLE VI Net Asset Value, Distributions, and Redemptions

1. Determination of Net Asset Value, Net Income and
Distributions
2. Redemptions and Repurchases
3. Redemptions at the Option of the Trust

ARTICLE VII Compensation and Limitation of Liability of
Trustees

1. Compensation
2. Indemnification and Limitation of Liability
3. Trustee's Good Faith Action, Expert Advice, No Bond
or Surety
4. Insurance

ARTICLE VIII Miscellaneous

1. Liability of Third Persons Dealing with Trustees
2. Termination of Trust or Series
3. Merger and Consolidation
4. Amendments
5. Filing of Copies, Reference, Headings
6. Applicable Law
7. Provisions in conflict
8. Business Trust Only
9. Use of the Name "Franklin"

AGREEMENT AND DECLARATION OF TRUST

FRANKLIN INSTITUTIONAL U.S. GOVERNMENT ARM FUND

WHEREAS, THIS AGREEMENT AND DECLARATION OF TRUST is
made and entered into as of the date set forth below by the
Trustees named hereunder for the purpose of forming a Delaware
business trust in accordance with the provisions hereinafter set
forth,

NOW, THEREFORE, the Trustees hereby direct that a
Certificate of Trust be filed with Office of the Secretary of
State of the State of Delaware and do hereby declare that the
Trustees will hold IN TRUST all cash, securities and other assets
which the Trust now possesses or may hereafter acquire from time
to time in any manner and manage and dispose of the same upon the
following terms and conditions for the pro rata benefit of the
holders of Shares in this Trust.

ARTICLE I

Name and Definitions

Section 1. Name. This Trust shall be known as FRANKLIN
INSTITUTIONAL U.S. GOVERNMENT ARM FUND and the Trustees shall
conduct the business of the Trust under that name or any other
name as they may from time to time determine.

Section 2. Definitions. Whenever used herein, unless
otherwise required by the context or specifically provided:

(a) The "Trust" refers to the Delaware business trust
established by this Agreement and Declaration of Trust, as
amended from time to time;

(b) The "Trust Property" means any and all property,
real or personal, tangible or intangible, which is owned or held
by or for the account of the Trust, including without limitation
the rights referenced in Article VIII, Section 9 hereof;

(c) "Trustees" refers to the persons who have signed
this Agreement and Declaration of Trust, so long as they continue
in office in accordance with the terms hereof, and all other
persons who may from time to time be duly elected or appointed to
serve on the Board of Trustees in accordance with the provisions
hereof, and reference herein to a Trustee or the Trustees shall
refer to such person or persons in their capacity as trustees
hereunder;

(d) "Shares" means the shares of beneficial interest
into which the beneficial interest in the Trust shall be divided
from time to time and includes fractions of Shares as well as
whole Shares;

(e) "Shareholder" means a record owner of outstanding
Shares;

(f) "Person" means and includes individuals,
corporations, partnerships, trusts, associations, joint ventures,
estates and other entities, whether or not legal entities, and
governments and agencies and political subdivisions thereof,
whether domestic or foreign;

(g) The "1940 Act" refers to the Investment Company Act
of 1940 and the Rules and Regulations thereunder, all as amended
from time to time;

(h) The terms "Commission" and "Principal Underwriter"
shall have the meanings given them in the 1940 Act;

(i) "Declaration of Trust" shall mean this Agreement
and Declaration of Trust, as amended or restated from time to
time;

(j) "By-Laws" shall mean the By-Laws of the Trust as
amended from time to time and incorporated herein by reference;

(k) The term "Interested Person" has the meaning given
it in Section 2(a)(19) of the 1940 Act;

(1) "Investment Manager" or "Manager" means a party
furnishing services to the Trust pursuant to any contract
described in Article IV, Section 7(a) hereof;

(m) "Series" refers to each Series of Shares
established and designated under or in accordance with the
provisions of Article III.

ARTICLE II

Purpose of Trust

The purpose of the Trust is to conduct, operate and
carry on the business of a management investment company
registered under the 1940 Act through one or more Series
investing primarily in securities.

ARTICLE III

Section 1. Division of Beneficial Interest. The
beneficial interest in the Trust shall at all times be divided
into an unlimited number of Shares, with a par value of $ .01 per
Share. The Trustees may authorize the division of Shares into
separate Series and the division of Series into separate classes
of Shares. The different Series shall be established and
designated, and the variations in the relative rights and
preferences as between the different Series shall be fixed and
determined, by the Trustees. If only one or no Series (or
classes) shall be established, the Shares shall have the rights
and preferences provided for herein and in Article III, Section 6
hereof to the extent relevant and not otherwise provided for
herein, and all references to Series (and classes) shall be
construed (as the context may require) to refer to the Trust.

Subject to the provisions of Section 6 of this Article
III, each Share shall have voting rights as provided in Article V
hereof, and holders of the Shares of any Series shall be entitled
to receive dividends, when, if and as declared with respect
thereto in the manner provided in Article VI, Section 1 hereof.
No Shares shall have any priority or preference over any other
Share of the same Series with respect to dividends or
distributions upon termination of the Trust or of such Series
made pursuant to Article VIII, Section 4 hereof. All dividends
and distributions shall be made ratably among all Shareholders of
a particular (class of a) particular Series from the assets held
with respect to such Series according to the number of Shares of
such (class of such) Series held of record by such Shareholder on
the record date for any dividend or distribution or on the date
of termination, as the case may be. Shareholders shall have no
preemptive or other right to subscribe to any additional Shares
or other securities issued by the Trust or any Series. The
Trustees may from time to time divide or combine the Shares of
any particular Series into a greater or lesser number of Shares
of that Series without thereby materially changing the
proportionate beneficial interest of the Shares of that Series in
the assets held with respect to that Series or materially
affecting the rights of Shares of any other Series.

Section 2. Ownership of Shares. The ownership of Shares
shall be recorded on the books of the Trust or a transfer or
similar agent for the Trust, which books shall be maintained
separately for the Shares of each Series (or class). No
certificates certifying the ownership of Shares shall be issued
except as the Board of Trustees may otherwise determine from time
to time. The Trustees may make such rules as they consider
appropriate for the transfer of Shares of each Series (or class)
and similar matters. The record books of the Trust as kept by the
Trust or any transfer or similar agent, as the case may be, shall
be conclusive as to who are the Shareholders of each Series (or
class) and as to the number of Shares of each Series (or class)
held from time to time by each.

Section 3. Investments in the Trust. Investments may be
accepted by the Trust from such Persons, at such times, on such
terms, and for such consideration as the Trustees from time to
time may authorize.

Section 4. Status of Shares and Limitation of
Personal Liability. Shares shall be deemed to be personal
property giving only the rights provided in this instrument.
Every Shareholder by virtue of having become a Shareholder shall
be held to have expressly assented and agreed to the terms hereof
and to have become a party hereto. The death of a Shareholder
during the existence of the Trust shall not operate to terminate
the Trust, nor entitle the representative of any deceased
Shareholder to an accounting or to take any action in court or
elsewhere against the Trust or the Trustees, but entitles such
representative only to the rights of said deceased Shareholder
under this Trust. Ownership of Shares shall not entitle the
Shareholder to any title in or to the whole or any part of the
Trust Property or right to call for a partition or division of
the same or for an accounting, nor shall the ownership of Shares
constitute the Shareholders as partners. Neither the Trust nor
the Trustees, nor any officer, employee or agent of the Trust
shall have any power to bind personally any Shareholders, nor,
except as specifically provided herein, to call upon any
Shareholder for the payment of any sum of money or assessment
whatsoever other than such as the Shareholder may at any time
personally agree to pay.

Section 5. Power of Board of Trustees to Change
Provisions Relating to Shares. Notwithstanding any other
provision of this Declaration of Trust and without limiting the
power of the Board of Trustees to amend the Declaration of Trust
as provided elsewhere herein, the Board of Trustees shall have
the power to amend this Declaration of Trust, at any time and
from time to time, in such manner as the Board of Trustees may
determine in their sole discretion, without the need for
Shareholder action, so as to add to, delete, replace or otherwise
modify any provisions relating to the Shares contained in this
Declaration of Trust, provided that before adopting any such
amendment without Shareholder approval the Board of Trustees
shall determine that it is consistent with the fair and equitable
treatment of all Shareholders or that Shareholder approval is not
otherwise required by the 1940 Act or other applicable law. If
Shares have been issued, Shareholder approval shall be required
to adopt any amendments to this Declaration of Trust which would
adversely affect to a material degree the rights and preferences
of the Shares of any Series (or class) or to increase or decrease
the par value of the Shares of any Series (or class).

Subject to the foregoing Paragraph, the Board of
Trustees may amend the Declaration of Trust to amend any of the
provisions set forth in paragraphs (a) through (i) of Section 6
of this Article III.

Section 6. Establishment and Designation of Series. The
establishment and designation of any Series (or class) of Shares
shall be effective upon the resolution by a majority of the then
Trustees, adopting a resolution which sets forth such
establishment and designation and the relative rights and
preferences of such Series (or class). Each such resolution shall
be incorporated herein by reference upon adoption.

Shares of each Series (or class) established pursuant
to this Section 6, unless otherwise provided in the resolution
establishing such Series, shall have the following relative
rights and preferences:

(a) Assets Held With Respect to a Particular Series.
All consideration received by the Trust for the issue or sale of
Shares of a particular Series, together with all assets in which
such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof from whatever source
derived, including, without limitation, any proceeds derived from
the sale, exchange or liquidation of such assets, and any funds
or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably be held with
respect to that Series for all purposes, subject only to the
rights of creditors, and shall be so recorded upon the books of
account of the Trust. Such consideration, assets, income,
earnings, profits and proceeds thereof, from whatever source
derived, including, without limitation, any proceeds derived from
the sale, exchange or liquidation of such assets, and any funds
or payments derived from any reinvestment of such proceeds, in
whatever form the same may be, are herein referred to as "assets
held with respect to" that Series. In the event that there are
any assets, income, earnings, profits and proceeds thereof, funds
or payments which are not readily identifiable as assets held
with respect to any particular Series (collectively "General
Assets"), the Trustees shall allocate such General Assets to,
between or among any one or more of the Series in such manner and
on such basis as the Trustees, in their sole discretion, deem
fair and equitable, and any General Asset so allocated to a
particular Series shall be held with respect to that Series. Each
such allocation by the Trustees shall be conclusive and binding
upon the Shareholders of all Series for all purposes.

(b) Liabilities Held With Respect to a Particular
Series. The assets of the Trust held with respect to each
particular Series shall be charged against the liabilities of the
Trust held with respect to that Series and all expenses, costs,
charges and reserves attributable to that Series, and any general
liabilities of the Trust which are not readily identifiable as
being held with respect to any particular Series shall be
allocated and charged by the Trustees to and among any one or
more of the Series in such manner and on such basis as the
Trustees in their sole discretion deem fair and equitable. The
liabilities, expenses, costs, charges, and reserves so charged to
a Series are herein referred to as "liabilities held with respect
to" that Series. Each allocation of liabilities, expenses, costs,
charges and reserves by the Trustees shall be conclusive and
binding upon the holders of all Series for all purposes. All
Persons who have extended credit which has been allocated to a
particular Series, or who have a claim or contract which has been
allocated to any particular Series, shall look, and shall be
required by contract to look exclusively, to the assets of that
particular Series for payment of such credit, claim, or contract.
In the absence of an express contractual agreement so limiting
the claims of such creditors, claimants and contract providers,
each creditor, claimant and contract provider will be deemed
nevertheless to have impliedly agreed to such limitation unless
an express provision to the contrary has been incorporated in the
written contract or other document establishing the claimant
relationship.

(c) Dividends, Distributions, Redemptions, and
Repurchases. Notwithstanding any other provisions of this
Declaration of Trust, including, without limitation, Article VI,
no dividend or distribution including, without limitation, any
distribution paid upon termination of the Trust or of any Series
(or class) with respect to, nor any redemption or repurchase of,
the Shares of any Series (or class) shall be effected by the
Trust other than from the assets held with respect to such
Series, nor, except as specifically provided in Section 7 of this
Article III, shall any Shareholder of any particular Series
otherwise have any right or claim against the assets held with
respect to any other Series except to the extent that such
Shareholder has such a right or claim hereunder as a Shareholder
of such other Series. The Trustees shall have full discretion, to
the extent not inconsistent with the 1940 Act, to determine which
items shall be treated as income and which items as capital; and
each such determination and allocation shall be conclusive and
binding upon the Shareholders.

(d) Voting. All Shares of the Trust entitled to vote on
a matter shall vote separately by Series (and, if applicable, by
class): that is, the Shareholders of each Series (or class) shall
have the right to approve or disapprove matters affecting the
Trust and each respective Series (or class) as if the Series (or
classes) were separate companies. There are, however, two
exceptions to voting by separate Series (or classes). First, if
the 1940 Act requires all Shares of the Trust to be voted in the
aggregate without differentiation between the separate Series (or
classes), then all the Trust's Shares shall be entitled to vote
on a one-vote-per-Share basis. Second, if any matter affects only
the interests of some but not all Series (or classes), then only
the Shareholders of such affected Series (or classes) shall be
entitled to vote on the matter.

(e) Equality. All the Shares of each particular Series
shall represent an equal proportionate interest in the assets
held with respect to that Series (subject to the liabilities held
with respect to that Series and such rights and preferences as
may have been established and designated with respect to classes
of Shares within such Series), and each Share of any particular
Series shall be equal to each other Share of that Series.

(f) Fractions. Any fractional Share of a Series shall
carry proportionately all the rights and obligations of a whole
share of that Series, including rights with respect to voting,
receipt of dividends and distributions, redemption of Shares and
termination of the Trust.

(g) Exchange Privilege. The Trustees shall have the
authority to provide that the holders of Shares of any Series
shall have the right to exchange said Shares for Shares of one or
more other Series of Shares in accordance with such requirements
and procedures as may be established by the Trustees.

(h) Combination of Series. The Trustees shall have the
authority, without the approval of the Shareholders of any Series
unless otherwise required by applicable law, to combine the
assets and liabilities held with respect to any two or more
Series into assets and liabilities held with respect to a single
Series.

(i) Elimination of Series. At any time that there are
no Shares outstanding of any particular Series (or class)
previously established and designated, the Trustees may by
resolution of a majority of the then Trustees abolish that Series
(or class) and rescind the establishment and designation thereof.

Section 7. Indemnification of Shareholders. If any
Shareholder or former Shareholder shall be exposed to liability
by reason of a claim or demand relating to his or her being or
having been a Shareholder, and not because of his or her acts or
omissions, the Shareholder or former Shareholder (or his or her
heirs, executors, administrators, or other legal representatives
or in the case of a corporation or other entity, its corporate or
other general successor) shall be entitled to be held harmless
from and indemnified out of the assets of the Trust against all
loss and expense arising from such claim or demand.

ARTICLE IV

The Board of Trustees

Section 1. Number, Election and Tenure. The number of
Trustees constituting the Board of Trustees shall be fixed from
time to time by a written instrument signed, or by resolution
approved at a duly constituted meeting, by a majority of the
Board of Trustees, provided, however, that the number of Trustees
shall in no event be less than one (1) nor more than fifteen
(15). The Board of Trustees, by action of a majority of the then
Trustees at a duly constituted meeting, may fill vacancies in the
Board of Trustees or remove Trustees with or without cause. Each
Trustee shall serve during the continued lifetime of the Trust
until he or she dies, resigns, is declared bankrupt or
incompetent by a court of appropriate jurisdiction, or is
removed, or, if sooner, until the next meeting of Shareholders
called for the purpose of electing Trustees and until the
election and qualification of his or her successor. Any Trustee
may resign at any time by written instrument signed by him and
delivered to any officer of the Trust or to a meeting of the
Trustees. Such resignation shall be effective upon receipt unless
specified to be effective at some other time. Except to the
extent expressly provided in a written agreement with the Trust,
no Trustee resigning and no Trustee removed shall have any right
to any compensation for any period following his or her
resignation or removal, or any right to damages on account of
such removal. The Shareholders may fix the number of Trustees and
elect Trustees at any meeting of Shareholders called by the
Trustees for that purpose. Any Trustee may be removed at any
meeting of Shareholders by a vote of two-thirds of the
outstanding Shares of the Trust. A meeting of Shareholders for
the purpose of electing or removing one or more Trustees may be
called (i) by the Trustees upon their own vote, or (ii) upon the
demand of Shareholders owning 10% or more of the Shares of the
Trust in the aggregate.

Section 2. Effect of Death, Resignation, etc. of a
Trustee. The death, declination, resignation, retirement,
removal, or incapacity of one or more Trustees, or all of them,
shall not operate to annul the Trust or to revoke any existing
agency created pursuant to the terms of this Declaration of
Trust. Whenever a vacancy in the Board of Trustees shall occur,
until such vacancy is filled as provided in Article IV, Section
1, the Trustees in office, regardless of their number, shall have
all the powers granted to the Trustees and shall discharge all
the duties imposed upon the Trustees by this Declaration of
Trust. As conclusive evidence of such vacancy, a written
instrument certifying the existence of such vacancy may be
executed by an officer of the Trust or by a majority of the Board
of Trustees. In the event of the death, declination, resignation,
retirement, removal, or incapacity of all the then Trustees
within a short period of time and without the opportunity for at
least one Trustee being able to appoint additional Trustees to
fill vacancies, the Trust's Investment Manager(s) are empowered
to appoint new Trustees subject to the provisions of Section
16(a) of the 1940 Act.

