UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSRS

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-04986
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Franklin Investors Securities Trust
------------------------------------
(Exact name of registrant as specified in charter)

One Franklin Parkway, San Mateo, CA 94403-1906
-----------------------------------------------
(Address of principal executive offices) (Zip code)

Craig S. Tyle, One Franklin Parkway, San Mateo, CA 94403-1906
--------------------------------------------------------------
(Name and address of agent for service)

Registrant's telephone number, including area Code: (650) 312-2000

Date of fiscal year end: 10/31

Date of reporting period: 4/30/08

ITEM 1. REPORTS TO STOCKHOLDERS.

(GRAPHIC)

APRIL 30, 2008

Franklin Balanced Fund

Franklin Convertible Securities Fund

Franklin Equity Income Fund

Franklin Limited Maturity U.S. Government Securities Fund

Franklin Real Return Fund

SEMIANNUAL REPORT AND SHAREHOLDER LETTER

FRANKLIN
INVESTORS SECURITIES TRUST

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FRANKLIN - Templeton - Mutual Series

Semiannual Report

Economic and Market Overview

During the six months ended April 30, 2008, the U.S. economy slowed as gross
domestic product growth decelerated sharply to an annualized 0.6% in the fourth
quarter of 2007 from a fairly robust growth rate of 4.9% in the preceding
quarter. As the financial, labor and housing markets continued to deteriorate,
investor and consumer confidence waned, which led to a pullback in consumer
spending. These factors as well as upward inflationary pressures from a
weakening U.S. dollar and increasing food, energy and commodity prices weighed
on the overall economy. The retrenchment continued in the first quarter of 2008
as the economy grew at a 0.9% estimated annualized rate, which was largely
credited to external demand and an inventory buildup.

Volatile oil prices reached a historical high in April, topping $119 per barrel,
before retreating to $113 by period-end. Despite inflation risks from higher
food and energy costs, core inflation, which excludes such costs, remained
relatively subdued at an annual 2.3% rate in April 2008.(1) This level was above
the Federal Reserve Board's (Fed's) informal target range of 1%-2%.The core
personal consumption expenditures price index reported a 12-month increase of
2.1%.(2)

The Fed acted aggressively to restore liquidity and confidence to unsettled
financial markets and cut interest rates five times over the six-month period,
bringing the federal funds target rate to 2.00% by period-end. The Fed also
implemented a series of unconventional measures aimed at easing strained credit
conditions. It created a $200 billion loan program intended to provide liquidity
to a wider range of financial institutions that could also use riskier assets
for collateral, such as illiquid mortgage-backed securities. After a run on Bear
Stearns nearly resulted in the investment bank's collapse, the Fed orchestrated
its acquisition by JPMorgan Chase. In addition, federal regulators eased capital
requirements on government-sponsored Fannie Mae and Freddie Mac.

(1). Source: Bureau of Labor Statistics.

(2). Source: Bureau of Economic Analysis.

Semiannual Report | 3

Despite the Fed's attempts to calm the financial markets, equity performance was
volatile and U.S. Treasuries rallied. Overall, the blue chip stocks of the Dow
Jones Industrial Average had a six-month total return of -6.79%, while the
broader Standard & Poor's 500 Index (S&P 500) had a -9.64% return, and the
technology-heavy NASDAQ Composite Index had a -15.29% return.(3) Fixed income
spreads generally widened relative to Treasury yields over the period due to
heightened market turbulence. Investors continued to seek the relative safety of
short- and intermediate-term U.S. Treasury securities as Treasury yields
declined and the yield curve steepened. Short-term, two- and five-year yields
declined significantly, with the two-year bill yielding 2.29% at the end of
April, down from 3.94% six months prior. The 10-year U.S. Treasury note ended
April yielding 3.77%, compared with 4.48% at the beginning of the period.
However, by period-end, it appeared that the Fed's aggressive campaigns were
beginning to take effect as non-Treasury investment grade sectors showed signs
of improvement.

(3). Source: Standard & Poor's Micropal. The Dow Jones Industrial Average is
price weighted based on the average market price of 30 blue chip stocks of
companies that are generally industry leaders. The S&P 500 consists of 500
stocks chosen for market size, liquidity and industry group representation.
Each stock's weight in the index is proportionate to its market value. The
S&P 500 is one of the most widely used benchmarks of U.S. equity
performance. The NASDAQ Composite Index measures all NASDAQ domestic and
international based common type stocks listed on The NASDAQ Stock Market.
The index is market value weighted and includes more than 3,000 companies.

THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF APRIL 30,
2008. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE.

4 | Semiannual Report

Semiannual Report

Franklin Balanced Fund

YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Balanced Fund seeks income and
capital appreciation by investing in a combination of stocks, convertible
securities and fixed income securities. The Fund will normally invest at least
25% of its total assets in equity securities and at least 25% of its total
assets in fixed income securities, including money market securities.

PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.

This semiannual report for Franklin Balanced Fund covers the period ended April
30, 2008.

PERFORMANCE OVERVIEW

For the six months under review, Franklin Balanced Fund - Class A had a
cumulative total return of -3.88%. The Fund performed better than its equity
benchmark, the Standard & Poor's 500 Index (S&P 500), which had a -9.64% total
return for the same period.(1) However, it underperformed its fixed income
benchmark, the Lehman Brothers (LB) U.S. Aggregate Index, which posted a +4.08%
total return.(2) You can find the Fund's long-term performance data in the
Performance Summary beginning on page 8.

INVESTMENT STRATEGY

We seek income by investing in a combination of corporate, agency and government
bonds issued in the U.S. and other countries, as well as dividend-paying common
stocks and convertible securities. We seek capital appreciation by investing in
equity securities and convertible securities of companies from a variety of
industries. We will generally invest in investment grade fixed income
securities, but may invest up to 10% of our total assets in nonconvertible bonds

(2). Source: Standard & Poor's Micropal. The LB U.S. Aggregate Index represents
securities that are SEC-registered, taxable and dollar denominated. The
index covers the U.S. investment grade fixed-rate bond market, with index
components for government and corporate securities, mortgage pass-through
securities and asset-backed securities. All issues included must have at
least one year to final maturity and must be rated investment grade (Baa3
or better) by Moody's Investors Service. They must also be dollar
denominated and nonconvertible. Total return includes price
appreciation/depreciation and income as a percentage of the original
investment.

The indexes are unmanaged and include reinvestment of any income or
distributions. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.

THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 48.

Semiannual Report | 5

PORTFOLIO BREAKDOWN
Franklin Balanced Fund
Based on Total Net Assets as of 4/30/08

Common Stocks 38.1%
Corporate Bonds 27.3%
Convertible Preferred Stocks 16.2%
Preferred Stocks 3.9%
Mortgage-Backed Securities 1.2%
Asset-Backed Securities & Commercial
Mortgage-Backed Securities 0.3%
Short-Term Investments & Other Net Assets 13.0%

rated below investment grade. We apply a "bottom-up" approach to investing in
individual securities. We will assess the market price of a company's securities
relative to our evaluation of the company's long-term earnings, asset value and
cash flow potential. We also consider a company's price/earnings ratio, profit
margins and liquidation value. In determining an optimal mix of equity and fixed
income investments for the Fund, we assess changing economic, market and
industry conditions.

MANAGER'S DISCUSSION

During the six months under review, key contributors to Fund performance among
our equity holdings were energy sector investments, including oil and gas
exploration and production company Chesapeake Energy and oilfield services and
equipment companies Nabors Industries (sold by period-end) and Halliburton.
Rising crude oil and natural gas prices positively impacted these companies'
fundamentals. Chesapeake emerged as a dominant natural gas company in North
America, while Nabors and Halliburton enjoyed strong demand for their services
due to rising commodity prices.

The financials sector was the primary detractor from Fund performance among our
equity holdings during the period as further deterioration in housing-related
markets, including mortgages and related structured products, negatively
impacted Bank of America, Washington Mutual and Merrill Lynch. Other sectors
that detracted from Fund performance included consumer discretionary and
information technology. Starbucks, within consumer discretionary, weighed on
Fund returns as a weak economy hurt same-store sales trends. A slowing economy
and fears of a slowdown in corporate information technology spending hampered
NetApp and Cisco Systems shares. We sold Bank of America, Washington Mutual and
Starbucks during the period.

Regarding the Fund's fixed income holdings, a significant weighting in corporate
bonds hindered performance as corporate yield spreads widened during the
reporting period due to fears of weakening fundamentals in the event of an
economic recession. The LB U.S. Corporate Investment Grade Index's spreads
increased from 149 basis points (100 basis points equal one percentage point) on
October 31, 2007, to 259 basis points on April 30, 2008.(3) On March 31, 2008,
spreads were at 303 basis points, and so we did see some improved performance
toward period-end.(3) U.S. Treasury bonds benefited from a flight to quality as

(3). Source: Standard & Poor's Micropal. The LB U.S. Corporate Investment Grade
Index is the corporate component of the LB U.S. Credit Index, which
includes publicly issued, SEC-registered bonds that meet specified
maturity, liquidity and quality requirements.

6 | Semiannual Report

the credit crisis in U.S. fixed income markets became more widespread and
included the collapse and rescue of Bear Stearns by JPMorgan Chase. The Fund's
weakest performing fixed income holdings included R.H. Donnelley in the consumer
discretionary sector and The Travelers and Wachovia in the financials sector.

Thank you for your continued participation in Franklin Balanced Fund. We look
forward to serving your future investment needs.

(PHOTO OF EDWARD D. PERKS)

/s/ Edward D. Perks
Edward D. Perks, CFA

(PHOTO OF ALAN E. MUSCHOTT)

/s/ Alan E. Muschott
Alan E. Muschott, CFA

(PHOTO OF SHAWN LYONS)

/s/ Shawn Lyons
Shawn Lyons, CFA

Portfolio Management Team
Franklin Balanced Fund

THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF APRIL 30, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.

TOP 5 EQUITIES
Franklin Balanced Fund
4/30/08

COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- ------------------------------------------ -----------

Morgan Stanley into Genentech Inc. 2.8%
HEALTH CARE
Wachovia Corp. 2.7%
FINANCIALS
FNMA 2.6%
FINANCIALS
Schering-Plough Corp. 2.5%
HEALTH CARE
Morgan Stanley into Texas Instruments Inc. 2.5%
INFORMATION TECHNOLOGY

TOP 5 BONDS
Franklin Balanced Fund
4/30/08

COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- ------------------------------------------ ----------

JPMorgan Chase & Co. 2.0%
FINANCIALS
Target Corp. 1.7%
CONSUMER DISCRETIONARY
Lehman Brothers Holdings Inc. 1.7%
FINANCIALS
Metropolitan Life Global Funding I 1.5%
FINANCIALS
Ford Motor Credit Co. LLC 1.4%
CONSUMER DISCRETIONARY

Semiannual Report | 7

Performance Summary as of 4/30/08

FRANKLIN BALANCED FUND

Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table does not reflect any taxes that a
shareholder would pay on Fund dividends, capital gain distributions, if any, or
any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.

PRICE AND DISTRIBUTION INFORMATION

CLASS A (SYMBOL: FBLAX) CHANGE 4/30/08 10/31/07
- ------------------------------------- ------ ------- --------

Net Asset Value (NAV) -$0.93 $10.43 $11.36
DISTRIBUTIONS (11/1/07-4/30/08)
Dividend Income $0.2406
Short-Term Capital Gain $0.2080
Long-Term Capital Gain $0.0346
TOTAL $0.4832

CLASS C (SYMBOL: N/A) CHANGE 4/30/08 10/31/07
- ------------------------------------- ------ ------- --------

Net Asset Value (NAV) -$0.93 $10.37 $11.30
DISTRIBUTIONS (11/1/07-4/30/08)
Dividend Income $0.2009
Short-Term Capital Gain $0.2080
Long-Term Capital Gain $0.0346
TOTAL $0.4435

CLASS R (SYMBOL: N/A) CHANGE 4/30/08 10/31/07
- ------------------------------------- ------ ------- --------

Net Asset Value (NAV) -$0.93 $10.43 $11.36
DISTRIBUTIONS (11/1/07-4/30/08)
Dividend Income $0.2282
Short-Term Capital Gain $0.2080
Long-Term Capital Gain $0.0346
TOTAL $0.4708

ADVISOR CLASS (SYMBOL: N/A) CHANGE 4/30/08 10/31/07
- ------------------------------------- ------ ------- --------

Net Asset Value (NAV) -$0.93 $10.45 $11.38
DISTRIBUTIONS (11/1/07-4/30/08)
Dividend Income $0.2581
Short-Term Capital Gain $0.2080
Long-Term Capital Gain $0.0346
TOTAL $0.5007

8 | Semiannual Report

Performance Summary (CONTINUED)

PERFORMANCE(1)

CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN
FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. UNTIL AUGUST 31, 2008,
THE FUND MAY CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.

CLASS A 6-MONTH 1-YEAR INCEPTION (7/3/06)
- ------------------------------------- ------- ------ ------------------

Cumulative Total Return(2) -3.88% -2.06% +13.26%
Average Annual Total Return(3) -9.39% -7.69% +3.64%
Value of $10,000 Investment(4) $9,061 $9,231 $10,674
Avg. Ann. Total Return (3/31/08)(5) -8.41% +1.46%
Distribution Rate(6) 1.08%
30-Day Standardized Yield(7) 3.66%
Total Annual Operating Expenses(8)
Without Waiver 1.64%
With Waiver 1.04%

CLASS C 6-MONTH 1-YEAR INCEPTION (7/3/06)
- ------------------------------------- ------- ------ ------------------

Cumulative Total Return(2) -4.27% -2.71% +11.88%
Average Annual Total Return(3) -5.19% -3.63% +6.35%
Value of $10,000 Investment(4) $9,481 $9,637 $11,188
Avg. Ann. Total Return (3/31/08)(5) -4.32% +4.25%
Distribution Rate(6) 0.94%
30-Day Standardized Yield(7) 3.22%
Total Annual Operating Expenses(8)
Without Waiver 2.31%
With Waiver 1.71%

CLASS R 6-MONTH 1-YEAR INCEPTION (7/3/06)
- ------------------------------------- ------- ------ ------------------

Cumulative Total Return(2) -4.00% -2.19% +12.93%
Average Annual Total Return(3) -4.00% -2.19% +6.89%
Value of $10,000 Investment(4) $9,600 $9,781 $11,293
Avg. Ann. Total Return (3/31/08)(5) -2.92% +4.80%
Distribution Rate(6) 1.09%
30-Day Standardized Yield(7) 3.71%
Total Annual Operating Expenses(8)
Without Waiver 1.81%
With Waiver 1.21%

Semiannual Report | 9

Performance Summary (CONTINUED)

PERFORMANCE(1) (CONTINUED)

ADVISOR CLASS 6-MONTH 1-YEAR INCEPTION (7/3/06)
- ------------------------------------- ------- ------ ------------------

Cumulative Total Return(2) -3.71% -1.62% +14.01%
Average Annual Total Return(3) -3.71% -1.62% +7.45%
Value of $10,000 Investment(4) $9,629 $9,838 $11,401
Avg. Ann. Total Return (3/31/08)(5) -2.50% +5.29%
Distribution Rate(6) 1.24%
30-Day Standardized Yield(7) 4.18%
Total Annual Operating Expenses(8)
Without Waiver 1.31%
With Waiver 0.71%

PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND
PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.

THE MANAGER AND ADMINISTRATOR HAVE CONTRACTUALLY AGREED TO LIMIT FUND EXPENSES
SO THAT TOTAL ANNUAL FUND OPERATING EXPENSES DO NOT EXCEED THE AMOUNT SHOWN WITH
WAIVER (OTHER THAN CERTAIN NON-ROUTINE EXPENSES) FOR EACH SHARE CLASS UNTIL
2/28/09.

ENDNOTES

INTEREST RATE MOVEMENTS WILL AFFECT THE FUND'S SHARE PRICE AND YIELD. BOND
PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. AS PRICES OF
BONDS IN THE FUND ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE PRICE MAY
DECLINE. WHILE STOCKS HAVE HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER
THE LONG TERM, THEY TEND TO FLUCTUATE DRAMATICALLY OVER THE SHORT TERM AS A
RESULT OF FACTORS AFFECTING INDIVIDUAL COMPANIES, INDUSTRIES OR THE SECURITIES
MARKET AS A WHOLE. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN
INVESTMENT RISKS.

CLASS C: These shares have higher annual fees and expenses than Class A
shares.

CLASS R: Shares are available to certain eligible investors as described
in the prospectus. These shares have a higher annual fees and
expenses than Class A shares.

ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.

(1). If the manager and administrator had not waived fees, the Fund's
distribution rate and total return would have been lower, and yields for
the period would have been 3.51%, 3.06%, 3.55% and 4.02% for Classes A, C,
R and Advisor, respectively.

(2). Cumulative total return represents the change in value of an investment
over the periods indicated.

(3). Average annual total return represents the average annual change in value
of an investment over the periods indicated. Six-month return has not been
annualized.

(4). These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.

(5). In accordance with SEC rules, we provide standardized total return
information through the latest calendar quarter.

(6). Distribution rate is based on an annualization of the respective class's
April dividend and the maximum offering price (NAV for Classes C, R and
Advisor) per share on 4/30/08.

(7). Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 4/30/08.

(8). Figures are as stated in the Fund's prospectus current as of the date of
this report.

10 | Semiannual Report

Your Fund's Expenses

FRANKLIN BALANCED FUND

As a Fund shareholder, you can incur two types of costs:

- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and

- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.

The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.

ACTUAL FUND EXPENSES

The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.

You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:

1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600/$1,000 = 8.6.

2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS

Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.

Semiannual Report | 11

Your Fund's Expenses (CONTINUED)

PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.

BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 11/1/07 VALUE 4/30/08 PERIOD* 11/1/07-4/30/08
----------------- -------------- -----------------------

CLASS A
Actual $1,000 $ 961.20 $4.92
Hypothetical (5% return before expenses) $1,000 $1,019.84 $5.07

CLASS C
Actual $1,000 $ 957.30 $8.18
Hypothetical (5% return before expenses) $1,000 $1,016.51 $8.42

CLASS R
Actual $1,000 $ 960.00 $5.90
Hypothetical (5% return before expenses) $1,000 $1,018.85 $6.07

ADVISOR CLASS
Actual $1,000 $ 962.90 $3.47
Hypothetical (5% return before expenses) $1,000 $1,021.33 $3.57

* Expenses are calculated using the most recent six-month expense ratio, net
of expense waivers, annualized for each class (A: 1.01%; C: 1.68%; R:
1.21%; and Advisor: 0.71%), multiplied by the average account value over
the period, multiplied by 182/366 to reflect the one-half year period.

12 | Semiannual Report

Franklin Convertible Securities Fund

YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Convertible Securities Fund
seeks to maximize total return consistent with reasonable risk by attempting to
optimize capital appreciation and high current income under varying market
conditions and investing at least 80% of its net assets in convertible
securities.

PORTFOLIO BREAKDOWN
Franklin Convertible Securities Fund
Based on Total Net Assets as of 4/30/08

(PIE CHART)

Convertible Bonds.............. 60.9%
Convertible Preferred Stocks... 34.7%
Common Stocks ................. 1.5%
Short-Term Investments &
Other Net Assets ........... 2.9%

This semiannual report for Franklin Convertible Securities Fund covers the
period ended April 30, 2008.

PERFORMANCE OVERVIEW

For the six months under review, Franklin Convertible Securities Fund - Class A
had a -6.19% cumulative total return. The Fund underperformed its benchmark,
the Merrill Lynch (ML) All U.S. Convertibles Index, which returned -5.75% for
the same period.(1) You can find the Fund's long-term performance data in the
Performance Summary beginning on page 16.

INVESTMENT STRATEGY

We follow a strategy of maintaining a balance in the portfolio between the
equity and debt characteristics of convertible securities with an emphasis on

(1). Source: Standard & Poor's Micropal. The ML All U.S. Convertibles Index
comprises domestic securities of all quality grades that are convertible
into U.S. dollar-denominated common stock, ADRs or cash equivalents. The
index is unmanaged and includes reinvestment of any income or
distributions. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.

THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 55.

Semiannual Report | 13

TOP 10 HOLDINGS
Franklin Convertible Securities Fund
4/30/08

% OF TOTAL
COMPANY SECTOR/INDUSTRY NET ASSETS
- ------------------------- ----------

Microchip Technology 2.6%
INFORMATION TECHNOLOGY
Best Buy Co. Inc. 2.5%
CONSUMER DISCRETIONARY
General Motors Corp. 2.5%
CONSUMER DISCRETIONARY
Medtronic Inc. 2.4%
HEALTH CARE
Celanese Corp. 2.4%
MATERIALS
NRG Energy Inc. 2.3%
UTILITIES
VeriSign Inc. 2.3%
INFORMATION TECHNOLOGY
Intel Corp. 2.3%
INFORMATION TECHNOLOGY
Wachovia Corp. 2.3%
FINANCIALS
Entergy Corp. 2.2%
UTILITIES

the equity features. Convertible securities are attractive for two reasons: the
opportunity to participate in common stocks' potential growth with relatively
reduced volatility, and the potential for current income with potential downside
protection from bonds. Typically we sell securities whose equity sensitivity
becomes too high and no longer offers appropriate downside protection. Likewise,
as securities become too bond-like -- reducing their ability to appreciate with
increases in the underlying common stock -- we attempt to redeploy those assets
into more balanced convertible securities and maintain the potential for the
Fund's upside participation. Our experienced team of analysts searches for
investment opportunities among all economic sectors, and considers a company's
long-term earnings, asset value and cash flow potential, to create a broadly
diversified portfolio.

MANAGER'S DISCUSSION

During the six months under review, New Orleans-based McMoRan Exploration in the
energy sector was a significant contributor to Fund performance as the company
benefited from rising oil and gas prices and increased production. McMoRan,
which is engaged in oil and natural gas exploration, development and production,
has significant operations in the Gulf of Mexico and Gulf Coast regions.

Also in the energy sector, Fund holding Chesapeake Energy benefited from similar
trends and contributed to performance during the review period. In late March,
the company announced the planned development of a major new natural gas basin
in the Haynesville Shale in northern Louisiana.

Semiconductor company Microchip Technology, in the information technology
sector, was also a key contributor to performance as the company reported strong
revenues in the first quarter of 2008 as a result of strong demand for its chips
that are used in a wide range of applications.

Other holdings that performed well during the reporting period included
investment banks Lehman Brothers and Wachovia in the financials sector, and
biotechnology company BioMarin Pharmaceutical in the health care sector.

The Fund had some significant detractors from performance. Notably, several of
the Fund's financials sector holdings that were severely impacted by the
subprime mortgage and credit crises included commercial lender CIT Group, online
brokerage firm E*TRADE Financial, financial services holding company Affiliated
Managers Group (AMG) and mortgage lender Fannie Mae. CIT announced plans to sell
some of its assets to cover losses from its home

14 | Semiannual Report

and consumer lending segments. E*TRADE and Fannie Mae struggled with steep
mortgage-related losses, and AMG reported heavy cash outflows from several of
its asset management firms during the first quarter of 2008.

Fund performance was also hurt by investments in credit card processing
equipment company VeriFone Holdings, networking company Juniper Networks and IT
consulting firm BearingPoint in the information technology sector.

Thank you for your participation in Franklin Convertible Securities Fund. We
look forward to serving your future investment needs.

(PHOTO OF ALAN E. MUSCHOTT)

/s/ Alan E. Muschott, CFA
Alan E. Muschott, CFA

(PHOTO OF EDWARD D. PERKS)

/s/ Edward D. Perks, CFA
Edward D. Perks, CFA

(PHOTO OF MATT QUINLAN)

/s/ Matt Quinlan
Matt Quinlan

Portfolio Management Team
Franklin Convertible Securities Fund

Semiannual Report | 15

Performance Summary as of 4/30/08

FRANKLIN CONVERTIBLE SECURITIES FUND

PRICE AND DISTRIBUTION INFORMATION

CLASS A (SYMBOL: FISCX) CHANGE 4/30/08 10/31/07
- ------------------------------- ------ ------- --------

Net Asset Value (NAV) -$1.89 $15.25 $17.14
DISTRIBUTIONS (11/1/07-4/30/08)
Dividend Income $0.2396
Short-Term Capital Gain $0.1986
Long-Term Capital Gain $0.3798
TOTAL $0.8180

CLASS C (SYMBOL: FROTX) CHANGE 4/30/08 10/31/07
- ------------------------------- ------ ------- --------

Net Asset Value (NAV) -$1.88 $15.10 $16.98
DISTRIBUTIONS (11/1/07-4/30/08)
Dividend Income $0.1788
Short-Term Capital Gain $0.1986
Long-Term Capital Gain $0.3798
TOTAL $0.7572

16 | Semiannual Report

Performance Summary (CONTINUED)

PERFORMANCE

CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN
FIRST YEAR ONLY. UNTIL AUGUST 31, 2008, THE FUND MAY CHARGE A 2% FEE ON
REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.

CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------- ------- ------- ------- --------

Cumulative Total Return(1) -6.19% -4.49% +74.64% +104.18%
Average Annual Total Return(2) -11.60% -10.01% +10.49% +6.76%
Value of $10,000 Investment(3) $8,840 $8,999 $16,466 $19,242
Avg. Ann. Total Return (3/31/08)(4) -14.25% +10.31% +6.12%
Distribution Rate(5) 3.30%
30-Day Standardized Yield(6) 2.97%
Total Annual Operating Expenses(7) 0.89%

CLASS C 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------- ------- ------- ------- --------

Cumulative Total Return(1) -6.57% -5.23% +68.34% +89.69%
Average Annual Total Return(2) -7.46% -6.11% +10.98% +6.61%
Value of $10,000 Investment(3) $9,254 $9,389 $16,834 $18,969
Avg. Ann. Total Return (3/31/08)(4) -10.53% +10.79% +5.97%
Distribution Rate(5) 2.72%
30-Day Standardized Yield(6) 2.42%
Total Annual Operating Expenses(7) 1.64%

PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND
PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.

ENDNOTES

THE FUND MAY INVEST IN HIGH-YIELDING, FIXED INCOME SECURITIES. HIGH YIELDS
REFLECT THE HIGHER CREDIT RISK ASSOCIATED WITH THESE LOWER-RATED SECURITIES AND,
IN SOME CASES, THE LOWER MARKET PRICES FOR THESE INSTRUMENTS. INTEREST RATE
MOVEMENTS MAY AFFECT THE FUND'S SHARE PRICE AND YIELD. BOND PRICES GENERALLY
MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. AS THE PRICES OF BONDS IN
THE FUND ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE PRICE MAY DECLINE.
THE FUND MAY ALSO INVEST IN FOREIGN SECURITIES, WHICH INVOLVE SPECIAL RISKS,
INCLUDING POLITICAL UNCERTAINTY AND CURRENCY VOLATILITY. THE FUND'S PROSPECTUS
ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.

CLASS A: Prior to 8/3/98, these shares were offered at a lower initial sales
charge; thus actual total returns may differ.

CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These shares
have higher annual fees and expenses than Class A shares.

(1). Cumulative total return represents the change in value of an investment
over the periods indicated.

(2). Average annual total return represents the average annual change in value
of an investment over the periods indicated. Six-month return has not been
annualized.

(3). These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.

(4). In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.

(5). Distribution rate is based on the sum of the respective class's last four
quarterly dividends and the maximum offering price (NAV for Class C) per
share on 4/30/08.

(6). Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 4/30/08.

(7). Figures are as stated in the Fund's prospectus current as of the date of
this report.

Semiannual Report | 17

Your Fund's Expenses

FRANKLIN CONVERTIBLE SECURITIES FUND

As a Fund shareholder, you can incur two types of costs:

- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and

- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.

ACTUAL FUND EXPENSES

You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:

1. Divide your account value by $1,000.

IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600/$1,000 = 8.6.

2. Multiply the result by the number under the heading "Expenses Paid During
Period."

IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS

18 | Semiannual Report

Your Fund's Expenses (CONTINUED)

BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 11/1/07 VALUE 4/30/08 PERIOD* 11/1/07-4/30/08
----------------- -------------- -----------------------

CLASS A
Actual $1,000 $ 938.10 $4.19
Hypothetical (5% return before expenses) $1,000 $1,020.54 $4.37

CLASS C
Actual $1,000 $ 934.30 $7.79
Hypothetical (5% return before expenses) $1,000 $1,016.81 $8.12

* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.87% and C: 1.62%), multiplied by the
average account value over the period, multiplied by 182/366 to reflect the
one-half year period.

Semiannual Report | 19

Franklin Equity Income Fund

YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Equity Income Fund seeks to
maximize total return, emphasizing high, current income and long-term capital
appreciation, consistent with reasonable risk, by investing at least 80% of its
net assets in equity securities including securities convertible into common
stocks.

This semiannual report for Franklin Equity Income Fund covers the period ended
April 30, 2008.

PERFORMANCE OVERVIEW

For the six months under review, Franklin Equity Income Fund - Class A had a
- -9.45% cumulative total return. The Fund performed comparably to its benchmark,
the Standard & Poor's 500 Index (S&P 500), which had a -9.64% return.(1) The
Fund underperformed its peers in the Lipper Equity Income Funds Classification
Average, which had a return of -8.82% for the same period.(2) You can find the
Fund's long-term performance data in the Performance Summary beginning on page
23.

INVESTMENT STRATEGY

We emphasize dividends in selecting stocks for the Fund because we believe that
over time dividend income can contribute significantly to total return. We
target companies we believe are financially strong, but undervalued by the
market. To identify such companies, we use a current relative yield analysis
that focuses on a company's dividend yield (calculated by dividing a stock's
annual per share dividends by its per share market price.) Our experienced team
of analysts searches for investment opportunities among all economic sectors,
and considers a company's long-term earnings, asset value and cash flow
potential, to create a broadly diversified portfolio.

(1). Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks
chosen for market size, liquidity and industry group representation. Each
stock's weight in the index is proportionate to its market value. The S&P
500 is one of the most widely used benchmarks of U.S. equity performance.
The index is unmanaged and includes reinvested dividends. One cannot invest
directly in an index, nor is an index representative of the Fund's
portfolio.

(2). Source: Lipper Inc. The Lipper Equity Income Funds Classification Average
is calculated by averaging the total returns of all funds within the Lipper
Equity Income Funds classification in the Lipper Open-End underlying funds
universe. Lipper Equity Income Funds are defined as funds that seek
relatively high current income and growth of income through investing 60%
or more of their portfolios in equities. For the six-month period ended
4/30/08, there were 288 funds in this category. Lipper calculations do not
include sales charges, or expense subsidization by a fund's manager. The
Fund's performance relative to the average may have differed if these and
other factors had been considered.

THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 62.

20 | Semiannual Report

DIVIDEND DISTRIBUTIONS *
Franklin Equity Income Fund
11/1/07-4/30/08

DIVIDEND PER SHARE
-----------------------------------------------------
MONTH CLASS A CLASS B CLASS C CLASS R
- ------------ ----------- ----------- ----------- -----------

November 3.24 cents 1.83 cents 1.85 cents 2.75 cents
December** 10.24 cents 8.82 cents 8.81 cents 9.75 cents
January 3.24 cents 1.82 cents 1.81 cents 2.75 cents
February 3.50 cents 2.21 cents 2.20 cents 3.02 cents
March 3.50 cents 2.21 cents 2.20 cents 3.02 cents
April 3.50 cents 2.21 cents 2.20 cents 3.02 cents
----------- ----------- ----------- -----------
TOTAL 27.22 CENTS 19.10 CENTS 19.07 CENTS 24.31 CENTS

* All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.

** Includes an additional 7.00 cent per share distribution to meet excise tax
requirements.

MANAGER'S DISCUSSION

During the review period, natural gas producer Chesapeake Energy was among the
Fund's most significant contributors to performance. The company, which focuses
on exploration and developmental drilling, announced plans to boost production
and increase drilling activity due to the planned development of several major
new natural gas basins such as the Haynesville Shale in northern Louisiana, as
well as other current projects.

The Fund's investment in transportation logistics company J.B. Hunt Transport
Services also performed well as strong results from the company's intermodal
division that transports cargo containers by truck to and from ships and
railroads, helped offset some of the impact of weak demand and record-high fuel
prices. The company used excess capacity from its shrinking trucking business to
support its intermodal business. A position in semiconductor manufacturer
Microchip Technology, which benefited from strong demand for its products, also
helped Fund performance.

The Fund had several detractors from performance during the reporting period
including several holdings in the financials sector, which was severely impacted
by the subprime mortgage crisis and subsequent fallout in housing-related
segments of the economy. Sector holdings that hurt performance included
Citigroup, Washington Mutual, Wachovia, E*TRADE Financial, iStar Financial and
MBIA. As a result of the headwinds that many financial companies recently faced,
we eliminated several common stock holdings including MBIA, Fannie Mae, Goldman
Sachs and Fortress Investment Group. However, despite these sales, the sector
remained a significant part of the portfolio. During the reporting period, we
initiated positions in the convertible preferred stock of Lehman

PORTFOLIO BREAKDOWN
Franklin Equity Income Fund
Based on Total Net Assets as of 4/30/08

Financials 21.2%
Industrials 17.2%
Consumer Discretionary 13.4%
Energy 10.6%
Information Technology 9.2%
Health Care 7.2%
Consumer Staples 6.8%
Telecommunication Services 5.2%
Utilities 4.7%
Materials 3.5%
Short-Term Investments & Other Net Assets 1.0%

Semiannual Report | 21

TOP 10 HOLDINGS
Franklin Equity Income Fund
4/30/08

COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- -------------------------------------- ----------

AT&T Inc. 3.5%
TELECOMMUNICATION SERVICES
Chevron Corp. 2.9%
ENERGY
ConocoPhillips 2.6%
ENERGY
Exxon Mobil Corp. 2.5%
ENERGY
Caterpillar Inc. 2.4%
INDUSTRIALS
Microchip Technology Inc. 2.4%
INFORMATION TECHNOLOGY
Roche Holding AG 2.3%
HEALTH CARE
Bank of America Corp. 2.3%
FINANCIALS
The Goldman Sachs Group Inc. into
Comcast Corp., 5.00%, cvt. pfd., 144A 2.2%
CONSUMER DISCRETIONARY
J.B. Hunt Transport Services Inc. 2.2%
INDUSTRIALS

Brothers, Wachovia and Washington Mutual, which we found attractive for their
ability to provide high current income while maintaining the potential for
capital appreciation with future increases in the underlying common stock. Our
decision to raise the Fund's dividend in February 2008 was based in part on our
belief that the increased presence of convertible securities in the portfolio
was positive for the Fund's investment income.

Other Fund holdings that hindered performance during the review period included
software company Microsoft, industrial conglomerate General Electric and Finnish
cell phone maker Nokia.

Thank you for your continued participation in Franklin Equity Income Fund. We
look forward to serving your future investment needs.

(PHOTO OF ALAN E. MUSCHOTT)

/s/ Alan E. Muschott
Alan E. Muschott, CFA

(PHOTO OF EDWARD D. PERKS)

/s/ Edward D. Perks
Edward D. Perks, CFA

(PHOTO OF FRANK M. FELICELLI)

/s/ Frank M. Felicelli
Frank M. Felicelli, CFA

Portfolio Management Team
Franklin Equity Income Fund

22 | Semiannual Report

Performance Summary as of 4/30/08

FRANKLIN EQUITY INCOME FUND

PRICE AND DISTRIBUTION INFORMATION

CLASS A (SYMBOL: FISEX) CHANGE 4/30/08 10/31/07
- ------------------------------- ------ ------- --------

Net Asset Value (NAV) -$3.35 $19.06 $22.41
DISTRIBUTIONS (11/1/07-4/30/08)
Dividend Income $0.2722
Short-Term Capital Gain $0.1310
Long-Term Capital Gain $0.8335
TOTAL $1.2367

CLASS B (SYMBOL: FBEIX) CHANGE 4/30/08 10/31/07
- ------------------------------- ------ ------- --------

Net Asset Value (NAV) -$3.32 $18.98 $22.30
DISTRIBUTIONS (11/1/07-4/30/08)
Dividend Income $0.1910
Short-Term Capital Gain $0.1310
Long-Term Capital Gain $0.8335
TOTAL $1.1555

CLASS C (SYMBOL: FRETX) CHANGE 4/30/08 10/31/07
- ------------------------------- ------ ------- --------

Net Asset Value (NAV) -$3.32 $18.99 $22.31
DISTRIBUTIONS (11/1/07-4/30/08)
Dividend Income $0.1907
Short-Term Capital Gain $0.1310
Long-Term Capital Gain $0.8335
TOTAL $1.1552

CLASS R (SYMBOL: FREIX) CHANGE 4/30/08 10/31/07
- ------------------------------- ------ ------- --------

Net Asset Value (NAV) -$3.36 $19.07 $22.43
DISTRIBUTIONS (11/1/07-4/30/08)
Dividend Income $0.2431
Short-Term Capital Gain $0.1310
Long-Term Capital Gain $0.8335
TOTAL $1.2076

Semiannual Report | 23

Performance Summary (CONTINUED)

PERFORMANCE

CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; CLASS R: NO SALES CHARGES. UNTIL AUGUST 31, 2008, THE
FUND MAY CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.

CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------- ------- ------- -------- ------------------

Cumulative Total Return(1) -9.45% -10.67% +57.18% +55.56%
Average Annual Total Return(2) -14.67% -15.82% +8.17% +3.90%
Value of $10,000 Investment(3) $ 8,533 $ 8,418 $14,812 $14,661
Avg. Ann. Total Return (3/31/08)(4) -16.22% +8.71% +3.26%
Distribution Rate(5) 2.08%
30-Day Standardized Yield(6) 2.60%
Total Annual Operating Expenses(7) 0.94%

CLASS B 6-MONTH 1-YEAR 5-YEAR INCEPTION (1/1/99)
- ------------------------------------- ------- ------- -------- ------------------

Cumulative Total Return(1) -9.75% -11.30% +51.51% +47.02%
Average Annual Total Return(2) -13.16% -14.63% +8.38% +4.22%
Value of $10,000 Investment(3) $ 8,684 $ 8,537 $14,951 $14,702
Avg. Ann. Total Return (3/31/08)(4) -15.08% +8.90% +3.71%
Distribution Rate(5) 1.40%
30-Day Standardized Yield(6) 2.03%
Total Annual Operating Expenses(7) 1.69%

CLASS C 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------- ------- ------- -------- ------------------

Cumulative Total Return(1) -9.75% -11.29% +51.45% +44.48%
Average Annual Total Return(2) -10.60% -12.12% +8.66% +3.75%
Value of $10,000 Investment(3) $ 8,940 $ 8,788 $15,145 $14,448
Avg. Ann. Total Return (3/31/08)(4) -12.59% +9.18% +3.10%
Distribution Rate(5) 1.39%
30-Day Standardized Yield(6) 2.03%
Total Annual Operating Expenses(7) 1.69%

CLASS R 6-MONTH 1-YEAR 5-YEAR INCEPTION (8/1/02)
- ------------------------------------- ------- ------- -------- ------------------

Cumulative Total Return(1) -9.59% -10.92% +55.05% +51.67%
Average Annual Total Return(2) -9.59% -10.92% +9.17% +7.52%
Value of $10,000 Investment(3) $ 9,041 $ 8,908 $15,505 $15,167
Avg. Ann. Total Return (3/31/08)(4) -11.40% +9.70% +6.71%
Distribution Rate(5) 1.90%
30-Day Standardized Yield(6) 2.52%
Total Annual Operating Expenses(7) 1.19%

PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND
PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.

24 | Semiannual Report

Performance Summary (CONTINUED)

ENDNOTES

WHILE STOCKS HAVE HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG
TERM, THEY TEND TO FLUCTUATE DRAMATICALLY OVER THE SHORT TERM AS A RESULT OF
FACTORS AFFECTING INDIVIDUAL COMPANIES, INDUSTRIES OR THE SECURITIES MARKET AS A
WHOLE. THE FUND'S INVESTMENT IN FOREIGN SECURITIES ALSO INVOLVES SPECIAL RISKS,
INCLUDING CURRENCY FLUCTUATIONS AND ECONOMIC AS WELL AS POLITICAL UNCERTAINTY.
THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.