Section 3. Powers. Subject to the provisions of this
Declaration of Trust, the business of the Trust shall be managed
by the Board of Trustees, and such Board shall have all powers
necessary or convenient to carry out that responsibility
including the power to engage in securities transactions of all
kinds on behalf of the Trust. Without limiting the foregoing, the
Trustees may: adopt By-Laws not inconsistent with this
Declaration of Trust providing for the regulation and management
of the affairs of the Trust and may amend and repeal them to the
extent that such By-Laws do not reserve that right to the
Shareholders; fill vacancies in or remove from their number, and
may elect and remove such officers and appoint and terminate such
agents as they consider appropriate; appoint from their own
number and establish and terminate one or more committees
consisting of two or more Trustees which may exercise the powers
and authority of the Board of Trustees to the extent that the
Trustees determine; employ one or more custodians of the assets
of the Trust and may authorize such custodians to employ
subcustodians and to deposit all or any part of such assets in a
system or systems for the central handling of securities or with
a Federal Reserve Bank, retain a transfer agent or a shareholder
servicing agent, or both; provide for the issuance and
distribution of Shares by the Trust directly or through one or
more Principal Underwriters or otherwise; redeem, repurchase and
transfer Shares pursuant to applicable law; set record dates for
the determination of Shareholders with respect to various
matters; declare and pay dividends and distributions to
Shareholders of each Series from the assets of such Series; and
in general delegate such authority as they consider desirable to
any officer of the Trust, to any committee of the Trustees and to
any agent or employee of the Trust or to any such custodian,
transfer or shareholder servicing agent, or Principal
Underwriter. Any determination as to what is in the interests of
the Trust made by the Trustees in good faith shall be conclusive.
In construing the provisions of this Declaration of Trust, the
presumption shall be in favor of a grant of power to the
Trustees. Unless otherwise specified or required by law, any
action by the Board of Trustees shall be deemed effective if
approved or taken by a majority of the Trustees then in office.

Without limiting the foregoing, the Trust shall have
power and authority:

(a) To invest and reinvest cash, to hold cash
uninvested, and to subscribe for, invest in, reinvest in,
purchase or otherwise acquire, own, hold, pledge, sell, assign,
transfer, exchange, distribute, write options on, lend or
otherwise deal in or dispose of contracts for the future
acquisition or delivery of fixed income or other securities, and
securities of every nature and kind, including, without
limitation, all types of bonds, debentures, stocks, negotiable or
non-negotiable instruments, obligations, evidences of
indebtedness, certificates of deposit or indebtedness, commercial
paper, repurchase agreements, bankers' acceptances, and other
securities of any kind, issued, created, guaranteed, or sponsored
by any and all Persons, including, without limitation, states,
territories, and possessions of the United States and the
District of Columbia and any political subdivision, agency, or
instrumentality thereof, any foreign government or any political
subdivision of the U.S. Government or any foreign government, or
any international instrumentality, or by any bank or savings
institution, or by any corporation or organization organized
under the laws of the United States or of any state, territory,
or possession thereof, or by any corporation or organization
organized under any foreign law, or in "when issued" contracts
for any such securities, to change the investments of the assets
of the Trust; and to exercise any and all rights, powers, and
privileges of ownership or interest in respect of any and all
such investments of every kind and description, including,
without limitation, the right to consent and otherwise act with
respect thereto, with power to designate one or more Persons, to
exercise any of said rights, powers, and privileges in respect of
any of said instruments;

(b) To sell, exchange, lend, pledge, mortgage,
hypothecate, lease, or write options with respect to or otherwise
deal in any property rights relating to any or all of the assets
of the Trust or any Series;

(c) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property;
and to execute and deliver proxies or powers of attorney to such
person or persons as the Trustees shall deem proper, granting to
such person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper;

(d) To exercise powers and right of subscription or
otherwise which in any manner arise out of ownership of
securities;

(e) To hold any security or property in a form not
indicating any trust, whether in bearer, unregistered or other
negotiable form, or in its own name or in the name of a custodian
or subcustodian or a nominee or nominees or otherwise;

(f) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or
issuer of any security which is held in the Trust; to consent to
any contract, lease, mortgage, purchase or sale of property by
such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;

(g) To join with other security holders in acting
through a committee, depositary, voting trustee or otherwise, and
in that connection to deposit any security with, or transfer any
security to, any such committee, depositary or trustee, and to
delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the
Trustees shall deem proper, and to agree to pay, and to pay, such
portion of the expenses and compensation of such committee,
depositary or trustee as the Trustees shall deem proper;

(h) To compromise, arbitrate or otherwise adjust claims
in favor of or against the Trust or any matter in controversy,
including but not limited to claims for taxes;

(i) To enter into joint ventures, general or limited
partnerships and any other combinations or associations;

(j) To borrow funds or other property in the name of
the Trust exclusively for Trust purposes;

(k) To endorse or guarantee the payment of any notes or
other obligations of any Person; to make contracts of guaranty or
suretyship, or otherwise assume liability for payment thereof;

(1) To purchase and pay for entirely out of Trust
Property such insurance as the Trustees may deem necessary or
appropriate for the conduct of the business, including, without
limitation, insurance policies insuring the assets of the Trust
or payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers,
principal underwriters, or independent contractors of the Trust,
individually against all claims and liabilities of every nature
arising by reason of holding Shares, holding, being or having
held any such office or position, or by reason of any action
alleged to have been taken or omitted by any such Person as
Trustee, officer, employee, agent, investment adviser, principal
underwriter, or independent contractor, including any action
taken or omitted that may be determined to constitute negligence,
whether or not the Trust would have the power to indemnify such
Person against liability; and

(m) To adopt, establish and carry out pension, profit-
sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions,
including the purchasing of life insurance and annuity contracts
as a means of providing such retirement and other benefits, for
any or all of the Trustees, officers, employees and agents of the
Trust.

The Trust shall not be limited to investing in
obligations maturing before the possible termination of the Trust
or one or more of its Series. The Trust shall not in any way be
bound or limited by any present or future law or custom in regard
to investment by fiduciaries. The Trust shall not be required to
obtain any court order to deal with any assets of the Trust or
take any other action hereunder.

Section 4. Payment of Expenses by the Trust. The
Trustees are authorized to pay or cause to be paid out of the
principal or income of the Trust, or partly out of the principal
and partly out of income, as they deem fair, all expenses, fees,
charges, taxes and liabilities incurred or arising in connection
with the Trust, or in connection with the management thereof,
including, but not limited to, the Trustees' compensation and
such expenses and charges for the services of the Trust's
officers, employees, investment adviser or manager, principal
underwriter, auditors, counsel, custodian, transfer agent,
Shareholder servicing agent, and such other agents or independent
contractors and such other expenses and charges as the Trustees
may deem necessary or proper to incur.

Section 5. Payment of Expenses by Shareholders. The
Trustees shall have the power, as frequently as they may
determine, to cause each Shareholder, or each Shareholder of any
particular Series, to pay directly, in advance or arrears, for
charges of the Trust's custodian or transfer, Shareholder
servicing or similar agent, an amount fixed from time to time by
the Trustees, by setting off such charges due from such
Shareholder from declared but unpaid dividends owed such
Shareholder and/or by reducing the number of shares in the
account of such Shareholder by that number of full and/or
fractional Shares which represents the outstanding amount of such
charges due from such Shareholder.

Section 6. Ownership of Assets of the Trust. Title to
all of the assets of the Trust shall at all times be considered
as vested in the Trust, except that the Trustees shall have power
to cause legal title to any Trust Property to be held by or in
the name of one or more of the Trustees, or in the name of the
Trust, or in the name of any other Person as nominee, on such
terms as the Trustees may determine. The right, title and
interest of the Trustees in the Trust Property shall vest
automatically in each Person who may hereafter become a Trustee.
Upon the resignation, removal or death of a Trustee he or she
shall automatically cease to have any right, title or interest in
any of the Trust Property, and the right, title and interest of
such Trustee in the Trust Property shall vest automatically in
the remaining Trustees. Such vesting and cessation of title shall
be effective whether or not conveyancing documents have been
executed and delivered.

Section 7. Service Contracts.

(a) Subject to such requirements and restrictions as
may be set forth in the By-Laws, the Trustees may, at any time
and from time to time, contract for exclusive or nonexclusive
advisory, management and/or administrative services for the Trust
or for any Series with any corporation, trust, association or
other organization; and any such contract may contain such other
terms as the Trustees may determine, including without
limitation, authority for the Investment Manager or administrator
to determine from time to time without prior consultation with
the Trustees what investments shall be purchased, held, sold or
exchanged and what portion, if any, of the assets of the Trust
shall be held uninvested and to make changes in the Trust's
investments or such other activities as may specifically be
delegated to such party.

(b) The Trustees may also, at any time and from time to
time, contract with any corporation, trust, association or other
organization, appointing it exclusive or nonexclusive distributor
or Principal Underwriter for the Shares of one or more of the
Series (or classes) or other securities to be issued by the
Trust. Every such contract shall comply with such requirements
and restrictions as may be set forth in the By-Laws; and any such
contract may contain such other terms as the Trustees may
determine.

(c) The Trustees are also empowered, at any time and
from time to time, to contract with any corporations, trusts,
associations or other organizations, appointing it or them the
custodian, transfer agent and/or shareholder servicing agent for
the Trust or one or more of its Series. Every such contract shall
comply with such requirements and restrictions as may be set
forth in the By-Laws or stipulated by resolution of the Trustees.

(d) The Trustees are further empowered, at any time and
from time to time, to contract with any entity to provide such
other services to the Trust or one or more of the Series, as the
Trustees determine to be in the best interests of the Trust and
the applicable Series.

(e) The fact that:

(i) any of the Shareholders, Trustees, or officers
of the Trust is a shareholder, director, officer,
partner, trustee, employee, Manager, adviser, Principal
Underwriter, distributor, or affiliate or agent of or
for any corporation, trust, association, or other
organization, or for any parent or affiliate of any
organization with which an advisory, management or
administration contract, or principal underwriter's or
distributor's contract, or transfer, shareholder
servicing or other type of service contract may have
been or may hereafter be made, or that any such
organization, or any parent or affiliate thereof, is a
Shareholder or has an interest in the Trust, or that

(ii) any corporation, trust, association or other
organization with which an advisory, management or
administration contract or principal underwriter's or
distributor's contract, or transfer, shareholder
servicing or other type of service contract may have
been or may hereafter be made also has an advisory,
management or administration contract, or principal
underwriter's or distributor's contract, or transfer,
shareholder servicing or other service contract with
one or more other corporations, trust, associations, or
other organizations, or has other business or
interests,

shall not affect the validity of any such contract or disqualify
any Shareholder, Trustee or officer of the Trust from voting upon
or executing the same, or create any liability or accountability
to the Trust or its Shareholders, provided approval of each such
contract is made pursuant to the requirements of the 1940 Act.

ARTICLE V

Shareholders' Voting Powers and Meetings

Section 1. Voting Powers. Subject to the provisions of
Article III, Section 6(d), the Shareholders shall have power to
vote only (i) for the election or removal of Trustees as provided
in Article IV, Section 1, and (ii) with respect to such
additional matters relating to the Trust as may be required by
this Declaration of Trust, the By-Laws or any registration of the
Trust with the Commission (or any successor agency) or any state,
or as the Trustees may consider necessary or desirable. Each
whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be
entitled to a proportionate fractional vote. There shall be no
cumulative voting in the election of Trustees. Shares may be
voted in person or by proxy. A proxy with respect to Shares held
in the name of two or more persons shall be valid if executed by
any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any
one of them. A proxy purporting to be executed by or on behalf of
a Shareholder shall be deemed valid unless challenged at or prior
to its exercise and the burden of proving invalidity shall rest
on the challenger.

Section 2. Voting Power and Meetings. Meetings of the
Shareholders may be called by the Trustees for the purpose of
electing Trustees as provided in Article IV, Section 1 and for
such other purposes as may be prescribed by law, by this
Declaration of Trust or by the By-Laws. Meetings of the
Shareholders may also be called by the Trustees from time to time
for the purpose of taking action upon any other matter deemed by
the Trustees to be necessary or desirable. A meeting of
Shareholders may be held at any place designated by the Trustees.
Written notice of any meeting of Shareholders shall be given or
caused to be given by the Trustees by mailing such notice at
least seven (7) days before such meeting, postage prepaid,
stating the time and place of the meeting, to each Shareholder at
the Shareholder's address as it appears on the records of the
Trust. Whenever notice of a meeting is required to be given to a
Shareholder under this Declaration of Trust or the By-Laws, a
written waiver thereof, executed before or after the meeting by
such Shareholder or his or her attorney thereunto authorized and
filed with the records of the meeting, shall be deemed equivalent
to such notice.

Section 3. Quorum and Required Vote. Except when a
larger quorum is required by applicable law, by the By-Laws or by
this Declaration of Trust, forty percent (40%) of the Shares
entitled to vote shall constitute a quorum at a Shareholders'
meeting. When any one or more Series (or classes) is to vote as a
single class separate from any other Shares, forty percent (40%)
of the Shares of each such Series (or classes) entitled to vote
shall constitute a quorum at a Shareholder's meeting of that
Series. Any meeting of Shareholders may be adjourned from time to
time by a majority of the votes properly cast upon the question
of adjourning a meeting to another date and time, whether or not
a quorum is present, and the meeting may be held as adjourned
within a reasonable time after the date set for the original
meeting without further notice. Subject to the provisions of
Article III, Section 6(d), when a quorum is present at any
meeting, a majority of the Shares voted shall decide any
questions and a plurality shall elect a Trustee, except when a
larger vote is required by any provision of this Declaration of
Trust or the By-Laws or by applicable law.

Section 4. Action by Written Consent. Any action taken
by Shareholders may be taken without a meeting if Shareholders
holding a majority of the Shares entitled to vote on the matter
(or such larger proportion thereof as shall be required by any
express provision of this Declaration of Trust or by the By-Laws)
and holding a majority (or such larger proportion as aforesaid)
of the Shares of any Series (or class) entitled to vote
separately on the matter consent to the action in writing and
such written consents are filed with the records of the meetings
of Shareholders. Such consent shall be treated for all purposes
as a vote taken at a meeting of Shareholders.

Section 5. Record Dates. For the purpose of determining
the Shareholders of any Series (or class) who are entitled to
vote or act at any meeting or any adjournment thereof, the
Trustees may from time to time fix a time, which shall be not
more than ninety (90) days before the date of any meeting of
Shareholders, as the record date for determining the Shareholders
of such Series (or class) having the right to notice of and to
vote at such meeting and any adjournment thereof, and in such
case only Shareholders of record on such record date shall have
such right, notwithstanding any transfer of shares on the books
of the Trust after the record date. For the purpose of
determining the Shareholders of any Series
(or class) who are entitled to receive payment of any dividend or
of any other distribution, the Trustees may from time to time fix
a date, which shall be before the date for the payment of such
dividend or such other payment, as the record date for
determining the Shareholders of such Series (or class) having the
right to receive such dividend or distribution. Without fixing a
record date the Trustees may for voting and/or distribution
purposes close the register or transfer books for one or more
Series for all or any part of the period between a record date
and a meeting of Shareholders or the payment of a distribution.
Nothing in this Section shall be construed as precluding the
Trustees from setting different record dates for different Series
(or classes).

Section 6. Additional Provisions. The By-Laws may include
further provisions for Shareholders' votes and meetings and
related matters.

ARTICLE VI

Net Asset Value, Distributions, and Redemptions

Section 1. Determination of Net Asset Value, Net
Income, and Distributions. Subject to Article III, Section 6
hereof, the Trustees, in their absolute discretion, may prescribe
and shall set forth in the By-Laws or in a duly adopted vote of
the Trustees such bases and time for determining the per Share or
net asset value of the Shares of any Series or net income
attributable to the Shares of any Series, or the declaration and
payment of dividends and distributions on the Shares of any
Series, as they may deem necessary or desirable.

Section 2. Redemptions and Repurchases. The Trust shall
purchase such Shares as are offered by any Shareholder for
redemption, upon the presentation of a proper instrument of
transfer together with a request directed to the Trust or a
person designated by the Trust that the Trust purchase such
Shares or in accordance with such other procedures for redemption
as the Trustees may from time to time authorize; and the Trust
will pay therefor the net asset value thereof, in accordance with
the By-Laws and applicable law. Payment for said Shares shall be
made by the Trust to the Shareholder within seven days after the
date on which the request is made in proper form. The obligation
set forth in this Section 2 is subject to the provision that in
the event that any time the New York Stock Exchange (the
"Exchange") is closed for other than weekends or holidays, or if
permitted by the Rules of the Commission during periods when
trading on the Exchange is restricted or during any emergency
which makes it impracticable for the Trust to dispose of the
investments of the applicable Series or to determine fairly the
value of the net assets held with respect to such Series or
during any other period permitted by order of the Commission for
the protection of investors, such obligations may be suspended or
postponed by the Trustees.

The redemption price may in any case or cases be paid
wholly or partly in kind if the Trustees determine that such
payment is advisable in the interest of the remaining
Shareholders of the Series for which the Shares are being
redeemed. Subject to the foregoing, the fair value, selection and
quantity of securities or other property so paid or delivered as
all or part of the redemption price may be determined by or under
authority of the Trustees. In no case shall the Trust be liable
for any delay of any corporation or other Person in transferring
securities selected for delivery as all or part of any payment in
kind.

Section 3. Redemptions at the option of the Trust. The
Trust shall have the right at its option and at any time to
redeem Shares of any Shareholder at the net asset value thereof
as described in Section 1 of this Article VI: (i) if at such time
such Shareholder owns Shares of any Series having an aggregate
net asset value of less that an amount determined from time to
time by the Trustees prior to the acquisition of said Shares; or
(ii) to the extent that such Shareholder owns Shares of a
particular Series equal to or in excess of a percentage of the
outstanding Shares of that Series determined from time to time by
the Trustees; or (iii) to the extent that such Shareholder owns
Shares equal to or in excess of a percentage, determined from
time to time by the Trustees, of the outstanding Shares of the
Trust or of any Series.

ARTICLE VII

Compensation and Limitation of Liability of Trustees

Section 1. Compensation. The Trustees as such shall be
entitled to reasonable compensation from the Trust, and they may
fix the amount of such compensation. Nothing herein shall in any
way prevent the employment of any Trustee for advisory,
management, legal, accounting, investment banking or other
services and payment for the same by the Trust.

Section 2. Indemnification and Limitation of Liability.
The Trustees shall not be responsible or liable in any event for
any neglect or wrong-doing of any officer, agent, employee,
Manager or Principal Underwriter of the Trust, nor shall any
Trustee be responsible for the act or omission of any other
Trustee, and the Trust out of its assets shall indemnify and hold
harmless each and every Trustee from and against any and all
claims and demands whatsoever arising out of or related to each
Trustee's performance of his or her duties as a Trustee of the
Trust; provided that nothing herein contained shall indemnify,
hold harmless or protect any Trustee from or against any
liability to the Trust or any Shareholder to which he or she
would otherwise be subject by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.

Every note, bond, contract, instrument, certificate or
undertaking and every other act or thing whatsoever issued,
executed or done by or on behalf of the Trust or the Trustees or
any of them in connection with the Trust shall be conclusively
deemed to have been issued, executed or done only in or with
respect to their or his or her capacity as Trustees or Trustee,
and such Trustees or Trustee shall not be personally liable
thereon.

Section 3. Trustee's Good Faith Action, Expert Advice,
No Bond or Surety. The exercise by the Trustees of their powers
and discretions hereunder shall be binding upon everyone
interested. A Trustee shall be liable to the Trust and to any
Shareholder solely for his or her own wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee, and shall not
be liable for errors of judgment or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with respect
to the meaning and operation of this Declaration of Trust, and
shall be under no liability for any act or omission in accordance
with such advice nor for failing to follow such advice. The
Trustees shall not be required to give any bond as such, nor any
surety if a bond is required.

Section 4. Insurance. The Trustees shall be entitled
and empowered to the fullest extent permitted by law to purchase
with Trust assets insurance for liability and for all expenses
reasonably incurred or paid or expected to be paid by a Trustee
or officer in connection with any claim, action, suit or
proceeding in which he or she becomes involved by virtue of his
or her capacity or former capacity with the Trust.

ARTICLE VIII

Miscellaneous

Section 1. Liability of Third Persons Dealing with
Trustees. No Person dealing with the Trustees shall be bound to
make any inquiry concerning the validity of any transaction made
or to be made by the Trustees or to see to the application of any
payments made or property transferred to the Trust or upon its
order.

Section 2. Termination of Trust or Series. Unless
terminated as provided herein, the Trust shall continue without
limitation of time. The Trust may be terminated at any time by
vote of a majority of the Shares of each Series entitled to vote,
voting separately by Series, or by the Trustees by written notice
to the Shareholders. Any Series may be terminated at any time by
vote of a majority of the Shares of that Series or by the
Trustees by written notice to the Shareholders of that Series.

Upon termination of the Trust (or any Series, as the case
may be), after paying or otherwise providing for all charges,
taxes, expenses and liabilities held, severally, with respect to
each Series (or the applicable Series, as the case may be),
whether due or accrued or anticipated as may be determined by the
Trustees, the Trust shall, in accordance with such procedures as
the Trustees consider appropriate, reduce the remaining assets
held, severally, with respect to each Series (or the applicable
Series, as the case may be), to distributable form in cash or
shares or other securities, or any combination thereof, and
distribute the proceeds held with respect to each Series (or the
applicable Series, as the case may be), to the Shareholders of
that Series, as a Series, ratably according to the number of
Shares of that Series held by the several Shareholders on the
date of termination.

Section 3. Merger and Consolidation. The Trustees may
cause (i) the Trust or one or more of its Series to the extent
consistent with applicable law to be merged into or consolidated
with another Trust or company, (ii) the Shares of the Trust or
any Series to be converted into beneficial interests in another
business trust or series thereof) created pursuant to this
Section 3 of Article VIII, or (iii) the Shares to be exchanged
under or pursuant to any state or federal statute to the extent
permitted by law. Such merger or consolidation, Share conversion
or Share exchange must be authorized by vote of a majority of the
outstanding Shares of the Trust, as a whole, or any affected
Series, as may be applicable; provided that in all respects not
governed by statute or applicable law, the Trustees shall have
power to prescribe the procedure necessary or appropriate to
accomplish a sale of assets, merger or consolidation including
the power to create one or more separate business trusts to which
all or any part of the assets, liabilities, profits or losses of
the Trust may be transferred and to provide for the conversion of
Shares of the Trust or any Series into beneficial interests in
such separate business trust or trusts (or series thereof).

Section 4. Amendments. This Declaration of Trust may be
restated and/or amended at any time by an instrument in writing
signed by a majority of the then Trustees and, if required, by
approval of such amendment by Shareholders in accordance with
Article V, Section 3 hereof. Any such restatement and/or
amendment hereto shall be effective immediately upon execution
and approval. The Certificate of Trust of the Trust may be
restated and/or amended by a similar procedure, and any such
restatement and/or amendment shall be effective immediately upon
filing with the Office of the Secretary of State of the State of
Delaware or upon such future date as may be stated therein.

Section 5. Filing of Copies, References, Headings. The
original or a copy of this instrument and of each restatement
and/or amendment hereto shall be kept at the office of the Trust
where it may be inspected by any Shareholder. Anyone dealing with
the Trust may rely on a certificate by an officer of the Trust as
to whether or not any such restatements and/or amendments have
been made and as to any matters in connection with the Trust
hereunder; and, with the same effect as if it were the original,
may rely on a copy certified by an officer of the Trust to be a
copy of this instrument or of any such restatements and/or
amendments. In this instrument and in any such restatements
and/or amendment, references to this instrument, and all
expressions like "herein", "hereof" and "hereunder", shall be
deemed to refer to this instrument as amended or affected by any
such restatements and/or amendments. Headings are placed herein
for convenience of reference only and shall not be taken as a
part hereof or control or affect the meaning, construction or
effect of this instrument. Whenever the singular number is used
herein, the same shall include the plural; and the neuter,
masculine and feminine genders shall include each other, as
applicable. This instrument may be executed in any number of
counterparts each of which shall be deemed an original.

Section 6. Applicable Law. This Agreement and
Declaration of Trust is created under and is to be governed by
and construed and administered according to the laws of the State
of Delaware and the Delaware Business Trust Act, as amended from
time to time (the "Act"). The Trust shall be a Delaware business
trust pursuant to such Act, and without limiting the provisions
hereof, the Trust may exercise all powers which are ordinarily
exercised by such a business trust.

Section 7. Provisions in Conflict with Law or
Regulations.

(a) The provisions of the Declaration of Trust are
severable, and if the Trustees shall determine, with the advice
of counsel, that any of such provisions is in conflict with the
1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to
have constituted a part of the Declaration of Trust; provided,
however, that such determination shall not affect any of the
remaining provisions of the Declaration of Trust or render
invalid or improper any action taken or omitted prior to such
determination.

(b) If any provision of the Declaration of Trust
shall be held invalid or unenforceable in any jurisdiction, such
invalidity or unenforceability shall attach only to such
provision in such jurisdiction and shall not in any manner affect
such provision in any other jurisdiction or any other provision
of the Declaration of Trust in any jurisdiction.

Section 8. Business Trust Only. It is the intention of
the Trustees to create a business trust pursuant to the Delaware
Business Trust Act, as amended from time to time (the "Act"), and
thereby to create only the relationship of trustee and beneficial
owners within the meaning of such Act between the Trustees and
each Shareholder. It is not the intention of the Trustees to
create a general partnership, limited partnership, joint stock
association corporation, bailment, or any form of legal
relationship other than a business trust pursuant to such Act.
Nothing in this Declaration of Trust shall be construed to make
the Shareholders, either by themselves or with the Trustees
partners or members of a joint stock association.

Section 9. Use of the Name "Franklin". The name
"Franklin" and all rights to the use of the name "Franklin"
belongs to Franklin Resources, Inc. ("Franklin"), the sponsor of
the Trust. Franklin has consented to the use by the Trust of the
identifying word "Franklin" and has granted to the Trust a non-
exclusive license to use the name "Franklin" as part of the name
of the Trust and the name of any Series of Shares. In the event
Franklin or an affiliate of Franklin is not appointed as Manager
and/or Principal Underwriter or ceases to be the Manager and/or
Principal Underwriter of the Trust or of any Series using such
names, the non-exclusive license granted herein may be revoked by
Franklin and the Trust shall cease using the name "Franklin" as
part of its name or the name of any Series of Shares, unless
otherwise consented to by Franklin or any successor to its
interests in such names.

IN WITNESS WHEREOF, the Trustees named below do hereby
make and enter into this Declaration of Trust as of the 12th day
of February 1991.

/s/Frank H. Abbott, III /s/ Charles B. Johnson
Frank H. Abbott, III Charles B. Johnson
1045 Samsome Street 777 Mariners Island Blvd.
San Francisco, California 94111 San Mateo, California 94404

/s/ Harris J. Ashton /s/ Rupert H. Johnson, Jr.
Harris J. Ashton Rupert H. Johnson, Jr.
22 Gate House Road 777 Mariners Island Blvd.
Stamford, Connecticut 06902 San Mateo, California 94404

/s/ S. Joseph Fortunato /s/ Edmund H. Kerr
S. Joseph Fortunato Edmund H. Kerr
Park Avenue at Morris County One Liberty Plaza
P.O. Box 1945 New York, New York 10006
Morristown, New Jersey 07962-1945

/s/ David W. Garbellano /s/ Frank W.T. LaHaye
David W. Garbellano Frank W.T. LaHaye
111 New Montgomery St. # 402 20833 Stevens Creek Blvd.
San Francisco, California 94105 Suite 102
Cupertino, California 95014

/s/ Henry L. Jamieson /s/ Johannes R. Krahmer
Henry L. Jamieson Johannes R. Krahmer
777 Mariners Island Blvd. c/o Morris, Nichols, Arsht
& Tunnell
1201 N. Marker Street
Wilmington, Delaware 19899
-1347

THE PRINCIPAL PLACE OF BUSINESS OF THE TRUST IS 777 Mariners
Island Boulevard, San Mateo, California 94404

CERTIFICATE OF TRUST
OF
FRANKLIN INSTITUTIONAL U.S GOVERNMENT ARM FUND

This Certificate of Trust of FRANKLIN INSTITUTIONAL
U.S. GOVERNMENT ARM FUND, a business Trust (hereafter called the
"Business Trust"), executed by the undersigned trustees, one of
whom has a residence in the State of Delaware, and filed under
and in accordance with the provisions of the Delaware Business
Trust Act (12 Del. C. (section)3801 et seq.), sets forth the
following:

FIRST: The name of the Business Trust is FRANKLIN
INSTITUTIONAL U.S. GOVERNMENT ARM FUND.

SECOND: The name and business address of the Delaware
resident trustee of the Business Trust required by 12 Del. C.
(section)(section)3807 is as follows:

Name Business Address

Johannes R. Krahmer Morris, Nichols, Arsht
& Tunnell
1201 N. Market Street
Wilmington, Delaware 19899
-1347

The name and business address of each of the other
trustees of the Business Trust is as follows:

Name Business Address

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

Harris J. Ashton 22 Gate House Road
Stamford, Connecticut 06902

S. Joseph Fortunato Park Avenue at Morris County
P. O. Box 1945
Morristown, N.J. 07962-1945

David Garbellano 111 New Montgomery St. #402
San Francisco, CA 94105

Henry L. Jamieson 777 Mariners Island Blvd.
San Mateo, CA 94404

Charles B. Johnson 777 Mariners Island Blvd.
San Mateo, CA 94404

Rupert H. Johnson, Jr. 777 Mariners Island Blvd.
San Mateo, CA 94404

Edmund H. Kerr 1 Liberty Plaza
New York, N.Y. 10006

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

THIRD: The nature of the business or purpose or
purposes of the Business Trust as set forth in its governing
instrument is to conduct, operate and carry on the business of a
management investment company registered under the Investment
Company Act of 1940, as amended, through one or more series of
shares of beneficial interest, investing primarily in securities.

FOURTH: The trustees of the Business Trust, as set
forth in its governing instrument, reserve the right to amend,
alter, change or repeal any provision contained in this
Certificate of Trust, in the manner now or hereafter prescribed
by statute.

FIFTH: This Certificate of Trust shall become effective
immediately upon filing with the Office of the Secretary of State
of the State of Delaware.

IN WITNESS WHEREOF, the undersigned, being all of the
trustees of Franklin institutional U.S. Government Arm Fund, have
duly executed this Certificate of Trust as of this 12th day of
February 1991.

/s/ Frank H. Abbott, III
Frank H. Abbott, III

/s/ Harris, J. Ashton
Harris, J. Ashton

/s/ S. Joseph Fortunato
S. Joseph Fortunato

/s/ David W. Garbellano
David W. Garbellano

/s/ Henry L. Jamieson
Henry L. Jamieson

/s/ Charles B. Johnson
Charles B. Johnson

/s/ Rupert H. Johnson, Jr.
Rupert H. Johnson, Jr.

/s/ Edmund H. Kerr
Edmund H. Kerr

/s/ Frank W. T. LaHaye
Frank W. T. LaHaye

/s/ Johannes R. Krahmer
Johannes R. Krahmer

CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF TRUST
OF
FRANKLIN INSTITUTIONAL U.S. GOVERNMENT ARM FUND

The undersigned certifies that:

1. The name of the business trust is FRANKLIN INSTITUTIONAL
U.S. GOVERNMENT ARM FUND (the "Business Trust).

2. The amendment to the Certificate of Trust of the Business
Trust set forth below has been duly authorized by the Board
of Trustees of the Business Trust.

The First Article of the Certificate of Trust is hereby
amended to read as follows:

"The name of the Business Trust is the ADJUSTABLE RATE
SECURITLES PORTFOLIOS".

3. Pursuant to 12 Del. Code (section) 3810(b) (1)c, this
Certificate of Amendment to the Certificate of Trust of the
Business Trust shall become effective immediately upon
filing with the Office of the Secretary of State of the
State of Delaware.

4. This Amendment is made pursuant to the Fourth Article of the
Certificate of Trust which reserves to the Trustees the
right to amend, alter, change or repeal any provisions
contained in the Certificate of Trust.

IN WITNESS WHEREOF, the undersigned, being a trustee of the
Business Trust, has duly executed this Certificate of Amendnment
this 18th day of October 1991.

/s/ Charles B.Johnson
Charles B. Johnson

CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF TRUST

FRANKLIN INSTITUTIONAL U.S. GOVERNMENT ARM FUND

The undersigned certifies that:

1. The name of the business trust is FRANKLIN INSTITUTIONAL
U.S. GOVERNMENT ARM FUND (the "Business Trust").

2. The amendments to the Certificate of Trust of the Business
Trust set forth below have been duly authorized by the Board
of Trustees of the Business Trust:

The Preamble is hereby amended to read as follows:

"This Certificate of Trust of the FRANKLIN INSTITUTIONAL
U.S. GOVERNMENT ARM FUND, a business trust registered under
the Investment Company Act of 1940 (the "Business Trust"),
is filed in accordance with the provisions of the Delaware
Business Trust Act (12 Del. C. (section)(section)3801 seg.)
and sets forth the following:"

The Second Article is hereby amended to read as follows:

"SECOND: As required by 12 De1. C. (section) (section) 3807
and 3810(a)(1)b, the name and business address of the
Business Trust's Registered Agent for Service of Process and
the address of the Business Trust's Registered Office are:

Address of Business Trust's
Registered Office and
Business Address of
Registered Agent Registered Agent

Corporation Trust 1209 Orange Street
Company Wilmington, Delaware 19801

The name and business address of each trustee of the
Business Trust, effective on March 15, 1991, is as follows:

Name Business Address

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

Harris J. Ashton 22 Gate House Road
Stamford, Connecticut 06902

S. Joseph Fortunato Park Avenue at Morris County
P.O. Box 1945
Morristown, N.J. 07962-1945

David. W. Garbellano 111 New Montgomery St. #402
San Francisco, CA 94105

Henry L. Jamieson 777 Mariners Island B1vd.
San Mateo, CA 94404

Charles B. Johnson 777 Mariners Island Blvd.
San Mateo, CA 94404

Rupert H. Johnson, Jr. 777 Mariners Island Blvd.
San Mateo, CA 94404

Edmund H. Kerr 1 Liberty Plaza
New York, N.Y. 10006

Frank W. T. LaHaye 20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014"

3. Pursuant to 12 Del. C. 13810(b)(1)c, this Certificate of
Amendment to the Certificate of Trust of the Business Trust
shall become effective on March 15, 1991.

4. This Amendment is made pursuant to the Fourth Article Of the
Certificate of Trust which reserves to the Trustees the
right to amend, alter, change or repeal any provision
contained in the Certificate of Trust.

IN WITNESS WHEREOF, the undersigned, being a trustee of
the Business Trust, has duly executed this Certificate of
Amendment this 7th day of March 1991.

/s/ Charles B. Johnson
Charles B. Johnson

CERTIFICATE OF
AMENDMENT TO
THE
CERTIFICATE OF TRUST
OF
ADJUSTABLE RATE SECURITIES PORTFOLIO

The undersigned certifies that:

1. The name of the business trust is the Adjustable Rate
Securities Portfolio (the "Business Trust").

2. The amendment to the Certificate of Trust of the Business
Trust set forth below (the "Amendment") has been duly
authorized by the Board of Trustees of the Business
Trust.