CLASS A: Prior to 8/3/98, these shares were offered at a lower initial sales
charge; thus actual total returns may differ.

CLASS B: These shares have higher annual fees and expenses than Class A shares.

CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These shares
have higher annual fees and expenses than Class A shares.

CLASS R: Shares are available to certain eligible investors as described in the
prospectus. These shares have higher annual fees and expenses than
Class A shares.

(1). Cumulative total return represents the change in value of an investment
over the periods indicated.

(2). Average annual total return represents the average annual change in value
of an investment over the periods indicated. Six-month return has not been
annualized.

(3). These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.

(4). In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.

(5). Distribution rate is based on an annualization of the respective class's
April dividend and the maximum offering price (NAV for Classes B, C and R)
per share on 4/30/08.

(6). Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 4/30/08.

(7). Figures are as stated in the Fund's prospectus current as of the date of
this report.

Semiannual Report | 25

Your Fund's Expenses

FRANKLIN EQUITY INCOME FUND

As a Fund shareholder, you can incur two types of costs:

- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and

- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.

ACTUAL FUND EXPENSES

You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:

1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE,
THEN $8,600/$1,000 = 8.6.

2. Multiply the result by the number under the heading "Expenses Paid During
Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 x $7.50 =
$64.50.

In this illustration, the estimated expenses paid this period are $64.50.

HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS

26 | Semiannual Report

Your Fund's Expenses (CONTINUED)

BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 11/1/07 VALUE 4/30/08 PERIOD* 11/1/07-4/30/08
----------------- -------------- -----------------------

CLASS A
Actual $1,000 $ 905.50 $4.41
Hypothetical (5% return before expenses) $1,000 $1,020.24 $4.67

CLASS B
Actual $1,000 $ 902.50 $7.95
Hypothetical (5% return before expenses) $1,000 $1,016.51 $8.42

CLASS C
Actual $1,000 $ 902.50 $7.95
Hypothetical (5% return before expenses) $1,000 $1,016.51 $8.42

CLASS R
Actual $1,000 $ 904.10 $5.59
Hypothetical (5% return before expenses) $1,000 $1,019.00 $5.92

* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.93%; B: 1.68%; C: 1.68%; and R: 1.18%),
multiplied by the average account value over the period, multiplied by
182/366 to reflect the one-half year period.

Semiannual Report | 27

Franklin Limited Maturity U.S. Government Securities Fund

YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Limited Maturity U.S. Government
Securities Fund seeks to provide investors with as high a level of current
income as is consistent with prudent investing, while seeking to preserve
shareholders' capital, by investing at least 80% of its net assets in securities
with a dollar-weighted average maturity of less than 10 years and issued or
guaranteed by the U.S. government, its agencies or instrumentalities.(1) Some of
the Fund's investments may include securities issued by U.S.
government-sponsored entities such as Fannie Mae and Freddie Mac.(2)

PORTFOLIO BREAKDOWN
Franklin Limited Maturity U.S. Government Securities Fund
Based on Total Net Assets as of 4/30/08

(PIE CHART)

U.S. Government & Agency Bonds ............. 65.4%
Mortgage-Backed Securities ................. 29.1%
Short-Term Investments & Other Net Assets .. 5.5%

This semiannual report for Franklin Limited Maturity U.S. Government Securities
Fund covers the period ended April 30, 2008.

PERFORMANCE OVERVIEW

For the six months under review, Franklin Limited Maturity U.S. Government
Securities Fund - Class A posted a +4.20% cumulative total return. The Fund

(1). In determining a security's maturity for the purposes of calculating the
Fund's average maturity, an estimate of the average time for its principal
to be paid may be used. This can be substantially shorter than its stated
final maturity.

(2). Although U.S. government sponsored entities may be chartered or sponsored
by acts of Congress, their securities are neither insured nor guaranteed by
the U.S. government. Please refer to the Fund's prospectus for a detailed
discussion regarding various levels of credit support. The Fund's yield and
share price are not guaranteed and will vary with market conditions.

THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 67.

28 | Semiannual Report

underperformed the +4.99% total return of its primary benchmark, the Lehman
Brothers (LB) U.S. Treasury: 1-5 Year Index.(3) The Fund performed comparably to
the +4.12% return of its secondary benchmark, the LB U.S. Government: 1-3 Year
Index.(4) The manager has discontinued using the LB Government: 1-3 Year Index
as a secondary benchmark as it believes the index no longer reflects the Fund's
holdings. You can find the Fund's long-term performance data in the Performance
Summary beginning on page 32.

INVESTMENT STRATEGY

We currently maintain the portfolio's average dollar-weighted maturity between
one and five years. The Fund's average dollar-weighted maturity will vary with
market conditions and the outlook for interest rates. We invest primarily in
short- to intermediate-term securities guaranteed by the U.S. government, its
agencies and instrumentalities. Some of the Fund's investments may include
securities issued by U.S. government-sponsored entities, such as Fannie Mae and
Freddie Mac.(2) Our portfolio emphasizes mortgage-backed bonds and agency
debentures, while also diversifying across components of the U.S. Treasury
sector. We analyze securities using proprietary and nonproprietary research to
help identify attractive investment opportunities.

MANAGER'S DISCUSSION

During the six months under review, financial markets were volatile, underpinned
by fear and uncertainty due to ongoing deterioration in the financial, labor and
housing markets. As concerns regarding heightened equity volatility and overall
systemic risk persisted throughout much of the reporting period, the Fund
benefited as investors sought the relative safety of short- and
intermediate-term U.S. Treasuries and government securities.

However, despite strong returns from each of the sectors that the Fund invests
in -- U.S. Treasuries, agency debentures and mortgage pass-through securities
- -- agency debentures and mortgage pass-through securities could not keep up with
the superior returns of U.S. Treasuries and weighed on Fund performance relative
to the benchmark index. Risk and liquidity premiums increased through March 2008
as yield spreads widened. The markets, however, appeared to change

(3). Source: Standard & Poor's Micropal. The LB U.S. Treasury: 1-5 Year Index
includes securities in the Treasury index (i.e., public obligations of the
U.S. Treasury) with a maturity from one up to (but not including) five
years.

(4). Source: Standard & Poor's Micropal. The LB U.S. Government: 1-3 Year Index
is the 1-3 Year component of the LB U.S. Government Index.

The indexes are unmanaged and include reinvestment of any income or
distributions. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.

Semiannual Report | 29

DIVIDEND DISTRIBUTIONS*
Franklin Limited Maturity U.S. Government Securities Fund
11/1/07-4/30/08

DIVIDEND PER SHARE
---------------------------
MONTH CLASS A ADVISOR CLASS
- ---------- ----------- -------------

November 3.25 cents 3.33 cents
December** 5.59 cents 5.68 cents
January 3.25 cents 3.34 cents
February 3.25 cents 3.34 cents
March 3.25 cents 3.34 cents
April 3.25 cents 3.34 cents
----------- -------------
TOTAL 21.84 CENTS 22.37 CENTS

* Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on
the date you purchased your shares and any account activity. All Fund
distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.

** Includes an additional 2.34 cent per share distribution to meet excise tax
requirements.

course late in the review period amid speculation that the worst of the
financial crisis was over. In April, non-Treasury securities generally
outperformed their Treasury counterparts. As a result, Fund performance in April
was helped by its non-Treasury investments.

Against this backdrop, we continued to look for strong valuations within
government bond markets as we believed that the recent market volatility
produced many attractive investment opportunities. During the review period, we
adjusted the portfolio's allocations and favored high-quality agency debentures
and mortgage pass-through securities as we believed they offered better return
potential and had an income advantage over U.S. Treasuries. In particular, we
found agency pass-through securities, which are secured by collateral and are
diverse in terms of structure and security type, attractive because of their
characteristically higher yields than U.S. government securities with comparable
maturities.

30 | Semiannual Report

Thank you for your continued participation in Franklin Limited Maturity U.S.
Government Securities Fund. We look forward to serving your future investment
needs.

(PHOTO OF KENT BURNS)

/s/ Kent Burns
Kent Burns, CFA

(PHOTO OF PAUL VARUNOK)

/s/ Paul Varunok
Paul Varunok

Portfolio Management Team
Franklin Limited Maturity
U.S. Government Securities Fund

Semiannual Report | 31

Performance Summary as of 4/30/08

FRANKLIN LIMITED MATURITY U.S. GOVERNMENT SECURITIES FUND

PRICE AND DISTRIBUTION INFORMATION

CLASS A (SYMBOL: FRGVX) CHANGE 4/30/08 10/31/07
- ------------------------------- ------ ------- --------

Net Asset Value (NAV) +$0.20 $10.20 $10.00
DISTRIBUTIONS (11/1/07-4/30/08)
Dividend Income $0.2184

ADVISOR CLASS (SYMBOL: FSUAX) CHANGE 4/30/08 10/31/07
- ------------------------------- ------ ------- --------

Net Asset Value (NAV) +$0.20 $10.19 $9.99
DISTRIBUTIONS (11/1/07-4/30/08)
Dividend Income $0.2237

PERFORMANCE

CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 2.25% MAXIMUM INITIAL SALES CHARGE;
ADVISOR CLASS: NO SALES CHARGES. UNTIL AUGUST 31, 2008, THE FUND MAY CHARGE A 2%
FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.

CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------- ------- ------ ------- -------

Cumulative Total Return(1) +4.20% +6.91% +15.65% +54.19%
Average Annual Total Return(2) +1.86% +4.49% +2.49% +4.18%
Avg. Ann. Total Return (3/31/08)(3) +5.63% +2.69% +4.30%
Distribution Rate(4) 3.74%
30-Day Standardized Yield(5) 2.52%
Total Annual Operating Expenses(6) 0.90%

ADVISOR CLASS 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------- ------- ------ ------- -------

Cumulative Total Return(1) +4.36% +7.13% +16.36% +55.92%
Average Annual Total Return(2) +4.36% +7.13% +3.08% +4.54%
Avg. Ann. Total Return (3/31/08)(3) +8.29% +3.28% +4.65%
Distribution Rate(4) 3.93%
30-Day Standardized Yield(5) 2.69%
Total Annual Operating Expenses(6) 0.80%

PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND
PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.

32 | Semiannual Report

Performance Summary (CONTINUED)

ENDNOTES

INTEREST RATE MOVEMENTS, UNSCHEDULED MORTGAGE PREPAYMENTS AND OTHER RISK FACTORS
WILL ADVERSELY AFFECT THE FUND'S SHARE PRICE AND YIELD. BOND PRICES, AND THUS A
FUND'S SHARE PRICE, GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES.
THEREFORE, AS PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN INTEREST RATES,
THE FUND'S SHARE PRICE MAY DECLINE. THE FUND'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.

ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.

(1). Cumulative total return represents the change in value of an investment
over the periods indicated.

(2). Average annual total return represents the average annual change in value
of an investment over the periods indicated. Six-month return has not been
annualized.

(3). In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.

(4). Distribution rate is based on an annualization of the respective class's
April dividend and the maximum offering price (NAV for Advisor Class) per
share on 4/30/08.

(5). Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 4/30/08.

(6). Figures are as stated in the Fund's prospectus current as of the date of
this report.

Semiannual Report | 33

Your Fund's Expenses

FRANKLIN LIMITED MATURITY U.S. GOVERNMENT SECURITIES FUND

As a Fund shareholder, you can incur two types of costs:

- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and

- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.

ACTUAL FUND EXPENSES

You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:

1. Divide your account value by $1,000.

IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600/$1,000 = 8.6

2. Multiply the result by the number under the heading "Expenses Paid During
Period."

IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS

34 | Semiannual Report

Your Fund's Expenses (CONTINUED)

BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
11/1/07 VALUE 4/30/08 PERIOD* 11/1/07-4/30/08
----------------- -------------- -----------------------

CLASS A
Actual $1,000 $1,042.00 $4.37
Hypothetical (5% return before expenses) $1,000 $1,020.59 $4.32

ADVISOR CLASS
Actual $1,000 $1,043.60 $3.86
Hypothetical (5% return before expenses) $1,000 $1,021.08 $3.82

* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.86% and Advisor: 0.76%), multiplied by the
average account value over the period, multiplied by 182/366 to reflect the
one-half year period.

Semiannual Report | 35

Franklin Real Return Fund

YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Real Return Fund seeks to
achieve total return that exceeds the rate of inflation over an economic cycle.
The Fund will generally invest a substantial portion of its assets in
inflation-protected securities. Managers also have the flexibility to invest in
other sectors of the market to increase real return (total return less
inflation) potential and offer greater diversification.

PORTFOLIO BREAKDOWN
Franklin Real Return Fund
Based on Total Net Assets as of 4/30/08

(PIE CHART)

U.S. Treasury Inflation Adjusted
Securities............................. 59.4%
Foreign Government Debt Securities..... 15.4%
Corporate Bonds........................ 8.6%
Natural Resources - Common Stocks*..... 5.9%
Real Estate - Common Stocks............ 2.3%
Short-Term Investments &
Other Net Assets....................... 8.4%

* In the SOI, the natural resources sector comprises energy and materials.

This semiannual report for Franklin Real Return Fund covers the period ended
April 30, 2008.

PERFORMANCE OVERVIEW

For the six months under review, Franklin Real Return Fund - Class A posted a
cumulative total return of +5.78%. The Fund underperformed the Lehman Brothers
(LB) U.S. TIPS Index, which had a +6.88% total return.(1) The Fund

(1). The LB U.S. TIPS Index comprises U.S. Treasury Inflation Protected
Securities rated investment grade (Baa3 or better) with at least one year
to final maturity and at least $250 million par amount outstanding. The LB
U.S. TIPS Index is unmanaged and includes reinvested interest. One cannot
invest directly in an index, nor is an index representative of the Fund's
portfolio.

THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 73.

36 | Semiannual Report

DIVIDEND DISTRIBUTIONS*
Franklin Real Return Fund
11/1/07-4/30/08

DIVIDEND PER SHARE
---------------------------
MONTH CLASS A ADVISOR CLASS
- -------- ----------- -------------

November 7.78 cents 7.98 cents
December 6.42 cents 6.63 cents
January 4.19 cents 4.36 cents
February 1.04 cents 1.20 cents
March 3.97 cents 4.18 cents
April 3.96 cents 4.20 cents
----------- -------------
TOTAL 27.36 CENTS 28.55 CENTS

* All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.

outperformed the Consumer Price Index (CPI) for Urban Consumers (All Items) NSA
(non-seasonally adjusted), which rose 2.82% for the same period.(2) You can find
more of the Fund's performance data in the Performance Summary beginning on
page 39.

INVESTMENT STRATEGY

We seek to allocate assets among investments to achieve the highest level of
real return (total return less the rate of inflation) consistent with an
acceptable level of risk. We will allocate the Fund's assets among securities in
various market sectors based on our assessment of changing economic, global
market, industry and issuer conditions. When making our investment decisions, we
will evaluate such criteria as country risk, business cycles, yield curves, and
values between and within markets.

(2). Source: Standard & Poor's Micropal. The CPI, calculated by the U.S. Bureau
of Labor Statistics, is a commonly used measure of the inflation rate. The
all urban consumers group represents about 87% of the total U.S.
population. It is based on the expenditures of almost all residents of
urban or metropolitan areas, including professionals, the self-employed,
the poor, the unemployed and retired persons as well as urban wage earners
and clerical workers. The figure quoted is non-seasonally adjusted (NSA).
The index is unmanaged. One cannot invest directly in an index, nor is an
index representative of the Fund's portfolio.

Semiannual Report | 37

MANAGER'S DISCUSSION

We invested the Fund's assets in the allowable sectors during the six-month
period under review. At period-end, more than half of the Fund's total net
assets were invested in Treasury Inflation Protected Securities (TIPS). We also
allocated some of the Fund's assets to the natural resources, real estate
investment trusts (REITs), short-term non-dollar securities and high yield
sectors. We employed a non-dollar strategy to help hedge against dollar weakness
versus certain currencies. With the exception of REITs, which were impacted by
the downturn in housing and commercial property markets, all of these sectors
helped Fund performance during the reporting period.

Thank you for your continued participation in Franklin Real Return Fund. We look
forward to serving your future investment needs.

(PHOTO OF T. ANTHONY COFFEY)

/s/ T. Anthony Coffey
T. Anthony Coffey, CFA

(PHOTO OF KENT BURNS)

/s/ Kent Burns
Kent Burns, CFA

Portfolio Management Team
Franklin Real Return Fund

38 | Semiannual Report

Performance Summary as of 4/30/08

FRANKLIN REAL RETURN FUND

PRICE AND DISTRIBUTION INFORMATION

CLASS A (SYMBOL: FRRAX) CHANGE 4/30/08 10/31/07
- ------------------------------- ------ ------- --------

Net Asset Value (NAV) +$0.30 $10.94 $10.64
DISTRIBUTIONS (11/1/07-4/30/08)
Dividend Income $0.2736
Short-Term Capital Gain $0.0004
Long-Term Capital Gain $0.0327
TOTAL $0.3067

ADVISOR CLASS (SYMBOL: FARRX) CHANGE 4/30/08 10/31/07
- ------------------------------- ------ ------- --------

Net Asset Value (NAV) +$0.31 $10.96 $10.65
DISTRIBUTIONS (11/1/07-4/30/08)
Dividend Income $0.2855
Short-Term Capital Gain $0.0004
Long-Term Capital Gain $0.0327
TOTAL $0.3186

Semiannual Report | 39

Performance Summary (CONTINUED)

PERFORMANCE(1)

CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
ADVISOR CLASS: NO SALES CHARGES.UNTIL AUGUST 31, 2008, THE FUND MAY CHARGE A 2%
FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.

CLASS A 6-MONTH 1-YEAR 3-YEAR INCEPTION (11/17/04)
- ------------------------------------- ------- ------ ------ --------------------

Cumulative Total Return(2) +5.78% +10.43% +24.87% +26.44%
Average Annual Total Return(3) +1.31% +5.77% +6.15% +5.71%
Avg. Ann. Total Return (3/31/08)(4) +6.86% +6.42% +5.83%
Distribution Rate(5) 4.16%
30-Day Standardized Yield(6) 2.52%
Total Annual Operating Expenses(7)
Without Waiver 1.11%
With Waiver 0.90%

ADVISOR CLASS 6-MONTH 1-YEAR 3-YEAR INCEPTION (11/17/04)
- -------------------------------------- ------- ------ ------ --------------------

Cumulative Total Return(2) +5.89% +10.67% +25.74% +27.50%
Average Annual Total Return(3) +5.89% +10.67% +7.93% +7.30%
Avg. Ann. Total Return (3/31/08)(4) +11.95% +8.29% +7.48%
Distribution Rate(5) 4.60%
30-Day Standardized Yield(6) 2.88%
Total Annual Operating Expenses(7)
Without Waiver 0.86%
With Waiver 0.65%

PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND
PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.

THE MANAGER AND ADMINISTRATOR HAVE CONTRACTUALLY AGREED TO LIMIT FUND EXPENSE SO
THAT TOTAL ANNUAL FUND OPERATING EXPENSES DO NOT EXCEED THE AMOUNT SHOW WITH
WAIVER (OTHER THAN CERTAIN NON-ROUTINE EXPENSES) FOR EACH SHARE CLASS UNTIL
2/28/09.

40 | Semiannual Report

Performance Summary (CONTINUED)

ENDNOTES

INTEREST RATE MOVEMENTS WILL AFFECT THE FUND'S SHARE PRICE AND YIELD. BOND
PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS
PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE
PRICE MAY DECLINE. WHILE STOCKS HAVE HISTORICALLY OUTPERFORMED OTHER ASSET
CLASSES OVER THE LONG TERM, THEY TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE
SHORT TERM. THESE PRICE MOVEMENTS MAY RESULT FROM FACTORS AFFECTING INDIVIDUAL
COMPANIES, INDUSTRIES OR THE SECURITIES MARKET AS A WHOLE. THE RISKS OF FOREIGN
SECURITIES INCLUDE CURRENCY FLUCTUATIONS AND POLITICAL UNCERTAINTY. THE FUND'S
PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.

ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.

(1). If the manager and administrator had not waived fees, the Fund's
distribution rate and total returns would have been lower, and yield for
the period would have been 2.48% for Class A and 2.84% for Advisor Class.

(2). Cumulative total return represents the change in value of an investment
over the periods indicated.

(3). Average annual total return represents the average annual change in value
of an investment over the periods indicated. Six-month return has not been
annualized.

(4). In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.

(5). Distribution rate is based on an annualization of the respective class's
April dividend and the maximum offering price (NAV for Advisor Class) per
share on 4/30/08.

(6). Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 4/30/08.

(7). Figures are as stated in the Fund's prospectus current as of the date of
this report.

Semiannual Report | 41

Your Fund's Expenses

FRANKLIN REAL RETURN FUND

As a Fund shareholder, you can incur two types of costs:

- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and

- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.

ACTUAL FUND EXPENSES

You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:

1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600/$1,000 = 8.6.

2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS

42 | Semiannual Report

Your Fund's Expenses (CONTINUED)

BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 11/1/07 VALUE 4/30/08 PERIOD* 11/1/07-4/30/08
----------------- -------------- -----------------------

CLASS A
Actual $1,000 $1,057.80 $4.60
Hypothetical (5% return before expenses) $1,000 $1,020.39 $4.52

ADVISOR CLASS
Actual $1,000 $1,058.90 $3.33
Hypothetical (5% return before expenses) $1,000 $1,021.63 $3.27

* Expenses are calculated using the most recent six-month expense ratio, net
of expense waivers, annualized for each class (A: 0.90% and Advisor:
0.65%), multiplied by the average account value over the period, multiplied
by 182/366 to reflect the one-half year period.

Semiannual Report | 43

Franklin Investors Securities Trust

FINANCIAL HIGHLIGHTS

FRANKLIN BALANCED FUND

YEAR ENDED
SIX MONTHS ENDED OCTOBER 31,
APRIL 30, 2008 -------------------
CLASS A (UNAUDITED) 2007 2006(f)
- ---------------------------------------------------- ---------------- ------- -------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............... $ 11.36 $ 10.65 $ 10.00
------- ------- -------
Income from investment operations(a):
Net investment income(b) ........................ 0.19 0.36 0.10
Net realized and unrealized gains (losses) ...... (0.64) 0.68 0.62
------- ------- -------
Total from investment operations ................... (0.45) 1.04 0.72
------- ------- -------
Less distributions from:
Net investment income ........................... (0.24) (0.33) (0.07)
Net realized gains .............................. (0.24) -- --
------- ------- -------
Total distributions ................................ (0.48) (0.33) (0.07)
------- ------- -------
Redemption fees .................................... --(e) --(e) --(e)
------- ------- -------
Net asset value, end of period ..................... $10.43 $ 11.36 $ 10.65
======= ======= =======
Total return(c) .................................... (3.88)% 9.91% 7.20%
RATIOS TO AVERAGE NET ASSETS(d)
Expenses before waiver and payments by affiliates .. 1.21% 1.58% 2.02%
Expenses net of waiver and payments by affiliates .. 1.01% 1.04% 1.06%
Net investment income .............................. 3.62% 3.26% 2.84%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .................. $50,760 $35,180 $17,258
Portfolio turnover rate ............................ 28.52% 77.53% 13.10%

(a) The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing
of sales and repurchases of the Fund shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.

(b) Based on average daily shares outstanding.

(c) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.

(d) Ratios are annualized for periods less than one year.

(e) Amount rounds to less than $0.01 per share.

(f) For the period July 3, 2006 (commencement of operations) to October 31,
2006.

44 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report

Franklin Investors Securities Trust

FINANCIAL HIGHLIGHTS (CONTINUED)

FRANKLIN BALANCED FUND

YEAR ENDED
SIX MONTHS ENDED OCTOBER 31,
APRIL 30, 2008 -------------------
CLASS C (UNAUDITED) 2007 2006(F)
- ---------------------------------------------------- ---------------- ------- -------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)

Net asset value, beginning of period ............... $11.30 $10.62 $10.00
------ ------ ------
Income from investment operations(a):
Net investment income(b)......................... 0.15 0.30 0.07
Net realized and unrealized gains (losses) ...... (0.64) 0.68 0.62
------ ------ ------
Total from investment operations ................... (0.49) 0.98 0.69
------ ------ ------
Less distributions from:
Net investment income ........................... (0.20) (0.30) (0.07)
Net realized gains .............................. (0.24) -- --
------ ------ ------
Total distributions ................................ (0.44) (0.30) (0.07)
------ ------ ------
Redemption fees .................................... --(e) --(e) --(e)
------ ------ ------
Net asset value, end of period ..................... $10.37 $11.30 $10.62
====== ====== ======
Total return(c)..................................... (4.27)% 9.33% 6.90%
RATIOS TO AVERAGE NET ASSETS(d)
Expenses before waiver and payments by affiliates .. 1.88% 2.25% 2.65%
Expenses net of waiver and payments by affiliates .. 1.68% 1.71% 1.69%
Net investment income 2.95% 2.59% 2.21%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .................. $8,387 $6,542 $ 242
Portfolio turnover rate ............................ 28.52% 77.53% 13.10%

(b) Based on average daily shares outstanding.

(c) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.

(d) Ratios are annualized for periods less than one year.

(e) Amount rounds to less than $0.01 per share.

(f) For the period July 3, 2006 (commencement of operations) to October 31,
2006.

Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 45

Franklin Investors Securities Trust

FINANCIAL HIGHLIGHTS (CONTINUED)

FRANKLIN BALANCED FUND

YEAR ENDED
SIX MONTHS ENDED OCTOBER 31,
APRIL 30, 2008 ------------------
CLASS R (UNAUDITED) 2007 2006(f)
- ---------------------------------------------------- ---------------- ------ -------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)

Net asset value, beginning of period ............... $11.36 $10.64 $10.00
------ ------ ------
Income from investment operations(a):
Net investment income(b) ........................ 0.18 0.34 0.09
Net realized and unrealized gains (losses) ...... (0.64) 0.69 0.62
------ ------ ------
Total from investment operations ................... (0.46) 1.03 0.71
------ ------ ------
Less distributions from:
Net investment income ........................... (0.23) (0.31) (0.07)
Net realized gains .............................. (0.24) -- --
------ ------ ------
Total distributions ................................ (0.47) (0.31) (0.07)
------ ------ ------
Redemption fees .................................... --(e) --(e) --(e)
------ ------ ------
Net asset value, end of period ..................... $10.43 $11.36 $10.64
====== ====== ======
Total return(c) .................................... (4.00)% 9.83% 7.10%

RATIOS TO AVERAGE NET ASSETS(d)

Expenses before waiver and payments by affiliates .. 1.41% 1.75% 2.17%
Expenses net of waiver and payments by affiliates .. 1.21% 1.21% 1.21%
Net investment income .............................. 3.42% 3.09% 2.69%

SUPPLEMENTAL DATA

Net assets, end of period (000's) .................. $ 18 $ 15 $ 11
Portfolio turnover rate ............................ 28.52% 77.53% 13.10%

(b) Based on average daily shares outstanding.

(c) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.

(d) Ratios are annualized for periods less than one year.

(e) Amount rounds to less than $0.01 per share.

(f) For the period July 3, 2006 (commencement of operations) to October 31,
2006.

46 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report

Franklin Investors Securities Trust

FINANCIAL HIGHLIGHTS (CONTINUED)

FRANKLIN BALANCED FUND

YEAR ENDED
SIX MONTHS ENDED OCTOBER 31,
APRIL 30, 2008 -------------------
ADVISOR CLASS (UNAUDITED) 2007 2006(f)
- ---------------------------------------------------- ---------------- ------ -------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)

Net asset value, beginning of period ............... $11.38 $10.66 $10.00
------ ------ ------
Income from investment operations(a):
Net investment income(b) ........................ 0.20 0.40 0.11
Net realized and unrealized gains (losses) ...... (0.63) 0.69 0.62
------ ------ ------
Total from investment operations ................... (0.43) 1.09 0.73
------ ------ ------
Less distributions from:
Net investment income ........................... (0.26) (0.37) (0.07)
Net realized gains .............................. (0.24) -- --
------ ------ ------
Total distributions ................................ (0.50) (0.37) (0.07)
------ ------ ------
Redemption fees .................................... --(e) --(e) --(e)
------ ------ ------
Net asset value, end of period ..................... $10.45 $11.38 $10.66
====== ====== ======
Total return(c) .................................... (3.71)% 10.34% 7.30%

RATIOS TO AVERAGE NET ASSETS(d)

Expenses before waiver and payments by affiliates .. 0.91% 1.25% 1.67%
Expenses net of waiver and payments by affiliates .. 0.71% 0.71% 0.71%
Net investment income .............................. 3.92% 3.59% 3.19%

SUPPLEMENTAL DATA

Net assets, end of period (000's) .................. $1,343 $1,180 $ 239
Portfolio turnover rate ............................ 28.52% 77.53% 13.10%

(b) Based on average daily shares outstanding.

(d) Ratios are annualized for periods less than one year.

(e) Amount rounds to less than $0.01 per share.

(f) For the period July 3, 2006 (commencement of operations) to October 31,
2006.

Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 47

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED)

FRANKLIN BALANCED FUND COUNTRY SHARES VALUE
- ----------------------------------------------------- ------------- ---------- -----------

LONG TERM INVESTMENTS 87.0%
COMMON STOCKS 38.1%
CONSUMER DISCRETIONARY 1.8%
Best Buy Co. Inc. ............................ United States 13,000 $ 559,260
Target Corp. ................................. United States 10,000 531,300
-----------
1,090,560
-----------
CONSUMER STAPLES 1.1%
Anheuser-Busch Cos. Inc. ..................... United States 8,200 403,440
The Procter & Gamble Co. ..................... United States 4,000 268,200
-----------
671,640
-----------
ENERGY 3.0%
Chesapeake Energy Corp. ...................... United States 300 15,510
Chevron Corp. ................................ United States 3,600 346,140
ConocoPhillips ............................... United States 6,000 516,900
Halliburton Co. .............................. United States 20,000 918,200
-----------
1,796,750
-----------
FINANCIALS 3.4%
Duke Realty Corp. ............................ United States 20,000 488,400
iStar Financial Inc. ......................... United States 30,000 577,500
Merrill Lynch & Co. Inc. ..................... United States 20,000 996,600
-----------
2,062,500
-----------
HEALTH CARE 8.0%
(a) Amgen Inc. ................................... United States 12,500 523,375
(a, b) Genentech Inc. ............................... United States 16,000 1,091,200
Johnson & Johnson ............................ United States 20,000 1,341,800
Pfizer Inc. .................................. United States 30,000 603,300
Roche Holding AG ............................. Switzerland 4,000 667,053
Schering-Plough Corp. ........................ United States 34,000 625,940
-----------
4,852,668
-----------
INDUSTRIALS 7.7%
3M Co. ....................................... United States 8,000 615,200
Avery Dennison Corp. ......................... United States 15,000 722,850
(b) The Boeing Co. ............................... United States 10,000 848,600
(b) Caterpillar Inc. ............................. United States 8,000 655,040
General Electric Co. ......................... United States 20,000 654,000
United Parcel Service Inc., B ................ United States 6,000 434,460
United Technologies Corp. .................... United States 10,000 724,700
-----------
4,654,850
-----------
INFORMATION TECHNOLOGY 6.8%
(a) Agilent Technologies Inc. .................... United States 15,000 453,150
(a) Cisco Systems Inc. ........................... United States 30,000 769,200
Intel Corp. .................................. United States 60,000 1,335,600
Maxim Integrated Products Inc. ............... United States 20,000 420,600
(a) NetApp Inc. .................................. United States 20,000 484,000
QUALCOMM Inc. ................................ United States 6,800 293,692
Texas Instruments Inc. ....................... United States 13,000 379,080
-----------
4,135,322
-----------

48 | Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

FRANKLIN BALANCED FUND COUNTRY SHARES VALUE
- ----------------------------------------------------- ------------- ---------- -----------

LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS (CONTINUED)
MATERIALS 1.5%
Alcoa Inc. ................................... United States 15,000 $ 521,700
The Dow Chemical Co. ......................... United States 10,000 401,500
-----------
923,200
-----------
TELECOMMUNICATION SERVICES 1.3%
AT&T Inc. .................................... United States 20,000 774,200
-----------
UTILITIES 3.5%
Ameren Corp. ................................. United States 6,000 272,160
Duke Energy Corp. ............................ United States 30,000 549,300
PG&E Corp. ................................... United States 25,000 1,000,000
Public Service Enterprise Group Inc. ......... United States 6,400 281,024
-----------
2,102,484
-----------
TOTAL COMMON STOCKS (COST $23,850,020) ....... 23,064,174
-----------
CONVERTIBLE PREFERRED STOCKS 16.2%
CONSUMER DISCRETIONARY 1.0%
(c) The Goldman Sachs Group Inc. into Comcast
Corp., 5.00%, cvt. pfd., 144A ............. United States 30,000 604,620
-----------
FINANCIALS 7.0%
Bank of America Corp., 7.25%, cvt. pfd., L ... United States 900 988,200
Citigroup Inc., 6.50%, cvt. pfd. United States 10,000 521,500
(a) Lehman Brothers Holdings Inc., 7.25%,
cvt. pfd., P .............................. United States 910 1,113,840
(a) Wachovia Corp., 7.50%, cvt. pfd., L .......... United States 1,400 1,636,670
-----------
4,260,210
-----------
HEALTH CARE 4.3%
(c) Morgan Stanley into Genentech Inc., 5.26%,
cvt. pfd., 144A ........................... United States 25,000 1,676,125
Schering-Plough Corp., 6.00%, cvt. pfd. ...... United States 5,000 900,568
-----------
2,576,693
-----------
INDUSTRIALS 1.4%
Lehman Brothers Holdings into General Electric
Co., 7.50%, cvt. pfd. ..................... United States 25,000 827,500
-----------
INFORMATION TECHNOLOGY 2.5%
(c) Morgan Stanley into Texas Instruments Inc.,
7.50%, cvt. pfd., 144A .................... United States 50,000 1,494,750
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $9,587,706) ......................... 9,763,773
-----------
PREFERRED STOCKS5.9%
FINANCIALS5.9%
Fannie Mae, 6.75%, pfd. ...................... United States 20,000 462,200
Fannie Mae, 7.625%, pfd., R .................. United States 20,000 505,400
Fannie Mae, 8.25%, pfd. ...................... United States 25,000 626,000
Freddie Mac, 8.375%, pfd. .................... United States 30,200 773,120
JPMorgan Chase & Co.,7.90%,pfd., 1, junior
sub. note ................................. United States 1,200,000 1,226,392
-----------
TOTAL PREFERRED STOCKS (COST $3,581,000) ..... 3,593,112
-----------

Semiannual Report | 49

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

PRINCIPAL
FRANKLIN BALANCED FUND COUNTRY AMOUNT(d) VALUE
- ----------------------------------------------------- ------------- ---------- -----------

LONG TERM INVESTMENTS (CONTINUED)
CORPORATE BONDS 25.3%
CONSUMER DISCRETIONARY 5.2%
Comcast Corp., senior note,
5.85%, 1/15/10 ............................ United States $ 200,000 $ 204,169
6.30%, 11/15/17 ........................... United States 350,000 364,640
Dollar General Corp., senior note, 10.625%,
7/15/15 ................................... United States 500,000 500,000
Ford Motor Credit Co. LLC, senior note, 9.75%,
9/15/10 ................................... United States 900,000 874,486
R.H. Donnelley Corp., senior discount note,
A-2, 6.875%, 1/15/13 ...................... United States 300,000 193,500
Target Corp., 6.00%, 1/15/18 ................. United States 1,000,000 1,041,286
-----------
3,178,081
-----------
CONSUMER STAPLES 1.0%
Bunge Ltd. Finance Corp., senior note, 5.10%,
7/15/15 ................................... United States 300,000 272,192
CVS Caremark Corp., senior note, 5.75%,
6/01/17 ................................... United States 300,000 304,751
-----------
576,943
-----------
ENERGY 1.4%
Valero Energy Corp., 6.125%, 6/15/17 ......... United States 400,000 404,487
XTO Energy Inc., senior note, 5.90%,
8/01/12 ................................... United States 400,000 415,031
-----------
819,518
-----------
FINANCIALS 9.8%
American Express Co., senior note, 7.00%,
3/19/18 ................................... United States 700,000 754,866
(c, e) BNP Paribas, 144A, 7.195%, Perpetual ......... France 300,000 282,459
CIT Group Funding Co. of Canada, senior note,
4.65%, 7/01/10 ............................ United States 400,000 345,905
Compass Bank, 6.40%, 10/01/17 ................ United States 400,000 388,252
Lazard Group, senior note, 6.85%, 6/15/17 .... United States 300,000 280,236
Lehman Brothers Holdings Inc., senior note,
6.875%, 5/02/18 ........................... United States 1,000,000 1,025,319
(c) LUKOIL International Finance BV, 144A, 6.356%,
6/07/17 ................................... Russia 500,000 463,750
(c) Metropolitan Life Global Funding I, senior
secured note, 144A, 5.125%, 4/10/13 ....... United States 900,000 901,302
Morgan Stanley, sub. note, 4.75%, 4/01/14 .... United States 200,000 188,009
(f) The Travelers Cos. Inc., junior sub. bond,
FRN, 6.25%, 3/15/67 ....................... United States 500,000 438,683
(e) Wachovia Capital Trust III, 5.80%, Perpetual . United States 500,000 397,746
(c, e) Washington Mutual Preferred Funding Trust IV,
junior sub. bond, 144A, 9.75%, Perpetual .. United States 500,000 435,643
-----------
5,902,170
-----------
HEALTH CARE 4.0%
(c) Bausch & Lomb Inc., senior note, 144A, 9.875%,
11/01/15 .................................. United States 400,000 427,000
Coventry Health Care Inc., senior note, 6.30%,
8/15/14 ................................... United States 400,000 391,109
Quest Diagnostics Inc., 6.95%, 7/01/37 ....... United States 500,000 512,291
Schering-Plough Corp., senior note, 6.00%,
9/15/17 ................................... United States 400,000 404,991
(f) Tenet Healthcare Corp., senior note, FRN,
9.25%, 2/01/15 ............................ United States 500,000 498,750
United Health Group Inc. 6.50%, 6/15/37 ...... United States 200,000 185,874
-----------
2,420,015
-----------
INFORMATION TECHNOLOGY 1.3%
(c) First Data Corp., senior note, 144A, 9.875%,
9/24/15 ................................... United States 400,000 364,500
Freescale Semiconductor Inc., senior note,
8.875%, 12/15/14 .......................... United States 500,000 442,500
-----------
807,000
-----------

50 | Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

PRINCIPAL
FRANKLIN BALANCED FUND COUNTRY AMOUNT(d) VALUE
- ----------------------------------------------------- ------------- ---------- -----------

LONG TERM INVESTMENTS (CONTINUED)
CORPORATE BONDS (CONTINUED)
TELECOMMUNICATION SERVICES 1.2%
Embarq Corp., senior note, 7.082%, 6/01/16 ... United States $ 250,000 $ 248,590
Telecom Italia Capital, senior note,
4.95%, 9/30/14 ............................ Italy 100,000 92,993
7.20%, 7/18/36 ............................ Italy 150,000 150,881
Verizon New York Inc., senior deb., A, 6.875%,
4/01/12 ................................... United States 250,000 263,648
-----------
756,112
-----------
UTILITIES 1.4%
(c) Texas Competitive Electric Holdings Co. LLC,
senior note, 144A, 10.25%, 11/01/15 ....... United States 800,000 838,000
-----------
TOTAL CORPORATE BONDS (COST $15,316,861)...... 15,297,839
-----------
ASSET-BACKED SECURITIES AND COMMERCIAL
MORTGAGE-BACKED SECURITIES
(COST $185,873) 0.3%
FINANCIALS 0.3%
(f) Accredited Mortgage Loan Trust, 2005-3, A1,
FRN, 5.563%, 9/25/35 ...................... United States 185,757 175,615
-----------
MORTGAGE-BACKED SECURITIES 1.2%
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)
FIXED RATE 1.2%
FNMA 30 Year, 6.00%, 8/01/36 ................. United States 388,816 398,006
FNMA 30 Year, 6.50%, 4/01/36 ................. United States 291,655 302,195
-----------
TOTAL MORTGAGE-BACKED SECURITIES
(COST $673,018) ........................... 700,201
-----------
TOTAL LONG TERM INVESTMENTS
(COST $53,194,478) ........................ 52,594,714
-----------
SHORT TERM INVESTMENTS 12.9%
U.S. GOVERNMENT AND AGENCY SECURITIES
(COST $2,997,854) 4.9%
(g) U.S. Treasury Bill, 5/29/08 .................. United States 3,000,000 2,997,285
-----------
TOTAL INVESTMENTS BEFORE MONEY MARKET FUND
(COST $56,192,332) ........................ 55,591,999
-----------
SHARES
----------
MONEY MARKET FUND (COST $4,816,881) 8.0%
(h) Franklin Institutional Fiduciary Trust Money
Market Portfolio, 2.29% ................... United States 4,816,881 4,816,881
-----------
TOTAL INVESTMENTS (COST $61,009,213) 99.9% ... 60,408,880
OPTIONS WRITTEN (0.1)% ....................... (36,940)
OTHER ASSETS, LESS LIABILITIES 0.2% .......... 135,780
-----------
NET ASSETS 100.0% ............................ $60,507,720
===========

Semiannual Report | 51

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

FRANKLIN BALANCED FUND COUNTRY CONTRACTS VALUE
- ----------------------------------------------------- ------------- ---------- -----------

(i) OPTIONS WRITTEN 0.1%
CALL OPTIONS 0.0%(j)
HEALTH CARE 0.0%(j)
Genentech Inc., May 80 Calls, 5/17/08 ........ United States 160 $ 2,400
-----------
INDUSTRIALS 0.0%(j)
The Boeing Co., May 85 Calls, 5/17/08 ........ United States 100 13,500
Caterpillar Inc., May 85 Calls, 5/17/08 ...... United States 80 6,160
-----------
19,660
-----------
PUT OPTIONS 0.0%(j)
ENERGY 0.0%(j)
Valero Energy Corp., May 45 Puts, 5/17/08 .... United States 100 4,100
-----------
INDUSTRIALS 0.0%(j)
The Boeing Co., May 75 Puts, 5/17/08 ......... United States 50 250
Caterpillar Inc., May 75 Puts, 5/17/08 ....... United States 70 1,330
-----------
1,580
-----------
INFORMATION TECHNOLOGY 0.0%(j)
Microsoft Corp., May 28 Puts, 5/17/08 ........ United States 200 9,200
-----------
TOTAL OPTIONS WRITTEN
(PREMIUMS RECEIVED $41,210) ............... $ 36,940
-----------

See Selected Portfolio Abbreviations on page 78.

(a) Non-income producing for the twelve months ended April 30, 2008.

(b) A portion or all of the security is held in connection with written option
contracts open at period end.

(c) Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be sold in transactions exempt from registration only to
qualified institutional buyers or in a public offering registered under the
Securities Act of 1933. These securities have been deemed liquid under
guidelines approved by the Trust's Board of Trustees. At April 30, 2008,
the aggregate value of these securities was $7,488,149, representing 12.38%
of net assets.

(d) The principal amount is stated in U.S. dollars unless otherwise indicated.

(e) Perpetual bond with no stated maturity date.

(f) The coupon rate shown represents the rate at period end.

(g) The security is traded on a discount basis with no stated coupon rate.

(h) See Note 7 regarding investments in the Franklin Institutional Fiduciary
Trust Money Market Portfolio. The rate shown is the annualized seven-day
yield at period end.

(i) See Note 1(e) regarding options.

(j) Rounds to less than 0.1% of net assets.

52 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report

Franklin Investors Securities Trust

FINANCIAL HIGHLIGHTS

FRANKLIN CONVERTIBLE SECURITIES FUND

SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2008 ------------------------------------------------------------
CLASS A (UNAUDITED) 2007 2006 2005 2004 2003
- ------------------------------------------------ ---------------- -------- -------- -------- -------- --------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........... $ 17.14 $ 17.19 $ 16.46 $ 15.16 $ 13.90 $ 10.87
-------- -------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) .................... 0.20 0.38 0.43 0.42 0.50 0.56
Net realized and unrealized gains (losses) .. (1.27) 1.36 1.52 1.49 1.43 2.97
-------- -------- -------- -------- -------- --------
Total from investment operations ............... (1.07) 1.74 1.95 1.91 1.93 3.53
-------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income ....................... (0.24) (0.58) (0.60) (0.61) (0.67) (0.50)
Net realized gains .......................... (0.58) (1.21) (0.62) -- -- --
-------- -------- -------- -------- -------- --------
Total distributions ............................ (0.82) (1.79) (1.22) (0.61) (0.67) (0.50)
-------- -------- -------- -------- -------- --------
Redemption fees ................................ --(e) --(e) --(e) --(e) --(e) --
-------- -------- -------- -------- -------- --------
Net asset value, end of period ................. $ 15.25 $ 17.14 $ 17.19 $ 16.46 $ 15.16 $ 13.90
======== ======== ======== ======== ======== ========
Total return(c) ................................ (6.19)% 10.66% 12.45% 12.76% 14.06% 33.10%

RATIOS TO AVERAGE NET ASSETS(d)

Expenses ....................................... 0.87% 0.87% 0.86% 0.88% 0.92% 0.98%
Expenses net of payments by affiliates ......... 0.87%(f) 0.87%(f) 0.86%(f) 0.88%(f) 0.89% 0.98%
Net investment income .......................... 2.68% 2.25% 2.59% 2.63% 3.36% 4.49%

SUPPLEMENTAL DATA

Net assets, end of period (000's) .............. $664,881 $844,603 $718,018 $551,120 $380,960 $294,987
Portfolio turnover rate ........................ 15.81% 17.59% 31.37% 35.30% 28.37% 49.90%

(a) The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing
of sales and repurchase of the Fund shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.

(b) Based on average daily shares outstanding.

(c) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.

(d) Ratios are annualized for periods less than one year.

(e) Amount rounds to less than $0.01 per share.

(f) Benefit of expense reduction rounds to less than 0.01%.

Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 53

Franklin Investors Securities Trust

FINANCIAL HIGHLIGHTS (CONTINUED)

FRANKLIN CONVERTIBLE SECURITIES FUND

SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2008 ------------------------------------------------------------
CLASS C (UNAUDITED) 2007 2006 2005 2004 2003
- ------------------------------------------------ ---------------- -------- -------- -------- -------- --------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........... $16.98 $ 17.04 $ 16.32 $ 15.05 $ 13.81 $ 10.82
-------- -------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) .................... 0.14 0.25 0.30 0.30 0.39 0.46
Net realized and unrealized gains (losses) .. (1.26) 1.36 1.52 1.46 1.42 2.96
-------- -------- -------- -------- -------- --------
Total from investment operations ............... (1.12) 1.61 1.82 1.76 1.81 3.42
-------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income ....................... (0.18) (0.46) (0.48) (0.49) (0.57) (0.43)
Net realized gains .......................... (0.58) (1.21) (0.62) -- -- --
-------- -------- -------- -------- -------- --------
Total distributions ............................ (0.76) (1.67) (1.10) (0.49) (0.57) (0.43)
-------- -------- -------- -------- -------- --------
Redemption fees ................................ --(e) --(e) --(e) --(e) --(e) --
-------- -------- -------- -------- -------- --------
Net asset value, end of period ................. $15.10 $ 16.98 $ 17.04 $ 16.32 $ 15.05 $ 13.81
======== ======== ======== ======== ======== ========
Total return(c) ................................ (6.57)% 9.94% 11.53% 11.92% 13.21% 32.08%

RATIOS TO AVERAGE NET ASSETS(d)

Expenses ....................................... 1.62% 1.61% 1.61% 1.63% 1.67% 1.75%
Expenses net of payments by affiliates ......... 1.62%(f) 1.61%(f) 1.61%(f) 1.63%(f) 1.64% 1.75%
Net investment income .......................... 1.93% 1.51% 1.83% 1.88% 2.61% 3.72%

SUPPLEMENTAL DATA

Net assets, end of period (000's) .............. $245,896 $306,353 $271,216 $219,970 $167,813 $106,719
Portfolio turnover rate ........................ 15.81% 17.59% 31.37% 35.30% 28.37% 49.90%

(b) Based on average daily shares outstanding.

(c) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.

(d) Ratios are annualized for periods less than one year.

(e) Amount rounds to less than $0.01 per share.

(f) Benefit of expense reduction rounds to less than 0.01%.

54 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED)

FRANKLIN CONVERTIBLE SECURITIES FUND SHARES VALUE
- ------------------------------------------------------------------------------- ----------- ------------

LONG TERM INVESTMENTS 95.2%
COMMON STOCKS (COST $12,884,696) 1.5%
CONSUMER DISCRETIONARY 1.5%
The Walt Disney Co. ....................................................... 424,408 $ 13,763,552
------------
CONVERTIBLE PREFERRED STOCKS 34.7%
CONSUMER DISCRETIONARY 5.2%
Ford Motor Co. Capital Trust II, 6.50%, cvt. pfd. ......................... 450,000 16,582,500
General Motors Corp., 6.25%, cvt. pfd. .................................... 235,000 4,368,650
General Motors Corp., 1.50%, cvt. pfd., D ................................. 776,200 18,458,967
Retail Ventures Inc. into DSW Inc., 6.625%, cvt. pfd. ..................... 250,000 8,031,250
------------
47,441,367
------------
ENERGY 4.8%
(a) Chesapeake Energy Corp., 5.00%, cvt. pfd., 144A ........................... 135,000 19,643,985
ElPaso Corp., 4.99%, cvt. pfd. ............................................ 12,000 16,698,000
McMoRan Exploration Co., 6.75%, cvt. pfd. ................................. 37,600 6,891,704
------------
43,233,689
------------
FINANCIALS 13.2%
Affiliated Managers Group Inc., 5.10%, cvt. pfd. .......................... 350,000 15,246,875
(b) CIT Group Inc., 8.75%, cvt. pfd., C ....................................... 30,000 1,672,500
CIT Group Inc., 7.75%, cvt. pfd., Z ....................................... 619,500 7,248,150
E*TRADE Financial Corp., 6.125%, cvt. pfd. ................................ 855,000 4,916,250
Fannie Mae, 5.375%, cvt. pfd. ............................................. 140 9,935,541
(b) Lehman Brothers Holdings Inc., 7.25%, cvt. pfd., W ........................ 15,690 19,204,560
MetLife Inc., 6.375%, cvt. pfd. ........................................... 400,000 12,000,000
Simon Property Group Inc., 6.00%, cvt. pfd. ............................... 200,000 16,434,000
(b) Wachovia Corp., 7.50%, cvt. pfd., L ....................................... 17,900 20,925,995
Washington Mutual Capital Trust I, 5.375%, cvt. pfd. ...................... 20,000 620,000
(a) Washington Mutual Capital Trust I, 5.375%, cvt. pfd., 144A................. 60,000 1,860,000
Washington Mutual Inc., 7.75%, cvt. pfd., R ............................... 12,140 10,441,735
------------
120,505,606
------------
HEALTH CARE 0.9%
Schering-Plough Corp., 6.00%, cvt. pfd. ................................... 45,000 8,105,112
------------
INDUSTRIALS 2.1%
Avery Dennison Corp., 7.875%, cvt. pfd. ................................... 400,000 19,108,000
------------
MATERIALS 2.4%
Celanese Corp., 4.25%, cvt. pfd. .......................................... 375,000 21,515,625
------------
UTILITIES 6.1%
CMS Energy Corp., 4.50%, cvt. pfd., B ..................................... 100,000 7,687,500
Entergy Corp., 7.625%, cvt. pfd. .......................................... 300,000 20,177,250
NRG Energy Inc., 4.00%, cvt. pfd. ......................................... 9,500 21,341,750
PNM Resources Inc., 6.75%, cvt. pfd. ..................................... 235,000 6,506,563
------------
55,713,063
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $310,265,300) .................... 315,622,462
------------

Semiannual Report | 55

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

PRINCIPAL
FRANKLIN CONVERTIBLE SECURITIES FUND AMOUNT VALUE
- ------------------------------------------------------------------------------- ----------- ------------

LONG TERM INVESTMENTS (CONTINUED)
CONVERTIBLE BONDS 59.0%
CONSUMER DISCRETIONARY 10.2%
Best Buy Co. Inc., cvt., sub. deb., 2.25%, 1/15/22 ........................ $21,000,000 $ 23,021,250
Carnival Corp., cvt., senior deb., 2.00%, 4/15/21 ......................... 18,000,000 19,755,000
Liberty Media Corp., cvt., senior deb., B, 3.25%, 3/15/31 ................. 10,000,000 6,877,750
Lions Gate Entertainment Corp., cvt., senior note, 3.625%, 3/15/25
(Canada) ............................................................... 10,000,000 9,883,320
(a) Live Nation Inc., cvt., senior note, 144A, 2.875%, 7/15/27 ................ 17,865,000 14,872,613
Lowe's Cos. Inc., cvt., senior note, zero cpn., 2/16/21 ................... 13,000,000 10,989,914
(a) WPP Group PLC, cvt., sub. bond, 144A, 5.00%, 10/15/33 ..................... 6,000,000 7,557,120
------------
92,956,967
------------
ENERGY 3.0%
Helix Energy Solutions Group, cvt., senior note, 3.25%, 12/15/25 .......... 10,000,000 13,012,500
Schlumberger Ltd., cvt., senior deb., 1.50%, 6/01/23 (Netherland
Antilles)............................................................... 5,000,000 13,893,750
------------
26,906,250
------------
FINANCIALS 5.8%
CapitalSource Inc., cvt., senior sub. note, 4.00%, 7/15/34 ................ 20,000,000 17,272,000
(c) iStar Financial Inc., cvt., senior note, FRN, 3.198%, 10/01/12 ........... 23,000,000 18,469,000
Leucadia National Corp., cvt., senior sub. note, 3.75%, 4/15/14 ........... 3,600,000 8,347,500
Providian Financial Corp., cvt., senior note, 4.00%, 5/15/08 .............. 9,000,000 8,865,000
------------
52,953,500
------------
HEALTH CARE 15.9%
Alza Corp. into Johnson & Johnson, cvt., sub. deb., zero cpn., 7/28/20 .... 15,000,000 14,062,500
American Medical Systems Holdings Ltd., cvt., senior sub. note, 3.25%,
7/01/36 ................................................................ 15,000,000 14,381,250
Amgen Inc., cvt., senior note,
0.375%, 2/01/13 ....................................................... 4,000,000 3,410,744
(a) 144A, 0.375%, 2/01/13 ................................................. 18,000,000 15,348,348
Biomarin Pharmaceutical Inc., cvt., senior note, 1.875%, 4/23/17 .......... 8,000,000 15,470,000
Celgene Corp., cvt., senior note, 1.75%, 6/01/08 .......................... 2,000,000 10,260,000
Gilead Sciences Inc., cvt., senior note, 0.625%, 5/01/13 .................. 10,000,000 14,700,000
IVAX Corp., cvt., senior sub. note, 4.50%, 5/15/08 ........................ 5,000,000 5,150,000
Lifepoint Hospitals Inc., cvt., 3.25%, 8/15/25 ............................ 15,000,000 12,843,750
Medtronic Inc., cvt., senior note,
1.50%, 4/15/11 ........................................................ 4,000,000 4,138,040
(a) 144A, 1.50%, 4/15/11 .................................................. 17,000,000 17,586,670
Protein Design Labs Inc., cvt., sub. note, 2.75%, 8/16/23 ................. 19,550,000 17,912,687
------------
145,263,989
------------
INDUSTRIALS 4.5%
(a) GATX Corp., cvt., senior note, 144A, 5.00%, 8/15/23 ................... 3,000,000 5,336,250
(a) L-3 Communications Corp., cvt., 144A, 3.00%, 8/01/35 .................. 15,000,000 19,031,250
WESCO International Inc., cvt., senior deb.,
1.75%, 11/15/26 ....................................................... 5,000,000 4,156,250
(a) 144A, 1.75%, 11/15/26 ................................................. 15,000,000 12,468,750
------------
40,992,500
------------

56 | Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

PRINCIPAL
FRANKLIN CONVERTIBLE SECURITIES FUND AMOUNT VALUE
- ------------------------------------------------------------------------------- ----------- ------------

LONG TERM INVESTMENTS (CONTINUED)
CONVERTIBLE BONDS (CONTINUED)
INFORMATION TECHNOLOGY 15.4%
(a) BearingPoint Inc., cvt., sub. note, 144A, 2.50%, 12/15/24 ................. $14,000,000 $ 5,337,500
Intel Corp., cvt.,
(a) junior sub. bond, 144A, 2.95%, 12/15/35 ............................... 19,000,000 19,073,910
sub. deb., 2.95%, 12/15/35 ............................................ 2,000,000 2,007,780
Juniper Networks Inc., cvt., senior note, zero cpn., 6/15/08 .............. 13,000,000 17,891,250
Liberty Media Corp. into Motorola Inc., cvt., senior deb., 3.50%, 1/15/31.. 8,000,000 4,337,628
(a) Microchip Technology Inc., cvt., junior sub. note, 144A, 2.125%,
12/15/37 ............................................................... 20,000,000 24,011,400
Micron Technology Inc., cvt., senior sub. note, 1.875%, 6/01/14 ........... 20,000,000 16,000,000
PMC-Sierra Inc., cvt.,
(a) 144A, 2.25%, 10/15/25 ................................................. 3,500,000 4,016,250
sub. note, 2.25%, 10/15/25 ................................................ 9,500,000 10,901,250
(a) VeriFone Holdings Inc., cvt., senior note, 144A, 1.375%, 6/15/12 .......... 21,000,000 15,408,750
(a) VeriSign Inc., cvt., junior sub. bond, 144A, 3.25%,8/15/37 ................ 17,000,000 21,250,000
------------
140,235,718
------------
TELECOMMUNICATION SERVICES 1.9%
(a) NII Holdings Inc., cvt., 144A, 2.75%, 8/15/25 ............................. 15,000,000 17,475,000
------------
UTILITIES 2.3%
CenterPoint Energy Inc., cvt., senior note, 3.75%, 5/15/23 ................ 10,000,000 13,550,000
CMS Energy Corp., cvt., senior note, 2.875%, 12/01/24 ..................... 6,000,000 7,076,221
------------
20,626,221
------------
TOTAL CONVERTIBLE BONDS (COST $530,861,441) ............................... 537,410,145
------------
TOTAL LONG TERM INVESTMENTS (COST $854,011,437) ........................... 866,796,159
------------
SHORT TERM INVESTMENTS 3.2%
CONVERTIBLE BOND (COST $17,563,714) 1.9%
CONSUMER DISCRETIONARY 1.9%
Amazon.com Inc., cvt., sub. note, 4.75%, 2/01/09 .......................... 16,000,000 17,540,000
------------
TOTAL INVESTMENTS BEFORE MONEY MARKET FUND (COST $871,575,151) ............ 884,336,159
------------

SHARES
-----------
MONEY MARKET FUND(COST $12,222,059)1.3%
(d) Franklin Institutional Fiduciary Trust Money Market Portfolio, 2.29% ...... 12,222,059 12,222,059
------------
TOTAL INVESTMENTS (COST $883,797,210) 98.4% ............................... 896,558,218
OTHER ASSETS, LESS LIABILITIES 1.6% ....................................... 14,218,561
------------
NET ASSETS 100.0% ......................................................... $910,776,779
============

See Selected Portfolio Abbreviations on page 78.

(a) Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be sold in transactions exempt from registration only to
qualified institutional buyers or in a public offering registered under the
Securities Act of 1933. These securities have been deemed liquid under
guidelines approved by the Trust's Board of Trustees. At April 30, 2008,
the aggregate value of these securities was $220,277,796, representing
24.19% of net assets.