The following Article is hereby added to the Certificate of
Trust:

SIXTH: Pursuant to section 3804 of the Delaware Business
Trust Act, Del. Code. Ann. tit. 12, sec. 3801-3819 (the
"Act"), the debts, liabilities, obligations and expenses
incurred contracted for or otherwise existing with
respect to each particular series of the Trust, whether
such series is now existing or is hereinafter created,
shall be enforceable against the assets of such series
only, and not against the assets of the Trust generally.

3. Pursuant to Section 3810(b)(1)(c) of the Act, this
Certificate of Amendment to the Certificate of Trust of
the Business Trust shall become effective immediately
upon filing with the office of the Secretary of State of
the State of Delaware.

4. The Amendment is made pursuant to the authority granted
to
the Trustees of the Business Trust under Section
3810(b)(2) of the Act and pursuant to the authority set
forth in the governing instrument of the Business Trust.

IN WITNESS WHEREOF, the undersigned, being a trustee of
the Business Trust, has duly executed this Certificate of
Amendment this 14th day of May 1992.

/s/ Charles B. Johnson
Charles B. Johnson
Trustee

BY-LAWS

for the regulation, except as
otherwise provided by statute or
the Agreement and Declaration of Trust of

FRANKLIN INSTITUTIONAL
U.S. GOVERNMENT ARM FUND

a Delaware Business Trust

TABLE OF CONTENTS

BY-LAWS
FRANKLIN INSTITUTIONAL
U.S. GOVERNMENT ARM FUND

ARTICLE I Offices
1. Principal Office
2. Delaware Office
3. Other Offices

ARTICLE II Meetings of Shareholders

1. Place of Meetings
2. Call of Meeting
3. Notice of Shareholders' Meeting
4. Manner of Giving Notice; Affidavit of Notice
5. Adjourned Meeting; Notice
6. Voting
7. Waiver of Notice of Consent by Absent Shareholders
8. Shareholder Action by Written Consent without a Meeting
9. Record Date for Shareholder' Notice, Voting and Giving
Consents
10. Proxies
11. Inspectors of Election

ARTICLE III Trustees

1. Powers
2. Number of Trustees
3. Vacancies
4. Place of Meetings and Meetings by Telephone
5. Regular Meetings
6. Special Meetings
7. Quorum
8. Waiver of Notice
9. Adjournment
10. Notice of Adjournment
11. Action Without a Meeting
12. Fees and Compensation of Trustees
13. Delegation of Power to Other Trustees

ARTICLE IV Committees

1. Committees of Trustees
2. Meetings and Action of Committees

ARTICLE V Officers

1. Officers
2. Election of Officers
3. Subordinate Officers
4. Removal and Resignation of Officers
5. Vacancies in Offices
6. Chairman of the Board
7. President
8. Vice President
9. Secretary
10. Treasurer

ARTICLE VI Indemnification of Trustees, Officers Employees and
Other Agents

1. Agents, Proceedings and Expenses
2. Actions Other than by Trust
3. Actions by the Trust
4. Exclusion and Indemnification
5. Successful Defense by Agent
6. Required Approval
7. Advance of Expenses
8. Other Contractual Rights
9. Limitations
10. Insurance
11. Fiduciaries of Corporate Employee Benefit Plan

ARTICLE VII Records and Reports

1. Maintenance and Inspection of Share Register
2. Maintenance and Inspection of By-Laws
3. Maintenance and Inspection of Other Records
4. Inspection by Trustees
5. Financial Statements

ARTICLE VIII General Matters

1. Checks, Drafts, Evidence of Indebtedness
2. Contracts and Instruments; How Executed
3. Certificate of Shares
4. Lost Certificates
5. Representation of Shares of Other Entities
6. Fiscal Year

ARTICLE IX Amendments

1. Amendment by Shareholders
2. Amendment by Trustees
3. Incorporation by Reference into Agreement and Declaration
of Trust of the Trust

BY-LAWS
OF
FRANKLIN INSTITUTIONAL
U.S. GOVERNMENT ARM FUND
A Delaware Business Trust

ARTICLE I
OFFICES

Section 1. PRINCIPAL OFFICE. The Board of Trustees
shall fix and, from time to time, may change the location of the
principal executive office of the Franklin Institutional U.S.
Government Arm Fund (the "Trust") at any place within or outside
the State of Delaware.

Section 2. DELAWARE OFFICE. The Board of Trustees shall
establish a registered office in the State of Delaware and shall
appoint as the Trust's registered agent for service of process in
the State of Delaware an individual resident of the State of
Delaware or a Delaware corporation or a corporation authorized to
transact business in the State of Delaware; in each case the
business office of such registered agent for service of process
shall be identical with the registered Delaware office of the
Trust.

Section 3. OTHER OFFICES. The Board of Trustees may at
any time establish branch or subordinate offices at any place or
places where the Trust intends to do business.

ARTICLE II
MEETINGS OF SHAREHOLDERS

Section 1. PLACE OF MEETINGS. Meetings of shareholders
shall be held at any place designated by the Board of Trustees.
In the absence of any such designation, shareholders' meetings
shall be held at the principal executive office of the Trust.

Section 2. CALL OF MEETING. A meeting of the
shareholders may be called at any time by the Board of Trustees
or by the Chairman of the Board or by the President.

Section 3. NOTICE OF SHAREHOLDERS' MEETING. All notices
of meetings of shareholders shall be sent or otherwise given in
accordance with Section 4 of this Article II not less than seven
(7) nor more than seventy-five (75) days before the date of the
meeting. The notice shall specify (i) the place, date and hour of
the meeting, and (ii) the general nature of the business to be
transacted. The notice of any meeting at which Trustees are to be
elected also shall include the name of any nominee or nominees
whom at the time of the notice are intended to be presented for
election.

If action is proposed to be taken at any meeting for
approval of (i) a contract or transaction in which a Trustee has
a direct or indirect financial interest, (ii) an amendment of the
Agreement and Declaration of Trust of the Trust, (iii) a
reorganization of the Trust, or (iv) a voluntary dissolution of
the Trust, the notice shall also state the general nature of that
proposal.

Section 4. MANNER OF GIVING NOTICE; AFFIDAVIT OF
NOTICE. Notice of any meeting of shareholders shall be given
either personally or by first-class mail or telegraphic or other
written communication, charges prepaid, addressed to the
shareholder at the address of that shareholder appearing on the
books of the Trust or its transfer agent or given by the
shareholder to the Trust for the purpose of notice. If no such
address appears on the Trust's books or is given, notice shall be
deemed to have been given if sent to that shareholder by first-
class mail or telegraphic or other written communication to the
Trust's principal executive office, or if published at least once
in a newspaper of general circulation in the county where that
office is located. Notice shall be deemed to have been given at
the time when delivered personally or deposited in the mail or
sent by telegram or other means of written communication.

If any notice addressed to a shareholder at the address
of that shareholder appearing on the books of the Trust is
returned to the Trust by the United States Postal Service marked
to indicate that the Postal Service is unable to deliver the
notice to the shareholder at that address, all future notices or
reports shall be deemed to have been duly given without further
mailing if these shall be available to the shareholder on written
demand of the shareholder at the principal executive office of
the Trust for a period of one year from the date of the giving of
the notice.

An affidavit of the mailing or other means of giving
any notice of any shareholder's meeting shall be executed by the
Secretary, Assistant Secretary or any transfer agent of the Trust
giving the notice and shall be filed and maintained in the minute
book of the Trust.

Section 5. ADJOURNED MEETING; NOTICE. Any shareholders'
meeting, whether or not a quorum is present, may be adjourned
from time to time by the vote of the majority of the shares
represented at that meeting, either in person or by proxy.

When any meeting of shareholders is adjourned to
another time or place, notice need not be given of the adjourned
meeting at which the adjournment is taken, unless a new record
date of the adjourned meeting is fixed or unless the adjournment
is for more than sixty (60) days from the date set for the
original meeting, in which case the Board of Trustees shall set a
new record date. Notice of any such adjourned meeting shall be
given to each shareholder of record entitled to vote at the
adjourned meeting in accordance with the provisions of Sections 3
and 4 of this Article II. At any adjourned meeting, the Trust may
transact any business which might have been transacted at the
original meeting.

Section 6. VOTING. The shareholders entitled to vote at
any meeting of shareholders shall be determined in accordance
with the provisions of the Agreement and Declaration of Trust of
the Trust, as in effect at such time. The shareholders' vote may
be by voice vote or by ballot, provided, however, that any
election for Trustees must be by ballot if demanded by any
shareholder before the voting has begun. On any matter other than
elections of Trustees, any shareholder may vote part of the
shares in favor of the proposal and refrain from voting the
remaining shares or vote them against the proposal, but if the
shareholder fails to specify the number of shares which the
shareholder is voting affirmatively, it will be conclusively
presumed that the shareholder's approving vote is with respect to
the total shares that the shareholder is entitled to vote on such
proposal.

Section 7. WAIVER OF NOTICE BY CONSENT OF ABSENT
SHAREHOLDERS. The transactions of the meeting of shareholders,
however called and noticed and wherever held, shall be as valid
as though had at a meeting duly held after regular call and
notice if a quorum be present either in person or by proxy and if
either before or after the meeting, each person entitled to vote
who was not present in person or by proxy signs a written waiver
of notice or a consent to a holding of the meeting or an approval
of the minutes. The waiver of notice or consent need not specify
either the business to be transacted or the purpose of any
meeting of shareholders.

Attendance by a person at a meeting shall also
constitute a waiver of notice of that meeting, except when the
person objects at the beginning of the meeting to the transaction
of any business because the meeting is not lawfully called or
convened and except that attendance at a meeting is not a waiver
of any right to object to the consideration of matters not
included in the notice of the meeting if that objection is
expressly made at the beginning of the meeting.

Section 8. SHAREHOLDER ACTION BY WRITTEN CONSENT
WITHOUT A MEETING. Any action which may be taken at any meeting
of shareholders may be taken without a meeting and without prior
notice if a consent in writing setting forth the action so taken
is signed by the holders of outstanding shares having not less
than the minimum number of votes that would be necessary to
authorize or take that action at a meeting at which all shares
entitled to vote on that action were present and voted. All such
consents shall be filed with the Secretary of the Trust and shall
be maintained in the Trust's records. Any shareholder giving a
written consent or the shareholder's proxy holders or a
transferee of the shares or a personal representative of the
shareholder or their respective proxy holders may revoke the
consent by a writing received by the Secretary of the Trust
before written consents of the number of shares required to
authorize the proposed action have been filed with the Secretary.

If the consents of all shareholders entitled to vote
have not been solicited in writing and if the unanimous written
consent of all such shareholders shall not have been received,
the Secretary shall give prompt notice of the action approved by
the shareholders without a meeting. This notice shall be given in
the manner specified in Section 4 of this Article II. In the case
of approval of (i) contracts or transactions in which a Trustee
has a direct or indirect financial interest, (ii) indemnification
of agents of the Trust, and (iii) a reorganization of the Trust,
the notice shall be given at least ten (10) days before the
consummation of any action authorized by that approval.

Section 9. RECORD DATE FOR SHAREHOLDER NOTICE. VOTING
AND GIVING CONSENTS. For purposes of determining the shareholders
entitled to notice of any meeting or to vote or entitled to give
consent to action without a meeting, the Board of Trustees may
fix in advance a record date which shall not be more than ninety
(90) days nor less than seven (7) days before the date of any
such meeting as provided in the Agreement and Declaration of
Trust of the Trust.

If the Board of Trustees does not so fix a record date:

(a) The record date for determining shareholders
entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on
the business day next preceding the day on which
notice is given or if notice is waived, at the
close of business on the business day next
preceding the day on which the meeting is held.

(b) The record date for determining shareholders
entitled to give consent to action in writing
without a meeting, (i) when no prior action by the
Board of Trustees has been taken, shall be the day
on which the first written consent is given, or
(ii) when prior action of the Board of Trustees
has been taken, shall be at the close of business
on the day on which the Board of Trustees adopt
the resolution relating to that action or the
seventy-fifth day before the date of such other
action, whichever is later.

Section 10. PROXIES. Every person entitled to vote for
Trustees or on any other matter shall have the right to do so
either in person or by one or more agents authorized by a written
proxy signed by the person and filed with the Secretary of the
Trust. A proxy shall be deemed signed if the shareholder's name
is placed on the proxy (whether by manual signature, typewriting,
telegraphic transmission or otherwise) by the shareholder or the
shareholders' attorney-in-fact. A validly executed proxy which
does not state that it is irrevocable shall continue in full
force and effect unless (i) revoked by the person executing it
before the vote pursuant to that proxy by a writing delivered to
the Trust stating that the proxy is revoked or by a subsequent
proxy executed by or attendance at the meeting and voting in
person by the person executing that proxy; or (ii) written notice
of the death or incapacity of the maker of that proxy is received
by the Trust before the vote pursuant to that proxy is counted;
provided however, that no proxy shall be valid after the
expiration of eleven (11) months from the date of the proxy
unless otherwise provided in the proxy.

Section 11. INSPECTORS OF ELECTION. Before any meeting
of shareholders, the Board of Trustees may appoint any persons
other than nominees for office to act as inspectors of election
at the meeting or its adjournment. If no inspectors of election
are so appointed, the chairman of the meeting may and on the
request of any shareholder or a shareholder's proxy shall,
appoint inspectors of election at the meeting. The number of
inspectors shall be either one (1) or three (3). If inspectors
are appointed at a meeting on the request of one or more
shareholders or proxies, the holders of a majority of shares or
their proxies present at the meeting shall determine whether one
(1) or three (3) inspectors are to be appointed. If any person
appointed as inspector fails to appear or fails or refuses to
act, the Chairman of the meeting may and on the request of any
shareholder or a shareholder's proxy shall appoint a person to
fill the vacancy.

These inspectors shall:

(a) Determine the number of shares outstanding and the
voting power of each, the shares represented at
the meeting, the existence of a quorum and the
authenticity, validity and effect of proxies;

(b) Receive votes, ballots or consents;

(d) Count and tabulate all votes or consents;

(e) Determine when the polls shall close;

(f) Determine the result;

(g) Do any other acts that may be proper to conduct
the election or vote with fairness to all
shareholders.

ARTICLE III
TRUSTEES

Section 1. POWERS. Subject to the applicable provisions
of the Agreement and Declaration of Trust of the Trust and these
By-Laws relating to action required to be approved by the
shareholders or by the outstanding shares, the business and
affairs of the Trust shall be managed and all powers shall be
exercised by or under the direction of the Board of Trustees.

Section 2. NUMBER OF TRUSTEES. The exact number of
Trustees within the limits specified in the Agreement and
Declaration of Trust of the Trust shall be fixed from time to
time by a written instrument signed or a resolution approved at a
duly constituted meeting by a majority of the Board of Trustees.

Section 3. VACANCIES. Vacancies in the Board of
Trustees may be filled by a majority of the remaining Trustees,
though less than a quorum, or by a sole remaining Trustee, unless
the Board of Trustees calls a meeting of shareholders for the
purposes of electing Trustees. In the event that at any time less
than a majority of the Trustees holding office at that time were
so elected by the holders of the outstanding voting securities of
the Trust, the Board of Trustees shall forthwith cause to be held
as promptly as possible, and in any event within sixty (60) days,
a meeting of such holders for the purpose of electing Trustees to
fill any existing vacancies in the Board of Trustees, unless such
period is extended by order of the United States Securities and
Exchange Commission.

Notwithstanding the above, whenever and for so long as
the Trust is a participant in or otherwise has in effect a Plan
under which the Trust may be deemed to bear expenses of
distributing its shares as that practice is described in Rule 12b-
1 under the Investment Company Act of 1940, then the selection
and nomination of the Trustees who are not interested persons of
the Trust (as that term is defined in the Investment Company Act
of 1940) shall be, and is, committed to the discretion of such
disinterested Trustees.

Section 4. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE.
All meetings of the Board of Trustees may be held at any place
that has been designated from time to time by resolution of the
Board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the Trust. Any
meeting, regular or special, may be held by conference telephone
or similar communication equipment, so long as all Trustees
participating in the meeting can hear one another and all such
Trustees shall be deemed to be present in person at the meeting.

Section 5. REGULAR MEETINGS. Regular meetings of the
Board of Trustees shall be held without call at such time as
shall from time to time be fixed by the Board of Trustees. Such
regular meetings may be held without notice.

Section 6. SPECIAL MEETINGS. Special meetings of the
Board of Trustees for any purpose or purposes may be called at
any time by the Chairman of the Board or the President or any
Vice President or the Secretary or any two (2) Trustees.

Notice of the time and place of special meetings shall
be delivered personally or by telephone to each Trustee or sent
by first-class mail or telegram, charges prepaid, addressed to
each Trustee at that Trustee's address as it is shown on the
records of the Trust. In case the notice is mailed, it shall be
deposited in the United States mail at least seven (7) calendar
days before the time of the holding of the meeting. In case the
notice is delivered personally or by telephone or to the
telegraph company or by express mail or similar service, it shall
be given at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by
telephone may be communicated either to the Trustee or to a
person at the office of the Trustee who the person giving the
notice has reason to believe will promptly communicate it to the
Trustee. The notice need not specify the purpose of the meeting
or the place if the meeting is to be held at the principal
executive office of the Trust.

Section 7. QUORUM. A majority of the authorized number
of Trustees shall constitute a quorum for the transaction of
business, except to adjourn as provided in Section 10 of this
Article III. Every act or decision done or made by a majority of
the Trustees present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Trustees,
subject to the provisions of the Agreement and Declaration of
Trust of the Trust. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the
withdrawal of Trustees if any action taken is approved by a least
a majority of the required quorum for that meeting.

Section 8. WAIVER OF NOTICE. Notice of any meeting need
not be given to any Trustee who either before or after the
meeting signs a written waiver of notice, a consent to holding
the meeting, or an approval of the minutes. The waiver of notice
or consent need not specify the purpose of the meeting. All such
waivers, consents, and approvals shall be filed with the records
of the Trust or made a part of the minutes of the meeting. Notice
of a meeting shall also be deemed given to any Trustee who
attends the meeting without protesting before or at its
commencement the lack of notice to that Trustee.

Section 9. ADJOURNMENT. A majority of the Trustees
present, whether or not constituting a quorum, may adjourn any
meeting to another time and place.

Section 10. NOTICE OF ADJOURNMENT. Notice of the time
and place of holding an adjourned meeting need not be given
unless the meeting is adjourned for more than forty-eight (48)
hours, in which case notice of the time and place shall be given
before the time of the adjourned meeting in the manner specified
in Section 7 of this Article III to the Trustees who were present
at the time of the adjournment.

Section 11. ACTION WITHOUT A MEETING. Any action
required or permitted to be taken by the Board of Trustees may be
taken without a meeting if a majority of the members of the Board
of Trustees shall individually or collectively consent in writing
to that action. Such action by written consent shall have the
same force and effect as a majority vote of the Board of
Trustees. Such written consent or consents shall be filed with
the minutes of the proceedings of the Board of Trustees.

Section 12. FEES AND COMPENSATION OF TRUSTEES. Trustees
and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be
fixed or determined by resolution of the Board of Trustees. This
Section 12 shall not be construed to preclude any Trustee from
serving the Trust in any other capacity as an officer, agent,
employee, or otherwise and receiving compensation for those
services.

Section 13. DELEGATION OF POWER TO OTHER TRUSTEES. Any
Trustee may, by power of attorney, delegate his power for a
period not exceeding six (6) months at any one time to any other
Trustee or Trustees; provided that in no case shall fewer than
two (2) Trustees personally exercise the powers granted to the
Trustees under this Agreement and Declaration of Trust of the
Trust except as otherwise expressly provided herein or by
resolution of the Board of Trustees. Except where applicable law
may require a Trustee to be present in person, a Trustee
represented by another Trustee pursuant to such power of attorney
shall be deemed to be present for purposes of establishing a
quorum and satisfying the required majority vote.

ARTICLE IV
COMMITTEES

Section 1. COMMITTEES OF TRUSTEES. The Board of
Trustees may by resolution adopted by a majority of the
authorized number of Trustees designate one or more committees,
each consisting of two (2) or more Trustees, to serve at the
pleasure of the Board. The Board may designate one or more
Trustees as alternate members of any committee who may replace
any absent member at any meeting of the committee. Any committee
to the extent provided in the resolution of the Board, shall have
the authority of the Board, except with respect to:

(a) the approval of any action which under applicable
law also requires shareholders' approval or
approval of the outstanding shares, or requires
approval by a majority of the entire Board or
certain members of said Board;

(b) the filling of vacancies on the Board of Trustees
or in any committee;

(d) the amendment or repeal of the Agreement and
Declaration of Trust of the Trust or of the By-
Laws or the adoption of new By-Laws;

(e) the amendment or repeal of any resolution of the
Board of Trustees which by its express terms is
not so amendable or repealable;

(f) a distribution to the shareholders of the Trust,
except at a rate or in a periodic amount or within
a designated range determined by the Board of
Trustees; or

(g) the appointment of any other committees of the
Board of Trustees or the members of these
committees.

Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings
and action of committees shall be governed by and held and taken
in accordance with the provisions of Article III of these By-
Laws, with such changes in the context thereof as are necessary
to substitute the committee and its members for the Board of
Trustees and its members, except that the time of regular
meetings of committees may be determined either by resolution of
the Board of Trustees or by resolution of the committee. Special
meetings of committees may also be called by resolution of the
Board of Trustee. Alternate members shall be given notice of
meetings of committees and shall have the right to attend all
meetings of committees. The Board of Trustees may adopt rules for
the government of any committee not inconsistent with the
provisions of these By-Laws.

ARTICLE V
OFFICERS

Section 1. OFFICERS. The officers of the Trust shall
be a President, a Secretary, and a Treasurer. The Trust may also
have, at the discretion of the Board of Trustees, a Chairman of
the Board, one or more Vice Presidents, one or more Assistant
Secretaries, one or more Assistant Treasurers, and such other
officers as may be appointed in accordance with the provisions of
Section 3 of this Article V. Any number of offices may be held by
the same person.

Section 2. ELECTION OF OFFICERS. The officers of the
Trust, except such officers as may be appointed in accordance
with the provisions of Section 3 or Section 5 of this Article V,
shall be chosen by the Board of Trustees, and each shall serve at
the pleasure of the Board of Trustees, subject to the rights, if
any, of an officer under any contract of employment.

Section 3. SUBORDINATE OFFICERS. The Board of Trustees
may appoint and may empower the President to appoint such other
officers as the business of the Trust may require, each of whom
shall hold office for such period, have such authority and
perform such duties as are provided in these By-Laws or as the
Board of Trustees may from time to time determine.

Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject
to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without
cause, by the Board of Trustees at any regular or special meeting
of the Board of Trustees or by the principal executive officer or
by such other officer upon whom such power of removal may be
conferred by the Board of Trustees.

Any officer may resign at any time by giving written
notice to the Trust. Any resignation shall take effect at the
date of the receipt of that notice or at any later time specified
in that notice; and unless otherwise specified in that notice,
the acceptance of the resignation shall not be necessary to make
it effective. Any resignation is without prejudice to the rights,
if any, of the Trust under any contract to which the officer is a
party.

Section 5. VACANCIES IN OFFICES. A vacancy in any
office because of death, resignation, removal, disqualification
or other cause shall be filled in the manner prescribed in these
By-Laws for regular appointment to that office. The President may
make temporary appointments to a vacant office pending action by
the Board of Trustees.

Section 6. CHAIRMAN OF THE BOARD. The Chairman of the
Board, if such an Officer is elected, shall if present preside at
meetings of the Board of Trustees, shall be the Chief Executive
Officer of the Trust and shall, subject to the control of the
Board of Trustees, have general supervision, direction and
control of the business and the Officers of the Trust and
exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Trustees or
prescribed by the By-Laws

Section 7. PRESIDENT. Subject to such supervisory
powers, if any, as may be given by the Board of Trustees to the
Chairman of the Board, if there be such an officer, the President
shall be the chief operating officer of the Trust and shall,
subject to the control of the Board of Trustees and the Chairman,
have general supervision, direction and control of the business
and the officers of the Trust. He shall preside at all meetings
of the shareholders and in the absence of the Chairman of the
Board or if there be none, at all meetings of the Board of
Trustees. He shall have the general powers and duties of
management usually vested in the office of President of a
corporation and shall have such other powers and duties as may be
prescribed by the Board of Trustees or these By-Laws.

Section 8. VICE PRESIDENTS. In the absence or
disability of the President, the Vice Presidents, if any, in
order of their rank as fixed by the Board of Trustees or if not
ranked, the Executive Vice President (who shall be considered
first ranked) and such other Vice Presidents as shall be
designated by the Board of Trustees, shall perform all the duties
of the President and when so acting shall have all powers of and
be subject to all the restrictions upon the President. The Vice
Presidents shall have such other powers and perform such other
duties as from time to time may be prescribed for them
respectively by the Board of Trustees or the President or the
Chairman of the Board or by these By-Laws.

Section 9. SECRETARY. The Secretary shall keep or cause
to be kept at the principal executive office of the Trust or such
other place as the Board of Trustees may direct a book of minutes
of all meetings and actions of Trustees, committees of Trustees
and shareholders with the time and place of holding, whether
regular or special, and if special, how authorized, the notice
given, the names of those present at Trustees' meetings or
committee meetings, the number of shares present or represented
at shareholders' meetings, and the proceedings.

The Secretary shall keep or cause to be kept at the
principal executive office of the Trust or at the office of the
Trust's transfer agent or registrar, a share register or a
duplicate share register showing the names of all shareholders
and their addresses, the number and classes of shares held by
each, the number and date of certificates issued for the same and
the number and date of cancellation of every certificate
surrendered for cancellation.

The Secretary shall give or cause to be given notice of
all meetings of the shareholders and of the Board of Trustees
required to be given by these By-Laws or by applicable law and
shall have such other powers and perform such other duties as may
be prescribed by the Board of Trustees or by these By-Laws.

Section 10. TREASURER. The Treasurer shall be the chief
financial officer and chief accounting officer of the Trust and
shall keep and maintain or cause to be kept and maintained
adequate and correct books and records of accounts of the
properties and business transactions of the Trust, including
accounts of its assets, liabilities, receipts, disbursements,
gains, losses, capital, retained earnings and shares. The books
of account shall at all reasonable times be open to inspection by
any Trustee.

The Treasurer shall deposit all monies and other
valuables in the name and to the credit of the Trust with such
depositaries as may be designated by the Board of Trustees. He
shall disburse the funds of the Trust as may be ordered by the
Board of Trustees, shall render to the President and Trustees,
whenever they request it, an account of all of his transactions
as chief financial officer and of the financial condition of the
Trust and shall have other powers and perform such other duties
as may be prescribed by the Board of Trustees or these By-Laws.

ARTICLE VI
INDEMNIFICATION OF TRUSTEES, OFFICERS,
EMPLOYEES AND OTHER AGENTS

Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the
purpose of this Article, "agent" means any person who is or was a
Trustee, officer, employee or other agent of this Trust or is or
was serving at the request of this Trust as a Trustee, director,
officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other
enterprise or was a Trustee, director, officer, employee or agent
of a foreign or domestic corporation which was a predecessor of
another enterprise at the request of such predecessor entity;
"proceeding" means any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or
investigative; and "expenses" includes without limitation
attorney's fees and any expenses of establishing a right to
indemnification under this Article.

Section 2. ACTIONS OTHER THAN BY TRUST. This Trust shall
indemnify any person who was or is a party or is threatened to be
made a party to any proceeding (other than an action by or in the
right of this Trust) by reason of the fact that such person is or
was an agent of this Trust, against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in
connection with such proceeding, if it is determined that person
acted in good faith and reasonably believed: (a) in the case of
conduct in his official capacity as a Trustee of the Trust, that
his conduct was in the Trust's best interests and (b), in all
other cases, that his conduct was at least not opposed to the
Trust's best interests and (c) in the case of a criminal
proceeding, that he had no reasonable cause to believe the
conduct of that person was unlawful. The termination of any
proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent shall not of itself
create a presumption that the person did not act in good faith
and in a manner which the person reasonably believed to be in the
best interests of this Trust or that the person had reasonable
cause to believe that the person's conduct was unlawful.

Section 3. ACTIONS BY THE TRUST. This Trust shall
indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action by or
in the right of this Trust to procure a judgment in its favor by
reason of the fact that that person is or was an agent of this
Trust, against expenses actually and reasonably incurred by that
person in connection with the defense or settlement of that
action if that person acted in good faith, in a manner that
person believed to be in the best interests of this Trust and
with such care, including reasonable inquiry, as an ordinarily
prudent person in a like position would use under similar
circumstances.

Section 4. EXCLUSION OF INDEMNIFICATION.
Notwithstanding any provision to the contrary contained herein,
there shall be no right to indemnification for any liability
arising by reason of willful misfeasance, bad faith, gross
negligence, or the reckless disregard of the duties involved in
the conduct of the agent's office with this Trust.

No indemnification shall be made under Sections 2 or 3
of this Article:

(a) In respect of any claim, issue, or matter as to
which that person shall nave been adjudged to be
liable on the basis that personal benefit was
improperly received by him, whether or not the
benefit resulted from an action taken in the
person's official capacity; or

(b) In respect of any claim, issue or matter as to
which that person shall have been adjudged to be
liable in the performance of that person's duty to
this Trust, unless and only to the extent that the
court in which that action was brought shall
determine upon application that in view of all the
circumstances of the case, that person was not
liable by reason of the disabling conduct set
forth in the preceding paragraph and is fairly and
reasonably entitled to indemnity for the expenses
which the court shall determine; or

(c) Of amounts paid in settling or otherwise disposing
of a threatened or pending action, with or without
court approval, or of expenses incurred in
defending threatened or pending action which is
settled or otherwise disposed of without court
approval, unless the required approval set forth
in Section 6 of this Article is obtained.

Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent
that an agent of this Trust has been successful on the merits in
defense of any proceeding referred to in Sections 2 or 3 of this
Article or in defense of any claim, issue or matter therein,
before the court or other body before whom the proceeding was
brought, the agent shall be indemnified against expenses actually
and reasonably incurred by the agent in connection therewith,
provided that the Board of Trustees, including a majority who are
disinterested, non-party Trustees, also determines that based
upon a review of the facts, the agent was not liable by reason of
the disabling conduct referred to in Section 4 of this Article.

Section 6. REQUIRED APPROVAL. Except as provided in
Section 5 of this Article, any indemnification under this Article
shall be made by this Trust only if authorized in the specific
case on a determination that indemnification of the agent is
proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Sections 2 or 3 of
this Article and is not prohibited from indemnification because
of the disabling conduct set forth in Section 4 of this Article,
by:

(a) A majority vote of a quorum consisting of Trustees
who are not parties to the proceeding and are not
interested persons of the Trust (as defined in the
Investment Company Act of 1940); or

(b) A written opinion by an independent legal counsel.

Section 7. ADVANCE OF EXPENSES. Expenses incurred in
defending any proceeding may be advanced by this Trust before the
final disposition of the proceeding (a) receipt of a written
affirmation by the Trustee of his good faith belief that he has
met the standard of conduct necessary for indemnification under
this Article and a written undertaking by or on behalf of the
agent, such undertaking being an unlimited general obligation to
repay the amount of the advance if it is ultimately determined
that he has not met those requirements, and (b) a determination
that the facts then known to those making the determination would
not preclude indemnification under this Article. Determinations
and authorizations of payments under this Section must be made in
the manner specified in Section 6 of this Article for determining
that the indemnification is permissible.

Section 8. OTHER CONTRACTUAL RIGHTS. Nothing contained
in this Article shall affect any right to indemnification to
which persons other than Trustees and officers of this Trust or
any subsidiary hereof may be entitled by contract or otherwise.

Section 9. LIMITATIONS. No indemnification or advance
shall be made under this Article, except as provided in Sections
5 or 6 in any circumstances where it appears:

(a) That it would be inconsistent with a provision of
the Agreement and Declaration of Trust of the
Trust, a resolution of the shareholders, or an
agreement in effect at the time of accrual of the
alleged cause of action asserted in the proceeding
in which the expenses were incurred or other
amounts were paid which prohibits or otherwise
limits indemnification; or

(b) That it would be inconsistent with any condition
expressly imposed by a court in approving a
settlement.

Section 10. INSURANCE. Upon and in the event of a
determination by the Board of Trustees of this Trust to purchase
such insurance, this Trust shall purchase and maintain insurance
on behalf of any agent of this Trust against any liability
asserted against or incurred by the agent in such capacity or
arising out of the agent's status as such, but only to the extent
that this Trust would have the power to indemnify the agent
against that liability under the provisions of this Article and
the Agreement and Declaration of Trust of the Trust.

Section ll. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This
Article does not apply to any proceeding against any Trustee,
investment manager or other fiduciary of an employee benefit plan
in that person's capacity as such, even though that person may
also be an agent of this Trust as defined in Section 1 of this
Article. Nothing contained in this Article shall limit any right
to indemnification to which such a Trustee, investment manager,
or other fiduciary may be entitled by contract or otherwise which
shall be enforceable to the extent permitted by applicable law
other than this Article.

ARTICLE VII
RECORDS AND REPORTS

Section 1. MAINTENANCE AND INSPECTION OF SHARE
REGISTER. This Trust shall keep at its principal executive office
or at the office of its transfer agent or registrar, if either be
appointed and as determined by resolution of the Board of
Trustees, a record of its shareholders, giving the names and
addresses of all shareholders and the number and series of shares
held by each shareholder.

Section 2. MAINTENANCE AND INSPECTION OF BY-LAWS. The
Trust shall keep at its principal executive office the original
or a copy of these By-Laws as amended to date, which shall be
open to inspection by the shareholders at all reasonable times
during office hours.

Section 3. MAINTENANCE AND INSPECTION OF OTHER RECORDS.
The accounting books and records and minutes of proceedings of
the shareholders and the Board of Trustees and any committee or
committees of the Board of Trustees shall be kept at such place
or places designated by the Board of Trustees or in the absence
of such designation, at the principal executive office of the
Trust. The minutes shall be kept in written form and the
accounting books and records shall be kept either in written form
or in any other form capable of being converted into written
form. The minutes and accounting books and records shall be open
to inspection upon the written demand of any shareholder or
holder of a voting trust certificate at any reasonable time
during usual business hours for a purpose reasonably related to
the holder's interests as a shareholder or as the holder of a
voting trust certificate. The inspection may be made in person or
by an agent or attorney and shall include the right to copy and
make extracts.

Section 4. INSPECTION BY TRUSTEES. Every Trustee shall
have the absolute right at any reasonable time to inspect all
books, records, and documents of every kind and the physical
properties of the Trust. This inspection by a Trustee may be
made in person or by an agent or attorney and the right of
inspection includes the right to copy and make extracts of
documents.

Section 5. FINANCIAL STATEMENTS. A copy of any
financial statements and any income statement of the Trust for
each quarterly period of each fiscal year and accompanying
balance sheet of the Trust as of the end of each such period that
has been prepared by the Trust shall be kept on file in the
principal executive office of the Trust for at least twelve (12)
months and each such statement shall be exhibited at all
reasonable times to any shareholder demanding an examination of
any such statement or a copy shall be mailed to any such
shareholder.