(b) Non-income producing for the twelve months ended April 30, 2008

(d) See Note 7 regarding investments in the Franklin Institutional Fiduciary
Trust Money Market Portfolio. The rate shown is the annualized seven-day
yield at period end.

Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 57

Franklin Investors Securities Trust

FINANCIAL HIGHLIGHTS

FRANKLIN EQUITY INCOME FUND

SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
2008 -------------------------------------------------------------
CLASS A (UNAUDITED) 2007 2006 2005 2004 2003
- -------------------------------------------------- ---------- -------- -------- -------- -------- --------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)

Net asset value, beginning of period ............. $ 22.41 $ 22.67 $ 20.47 $ 19.58 $ 17.84 $ 15.42
-------- -------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) ...................... 0.22 0.46 0.48 0.50 0.41 0.40
Net realized and unrealized gains (losses) .... (2.34) 1.16 2.70 0.85 1.72 2.45
-------- -------- -------- -------- -------- --------
Total from investment operations ................. (2.12) 1.62 3.18 1.35 2.13 2.85
-------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income ......................... (0.27) (0.45) (0.51) (0.46) (0.39) (0.43)
Net realized gains ............................ (0.96) (1.43) (0.47) -- -- --
-------- -------- -------- -------- -------- --------
Total distributions .............................. (1.23) (1.88) (0.98) (0.46) (0.39) (0.43)
-------- -------- -------- -------- -------- --------
Redemption fees .................................. --(e) --(e) --(e) --(e) --(e) --
-------- -------- -------- -------- -------- --------
Net asset value, end of period ................... $19.06 $ 22.41 $22.67 $ 20.47 $ 19.58 $ 17.84
======== ======== ======== ======== ======== ========
Total return(c) .................................. (9.45)% 7.40% 16.04% 6.92% 12.04% 18.72%

RATIOS TO AVERAGE NET ASSETS(d)

Expenses ......................................... 0.93%(f) 0.92%(f) 0.91%(f) 0.93%(f) 0.93%(g) 1.00%
Net investment income ............................ 2.33% 2.03% 2.26% 2.43% 2.15% 2.46%

SUPPLEMENTAL DATA

Net assets, end of period (000's) ................ $733,815 $855,227 $735,432 $651,766 $615,941 $501,658
Portfolio turnover rate .......................... 18.56% 27.66% 29.34% 38.05% 36.42% 54.07%

(b) Based on average daily shares outstanding.

(c) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.

(d) Ratios are annualized for periods less than one year.

(e) Amount rounds to less than $0.01 per share.

(f) Benefit of expense reduction rounds to less than 0.01%.

(g) Benefit of payments by affiliates and expense reduction rounds to less than
0.01%.

58 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report

Franklin Investors Securities Trust

FINANCIAL HIGHLIGHTS (CONTINUED)

FRANKLIN EQUITY INCOME FUND

SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
2008 -------------------------------------------------------
CLASS B (UNAUDITED) 2007 2006 2005 2004 2003
- -------------------------------------------------- ---------- ------- ------- ------- ------- -------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)

Net asset value, beginning of period ............. $ 22.30 $ 22.57 $ 20.38 $ 19.49 $ 17.76 $ 15.37
------- ------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) ...................... 0.15 0.29 0.32 0.35 0.27 0.27
Net realized and unrealized gains (losses) .... (2.32) 1.15 2.70 0.85 1.71 2.44
------- ------- ------- ------- ------- -------
Total from investment operations ................. (2.17) 1.44 3.02 1.20 1.98 2.71
------- ------- ------- ------- ------- -------
Less distributions from:
Net investment income ......................... (0.19) (0.28) (0.36) (0.31) (0.25) (0.32)
Net realized gains ............................ (0.96) (1.43) (0.47) -- -- --
------- ------- ------- ------- ------- -------
Total distributions .............................. (1.15) (1.71) (0.83) (0.31) (0.25) (0.32)
------- ------- ------- ------- ------- -------
Redemption fees .................................. --(e) --(e) --(e) --(e) --(e) --
------- ------- ------- ------- ------- -------
Net asset value, end of period ................... $18.98 $ 22.30 $ 22.57 $ 20.38 $ 19.49 $ 17.76
======= ======= ======= ======= ======= =======
Total return(c) .................................. (9.75)% 6.59% 15.20% 6.17% 11.20% 17.85%

RATIOS TO AVERAGE NET ASSETS(d)

Expenses ......................................... 1.68%(f) 1.67%(f) 1.65%(f) 1.68%(f) 1.68%(g) 1.75%
Net investment income ............................ 1.58% 1.28% 1.52% 1.68% 1.40% 1.71%

SUPPLEMENTAL DATA

Net assets, end of period (000's) ................ $35,780 $46,627 $51,979 $54,880 $55,442 $42,764
Portfolio turnover rate .......................... 18.56% 27.66% 29.34% 38.05% 36.42% 54.07%

(b) Based on average daily shares outstanding.

(c) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.

(d) Ratios are annualized for periods less than one year.

(e) Amount rounds to less than $0.01 per share.

(f) Benefit of expense reduction rounds to less than 0.01%.

(g) Benefit of payments by affiliates and expense reduction rounds to less than
0.01%.

Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 59

Franklin Investors Securities Trust

FINANCIAL HIGHLIGHTS (CONTINUED)

FRANKLIN EQUITY INCOME FUND

SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
2008 -------------------------------------------------------------
CLASS C (UNAUDITED) 2007 2006 2005 2004 2003
- ----------------------------------------------- ----------- -------- -------- -------- -------- --------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)

Net asset value, beginning of period .......... $ 22.31 $ 22.58 $ 20.39 $ 19.50 $ 17.77 $ 15.38
-------- -------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) ................... 0.15 0.29 0.32 0.34 0.27 0.27
Net realized and unrealized gains (losses).. (2.32) 1.15 2.70 0.86 1.71 2.43
-------- -------- -------- -------- -------- --------
Total from investment operations .............. (2.17) 1.44 3.02 1.20 1.98 2.70
-------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income ...................... (0.19) (0.28) (0.36) (0.31) (0.25) (0.31)
Net realized gains ......................... (0.96) (1.43) (0.47) -- -- --
-------- -------- -------- -------- -------- --------
Total distributions ........................... (1.15) (1.71) (0.83) (0.31) (0.25) (0.31)
-------- -------- -------- -------- -------- --------
Redemption fees ............................... --(e) --(e) --(e) --(e) --(e) --
-------- -------- -------- -------- -------- --------
Net asset value, end of period ................ $ 18.99 $ 22.31 $ 22.58 $ 20.39 $ 19.50 $ 17.77
======== ======== ======== ======== ======== ========
Total return(c) ............................... (9.75)% 6.60% 15.19% 6.16% 11.19% 17.82%

RATIOS TO AVERAGE NET ASSETS(d)

Expenses ...................................... 1.68%(f) 1.66%(f) 1.65%(f) 1.68%(f) 1.68%(g) 1.76%
Net investment income ......................... 1.58% 1.29% 1.52% 1.68% 1.40% 1.70%

SUPPLEMENTAL DATA

Net assets, end of period (000's) ............. $132,582 $166,481 $172,366 $174,674 $172,773 $147,739
Portfolio turnover rate ....................... 18.56% 27.66% 29.34% 38.05% 36.42% 54.07%

(b) Based on average daily shares outstanding.

(c) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.

(d) Ratios are annualized for periods less than one year.

(e) Amount rounds to less than $0.01 per share.

(f) Benefit of expense reduction rounds to less than 0.01%.

(g) Benefit of payments by affiliates and expense reduction rounds to less than
0.01%.

60 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report

Franklin Investors Securities Trust

FINANCIAL HIGHLIGHTS (CONTINUED)

FRANKLIN EQUITY INCOME FUND

SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
2008 -------------------------------------------------------
CLASS R (UNAUDITED) 2007 2006 2005 2004 2003
- ------------------------------------------------- ----------- ------- ------- ------- ------- -------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)

Net asset value, beginning of period ............ $ 22.43 $ 22.68 $ 20.48 $ 19.59 $ 17.85 $ 15.44
------- ------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) ..................... 0.21 0.41 0.43 0.45 0.37 0.34
Net realized and unrealized gains (losses) ... (2.37) 1.16 2.70 0.85 1.72 2.46
------- ------- ------- ------- ------- -------
Total from investment operations ................ (2.16) 1.57 3.13 1.30 2.09 2.80
------- ------- ------- ------- ------- -------
Less distributions from:
Net investment income ........................ (0.24) (0.39) (0.46) (0.41) (0.35) (0.39)
Net realized gains ........................... (0.96) (1.43) (0.47) -- -- --
------- ------- ------- ------- ------- -------
Total distributions ............................. (1.20) (1.82) (0.93) (0.41) (0.35) (0.39)
------- ------- ------- ------- ------- -------
Redemption fees ................................. --(e) --(e) --(e) --(e) --(e) --
------- ------- ------- ------- ------- -------
Net asset value, end of period .................. $ 19.07 $ 22.43 $ 22.68 $ 20.48 $ 19.59 $ 17.85
======= ======= ======= ======= ======= =======
Total return(c) ................................. (9.59)% 7.11% 15.69% 6.71% 11.75% 18.46%

RATIOS TO AVERAGE NET ASSETS(d)

Expenses ........................................ 1.18%(f) 1.17%(f) 1.16%(f) 1.18%(f) 1.18%(g) 1.25%
Net investment income ........................... 2.08% 1.78% 2.01% 2.18% 1.90% 2.21%

SUPPLEMENTAL DATA

Net assets, end of period (000's) ............... $ 8,125 $ 13,532 $18,908 $20,612 $18,858 $14,685
Portfolio turnover rate ......................... 18.56% 27.66% 29.34% 38.05% 36.42% 54.07%

(b) Based on average daily shares outstanding.

(c) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.

(d) Ratios are annualized for periods less than one year.

(e) Amount rounds to less than $0.01 per share.

(f) Benefit of expense reduction rounds to less than 0.01%.

(g) Benefit of payments by affiliates and expense reduction rounds to less than
0.01%.

Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 61

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED)

FRANKLIN EQUITY INCOME FUND COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------ -------------- --------- ------------

LONG TERM INVESTMENTS 99.0%
COMMON STOCKS 86.9%
CONSUMER DISCRETIONARY 9.8%
Autoliv Inc. ............................................................. Sweden 155,100 $ 9,498,324
Best Buy Co. Inc. ........................................................ United States 379,100 16,308,882
Carnival Corp. ........................................................... United States 392,400 15,762,708
The Home Depot Inc. ...................................................... United States 542,800 15,632,640
KB Home .................................................................. United States 555,400 12,496,500
Nordstrom Inc. ........................................................... United States 542,700 19,135,602
------------
88,834,656
------------
CONSUMER STAPLES 6.8%
Anheuser-Busch Cos. Inc. ................................................. United States 323,600 15,921,120
The Coca-Cola Co. ........................................................ United States 329,800 19,415,326
Diageo PLC, ADR .......................................................... United Kingdom 119,000 9,746,100
Unilever NV, N.Y. shs. ................................................... Netherlands 488,700 16,390,998
------------
61,473,544
------------
ENERGY 10.6%
Chesapeake Energy Corp. .................................................. United States 327,445 16,928,907
Chevron Corp. ............................................................ United States 278,720 26,798,928
ConocoPhillips ........................................................... United States 279,300 24,061,695
Exxon Mobil Corp. ........................................................ United States 244,834 22,786,700
Sunoco Inc. .............................................................. United States 123,500 5,731,635
------------
96,307,865
------------
FINANCIALS 15.1%
AFLAC Inc. ............................................................... United States 210,500 14,034,035
Bank of America Corp. .................................................... United States 553,706 20,786,123
Capital One Financial Corp. .............................................. United States 171,124 9,069,572
CapitalSource Inc. ....................................................... United States 819,400 11,512,570
Citigroup Inc. ........................................................... United States 533,400 13,479,018
iStar Financial Inc. ..................................................... United States 534,400 10,287,200
JPMorgan Chase & Co. ..................................................... United States 261,350 12,453,327
Marsh & McLennan Cos. Inc. ............................................... United States 460,000 12,691,400
Merrill Lynch & Co. Inc. ................................................. United States 318,300 15,860,889
U.S. Bancorp ............................................................. United States 520,000 17,622,800
------------
137,796,934
------------
HEALTH CARE 6.4%
Johnson & Johnson ........................................................ United States 215,000 14,424,350
Pfizer Inc. .............................................................. United States 873,700 17,570,107
Roche Holding AG ......................................................... Switzerland 125,300 20,895,426
Schering-Plough Corp. .................................................... United States 301,269 5,546,362
------------
58,436,245
------------
INDUSTRIALS 17.2%
3M Co. ................................................................... United States 213,100 16,387,390
The Boeing Co. ........................................................... United States 189,300 16,063,998
Caterpillar Inc. ......................................................... United States 264,200 21,632,696

62 | Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

FRANKLIN EQUITY INCOME FUND COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------ -------------- --------- ------------

LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS (CONTINUED)
INDUSTRIALS (CONTINUED)
General Electric Co. ..................................................... United States 596,600 $ 19,508,820
J.B. Hunt Transport Services Inc. ........................................ United States 579,500 19,685,615
Masco Corp. .............................................................. United States 655,800 11,942,118
Pitney Bowes Inc. ........................................................ United States 334,500 12,078,795
R. R. Donnelley & Sons Co. ............................................... United States 423,900 12,988,296
United Parcel Service Inc., B ............................................ United States 201,600 14,597,856
Waste Management Inc. .................................................... United States 319,600 11,537,560
------------
156,423,144
------------
INFORMATION TECHNOLOGY 9.2%
Intel Corp. .............................................................. United States 870,500 19,377,330
Microchip Technology Inc. ................................................ United States 587,500 21,590,625
Microsoft Corp. .......................................................... United States 541,900 15,454,988
Nokia Corp., ADR ......................................................... Finland 371,200 11,161,984
Paychex Inc. ............................................................. United States 443,900 16,144,643
------------
83,729,570
------------
MATERIALS 3.5%
Alcoa Inc. ............................................................... United States 479,000 16,659,620
The Dow Chemical Co. ..................................................... United States 379,300 15,228,895
------------
31,888,515
------------
TELECOMMUNICATION SERVICES 5.2%
America Movil SAB de CV, L, ADR .......................................... Mexico 267,200 15,486,912
AT&T Inc. ................................................................ United States 821,310 31,792,910
------------
47,279,822
------------
UTILITIES 3.1%
Dominion Resources Inc. .................................................. United States 343,000 14,882,770
PG&E Corp. ............................................................... United States 340,000 13,600,000
------------
28,482,770
------------
TOTAL COMMON STOCKS (COST $723,756,872) 790,653,065
------------
CONVERTIBLE PREFERRED STOCKS 10.4%
CONSUMER DISCRETIONARY 3.6%
General Motors Corp., 6.25%, cvt. pfd. ................................... United States 680,000 12,641,200
(a) The Goldman Sachs Group Inc. into Comcast Corp., 5.00%, cvt. pfd., 144A .. United States 1,000,000 20,154,000
------------
32,795,200
------------
FINANCIALS 4.4%
E*TRADE Financial Corp., 6.125%, cvt. pfd. ............................... United States 598,700 3,442,525
(b) Lehman Brothers Holdings Inc., 7.25%, cvt. pfd., P ....................... United States 11,960 14,639,040
(b) Wachovia Corp., 7.50%, cvt. pfd., L ...................................... United States 12,500 14,613,125
Washington Mutual Inc., 7.75%, cvt. pfd., R .............................. United States 9,000 7,740,990
------------
40,435,680
------------

Semiannual Report | 63

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

FRANKLIN EQUITY INCOME FUND COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------ -------------- --------- ------------

LONG TERM INVESTMENTS (CONTINUED)
CONVERTIBLE PREFERRED STOCKS (CONTINUED)
HEALTH CARE 0.8%
Schering-Plough Corp., 6.00%, cvt. pfd. .................................. United States 40,000 $ 7,204,544
------------
UTILITIES 1.6%
Entergy Corp., 7.625%, cvt. pfd. ......................................... United States 215,000 14,460,363
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $105,615,182) ................... 94,895,787
------------
PREFERRED STOCK (COST $15,634,990) 1.7%
FINANCIALS 1.7%
Fannie Mae, 8.25%, pfd. .................................................. United States 625,000 15,650,000
------------
TOTAL LONG TERM INVESTMENTS (COST $845,007,044) .......................... 901,198,852
------------
SHORT TERM INVESTMENT (COST $9,187,954) 1.0%
MONEY MARKET FUND 1.0%
(c) Franklin Institutional Fiduciary Trust Money Market Portfolio, 2.29% ..... United States 9,187,954 9,187,954
------------
TOTAL INVESTMENTS (COST $854,194,998) 100.0% ............................. 910,386,806
OTHER ASSETS, LESS LIABILITIES 0.0%(d) ................................... (83,798)
------------
NET ASSETS 100.0% ........................................................ $910,303,008
============

See Selected Portfolio Abbreviations on page 78.

(a) Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be sold in transactions exempt from registration only to
qualified institutional buyers or in a public offering registered under the
Securities Act of 1933. This security has been deemed liquid under
guidelines approved by the Trust's Board of Trustees. At April 30, 2008,
the value of this security was $20,154,000, representing 2.21% of net
assets.

(b) Non-income producing for the twelve months ended April 30, 2008.

(c) See Note 7 regarding investments in the Franklin Institutional Fiduciary
Trust Money Market Portfolio. The rate shown is the annualized seven-day
yield at period end.

(d) Rounds to less than 0.1% of net assets.

64 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report

Franklin Investors Securities Trust

FINANCIAL HIGHLIGHTS

FRANKLIN LIMITED MATURITY U.S. GOVERNMENT SECURITIES FUND

SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2008 ------------------------------------------------------
CLASS A (UNAUDITED) 2007 2006 2005 2004 2003
- ----------------------------------------------- ---------------- -------- -------- -------- -------- --------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)

Net asset value, beginning of period ............ $ 10.00 $ 9.90 $ 9.91 $ 10.26 $ 10.37 $ 10.57
-------- -------- -------- -------- -------- --------
Income from investment operations (a):
Net investment income(b) ..................... 0.19 0.38 0.34 0.30 0.27 0.29
Net realized and unrealized gains (losses) ... 0.23 0.11 0.01 (0.32) (0.04) (0.09)
-------- -------- -------- -------- -------- --------
Total from investment operations ................ 0.42 0.49 0.35 (0.02) 0.23 0.20
-------- -------- -------- -------- -------- --------
Less distributions from net investment income ... (0.22) (0.39) (0.36) (0.33) (0.34) (0.40)
-------- -------- -------- -------- -------- --------
Redemption fees ................................. --(e) --(e) --(e) --(e) --(e) --
-------- -------- -------- -------- -------- --------
Net asset value, end of period .................. $ 10.20 $ 10.00 $ 9.90 $ 9.91 $ 10.26 $ 10.37
======== ======== ======== ======== ======== ========
Total return(c).................................. 4.20% 5.05% 3.63% (0.16)% 2.23% 1.92%

RATIOS TO AVERAGE NET ASSETS(d)

Expenses ........................................ 0.86% 0.88%(f) 0.83% 0.81%f 0.79% 0.77%
Net investment income ........................... 3.77% 3.79% 3.43% 2.96% 2.67% 2.80%

SUPPLEMENTAL DATA

Net assets, end of period (000's) ............... $222,158 $189,122 $211,245 $268,197 $309,544 $338,839
Portfolio turnover rate ......................... 12.60% 25.29% 45.79% 62.33% 86.82% 92.69%

(b) Based on average daily shares outstanding.

(c) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.

(d) Ratios are annualized for periods less than one year.

(e) Amount rounds to less than $0.01 per share.

(f) Benefit of expense reduction rounds to less than 0.01%.

Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 65

FRANKLIN INVESTORS SECURITIES TRUST

FINANCIAL HIGHLIGHTS (CONTINUED)

FRANKLIN LIMITED MATURITY U.S. GOVERNMENT SECURITIES FUND

SIX MONTHS ENDED
APRIL 30, 2008 YEAR ENDED OCTOBER 31,
ADVISOR CLASS (UNAUDITED) 2007 2006 2005 2004 2003
- ----------------------------------------------- ---------------- ------- -------- -------- -------- --------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)

Net asset value, beginning of period ............ $ 9.99 $ 9.89 $ 9.90 $ 10.24 $ 10.36 $ 10.56
------- ------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) ..................... 0.20 0.39 0.35 0.31 0.28 0.29
Net realized and unrealized gains (losses) ... 0.22 0.11 0.01 (0.31) (0.05) (0.08)
------- ------- ------- ------- ------- -------
Total from investment operations ................ 0.42 0.50 0.36 -- 0.23 0.21
------- ------- ------- ------- ------- -------
Less distributions from net investment income ... (0.22) (0.40) (0.37) (0.34) (0.35) (0.41)
------- ------- ------- ------- ------- -------
Redemption fees ................................. --(e) --(e) --(e) --(e) --(e) --
------- ------- ------- ------- ------- -------
Net asset value, end of period .................. $ 10.19 $ 9.99 $ 9.89 $ 9.90 $ 10.24 $ 10.36
======= ======= ======= ======= ======= =======
Total return(c) ................................. 4.36% 5.16% 3.74% 0.04% 2.24% 2.02%

RATIOS TO AVERAGE NET ASSETS(d)

Expenses ........................................ 0.76%(f) 0.78%(f) 0.73% 0.71%(f) 0.69% 0.67%
Net investment income ........................... 3.87% 3.89% 3.53% 3.06% 2.77% 2.90%

SUPPLEMENTAL DATA

Net assets, end of period (000's) ............... $24,260 $22,143 $22,293 $26,725 $24,141 $16,753
Portfolio turnover rate ......................... 12.60% 25.29% 45.79% 62.33% 86.82% 92.69%

(b) Based on average daily shares outstanding.

(d) Ratios are annualized for periods less than one year.

(e) Amount rounds to less than $0.01 per share.

(f) Benefit of expense reduction rounds to less than 0.01%.

66 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED)

FRANKLIN LIMITED MATURITY U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------- ---------------- ------------

LONG TERM INVESTMENTS 94.5%
MORTGAGE-BACKED SECURITIES 29.1%
(a) FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) ADJUSTABLE RATE 1.9%
FHLMC, 4.226%, 12/01/34 ............................................. $ 1,153,861 $ 1,148,994
FHLMC, 4.441%, 9/01/33 .............................................. 276,747 278,319
FHLMC, 6.363%, 8/01/34 .............................................. 2,001,311 2,020,845
FHLMC, 6.40%, 12/01/33 .............................................. 1,215,177 1,220,420
------------
4,668,578
------------
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) FIXED RATE 1.0%
FHLMC Gold 15 Year, 5.00%, 10/01/17 ................................. 321,685 325,611
FHLMC Gold 15 Year, 7.00%, 12/01/10 - 9/01/13 ....................... 217,044 227,083
FHLMC Gold 30 Year, 8.50%, 12/01/22 - 7/01/31 ....................... 1,595,323 1,749,609
FHLMC Gold 30 Year, 9.50%, 3/01/21 .................................. 52,074 54,597
------------
2,356,900
------------
(a) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE 15.5%
FNMA, 3.432%, 4/01/34 ............................................... 601,022 618,585
FNMA, 3.93%, 3/01/33 ................................................ 274,372 278,729
FNMA, 4.173%, 6/01/34 ............................................... 1,376,566 1,381,732
FNMA, 4.243%, 6/01/33 ............................................... 393,146 392,900
FNMA, 4.287%, 12/01/33 .............................................. 555,386 554,204
FNMA, 4.303%, 9/01/33 ............................................... 3,923,324 3,848,424
FNMA, 4.366%, 2/01/34 ............................................... 2,400,530 2,403,607
FNMA, 4.456%, 8/01/34 ............................................... 4,264,279 4,390,456
FNMA, 4.573%, 7/01/34 ............................................... 2,461,947 2,519,376
FNMA, 4.77%, 4/01/35 ................................................ 131,484 131,339
FNMA, 4.842%, 10/01/33 .............................................. 408,523 412,582
FNMA, 4.86%, 4/01/33 ................................................ 1,686,049 1,685,869
FNMA, 4.893%, 11/01/32 .............................................. 4,211,803 4,338,892
FNMA, 4.946%, 5/01/34 ............................................... 1,306,825 1,313,893
FNMA, 4.956%, 3/01/33 ............................................... 1,366,813 1,400,068
FNMA, 5.04%, 3/01/34 ................................................ 147,198 148,091
FNMA, 5.22%, 8/01/33 - 9/01/34 ...................................... 1,419,942 1,424,146
FNMA, 5.463%, 4/01/33 ............................................... 525,597 542,450
FNMA, 5.73%, 2/01/35 ................................................ 3,328,894 3,371,965
FNMA, 5.742%, 3/01/35 ............................................... 3,279,649 3,321,345
FNMA, 5.762%, 1/01/35 ............................................... 379,959 382,917
FNMA, 5.944%, 8/01/34 ............................................... 1,673,941 1,673,321
FNMA, 5.992%, 12/01/34 .............................................. 887,134 903,154
FNMA, 6.097%, 1/01/33 ............................................... 304,515 306,882
FNMA, 6.203%, 1/01/33 ............................................... 16,041 16,249
FNMA, 6.263%, 11/01/34 .............................................. 322,641 327,657
------------
38,088,833
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) FIXED RATE 8.2%
FNMA 15 Year, 4.50%, 12/01/18 - 2/01/19 ............................. 640,233 636,960
FNMA 15 Year, 5.00%, 2/01/18 - 5/01/18 .............................. 3,383,923 3,420,227
FNMA 15 Year, 5.50%, 3/01/16 -11/01/17 .............................. 3,266,548 3,346,767
FNMA 15 Year, 5.50%, 2/01/21 ........................................ 5,128,431 5,229,497

Semiannual Report | 67

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

FRANKLIN LIMITED MATURITY U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------- ---------------- ------------

LONG TERM INVESTMENTS (CONTINUED)
MORTGAGE-BACKED SECURITIES (CONTINUED)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) FIXED RATE (CONTINUED)
FNMA 15 Year, 5.802%, 11/01/11 ...................................... $ 2,481,142 $ 2,572,130
FNMA 15 Year, 6.00%, 4/01/16 - 5/01/17 .............................. 3,137,061 3,240,456
FNMA 15 Year, 6.50%, 12/01/08 - 10/01/16 ............................ 607,504 630,600
FNMA 15 Year, 7.00%, 7/01/12 - 7/01/14 .............................. 367,996 386,646
FNMA 15 Year, 7.50%, 12/01/14 - 1/01/15 ............................. 184,956 193,728
FNMA 30 Year, 9.00%, 1/01/17 - 12/01/20 ............................. 195,286 210,808
FNMA 30 Year, 9.50%, 7/01/16 - 6/01/22 .............................. 301,103 332,843
------------
20,200,662
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) FIXED RATE 2.5%
GNMA I SF 15 Year, 6.50%, 10/15/13 - 7/15/14 ........................ 639,804 664,432
GNMA I SF 15 Year, 7.50%, 10/15/14 - 12/15/14 ....................... 204,011 214,548
GNMA I SF 30 Year, 5.50%, 4/15/33 - 5/15/33 ......................... 884,724 899,103
GNMA I SF 30 Year, 6.00%, 3/15/33 ................................... 231,273 238,457
GNMA I SF 30 Year, 7.50%, 11/15/16 .................................. 44,868 47,993
GNMA I SF 30 Year, 8.00%, 11/15/16 - 1/15/17 ........................ 139,585 151,426
GNMA I SF 30 Year, 8.50%, 7/15/08 - 1/15/17 ......................... 66,294 71,710
GNMA I SF 30 Year, 9.00%, 6/15/16 - 9/15/17 ......................... 528,047 575,886
GNMA II SF 30 Year, 5.00%, 9/20/33 .................................. 2,569,803 2,542,106
GNMA II SF 30 Year, 7.50%, 10/20/29 - 10/20/31 ...................... 593,658 636,232
GNMA II SF 30 Year, 9.00%, 6/20/16 - 11/20/16 ....................... 109,106 118,504
GNMA II SF 30 Year, 9.50%, 6/20/16 .................................. 69,664 76,120
------------
6,236,517
------------
TOTAL MORTGAGE-BACKED SECURITIES (COST $70,759,706) 71,551,490
------------
U.S. GOVERNMENT AND AGENCY SECURITIES 65.4%
FHLB,
4.625%, 11/21/08 ................................................. 10,000,000 10,115,280
4.75%, 4/24/09 ................................................... 2,000,000 2,040,400
4.875%, 11/18/11 ................................................. 2,000,000 2,113,844
FHLMC,
4.125%, 7/12/10 .................................................. 4,500,000 4,623,673
5.25%, 7/18/11 ................................................... 16,000,000 16,990,896
5.75%, 1/15/12 ................................................... 2,000,000 2,171,862
5.50%, 8/20/12 ................................................... 6,000,000 6,486,792
4.125%, 12/21/12 ................................................. 4,000,000 4,103,068
4.50%, 1/15/13 ................................................... 8,300,000 8,645,761
4.50%, 7/15/13 ................................................... 3,500,000 3,643,329
4.50%, 1/15/14 ................................................... 3,000,000 3,116,907
4.50%, 1/15/15 ................................................... 2,000,000 2,065,678
FNMA,
7.25%, 1/15/10 ................................................... 3,000,000 3,218,784
2.50%, 4/09/10 ................................................... 4,000,000 3,979,600
4.125%, 5/15/10 .................................................. 17,000,000 17,464,423
4.25%, 8/15/10 ................................................... 7,500,000 7,731,082
4.50%, 2/15/11 ................................................... 9,000,000 9,338,688
5.125%, 4/15/11 .................................................. 9,000,000 9,511,695

68 | Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

FRANKLIN LIMITED MATURITY U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------- ---------------- ------------

LONG TERM INVESTMENTS (CONTINUED)
U.S. GOVERNMENT AND AGENCY SECURITIES (CONTINUED)
FNMA, (continued)
5.00%, 10/15/11 .................................................. $ 3,000,000 $ 3,177,207
5.375%, 11/15/11 ................................................. 1,300,000 1,395,506
4.75%, 11/19/12 .................................................. 4,000,000 4,208,452
4.375%, 3/15/13 .................................................. 4,000,000 4,140,708
4.625%, 10/15/13 ................................................. 5,000,000 5,228,665
U.S. Treasury Note,
3.125%, 4/15/09 .................................................. 5,000,000 5,058,205
4.75%, 1/31/12 ................................................... 3,000,000 3,213,516
4.50%, 3/31/12 ................................................... 5,000,000 5,312,110
4.00%, 2/15/15 ................................................... 4,000,000 4,165,004
(b) Index Linked, 0.875%, 4/15/10 ................................... 7,822,058 7,931,294
------------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES (COST $156,082,773) ..... 161,192,429
------------
TOTAL LONG TERM INVESTMENTS (COST $226,842,479) ..................... 232,743,919
------------

SHARES
----------------
SHORT TERM INVESTMENTS 5.5%
MONEY MARKET FUND (COST $4,909,749) 2.0%
(c) Franklin Institutional Fiduciary Trust Money Market Portfolio,
2.29% ............................................................ 4,909,749 4,909,749
------------

PRINCIPAL AMOUNT
----------------
REPURCHASE AGREEMENT (COST $8,662,990) 3.5%
(d) Joint Repurchase Agreement, 1.91%, 5/01/08
(Maturity Value $8,663,450) ...................................... $ 8,662,990 8,662,990
ABN AMRO Bank NV, New York Branch (Maturity Value $794,352)
Banc of America Securities LLC (Maturity Value $747,569)
Barclays Capital Inc. (Maturity Value $747,569)
BNP Paribas Securities Corp. (Maturity Value $747,569)
Credit Suisse Securities (USA) LLC (Maturity Value $622,989)
Deutsche Bank Securities Inc. (Maturity Value $747,569)
Goldman, Sachs & Co. (Maturity Value $747,569)
Greenwich Capital Markets Inc. (Maturity Value $841,048)
Lehman Brothers Inc. (Maturity Value $595,699)
Merrill Lynch Government Securities Inc. (Maturity Value $747,569)
Morgan Stanley & Co. Inc. (Maturity Value $576,379)
UBS Securities LLC (Maturity Value $747,569)
Collateralized by U.S. Government Agency Securities, 1.96% -
6.375%, 5/13/08 - 2/21/13;
(e) U.S. Government Agency Discount Notes, 5/05/08 -
6/06/08; and U.S. Treasury Notes, 3.00% - 5.00%, 7/31/08
- 5/31/12
------------
TOTAL INVESTMENTS (COST $240,415,218) 100.0% ........................ 246,316,658
OTHER ASSETS, LESS LIABILITIES 0.0%(f) .............................. 101,742
------------
NET ASSETS 100.0% ................................................... $246,418,400
============

Semiannual Report | 69

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

FRANKLIN LIMITED MATURITY U.S. GOVERNMENT SECURITIES FUND

See Selected Portfolio Abbreviations on page 78.

(a) The coupon rate shown represents the rate at period end.

(b) Principal amount of security is adjusted for inflation. See Note 1(h).

(c) See Note 7 regarding investments in the Franklin Institutional Fiduciary
Trust Money Market Portfolio. The rate shown is the annualized seven-day
yield at period end.

(d) See Note 1(c) regarding joint repurchase agreement.

(e) The security is traded on a discount basis with no stated coupon rate.

(f) Rounds to less than 0.1% of net assets.

70 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report

Franklin Investors Securities Trust

FINANCIAL HIGHLIGHTS

FRANKLIN REAL RETURN FUND

SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2008 --------------------------------
CLASS A (UNAUDITED) 2007 2006 2005(g)
- ----------------------------------------------------- ---------------- ------- -------- --------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)

Net asset value, beginning of period ................ $ 10.64 $ 10.10 $ 9.94 $ 10.00
-------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) ......................... 0.18 0.29 0.38 0.31
Net realized and unrealized gains (losses) ....... 0.42 0.58 0.22 0.04
-------- ------- ------- -------
Total from investment operations .................... 0.60 0.87 0.60 0.35
-------- ------- ------- -------
Less distributions from:
Net investment income ............................ (0.27) (0.33) (0.44) (0.40)
Net realized gains ............................... (0.03) -- -- --
Tax return of capital ............................ -- -- -- (0.01)
-------- ------- ------- -------
Total distributions ................................. (0.30) (0.33) (0.44) (0.41)
-------- ------- ------- -------
Redemption fees ..................................... --(e) --(e) --(e) --(e)
-------- ------- ------- -------
Net asset value, end of period ...................... $ 10.94 $ 10.64 $ 10.10 $ 9.94
======== ======= ======= =======
Total return(c) ..................................... 5.78% 8.75% 6.16% 3.53%

RATIOS TO AVERAGE NET ASSETS(d)

Expenses before waiver and payments by affiliates ... 1.09% 1.11% 1.12% 1.63%
Expenses net of waiver and payments by affiliates
and expense reduction ............................... 0.90%(f) 0.90%(f) 0.90%(f) 0.90%(f)
Net investment income ............................... 3.40% 2.80% 3.75% 3.29%

SUPPLEMENTAL DATA

Net assets, end of period (000's) ................... $152,643 $46,682 $31,452 $23,753
Portfolio turnover rate ............................. 10.09% 23.60% 3.53% 8.86%

(b) Based on average daily shares outstanding.

(c) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.

(d) Ratios are annualized for periods less than one year.

(e) Amount rounds to less than $0.01 per share.

(f) Benefit of expense reduction rounds to less than 0.01%.

(g) For the period November 17, 2004 (commencement of operations) to October
31, 2005.

Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 71

Franklin Investors Securities Trust

FINANCIAL HIGHLIGHTS (CONTINUED)

FRANKLIN REAL RETURN FUND

SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2008 -------------------------------
(UNAUDITED) 2007 2006 2005(g)
---------------- ------- ------- --------

ADVISOR CLASS
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)

Net asset value, beginning of period ................ $ 10.65 $ 10.11 $ 9.95 $10.00
------- ------- ------- ------
Income from investment operations(a):
Net investment income(b) ......................... 0.20 0.31 0.40 0.36
Net realized and unrealized gains (losses) ....... 0.43 0.59 0.23 0.02
------- ------- ------- ------
Total from investment operations .................... 0.63 0.90 0.63 0.38
------- ------- ------- ------
Less distributions from:
Net investment income ............................ (0.29) (0.36) (0.47) (0.42)
Net realized gains ............................... (0.03) -- -- --
Tax return of capital ............................ -- -- -- (0.01)
------- ------- ------- ------
Total distributions ................................. (0.32) (0.36) (0.47) (0.43)
------- ------- ------- ------
Redemption fees ..................................... --(e) --(e) --(e) --(e)
------- ------- ------- ------
Net asset value, end of period ...................... $ 10.96 $ 10.65 $ 10.11 $ 9.95
======= ======= ======= ======
Total return(c) ..................................... 5.89% 9.01% 6.41% 3.81%

RATIOS TO AVERAGE NET ASSETS(d)

Expenses before waiver and payments by affiliates ... 0.84% 0.86% 0.87% 1.38%
Expenses net of waiver and payments by affiliates and
expense reduction ................................... 0.65%(f) 0.65%(f) 0.65%(f) 0.65%(f)
Net investment income ............................... 3.65% 3.05% 4.00% 3.54%

SUPPLEMENTAL DATA

Net assets, end of period (000's) ................... $33,961 $20,068 $17,892 $ 496
Portfolio turnover rate ............................. 10.09% 23.60% 3.53% 8.86%

(b) Based on average daily shares outstanding.

(d) Ratios are annualized for periods less than one year.

(e) Amount rounds to less than $0.01 per share.

(f) Benefit of expense reduction rounds to less than 0.01%.

(g) For the period November 17, 2004 (commencement of operations) to October
31, 2005.