The quarterly income statements and balance sheets
referred to in this section shall be accompanied by the report,
if any, of any independent accountants engaged by the Trust or
the certificate of an authorized officer of the Trust that the
financial statements were prepared without audit from the books
and records of the Trust.

ARTICLE VIII
GENERAL MATTERS

Section 1. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS.
All checks, drafts, or other orders for payment of money, notes
or other evidences of indebtedness issued in the name of or
payable to the Trust shall be signed or endorsed in such manner
and by such person or persons as shall be designated from time to
time in accordance with the resolution of the Board of Trustees.

Section 2. CONTRACTS AND INSTRUMENTS; HOW EXECUTED.
The Board of Trustees, except as otherwise provided in these By-
Laws, may authorize any officer or officers, agent or agents, to
enter into any contract or execute any instrument in the name of
and on behalf of the Trust and this authority may be general or
confined to specific instances; and unless so authorized or
ratified by the Board of Trustees or within the agency power of
an officer, no officer, agent, or employee shall have any power
or authority to bind the Trust by any contract or engagement or
to pledge its credit or to render it liable for any purpose or
for any amount.

Section 3. CERTIFICATES FOR SHARES. A certificate or
certificates for shares of beneficial interest in any series of
the Trust may be issued to a shareholder upon his request when
such shares are fully paid. All certificates shall be signed in
the name of the Trust by the Chairman of the Board or the
President or Vice President and by the Treasurer or an Assistant
Treasurer or the Secretary or any Assistant Secretary, certifying
the number of shares and the series of shares owned by the
shareholders. Any or all of the signatures on the certificate
may be facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been
placed on a certificate shall have ceased to be that officer,
transfer agent, or registrar before that certificate is issued,
it may be issued by the Trust with the same effect as if that
person were an officer, transfer agent or registrar at the date
of issue. Notwithstanding the foregoing, the Trust may adopt and
use a system of issuance, recordation and transfer of its shares
by electronic or other means.

Section 4. LOST CERTIFICATES. Except as provided in
this Section 4, no new certificates for shares shall be issued to
replace an old certificate unless the latter is surrendered to
the Trust and cancelled at the same time. The Board of Trustees
may in case any share certificate or certificate for any other
security is lost, stolen, or destroyed, authorize the issuance of
a replacement certificate on such terms and conditions as the
Board of Trustees may require, including provision for
indemnification of the Trust secured by a bond or other adequate
security sufficient to protect the Trust against any claim that
may be made against it, including any expense or liability on
account of the alleged loss, theft, or destruction of the
certificate or the issuance of the replacement certificate.

Section 5. REPRESENTATION OF SHARES OF OTHER ENTITIES
HELD BY TRUST. The Chairman of the Board, the President or any
Vice President or any other person authorized by resolution of
the Board of Trustees or by any of the foregoing designated
officers, is authorized to vote or represent on behalf of the
Trust any and all shares of any corporation, partnership, trusts,
or other entities, foreign or domestic, standing in the name of
the Trust. The authority granted may be exercised in person or
by proxy duly executed by such designated person.

Section 6. FISCAL YEAR. The fiscal year of the Trust
shall be fixed and refixed or changed from time to time by
resolution of the Trustees. The fiscal year of the Trust shall
be the taxable year of each Series of the Trust.

ARTICLE IX
AMENDMENTS

Section 1. AMENDMENT BY SHAREHOLDERS. These By-Laws may
be amended or repealed by the affirmative vote or written consent
of a majority of the outstanding shares entitled to vote, except
as otherwise provided by applicable law or by the Agreement and
Declaration of Trust of the Trust or these By-Laws.

Section 2. AMENDMENT BY TRUSTEES. Subject to the right
of shareholders as provided in Section 1 of this Article to
adopt, amend or repeal By-Laws, and except as otherwise provided
by applicable law or by the Agreement and Declaration of Trust of
the Trust, these By-Laws may be adopted, amended, or repealed by
the Board of Trustees.

Section 3. INCORPORATION BY REFERENCE INTO AGREEMENT
AND DECLARATION OF TRUST OF THE TRUST. These By-Laws and any
amendments thereto shall be incorporated by reference to the
Agreement and Declaration of Trust of the Trust.

ADJUSTABLE RATE SECURITIES PORTFOLIOS
ADJUSTABLE RATE SECURITIES PORTFOLIO

MANAGEMENT AGREEMENT

THIS MANAGEMENT AGREEMENT made between ADJUSTABLE RATE
SECURITIES PORTFOLIOS, a Delaware business trust, (the "Trust"),
on behalf of the ADJUSTABLE RATE SECURITIES PORTFOLIO (the
"Fund"), a separate series of the Trust, and FRANKLIN ADVISERS,
INC., a California corporation (the "Manager").

WHEREAS, the Trust has been organized and intends to operate
as an investment company registered under the Investment Company
Act of 1940 for the purpose of investing and reinvesting its
assets in securities, as set forth in its Agreement and
Declaration of Trust, its By-Laws and its Registration Statements
under the Investment Company Act of 1940 and the Securities Act
of 1933, all as heretofore amended and supplemented;

WHEREAS, the Fund, as a separate series of the Trust,
desires to avail itself of the services, information, advice,
assistance and facilities of an investment manager and to have an
investment manager perform various management, statistical,
research, investment advisory and other services; and,

WHEREAS, the Manager is registered as an investment adviser
under the Investment Advisers Act of 1940, is engaged in the
business of rendering management, investment advisory,
counselling and supervisory services to investment companies and
other clients, and desires to provide these services to the Fund.

NOW THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is agreed as follows:

1. Employment of the Manager. The Fund hereby
employs the Manager to manage the investment and reinvestment of
the Fund's assets and to administer its affairs, subject to the
direction of the Board of Trustees and the officers of the Trust,
for the period and on the terms hereinafter set forth. The
Manager hereby accepts such employment and agrees during such
period to render the services and to assume the obligations
herein set forth for the compensation herein provided. The
Manager shall for all purposes herein be deemed to be an
independent contractor and shall, except as expressly provided or
authorized (whether herein or otherwise), have no authority to
act for or represent the Fund or the Trust in any way or
otherwise be deemed an agent of the Fund or the Trust.

2. Obligations of and Services to be Provided by the
Manager. The Manager undertakes to provide the services
hereinafter set forth and to assume the following obligations:

A. Office Space, Furnishings, Facilities, Equipment,
and Personnel.

The Manager shall furnish to the Fund adequate (i)
office space, which may be space within the offices of
the Manager or in such other place as may be agreed
upon from time to time, and (ii) office furnishings,
facilities and equipment as may be reasonably required
for managing the affairs and conducting the business of
the Fund, including complying with the securities
reporting requirements of the United States and the
various states in which the Fund does business,
conducting correspondence and other communications with
the shareholders of the Fund, maintaining all internal
bookkeeping, accounting, auditing services and records
in connection with the Fund's investment and business
activities and computing its net asset value. The
Manager shall employ or provide and compensate the
executive, secretarial and clerical personnel necessary
to provide such services. The Manager shall also
compensate all officers and employees of the Trust who
are officers or employees of the Manager.

B. Investment Management Services.

(a) The Manager shall manage the assets of the Fund
subject to and in accordance with its investment
objective and policies and any directions which the
Trust's Board of Trustees may issue from time to time.
In pursuance of the foregoing, the Manager shall make
all determinations with respect to the investment of
the assets of the Fund and the purchase and sale of its
portfolio securities, and shall take such steps as may
be necessary to implement the same. Such determinations
and services shall also include determining the manner
in which voting rights, rights to consent to corporate
action and any other rights pertaining to the Fund's
portfolio securities shall be exercised. The Manager
shall render regular reports to the Trust, at regular
meetings of the Board of Trustees and at such other
times as may be reasonably requested by the Trust's
Board of Trustees, of (i) the decisions which it has
made with respect to the investment of the assets of
the Fund and the purchase and sale of its portfolio
securities, (ii) the reasons for such decisions and
(iii) the extent to which those decisions have been
implemented.

(b) The Manager, subject to and in accordance with any
directions which the Trust's Board of Trustees may
issue from time to time, shall place, in the name of
the Fund, orders for the execution of the Fund's
portfolio transactions. When placing such orders, the
Manager shall seek to obtain the best net price and
execution for the Fund, but this requirement shall not
be deemed to obligate the Manager to place any order
solely on the basis of obtaining the lowest commission
rate if the other standards set forth in this section
have been satisfied. The parties recognize that there
are likely to be many cases in which different brokers
or dealers are equally able to provide such best price
and execution and that, in selecting among such brokers
and dealers with respect to particular trades, it is
desirable to choose those brokers or dealers who
furnish research, statistical quotations and other
information to the Fund and the Manager in accordance
with the standards set forth below. Moreover, to the
extent that it continues to be lawful to do so and so
long as the Board determines that the Fund will
benefit, directly or indirectly, by doing so, the
Manager may place orders with a broker who charges a
commission for that transaction which is in excess of
the amount of commission that another broker would have
charged for effecting that transaction, provided that
the excess commission is reasonable in relation to the
value of "brokerage and research services" (as defined
in Section 28(e) (3) of the Securities Exchange Act of
1934) provided by that broker.

Accordingly, the Trust and the Manager agree that the
Manager shall select brokers and dealers for the execution of the
Fund's portfolio transactions from among:

(i) Those brokers and dealers who provide
quotations and other services to the Fund,
specifically including the quotations necessary to
determine the Fund's net assets, in such amount of
total brokerage as may reasonably be required in
light of such services;

(ii) Those brokers and dealers who supply
research, statistical and other data to the
Manager or its affiliates which the Manager or its
affiliates may lawfully and appropriately use in
their investment advisory capacities, which relate
directly to portfolio securities, actual or Fund
or which place the Manager in a better position to
make decisions in connection with the management
of the Fund's assets and portfolios, whether or
not such data may also be useful to the Manager
and its affiliates in managing other portfolios or
advising other clients, in such amount of total
brokerage as may reasonably be required.

Provided that the Trust's officers are satisfied that
the best execution is obtained, the sale of shares of the Fund
may also be considered as a factor in the selection of broker-
dealers to execute the Fund's portfolio transactions.

(c) When the Manager has determined that the Fund
should tender securities pursuant to a "tender
offer solicitation," Franklin Distributors, Inc.
("Distributors") shall be designated as the
"tendering dealer" so long as it is legally
permitted to act in such capacity under the
Federal securities laws and rules thereunder and
the rules of any securities exchange or
association of which it may be a member. Neither
the Manager nor Distributors shall be obligated to
make any additional commitments of capital,
expense or personnel beyond that already committed
(other than normal periodic fees or payments
necessary to maintain Distributors corporate
existence and membership in the National
Association of Securities Dealers, Inc.) as of the
date of this Agreement. This Agreement shall not
obligate the Manager or Distributors (i) to act
pursuant to the foregoing requirement under any
circumstances in which they might reasonably
believe that liability might be imposed upon them
as a result of so acting, or (ii) to institute
legal or other proceedings to collect fees which
may be considered to be due from others to it as a
result of such a tender, unless the Trust, on
behalf of the Fund, shall enter into an agreement
with the Manager and/or Distributors to reimburse
them for all expenses connected with attempting to
collect such fees including legal fees and
expenses and that portion of the compensation due
to their employees which is attributable to the
time involved in attempting to collect such fees.

(d) The Manager shall render regular reports to
the Trust, not more frequently than quarterly, of
how much total brokerage business has been placed
by the Manager, on behalf of the Fund, with
brokers falling into each of the foregoing
categories and the manner in which the allocation
has been accomplished.

(e) The Manager agrees that no investment decision
will be made or influenced by a desire to provide
brokerage for allocation in accordance with the
foregoing, and that the right to make such
allocation of brokerage shall not interfere with
the Manager's paramount duty to obtain the best
net price and execution for the Fund.

C. Provision of Information Necessary for Preparation
of Securities Registration Statements, Amendments
and Other Materials. The Manager, its officers and
employees will make available and provide
accounting and statistical information required by
the Fund in the preparation of registration
statements, reports and other documents required
by Federal and state securities laws and with such
information as the Fund may reasonably request for
use in the preparation of such documents or of
other materials necessary or helpful for the
offering of the Fund's shares.

D. Other Obligations and Services. The Manager shall
make available its officers and employees to the
Board of Trustees and officers of the Trust for
consultation and discussions regarding the
administration and management of the Fund and its
investment activities.

3. Expenses of the Fund. It is understood that the
Fund will pay all of its own expenses other than those expressly
assumed by the Manager herein, which expenses payable by the Fund
shall include:

A. Fees to the Manager as provided herein;

B. Expenses of all audits by independent public
accountants;

C. Expenses of transfer agent, registrar, custodian,
dividend disbursing agent and shareholder record-
keeping services;

D. Expenses of obtaining quotations for calculating
the value of the Fund's net assets;

E. Salaries and other compensation of any of its
executive officers who are not officers, trustees,
stockholders or employees of the Manager;

F. Taxes levied against the Fund;

G. Brokerage fees and commissions in connection with
the purchase and sale of portfolio securities for
the Fund;

H. Costs, including the interest expense, of
borrowing money;

I. Costs incident to meetings of the Board of
Trustees, reports to the Fund's shareholders, the
filing of reports with regulatory bodies and the
maintenance of the Trust's legal existence;

J. Legal fees, including the legal fees related to
the registration and continued qualification of
the Fund's shares for sale;

K. Costs of printing share certificates representing
shares of the Fund;

L. Trustees' fees and expenses to trustees who are
not directors, officers, employees or stockholders
of the Manager or any of its affiliates;

M. Trade association dues; and

N. Its pro rata portion of the fidelity bond
insurance premium and trustees and officers errors
and omissions insurance premium.

4. Compensation of the Manager. The Fund shall pay a
monthly management fee in cash to the Manager based upon a
percentage of the value of the Fund's net assets, calculated
asset forth below, on the first business day of each month in
each year as compensation for the services rendered and
obligations assumed by the Manager during the preceding month.
The initial management fee under this Agreement shall be payable
on the first business day of the first month following the
effective date of this Agreement, and shall be reduced by the
amount of any advance payments made by the Fund relating to the
previous month.

A. For purposes of calculating such fee, the value of
the net assets of the Fund shall be the average
daily net assets during the month for which the
payment is being made, determined in the same
manner as the Fund uses to compute the value of
its net assets in connection with the
determination of the daily net asset value of its
shares, all as set forth more fully in the Fund's
current prospectus. The annual rate of the
management fee payable by the Fund shall be as
follows:

40/1OO of 1% of the value of its net assets up to
and including $5,000,000,000;

35/100 of 1% of the value of its net assets in
excess of $5,000,000,000 up to and including
$10,000,000,000;

33/100 of 1% of the value of its net assets in
excess of $10,000,000,000 up to and including
$15,000,000,000;

30/100 of 1% of the value of its net assets in
excess of $15,000,000,000.

B. The Management fee payable by the Fund shall be
reduced or eliminated to the extent that
Distributors has actually received cash payments
of tender offer solicitation fees less certain
costs and expenses incurred in connection
therewith, and to the extent necessary to comply
with the limitations on expenses which may be
borne by the Fund as set forth in the laws,
regulations and administrative interpretations of
those states in which the Fund's shares are
registered. The Manager may, from time to time,
voluntarily reduce or waive any management fee due
to it hereunder.

C. If this Agreement is terminated prior to the end
of any month, the monthly management fee for the
Fund shall be prorated for the portion of any
month in which this Agreement is in effect which
is not a complete month according to the
proportion which the number of calendar days in
the fiscal quarter during which the Agreement is
in effect bears to the number of calendar days in
the month, and shall be payable within 10 days
after the date of termination.

5. Activities of the Manager. The services of the
Manager to the Fund hereunder are not to be deemed exclusive, and
the Manager and any of its affiliates shall be free to render
similar services to others. Subject to and in accordance with the
Agreement and Declaration of Trust and By-Laws of the Trust and
to Section 10(a) of the Investment Company Act of 1940, it is
understood that trustees, officers, and agents of the Trust and
shareholders of the Fund are or may be interested in the Manager
or its affiliates as trustees, directors, officers, agents or
stockholders, and that directors, officers, agents or
stockholders of the Manager or its affiliates are or may be
interested in the Trust as Trustees, officers or agents or in the
Fund as shareholders or otherwise; and that the effect of any
such interests shall be governed by said Agreement and
Declaration of Trust, the By-Laws and the Investment Company Act
of 1940.

6. Liabilities of the Manager.

A. In the absence of willful misfeasance, bad faith,
gross negligence, or reckless disregard of
obligations or duties hereunder on the part of the
Manager, the Manager shall not be subject to
liability to the Trust or to any shareholder of
the Fund for any act or omission in the course of,
or connected with, rendering services hereunder or
for any losses that may be sustained in the
purchase, holding or sale of any security by the
Fund.

B. Notwithstanding the foregoing, the Manager agrees
to reimburse the Fund for any and all costs,
expenses, and counsel and trustees' fees
reasonably incurred by the Fund in the
preparation, printing and distribution of proxy
statements, amendments to its Registration
Statement, holdings of meetings of its
shareholders or trustees, the conduct of factual
investigations, any legal or administrative
proceedings (including any applications for
exemptions or determinations by the Securities and
Exchange Commission) which the Fund incurs as the
result of action or inaction of the Manager or any
of its affiliates or any of their officers,
directors, employees or shareholders where the
action or inaction necessitating such expenditures
(i) is directly or indirectly related to any
transactions or proposed transaction in the shares
or control of the Manager or its affiliates (or
litigation related to any pending or proposed or
future transaction in such shares or control); or
(ii) is within the control of the Manager or any
of its affiliates or any of their officers,
trustees, employees or shareholders. The Manager
shall not be obligated pursuant to the provisions
of this Subsection 6(B), to reimburse the Fund for
any expenditures related to the institution of an
administrative proceeding or civil litigation by
the Trust or a shareholder seeking to recover all
or a portion of the proceeds derived by any
shareholder of the Manager or any of its
affiliates from the sale of his shares of the
Manager, or similar matters. So long as this
Agreement is in effect the Manager shall pay to
the Fund the amount due for expenses subject to
Subsection 6(B) of this Agreement within 30 days
after a bill or statement has been received by the
Manager therefor. This provision shall not be
deemed to be a waiver of any claim the Fund may
have or may assert against the Manager or others
for costs, expenses or damages heretofore incurred
by the Fund or for costs, expenses or damages the
Fund may hereafter incur which are not
reimbursable to it hereunder.

C. No provision of this Agreement shall be construed
to protect any trustee or officer of the Trust, or
director or officer of the Manager, from liability
in violation of Sections 17(h) and (i) of the
Investment Company Act of 1940.

7. Renewal and Termination.

A. This Agreement shall become effective on the date
written below and shall continue in effect for two
(2) years. The Agreement is renewable annually
thereafter for successive periods not to exceed
one (1) year (i) by a vote of a majority of the
outstanding voting securities of the Trust or by a
vote of the Board of Trustees of the Trust, and
(ii) by a vote of a majority of the Trustees of
the Fund who are not parties to the Agreement or
interested persons of any parties to the Agreement
(other than as Trustees of the Fund), cast in
person at a meeting called for the purpose of
voting on the Agreement.

B. This Agreement

(i) may at any time be terminated without the
payment of any penalty either by vote of the Board
of Trustees of the Trust or by vote of a majority
of the outstanding voting securities of the Fund
on 60 days' written notice to the Manager;

(ii) shall immediately terminate with respect to
the Fund in the event of its assignment; and

(iii) may at any time be terminated by the Manager
on 60 days' written notice to the Fund.

C. As used in this Section the terms "assignment,"
"interested person" and "vote of a majority of the
outstanding voting securities" shall have the
meanings set forth for any such terms in the
Investment Company Act of 1940, as amended.

D. Any notice under this Agreement shall be given in
writing addressed and delivered, or mailed post-
paid, to the other party at any office of such
party.

8. Severability. If any provision of this Agreement
shall be held or made invalid by a court decision, statute, rule
or otherwise, the remainder of this Agreement shall not be
affected thereby.

9. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of
California.

10. Limitation of Liability. The Manager acknowledges
that it has received notice of and accepts the limitations of the
Trust's liability as set forth in its Agreement and Declaration
of Trust. The Manager agrees that the Trust's obligations
hereunder shall be limited to the assets of the Fund, and that
the Manager shall not seek satisfaction of any such obligation
from any shareholders, of the Fund nor from any trustee, officer,
employee or agent of the Trust.

IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and effective on the 5th day of
November, 1991.

ADJUSTABLE RATE SECURITIES PORTFOLIOS
on behalf of ADJUSTABLE RATE
SECURITIES PORTFOLIO

By: /s/ Charles B. Johnson
Charles B. Johnson
President

FRANKLIN ADVISERS, INC.

By: /s/ Rupert H. Johnson, Jr.
Rupert H. Johnson, Jr.
President

FRANKLIN INSTITUTIONAL U.S. GOVERNMENT ARM FUND

MANAGEMENT AGREEMENT

THIS MANAGEMENT AGREEMENT made between FRANKLIN
INSTITUTIONAL U.S. GOVERNMENT ARM FUND, a Delaware Business
Trust, hereinafter called the "Fund" and FRANKLIN ADVISERS, INC.,
a California Corporation, hereinafter called the "Manager."

WHEREAS, the Fund has been organized and intends to operate
as an investment company registered under the Investment Company
Act of 1940 for the purpose of investing and reinvesting its
assets in securities, as set forth in its Agreement and
Declaration of the Fund, its By-Laws and its Registration
Statements under the Investment Company Act of 1940 and the
Securities Act of 1933, all as heretofore amended and
supplemented;

WHEREAS, the Fund desires to avail itself of the services,
information, advice assistance and facilities of an investment
manager and to have an investment manager perform various
management, statistical, research, investment advisory and other
services; and,

NOW THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is agreed as follows:

1. Employment of the Manager. The Fund hereby employs the
Manager to manage the investment and reinvestment of the Fund's
assets and to administer its affairs, subject to the direction of
the Board of Trustees and the officers of the Fund, for the
period and on the terms hereinafter set forth. The Manager hereby
accepts such employment and agrees during such period to render
the services and to assume the obligations herein set forth for
the compensation herein provided. The Manager shall for all
purposes herein be deemed to be an independent contractor and
shall, except as expressly provided or authorized (whether herein
or otherwise), have no authority to act for or represent the Fund
in any way or otherwise be deemed an agent of the Fund.

2. Obligations of and Services to be Provided by the
Manager. The Manager undertakes to provide the services
hereinafter set forth and to assume the following obligations:

A. Office Space, Furnishings, Facilities, Equipment,
and Personnel.

The Manager shall furnish to the Fund adequate (i)
office space, which may be space within the offices of
the Manager or in such other place as may be agreed
upon from time to time, and (ii) office furnishings,
facilities and equipment as may be reasonably required
for managing the affairs and conducting the business of
the Fund, including complying with the securities
reporting requirements of the United States and the
various states in which the Fund does business,
conducting correspondence and other communications with
the shareholders of the Fund, maintaining all internal
bookkeeping, accounting, auditing services and records
in connection with the Fund's investment and business
activities, and computing its net asset value. The
Manager shall employ or provide and compensate the
executive, secretarial and clerical personnel necessary
to provide such services. The Manager shall also
compensate all officers and employees of the Fund who
are officers or employees of the Manager.

B. Investment Management Services.

(a) The Manager shall manage the assets of the
Fund subject to and in accordance with its investment
objective and policies and any directions which the
Fund's Board of Trustees may issue from time to time.
In pursuance of the foregoing, the Manager shall make
all determinations with respect to the investment of
the assets of the Fund and the purchase and sale of its
portfolio securities, and shall take such steps as may
be necessary to implement the same. Such determinations
and services shall also include determining the manner
in which voting rights, rights to consent to corporate
action and any other rights pertaining to the Fund's
portfolio securities shall be exercised. The Manager
shall render regular reports to the Fund, at regular
meetings of the Board of Trustees and at such other
times as may be reasonably requested by the Fund's
Board of Trustees, of (i) the decisions which it has
made with respect to the investment of the assets of
the Fund and the purchase and sale of its portfolio
securities, (ii) the reasons for such decisions and
(iii) the extent to which those decisions have been
implemented.

(b) The Manager, subject to and in accordance with
any directions which the Fund's Board of Trustees may
issue from time to time, shall place, in the name of
the Fund, orders for the execution of the Fund's
portfolio transactions. When placing such orders, the
Manager shall seek to obtain the best net price and
execution for the Fund, but this requirement shall not
be deemed to obligate the Manager to place any order
solely on the basis of obtaining the lowest commission
rate if the other standards set forth in this section
have been satisfied. The parties recognize that there
are likely to be many cases in which different brokers
or dealers are equally able to provide such best price
and execution and that, in selecting among such brokers
and dealers with respect to particular trades, it is
desirable to choose those brokers or dealers who
furnish research, statistical quotations and other
information to the Fund and the Manager in accord with
the standards set forth below. Moreover, to the extent
that it continues to be lawful to do so and so long as
the Board determines that the Fund will benefit,
directly or indirectly, by doing so, the Manager may
place orders with a broker who charges a commission for
that transaction which is in excess of the amount of
commission that another broker would have charged for
effecting that transaction, provided that the excess
commission is reasonable in relation to the value of
"brokerage and research services" (as defined in
Section 28(e)(3) of the Securities Exchange Act of
1934) provided by that broker.

Accordingly, the Fund and the Manager agree that the
Manager shall select brokers and dealers for the execution of the
Fund's portfolio transactions from among:

(i) Those brokers and dealers who provide
quotations and other services to the Fund,
specifically including the quotations necessary to
determine the Funds net assets, in such amount of
total brokerage as may reasonably be retired in
light of such services;

(ii) Those brokers and dealers who supply
research, statistical and other data to the
Manager or its affiliates which the Manager or its
affiliates may lawfully and appropriately use in
their investment advisory capacities which relate
directly portfolio securities actual or potential,
of the Fund or which place the Manager in a better
position to make decisions in connection with the
management of the Fund's assets and portfolios,
whether or not such data may also be useful to the
Manager and its affiliates in managing other
portfolios or advising other clients, in such
amount of total brokerage as may reasonably be
retired.

Provided that the Fund's officers are satisfied that
the best execution is obtained, the sale of shares of the Fund
may also be considered as a factor in the selection of broker-
dealers to execute the Fund's portfolio transactions.

(c) When the Manager has determined that the Fund
should tender securities pursuant to a "tender offer
solicitation," Franklin Distributors, Inc.
("Distributors") shall be designated as the "tendering
dealer" so long as it is legally permitted to act in
such capacity under the Federal securities laws and
rules thereunder and the rules of any securities
exchange or association of which it may be a member.
Neither the Manager nor Distributors shall be obligated
to make any additional commitments of capital, expense
or personnel beyond that already committed (other than
normal periodic fees or Payments necessary to maintain
Distributors' corporate existence and membership in the
National Association of Securities Dealers, Inc.) as of
the date of this Agreement. This Agreement shall not
obligate the Manager or Distributors (i) to act
pursuant to the foregoing requirement under any
circumstances in which they might reasonably believe
that liability might be imposed upon them as a result
of so acting, or (ii) to institute legal or other
proceedings to collect fees which may be considered to
be due from others to it as a result of such a tender,
unless the Fund shall enter into an agreement with the
Manager and/or Distributors to reimburse them for all
expenses connected with attempting to collect such fees
including legal fees and expenses and that portion of
the compensation due to their employees which is
attributable to the time involved in attempting to
collect such fees.

(d) The Manager shall render regular reports to
the Fund, not more frequently than quarterly, of how
much total brokerage business has been placed by the
Manager, on behalf of the Fund, with brokers falling
into each of the foregoing categories and the manner in
which the allocation has been accomplished.

(e) The Manager agrees that no investment decision
will be made or influenced by a desire to provide
brokerage for allocation in accordance with the
foregoing, and that the right to make such allocation
of brokerage shall not interfere with the Manager's
paramount duty to obtain the best net price and
execution for the Fund.

C. Provision of Information Necessary for
Preparation of Securities Registration Statements,
Amendments and Other Materials. The Manager, its
officers and employees will make available and provide
accounting and statistical information required by the
Fund in the preparation of registration statements,
reports and other documents required by Federal and
state securities laws and with such information as the
Fund may reasonably request for use in the preparation
of such documents or of other materials necessary or
helpful for the offering of the Fund's shares.

D. Other Obligations and Services. The Manager shall
make available its officers and employees to the Board
of Trustees and officers of the Fund for consultation
and discussions regarding the administration and
management of the Fund and its investment activities.

3. Expenses of the Fund. It is understood that the
Fund will pay all of its own expenses other than those expressly
assumed by the Manager herein, which expenses payable by the Fund
shall include:

A. Fees to the Manager as provided herein;

B. Expenses of all audits by independent public
accountants

C. Expenses of transfer agent, registrar, custodian,
dividend disbursing agent and shareholder record-
keeping services;

D. Expenses of obtaining quotations for calculating
the value of the Fund's net assets;

E. Salaries and other compensation of any of its
executive officers who are not officers, trustees,
stockholders or employees of the Manager;

F. Taxes levied against the Fund;

G. Brokerage fees and commissions in connection with
the purchase and sale of portfolio securities for
the Fund;

H. Costs, including the interest expense, of
borrowing money;

I. Costs incident is meetings of the Board of
Trustees, reports to the Fund's shareholders the
filing of reports with regulatory bodies and the
maintenance of the Fund's legal existence;

J. Legal fees, including the legal fees related to
the registration and continued qualification of
the Fund's shares for sale;

K. Costs of printing share certificates representing
shares of the Fund;

L. Trustees' fees and expenses to trustees who are
not directors, officers, employees or stockholders
of the Manager or any of its affiliates;

M. Trade association dues; and

N. Its pro rata portion of the fidelity bond
insurance premium and trustees and officers errors
and omissions insurance premium.

4. Compensation of the Manager. The Fund shall pay a
monthly management fee in cash to the Manager based upon a
percentage of the value of the Fund's net assets, calculated as
set forth below, on the first business day of each month in each
year as compensation for the services rendered and obligations
assumed by the Manager during the preceding month. The initial
management fee under this Agreement shall be payable on the first
business day of the first month following the effective date of
this Agreement, and shall be reduced by the amount of any advance
payments made by the Fund relating to the previous month.

A. For purposes of calculating such fee, the value
of the net assets of the Fund shall be the average
daily net assets during the month for which the payment
is being made, determined in the same manner as the
Fund uses to compute the value of its net assets in
connection with the determination of the daily net
asset value of its shares, all as set forth more fully
in the Fund's current prospectus. The annual rate of
the management fee payable by the Fund shall be as
follows:

40/100 of 1% of the value of its net assets
up to and including $5,000,000,000;

35/100 of 1% of the value of its net assets
in excess of $5,000,000,000 up to and
including $10,000,000,000

33/100 of 1% of the value of its net assets
in excess of $10,000,000,000 up to and
including $15,000,000,000 and

30/100 of 1% of the value of its net assets
in excess of $15,000,000,000.

B. The Management fee payable by the Fund shall be
reduced or eliminated to the extent that Distributors
has actually received cash payments of tender offer
solicitation fees less certain costs and expenses
incurred in connection therewith, and to the extent
necessary to comply with the limitations on expenses
which may be borne by the Fund as set forth in the
laws, regulations and administrative interpretations of
those states in which the Fund's shares are registered.

C. If this Agreement is terminated prior to the end
of any month, the monthly management fee for the Fund
shall be prorated for the portion of any month in which
this Agreement is in effect which is not a complete
month according to the proportion which the number of
calendar days in the fiscal quarter during which the
Agreement is in effect bears to the number of calendar
days in the month, and shall be payable within 10 days
after the date of termination.

5. Activities of the Manager. The services of the
Manager to the Fund hereunder are not to be deemed exclusive, and
the Manager and any of its affiliates shall be free to render
similar services to others. Subject to and in accordance with the
Agreement and Declaration of Trust and By-Laws of the Fund and to
Section 10(a) of the Investment Company Act of 1940, it is
understood that Trustees, officers, agents and shareholders of
the Fund are or may be interested in the Manager or its
affiliates as trustees, directors officers, agents or
stockholders, and that directors, officers, agents or
stockholders of the Manager or its affiliates are or may be
interested in the Fund as Trustees, officers, agents,
shareholders or otherwise, and that the Manager or its affiliates
may be interested in the Fund as shareholders or otherwise; and
that the effect of any such interests shall be governed by said
Agreement and Declaration of Trust, the By-Laws and the
Investment Company Act of 1940.

6. Liabilities of the Manager.

A. In the absence of willful misfeasance, bad faith,
gross negligence, or reckless disregard of obligations
or duties hereunder on the part of the Manager, the
Manager shall not be subject to liability to the Fund
or to any shareholder of the Fund for any act or
omission in the course of, or connected with, rendering
services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any
security by the Fund.

B. Notwithstanding the foregoing, the Manager
agrees to reimburse the Fund for any and all costs,
expenses, and counsel and trustees' fees reasonably
incurred by the Fund in the preparation, printing and
distribution of proxy statements, amendments to its
Registration Statement, holdings of meetings of its
shareholders or Trustees, the conduct of factual
investigations, any legal or administrative proceedings
(including any applications for exemptions or
determinations by the Securities and Exchange
Commission) which the Fund incurs as the result of
action or inaction of the Manager or any of its
affiliates or any of their officers, directors,
employees or shareholders where the action or inaction
necessitating such expenditures (i) is directly or
indirectly related to any transactions or proposed
transaction in the shares or control of the Manager or
its affiliates (or litigation related to any pending or
proposed or future transaction in such shares or
control); or (ii) is within the control of the Manager
or any of its affiliates or any of their officers,
trustees, employees or shareholders. The Manager shall
not be obligated pursuant to the provisions of this
Subsection 6(B), to reimburse the Fund for any
expenditures related to the institution of an
administrative proceeding or civil litigation by the
Fund or a shareholder seeking to recover all or a
portion of the proceeds derived by any shareholder of
the Manager or any of its affiliates from the sale of
his shares of the Manager, or similar matters. So long
as this Agreement is in effect the Manager shall pay to
the Fund the amount due for expenses subject to
Subsection 6(B) of this Agreement within 30 days after
a bill or statement has been received by the Manager
therefor. This provision shall not be deemed to be a
waiver of any claim the Fund may have or may assert
against the Manager or others for costs, expenses or
damages heretofore incurred by the Fund or for costs,
expenses or damages the Fund may hereafter incur which
are not reimbursable to it hereunder.

C. No provision of this Agreement shall be construed
to protect any Trustee or officer of the Fund, or
director or officer of the Manager, from liability in
violation of Sections 17(h) and (i) of the Investment
Company Act of 1940.

7. Renewal and Termination.

A. This Agreement shall become effective on the date
written below and shall continue in effect for two (2)
years. The Agreement is renewable annually thereafter
for successive periods not to exceed one (1) year (i)
by a vote of a majority or the outstanding voting
securities of the Fund or by a vote of the Board of
Trustees of the Fund, and (ii) by a vote of a majority
of the Trustees of the Fund who are not parties to the
Agreement or interested persons of any parties to the
Agreement (other than as Trustees of the Fund), cast in
person at a meeting called for the purpose of voting on
the Agreement.

B. This Agreement

(i) may at any time be terminated without the payment
of any penalty either by vote of the Board of Trustees
of the Fund or by vote of a majority of the outstanding
voting securities of the Fund on 60 days' written
notice to the Manager;

(ii) shall immediately terminate with respect to the
Fund in the event of its assignment; and

(iii) may at any time be terminated by the Manager on
60 days' written notice to the Fund.

C. As used in this Section the terms "assignment,"
"interested person" and "vote of a majority of the
outstanding voting securities" shall have the meanings
set forth for any such terms in the Investment Company
Act of 1940, as amended.

D. Any notice under this Agreement shall be given in
writing addressed and delivered, or mailed post-paid,
to the other party at any office of such party.

8. Severability. If any provision of this Agreement
shall be held or made invalid by a court decision, statute, rule
or otherwise, the remainder of this Agreement shall not be
affected thereby.

9. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of
California.

10. Limitation of Liability. The Manager acknowledges
that it has received notice of and accepts the limitations of the
Fund's liability as set forth in Article VIII of its Agreement
and Declaration of Trust. The Manager agrees that the Trust's
obligations hereunder shall be limited to the assets of the Fund,
and that the Manager shall not seek satisfaction of any such
obligation from any shareholder, trustee, officer, employee or
agent of the Fund.

IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and effective on the 3rd day of June,
1991.

FRANKLIN INSTITUTIONAL U.S. GOVERNMENT ARM FUND

By: /s/ Charles B. Johnson
Charles B. Johnson
President

FRANKLIN ADVISERS, INC.

By: /s/ Rupert H. Johnson, Jr.
Rupert H. Johnson, Jr.
President

AGREEMENT

AGREEMENT, made as of May 1, 1991, between Franklin
Institutional U.S. Government ARM Fund, a Delaware business trust
(hereinafter called the "Trust"), and Bank of America NT & SA, a
national banking association (hereinafter called the
"Custodian").

WITNESSETH:

WHEREAS, the Trust is registered as an investment company
under the Investment Company Act of 1940, as amended (the "1940
Act"), as a diversified, open-end management company which will
make shares available for each of the separate Funds (referred to
herein as a "Fund" or collectively as the "Funds") formed as a
series of the Trust, and desires that its securities and cash
shall be held and administered by the Custodian pursuant to the
terms of this Agreement; and

WHEREAS, the Custodian has an aggregate capital, surplus,
and undivided profits in excess of Two Million Dollars
($2,000,000) and has its functions and physical facilities
supervised by federal authority and is ready and willing to serve
pursuant to and subject to the terms of this Agreement:

NOW, THEREFORE, in consideration of the mutual agreements
herein made, the Trust and Custodian agree as follows:

Sec. 1. Definitions:

The word "securities" as used herein includes stocks,
shares, bonds, debentures, notes, mortgages and other obligations
and any certificates, receipts, warrants or other instruments
representing rights to receive, purchase, or subscribe for the
same, or evidencing or representing any other rights or interests
therein, or in any property or assets.

The term "proper instructions" shall mean a request or
direction by telephone or any other communication device from an
authorized Trust designee to be followed by a certification in
writing signed in the name of the Trust by any two of the
following persons: the Chairman of the Board of Trustees, the
President, a Vice-President, the Secretary and Treasurer of the
Trust, or any other persons duly authorized to sign by the Board
of Trustees of the Trust and for whom authorization has been
communicated in writing to the Custodian. The term "proper
officers" shall mean the officers authorized above to give proper
instructions.

Sec. 2. Names, Titles and Signatures of Authorized Signers:

An officer of the Trust will certify to Custodian the names
and signatures of those persons authorized to sign in accordance
with Sec. 1 hereof, and on a timely basis, of any changes which
thereafter may occur.

Sec. 3. Receipt and Disbursement of Money:

Custodian shall open and maintain a separate account or
accounts in the name of the Funds, subject only to draft or order
by Custodian acting pursuant to the terms of this Agreement,
("Direct Demand Deposit Account"). Custodian shall hold in such
account or accounts, subject to the provisions hereof, all cash
received by it from or for the accounts of the Funds. This shall
include, without limitation, the proceeds from the sale of shares
of the capital stock of the Funds which shall be received along
with proper instructions from the Trust. All such payments
received by Custodian shall be converted to Federal Funds no
later than the day after receipt and deposited to such Direct
Demand Deposit Account.

Custodian shall make payments of cash to, or for the account
of, the Funds from such cash or Direct Demand Deposit Account
only (a) for the purchase of securities for the portfolio of the
Funds upon the delivery of such securities to Custodian
registered in the name of the Custodian or of the nominee or
nominees thereof, in the proper form for transfer, (b) for the
redemption of shares of the capital stock of the Funds, (c) for
the payment of interest, dividends, taxes, management or
supervisory fees or any operating expenses (including, without
limitations thereto, insurance premiums, fees for legal,
accounting and auditing services), (d) for payments in connection
with the conversion, exchange or surrender of securities owned or
subscribed to by the Funds held by or to be delivered to
Custodian; or (e) for other proper Trust purposes. Before making
any such payment, Custodian shall receive and may rely upon,
proper instructions requesting such payment and setting forth the
purposes of such payment.

Custodian is hereby authorized to endorse and collect for
the account of the Funds all checks, drafts or other orders for
the payment of money received by Custodian for the account of the
Funds

Sec. 4. Holding of Securities:

Custodian shall hold all securities received by it for the
account of the Funds, pursuant to the provisions hereof, in
accordance with the provisions of Section 17(f) of the Investment
Company Act of 1940 and the regulations thereunder. All such
securities are to be held or disposed of by the Custodian for,
and subject at all times to the proper instructions of, the
Trust, pursuant to the terms of this Agreement. The Custodian
shall have no power of authority to assign, hypothecate, pledge
or otherwise dispose of any such securities and investments,
except pursuant to the proper instructions of the Trust and only
for the account of the Funds as set forth in Sec. 5 of this
Agreement.

Sec. 5. Transfer, Exchange or Delivery, of Securities:

Custodian shall have sole power to release or to deliver any
securities of the Funds held by it pursuant to this Agreement.
Custodian agrees to transfer, exchange, or deliver securities
held by it hereunder only (a) for the sales of such securities
for the account of the Funds upon receipt by Custodian of payment
therefor, (b) when such securities are called, redeemed or
retired or otherwise become payable, (c) for examination by any
broker selling any such securities in accordance with "street
delivery" custom, (d) in exchange for or upon conversion into
other securities alone or other securities and cash whether
pursuant to any plan or merger, consolidation, reorganization,
recapitalization or readjustment, or otherwise, (e) on conversion
of such securities pursuant to their terms into other securities,
(f) upon exercise of subscription, purchase or other similar
rights represented by such securities, (g) for the purpose of
exchanging interim receipts or temporary securities for
definitive securities, (h) for the purpose of redeeming in kind
shares of beneficial interest of the Funds upon delivery thereof
to Custodian, or (i) for other proper Trust purposes. Any
securities or cash receivable in exchange for such deliveries
made by Custodian, shall be deliverable to Custodian. Before
making any such transfer, exchange or delivery, the Custodian
shall receive, and may rely upon, proper instructions authorizing
such transfer, exchange or delivery and setting forth the purpose
thereof.

Sec. 6. Other Actions of Custodians:

(a) The Custodian shall collect, receive and deposit income
dividends, interest and other payments or distribution of cash or
property of whatever kind with respect to the securities held
hereunder; receive and collect securities received as a
distribution upon portfolio securities as a result of a stock
dividend, share split-up, reorganization, recapitalization,
consolidation, merger, readjustment, distribution of rights and
other items of like nature, or otherwise, and execute ownership
and other certificates and affidavits for all federal and state
tax purposes in connection with the collection of coupons upon
corporate securities, setting forth in any such certificate or
affidavit the name of the Fund as owner of such securities; and
do all other things necessary or proper in connection with the
collection, receipt and deposit of such income and securities,
including without limiting the generality of the foregoing,
presenting for payment all coupons and other income items
requiring presentation and presenting for payment all securities
which may be called, redeemed, retired or otherwise become
payable. Amounts to be collected hereunder shall be credited to
the account of the Fund according to the following formula:

(1) Periodic interest payments and final payments on
maturities of Federal instruments such as U.S. Treasury bills,
bonds and notes; interest payments and final payments on
maturities of other money market instruments including tax-exempt
money market instruments payable in federal or depository funds;
and payments on final maturities of GNMA instruments, shall be
credited to the account of the Fund on payable or maturity date.

(2) Dividends on equity securities and interest
payments, and payments on final maturities of municipal bonds
(except called bonds) shall be credited to the account of the
Fund on payable or maturity date plus one.

(3) Payments for the redemption of called bonds,
including called municipal bonds shall be credited to the account
of the Fund on the payable date except that called municipal
bonds paid in other than Federal or depository funds shall be
credited on payable date plus one.

(4) Periodic payments of interest and/or of partial
principal on GNMA instruments (other than payments on final
maturity) shall be credited to the account of the Fund on payable
date plus two.

(5) Proceeds of insurance in lieu of any payments on
municipal securities in default shall be credited to the account
of the Fund on date of receipt.

(6) Should the Custodian fail to credit the account of
the Fund on the date specified in paragraphs (1) - (5) above, the
Fund may at its option, require compensation from the Custodian
of foregone interest (at the rate of prime plus one) and for
damages, if any.

(b) Payments to be received or to be paid in connection with
purchase and sale transactions shall be debited or credited to
the account of the Fund on the contract settlement date with the
exception of "when-issued" municipal bonds. Payments to be made
for purchase by the Fund of when-issued municipal bonds shall be
debited to the account of the Fund on actual settlement date.

(1) In the event a payment is wrongfully debited to
the account of the Fund due to an error by the Custodian, the
Custodian will promptly credit such amount to the Fund, plus
interest (prime plus one) and damages, if any.

(2) In the event a payment is credited to the account
of the Fund and the Custodian is unable to deliver securities
being sold due to an error on the part of the Fund, such payment
shall be debited to the account of the Fund, and an appropriate
charge for costs of the transaction may be sent by the Custodian
to the Trust.

Sec. 7. Reports by Custodian:

Custodian shall each business day furnish the Trust with a
statement summarizing all transactions and entries for the
account of the Fund for the preceding day. At the end of every
month Custodian shall furnish the Trust with a list of the
portfolio securities showing the quantity of each issue owned,
the cost of each issue and the market value of each issue at the
end of each month. Such monthly report shall also contain
separate listings of (a) unsettled trades and (b) when-issued
securities. Custodian shall furnish such other reports as may be
mutually agreed upon from time-to-time.

Sec. 8. Compensation:

Custodian shall be paid as compensation for its services
pursuant to this Agreement such compensation as may from time to
time be agreed upon in writing between the two parties.

Sec. 9. Liabilities and Indemnifications:

(a) Custodian shall not be liable for any action taken in
good faith upon any proper instructions herein described or
certified copy of any resolution of, the Board of Trustees of the
Trust, and may rely on the genuineness of any such document which
it may in good faith believe to have been validly executed.

(b) The Trust agrees to indemnify and hold harmless the
Custodian and its nominee from all taxes, charges, expenses,
assessments, claims and liabilities (including counsel fees)
incurred or assigned against it or its nominee in connection with
the performance of this Agreement, except such as may arise from
negligent action, negligent failure to act or willful misconduct
of Custodian or its nominee.

Sec. 10. Records:

The Custodian hereby acknowledges that all of the records it
shall prepare and maintain pursuant to this Agreement shall be
the property of the Trust and, if and to the extent applicable,
of the principal underwriter of the shares of the Funds, and that
upon proper instructions of the Trust or such principal
underwriter, if any, or both, it shall:

(a) Deliver said records to the Trust, principal underwriter
or a successor custodian, as appropriate;

(b) Provide the auditors of the Trust or principal
underwriter or any securities regulatory agency with a copy of
such records without charge; and provide the Trust and successor
custodian with a reasonable number of reports and copies of such
records at a mutually agreed upon charge appropriate to the
circumstances.

(c) Permit any securities regulatory agency to inspect or
copy during normal business hours of the Custodian any such
records.

Sec. 11. Appointment of Agents:

(a) The Custodian shall have the authority, in its
discretion, to appoint an agent or agents to do and perform any
acts or things for and on behalf of the Custodian, pursuant at
all times to its instructions, as the Custodian is permitted to
do under this Agreement.

(b) Any agent or agents appointed to have physical custody
of securities held under this Agreement or any part thereof must
be:

(1) a bank or banks, as that term is defined in Section
2(a)(5) of the 1940 Act, having an aggregate, surplus and
individual profits of not less than $2,000,000 (or such greater
sum as may then be required by applicable laws), or

(2) a securities depository, (the "Depository") as that
term is defined in Rule 17f-4 under the 1940 Act, upon proper
instructions from the Trust and subject to any applicable
regulations, or

(3) the book-entry system of the U.S. Treasury
Department and Federal Reserve Board, (the "System") upon proper
instructions and subject to any applicable regulations.

1) hold such securities in a nonproprietary account
which shall not include securities owned by Custodian;

2) on each day on which there is a transfer to or from
the Funds in such portfolio securities, send a written
confirmation to the Trust;

3) upon receipt by Custodian, send promptly to Trust
(i) a copy of any reports Custodian receives from the System or
the Depository concerning internal accounting controls, and (ii)
a copy of such reports on Custodian's systems of internal
accounting controls as Trust may reasonably request.

(d) The delegation of any responsibilities or activities by
the Custodian to any agent or agents shall not relieve the
Custodian from any liability which would exist if there were no
such delegation.

Sec. 12. Assignment and Termination:

(a) This Agreement may not be assigned by the Trust or the
Custodian without written consent of the other party.

(b) Either the Custodian or the Trust may terminate this
Agreement without payment of any penalty, at any time upon one
hundred twenty (120) days written notice thereof delivered by the
one to the other, and upon the expiration of said one hundred
twenty (120) days, this Agreement shall terminate; provided,
however, that this Agreement shall continue thereafter for such
period as may be necessary for the complete divestiture of all
assets held hereinunder, as next herein provided. In the event
of such termination, the Custodian will immediately upon the
receipt or transmittal of such notice, as the case may be,
commence and prosecute diligently to completion the transfer of
all cash and the delivery of all portfolio securities, duly
endorsed, to the successor of the Custodian when appointed by the
Trust. The Trust shall select such successor custodian within
sixty (60) days after the giving of such notice of termination,
and the obligation of the Custodian named herein to deliver and
transfer over said assets directly to such successor custodian
shall commence as soon as such successor is appointed and shall
continue until completed, as aforesaid. At any time after
termination hereof the Trust may have access to the records of
the administration of this custodianship whenever the same may be
necessary.

(c) If, after termination of the services of the Custodian,
no successor custodian has been appointed within the period above
provided, the Custodian may deliver the cash and securities owned
by the Trust to a bank or trust company of its own selection
having an aggregate capital, surplus and undivided profits of not
less than Two Million Dollars ($2,000,000) (or such greater sum
as may then be required by the laws and regulations governing the
conduct by the Trust of its business as an investment company)
and having its functions and physical facilities supervised by
federal or state authority, to be held as the property of the
Trust under the terms similar to those on which they were held by
the retiring Custodian, whereupon such bank or trust company so
selected by the Custodian shall become the successor custodian
with the same effect as though selected by the Board of Trustees
of the Trust.

IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement.

Franklin Institutional U.S. Government
ARM Fund

By /s/ Charles B. Johnson

Bank of America, NT & SA

/s/ John B. Housen
By /s/ illegible

POWER OF ATTORNEY

The undersigned officers and trustees of ADJUSTABLE RATE
SECURITIES PORTFOLIOS (the "Registrant") hereby appoint HARMON E.
BURNS, DEBORAH R. GATZEK, KAREN L. SKIDMORE, LARRY L. GREENE, and
MARK H. PLAFKER (with full power to each of them to act alone) as
their 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, or the registration statements of other funds
investing all or substantially all of their assets in shares
issued by the Registrant, on Form N-1A under the Investment
Company Act of 1940, as amended, and, in the case of a fund
investing all or substantially all of its assets in shares issued
by the Registrant, the Securities Act of 1933, covering the sale
of shares of beneficial interest by the Registrant or such other
fund under prospectuses becoming effective after the date hereof,
including any amendment or amendments filed for the purpose of
updating the prospectus/or SAI, registering securities to be
issued in transactions permitted under the federal securities
laws or 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 _______ day of __________ 1995.

_______________________________ _______________________________
Charles E. Johnson, Principal Charles B. Johnson,
Executive Officer and Trustee Trustee

_______________________________ _______________________________
Rupert H. Johnson, Jr., Trustee Frank H. Abbott, III, Trustee

_______________________________ _______________________________
Harris J. Ashton, Trustee S. Joseph Fortunato, Trustee

_______________________________ _______________________________
David W. Garbellano, Trustee Frank W. T. LaHaye, Trustee

_______________________________ _______________________________
William J. Lippman, Trustee Gordon S. Macklin, Trustee

_______________________________ _______________________________
Diomedes Loo-Tam, Martin L. Flanagan, Principal
Principal Accounting Officer Financial Officer

CERT
CERTIFICATE OF SECRETARY

I, Deborah R. Gatzek, certify that I am Secretary of
Adjustable Rate Securities Portfolios (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 February 16, 1995.

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: February 16, 1995 Deborah R. Gatzek
Secretary