72 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED)

COUNTRY/
FRANKLIN REAL RETURN FUND ORGANIZATION SHARES VALUE
- ----------------------------------------------------------------------------- ---------------- ----------- ------------

LONG TERM INVESTMENTS 91.6%
COMMON STOCKS 8.2%
ENERGY 4.5%
ConocoPhillips ....................................................... United States 7,400 $ 637,510
Devon Energy Corp. ................................................... United States 6,000 680,400
Exxon Mobil Corp. .................................................... United States 7,100 660,797
(a) Nabors Industries Ltd. ............................................... Bermuda 9,800 367,892
Noble Corp. .......................................................... United States 6,200 348,936
Noble Energy Inc. .................................................... United States 10,100 878,700
Occidental Petroleum Corp. ........................................... United States 6,500 540,865
Peabody Energy Corp. ................................................. United States 7,400 452,362
Schlumberger Ltd. .................................................... United States 11,700 1,176,435
(a) Southwestern Energy Co. .............................................. United States 15,200 643,112
(a) Transocean Inc. ...................................................... United States 3,719 548,404
Valero Energy Corp. .................................................. United States 5,600 273,560
(a) Weatherford International Ltd. ....................................... United States 14,800 1,193,916
------------
8,402,889
------------
MATERIALS 1.4%
Alcoa Inc. ........................................................... United States 13,300 462,574
Barrick Gold Corp. ................................................... Canada 11,700 451,854
Freeport-McMoRan Copper & Gold Inc., B ............................... United States 9,873 1,123,054
United States Steel Corp. ............................................ United States 4,500 692,775
------------
2,730,257
------------
REAL ESTATE 2.3%
AvalonBay Communities Inc. ........................................... United States 2,300 229,425
Boston Properties Inc. ............................................... United States 4,800 482,352
Kimco Realty Corp. ................................................... United States 11,700 466,947
LaSalle Hotel Properties ............................................. United States 11,600 372,012
ProLogis ............................................................. United States 9,089 569,062
Public Storage ....................................................... United States 5,600 507,920
Regency Centers Corp. ................................................ United States 6,400 458,048
Simon Property Group Inc. ............................................ United States 4,800 479,328
UDR Inc. ............................................................. United States 9,100 230,048
Vornado Realty Trust ................................................. United States 4,600 428,214
------------
4,223,356
------------
TOTAL COMMON STOCKS (COST $12,021,757) ............................... 15,356,502
------------

PRINCIPAL
AMOUNT(b)
-----------
CORPORATE BONDS 8.6%
AUTOMOBILES & COMPONENTS 0.3%
Ford Motor Credit Co. LLC, senior note, 9.875%, 8/10/11 .............. United States 600,000 580,825
------------
BANKS 2.6%
Oesterreichische Kontrollbank AG, senior bond, 2.75%, 6/14/11 ........ Austria 5,120,000 CHF 4,915,274
------------
COMMERCIAL SERVICES & SUPPLIES 0.2%
(c) ARAMARK Corp., senior note, FRN, 6.739%, 2/01/15 ..................... United States 400,000 387,000
------------

Semiannual Report | 73

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

COUNTRY/ PRINCIPAL
FRANKLIN REAL RETURN FUND ORGANIZATION AMOUNT(b) VALUE
- ----------------------------------------------------------------------------- ---------------- ----------- ------------

LONG TERM INVESTMENTS (CONTINUED) CORPORATE BONDS (CONTINUED)
CONSUMER DURABLES & APPAREL 0.2%
Jarden Corp., senior sub. note, 7.50%, 5/01/17 ....................... United States 400,000 $ 370,000
------------
CONSUMER SERVICES 0.6%
MGM MIRAGE, senior note, 6.625%, 7/15/15 ............................. United States 400,000 351,000
Royal Caribbean Cruises Ltd., senior deb., 7.25%, 3/15/18 ............ United States 400,000 364,000
Station Casinos Inc., senior note, 7.75%, 8/15/16 .................... United States 400,000 335,000
------------
1,050,000
------------
DIVERSIFIED FINANCIALS 0.3%
GMAC LLC, 6.875%, 9/15/11 ............................................ United States 600,000 500,278
------------
ENERGY 0.6%
Chesapeake Energy Corp., senior note,
6.625%, 1/15/16 ................................................... United States 350,000 351,750
6.25%, 1/15/18 .................................................... United States 50,000 49,000
(d) Petroplus Finance Ltd., senior note, 144A, 6.75%, 5/01/14 ............ Switzerland 400,000 379,000
Tesoro Corp., senior note, 6.25%, 11/01/12 ........................... United States 400,000 384,000
------------
1,163,750
------------
FOOD, BEVERAGE & TOBACCO 0.4%
Reynolds American Inc., senior secured note, 7.25%, 6/01/13 .......... United States 400,000 423,260
Smithfield Foods Inc., senior note,
8.00%, 10/15/09 ................................................... United States 50,000 51,250
7.75%, 7/01/17 .................................................... United States 350,000 349,125
------------
823,635
------------
HEALTH CARE EQUIPMENT & SERVICES 0.5%
DaVita Inc., senior sub. note, 7.25%, 3/15/15 ........................ United States 400,000 403,000
HCA Inc., senior secured note, 9.125%, 11/15/14 ...................... United States 500,000 531,250
------------
934,250
------------
MATERIALS 1.1%
Crown Americas Inc., senior note, 7.75%, 11/15/15 .................... United States 400,000 424,000
Freeport-McMoRan Copper & Gold Inc., senior note, 8.25%,
4/01/15 ........................................................... United States 400,000 435,500
Nalco Co., senior sub. note, 8.875%, 11/15/13 ...................... United States 400,000 423,000
Novelis Inc., senior note, 7.25%, 2/15/15 ........................... Canada 400,000 368,000
Smurfit Kappa Funding PLC, senior sub. note, 7.75%, 4/01/15 .......... Ireland 400,000 365,000
------------
2,015,500
------------
MEDIA 1.0%
(d) Charter Communications Operating LLC, senior note, 144A,
8.375%, 4/30/14 ................................................... United States 400,000 388,000
CSC Holdings Inc., senior deb., 7.625%, 7/15/18 ...................... United States 400,000 391,000
Dex Media Finance/West, senior sub. note, 9.875%, 8/15/13 ............ United States 350,000 330,750
Lamar Media Corp., senior sub. note, 7.25%, 1/01/13 .................. United States 400,000 398,000
Liberty Media Corp., senior note, 5.70%, 5/15/13 ..................... United States 400,000 360,208
R.H. Donnelley Corp., senior note, 8.875%, 1/15/16 ................... United States 50,000 32,063
------------
1,900,021
------------

74 | Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

COUNTRY/ PRINCIPAL
FRANKLIN REAL RETURN FUND ORGANIZATION AMOUNT(b) VALUE
- ----------------------------------------------------------------------------- ---------------- ----------- ------------

LONG TERM INVESTMENTS (CONTINUED)
CORPORATE BONDS (CONTINUED)
SOFTWARE & SERVICES 0.1%
Sungard Data Systems Inc., 4.875%, 1/15/14 ........................... United States 100,000 $ 88,250
------------
TECHNOLOGY HARDWARE & EQUIPMENT 0.2%
(c, d) Sanmina-SCI Corp., senior note, 144A, FRN, 5.55%, 6/15/14 ............ United States 400,000 371,000
------------
TELECOMMUNICATION SERVICES 0.3%
Intelsat Subsidiary Holding Co. Ltd., senior note, 8.25%, 1/15/13 .... Bermuda 50,000 50,687
(d) Wind Acquisition Finance SA, senior note, 144A, 10.75%, 12/01/15 ..... Italy 400,000 433,000
------------
483,687
------------
UTILITIES 0.2%
NRG Energy Inc., senior note, 7.25%, 2/01/14 ......................... United States 400,000 412,000
------------
TOTAL CORPORATE BONDS (COST $15,716,791) ............................. 15,995,470
------------
FOREIGN GOVERNMENT AND AGENCY SECURITIES 15.4%
(c) European Investment Bank, senior note, FRN, 0.751%, 9/21/11 .......... Supranational(e) 375,000,000 JPY 3,605,710
Government of Malaysia,
6.45%, 7/01/08 .................................................... Malaysia 4,115,000 MYR 1,309,310
4.305%, 2/27/09 ................................................... Malaysia 380,000 MYR 121,240
7.00%, 3/15/09 .................................................... Malaysia 2,950,000 MYR 963,071
4.032%, 9/15/09 ................................................... Malaysia 70,000 MYR 22,361
3.756%, 4/28/11 ................................................... Malaysia 8,560,000 MYR 2,733,741
3.833%, 9/28/11 ................................................... Malaysia 3,360,000 MYR 1,075,908
3.702%, 2/25/13 ................................................... Malaysia 1,840,000 MYR 586,542
3.461%, 7/31/13 ................................................... Malaysia 150,000 MYR 47,158
3.814%, 2/15/17 ................................................... Malaysia 6,100,000 MYR 1,924,793
Government of Norway,
5.50%, 5/15/09 .................................................... Norway 6,510,000 NOK 1,281,206
6.00%, 5/16/11 .................................................... Norway 1,660,000 NOK 337,561
Government of Singapore,
5.625%, 7/01/08 ................................................... Singapore 460,000 SGD 341,836
4.375%, 1/15/09 ................................................... Singapore 1,575,000 SGD 1,188,889
Government of Sweden,
5.00%, 1/28/09 .................................................... Sweden 31,500,000 SEK 5,291,644
(f) Strip, 9/17/08 ....................................................... Sweden 1,500,000 SEK 246,788
(c) KfW Bankengruppe, FRN, 0.658%, 8/08/11 ............................... Germany 538,000,000 JPY 5,169,765
Korea Treasury Note, 4.75%, 6/10/09 .................................. South Korea 625,000,000 KRW 621,726
(g) Nota Do Tesouro Nacional, Index Linked, 6.00%,
5/15/15 ........................................................... Brazil 800 (h)BRL 752,305
5/15/45 ........................................................... Brazil 780 (h)BRL 717,268
Queensland Treasury Corp., 6.00%, 7/14/09 ............................ Australia 410,000 AUD 382,214
------------
TOTAL FOREIGN GOVERNMENT AND AGENCY SECURITIES
(COST $27,564,033) ................................................ 28,721,036
------------
U.S. GOVERNMENT AND AGENCY SECURITIES 59.4%
(i) U.S. Treasury Bond, Index Linked, 3.875%, 4/15/29 .................... United States 386,279 505,000

Semiannual Report | 75

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

COUNTRY/ PRINCIPAL
FRANKLIN REAL RETURN FUND ORGANIZATION AMOUNT(b) VALUE
- ----------------------------------------------------------------------------- ---------------- ----------- ------------

LONG TERM INVESTMENTS (CONTINUED)
CORPORATE BONDS (CONTINUED)
U.S. GOVERNMENT AND AGENCY SECURITIES (CONTINUED)
(i) U.S Treasury Note, Index Linked,
4.25%, 1/15/10 .................................................... United States 14,908,720 $ 16,018,733
0.875%, 4/15/10 ................................................... United States 21,340,983 21,641,102
3.50%, 1/15/11 .................................................... United States 608,097 662,493
2.375%, 4/15/11 ................................................... United States 19,515,708 20,654,645
2.00%, 4/15/12 .................................................... United States 6,780,318 7,142,116
3.00%, 7/15/12 .................................................... United States 9,418,134 10,336,412
1.875%, 7/15/13 ................................................... United States 6,684,475 7,037,502
2.00%, 1/15/14 .................................................... United States 12,830,432 13,549,142
2.00%, 7/15/14 .................................................... United States 1,122,951 1,186,995
1.625%, 1/15/15 ................................................... United States 10,531,240 10,866,934
2.00%, 1/15/16 .................................................... United States 1,066,482 1,123,223
------------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES (COST $108,841,988) ...... 110,724,297
------------
TOTAL LONG TERM INVESTMENTS (COST $164,144,569) ...................... 170,797,305
------------
SHORT TERM INVESTMENTS 6.1%
FOREIGN GOVERNMENT AND AGENCY SECURITIES 1.7%
(f) Canada Treasury Bill, 5/01/08 ........................................ Canada 700,000 CAD 694,968
(f) Egypt Treasury Bills, 12/16/08 - 3/17/09 ............................. Egypt 8,550,000 EGP 1,510,091
Government of Malaysia,
3.17%, 5/15/08 .................................................... Malaysia 650,000 MYR 205,746
3.562%, 7/15/08 ................................................... Malaysia 95,000 MYR 30,086
(f) Government of Sweden, Strip, 6/18/08 ................................. Sweden 3,900,000 SEK 648,231
(f) Malaysia Treasury Bills, 5/08/08 - 6/17/08 ........................... Malaysia 65,000 MYR 20,531
(f) Norway Treasury Bills, 6/18/08 - 9/17/08 ............................. Norway 140,000 NOK 27,221
------------
TOTAL FOREIGN GOVERNMENT AND AGENCY SECURITIES (COST $2,991,610) ..... 3,136,874
------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT
(COST $167,136,179) ............................................... 173,934,179
------------
REPURCHASE AGREEMENT (COST $8,285,590) 4.4%
(j) Joint Repurchase Agreement, 1.91%, 5/01/08 (Maturity Value
$8,286,030)........................................................ United States 8,285,590 8,285,590
ABN AMRO Bank NV, New York Branch (Maturity Value $759,746)
Banc of America Securities LLC (Maturity Value $715,002)
Barclays Capital Inc. (Maturity Value $715,002)
BNP Paribas Securities Corp. (Maturity Value $715,002)
Credit Suisse Securities (USA) LLC (Maturity Value $595,848)
Deutsche Bank Securities Inc. (Maturity Value $715,002)
Goldman, Sachs & Co. (Maturity Value $715,002)
Greenwich Capital Markets Inc. (Maturity Value $804,408)
Lehman Brothers Inc. (Maturity Value $569,747)
Merrill Lynch Government Securities Inc. (Maturity Value $715,002)
Morgan Stanley & Co. Inc. (Maturity Value $551,267)
UBS Securities LLC (Maturity Value $715,002)
Collateralized by U.S. Government Agency Securities, 1.96% -
6.375%, 5/13/08 - 2/21/13; (f)U.S. Government Agency Discount
Notes, 5/05/08-6/06/08; and U.S. Treasury Notes, 3.00% -
5.00%, 7/31/08-5/31/12
------------

76 | Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

FRANKLIN REAL RETURN FUND VALUE
- ----------------------------------------------------------------------------- ------------

TOTAL INVESTMENTS (COST $175,421,769) 97.7% .......................... 182,219,769
OTHER ASSETS, LESS LIABILITIES 2.3% .................................. 4,383,967
------------
NET ASSETS 100.0% .................................................... $186,603,736
============

See Currency and Selected Portfolio Abbreviations on page 78.

(a) Non-income producing for the twelve months ended April 30, 2008.

(b) The principal amount is stated in U.S. dollars unless otherwise indicated.

(d) Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be sold in transactions exempt from registration only to
qualified institutional buyers or in a public offering registered under the
Securities Act of 1933. These securities have been deemed liquid under
guidelines approved by the Trust's Board of Trustees. At April 30, 2008,
the aggregate value of these securities was $1,571,000, representing 0.84%
of net assets.

(e) A supranational organization is an entity formed by two or more central
governments through international treaties.

(f) The security is traded on a discount basis with no stated coupon rate.

(g) Redemption price at maturity is adjusted for inflation. See Note 1(h).

(h) Principal amount is stated in 1,000 Brazilian Real Units.

(i) Principal amount of security is adjusted for inflation. See Note 1(h).

(j) See Note 1(c) regarding joint repurchase agreement.

Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 77

Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2008

CURRENCY ABBREVIATIONS:

AUD - Australian Dollar
BRL - Brazilian Real
CAD - Canadian Dollar
CHF - Swiss Francs
EGP - Egyptian Pound
JPY - Japanese Yen
KRW - South Korean Won
MYR - Malaysian Ringgit
NOK - Norwegian Krone
SEK - Swedish Krona
SGD - Singapore Dollar

SELECTED PORTFOLIO ABBREVIATIONS:

ADR - American Depository Receipt
FHLB - Federal Home Loan Bank
FHLMC - Federal Home Loan Mortgage Corp.
FNMA - Federal National Mortgage Association
FRN - Floating Rate Note
GNMA - Government National Mortgage Association
SF - Single Family

78 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report

Franklin Investors Securities Trust

FINANCIAL STATEMENTS

STATEMENTS OF ASSETS AND LIABILITIES
April 30, 2008 (unaudited)

FRANKLIN FRANKLIN CONVERTIBLE FRANKLIN EQUITY
BALANCED FUND SECURITIES FUND INCOME FUND
------------- -------------------- ---------------

Assets:
Investments in securities:
Cost - Unaffiliated issuers ................................ $56,192,332 $871,575,151 $845,007,044
Cost - Sweep Money Fund (Note 7) ........................... 4,816,881 12,222,059 9,187,954
----------- ------------ ------------
Total cost of investments .................................. $61,009,213 $883,797,210 $854,194,998
=========== ============ ============
Value - Unaffiliated issuers ............................... $55,591,999 $884,336,159 $901,198,852
Value - Sweep Money Fund (Note 7) .......................... 4,816,881 12,222,059 9,187,954
----------- ------------ ------------
Total value of investments ................................. 60,408,880 896,558,218 910,386,806
Receivables:
Investment securities sold ................................. -- 9,584,628 --
Capital shares sold ........................................ 194,033 2,391,201 1,257,749
Dividends and interest ..................................... 321,167 5,671,590 1,755,509
----------- ------------ ------------
Total assets ............................................ 60,924,080 914,205,637 913,400,064
----------- ------------ ------------
Liabilities:
Payables:
Capital shares redeemed .................................... 302,310 2,570,691 2,214,218
Affiliates ................................................. 52,810 723,955 717,001
Options written, at value (premiums received $41,210) ......... 36,940 -- --
Accrued expenses and other liabilities ........................ 24,300 134,212 165,837
----------- ------------ ------------
Total liabilities ....................................... 416,360 3,428,858 3,097,056
----------- ------------ ------------
Net assets, at value ................................. $60,507,720 $910,776,779 $910,303,008
=========== ============ ============
Net assets consist of:
Paid-in capital ............................................... $61,781,109 $902,857,720 $838,708,277
Undistributed net investment income (distributions in excess of
net investment income) ..................................... (28,280) (27,556,730) 154,383
Net unrealized appreciation (depreciation) .................... (596,063) 12,761,008 56,190,224
Accumulated net realized gain (loss) .......................... (649,046) 22,714,781 15,250,124
----------- ------------ ------------
Net assets, at value ................................. $60,507,720 $910,776,779 $910,303,008
=========== ============ ============

Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 79

Franklin Investors Securities Trust

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
April 30, 2008 (unaudited)

FRANKLIN FRANKLIN CONVERTIBLE FRANKLIN EQUITY
BALANCED FUND SECURITIES FUND INCOME FUND
------------- -------------------- ---------------

CLASS A:
Net assets, at value ........................................ $50,760,202 $664,881,145 $733,815,356
----------- ------------ ------------
Shares outstanding .......................................... 4,865,220 43,598,710 38,491,119
----------- ------------ ------------
Net asset value per share(a) ................................ $ 10.43 $ 15.25 $ 19.06
----------- ------------ ------------
Maximum offering price per share (net asset value per
share / 94.25%) .......................................... $ 11.07 $ 16.18 $ 20.22
----------- ------------ ------------

CLASS B:
Net assets, at value ........................................ -- -- $ 35,780,155
----------- ------------ ------------
Shares outstanding .......................................... -- -- 1,885,299
----------- ------------ ------------
Net asset value and maximum offering price per share(a) ..... -- -- $ 18.98
----------- ------------ ------------

CLASS C:
Net assets, at value ........................................ $ 8,386,649 $245,895,634 $132,582,386
----------- ------------ ------------
Shares outstanding .......................................... 808,575 16,284,643 6,983,136
----------- ------------ ------------
Net asset value and maximum offering price per share(a) ..... $ 10.37 $ 15.10 $ 18.99
----------- ------------ ------------

CLASS R:
Net assets, at value ........................................ $ 17,904 -- $ 8,125,111
----------- ------------ ------------
Shares outstanding .......................................... 1,717 -- 426,062
----------- ------------ ------------
Net asset value and maximum offering price per share(a) ..... $ 10.43 -- $ 19.07
----------- ------------ ------------

ADVISOR CLASS:
Net assets, at value ........................................ $ 1,342,965 -- --
----------- ------------ ------------
Shares outstanding .......................................... 128,565 -- --
----------- ------------ ------------
Net asset value and maximum offering price per share(a) ..... $ 10.45 -- --
----------- ------------ ------------

(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable, and redemption fees retained by the Fund.

80 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report

Franklin Investors Securities Trust

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
April 30, 2008 (unaudited)

FRANKLIN LIMITED
MATURITY US
GOVERNMENT FRANKLIN REAL
SECURITIES FUND RETURN FUND
---------------- -------------

Assets:
Investments in securities:
Cost - Unaffiliated issuers .................... $ 226,842,479 $167,136,179
Cost - Sweep Money Fund (Note 7) ............... 4,909,749 --
Cost - Repurchase agreements ................... 8,662,990 8,285,590
------------- ------------
Total cost of investments ...................... $ 240,415,218 $175,421,769
============= ============
Value - Unaffiliated issuers ................... $ 232,743,919 $173,934,179
Value - Sweep Money Fund (Note 7) .............. 4,909,749 --
Value - Repurchase agreements .................. 8,662,990 8,285,590
------------- ------------
Total value of investments ..................... 246,316,658 182,219,769
Foreign currency, at value (cost $210,304) ........ -- 256,329
Receivables:
Investment securities sold ..................... 261,025 --
Capital shares sold ............................ 573,202 3,672,556
Dividends and interest ......................... 2,063,041 1,166,107
------------- ------------
Total assets ................................ 249,213,926 187,314,761
------------- ------------
Liabilities:
Payables:
Capital shares redeemed ........................ 2,453,675 544,248
Affiliates ..................................... 152,624 913
Distributions to shareholders .................. 168,818 154,967
Accrued expenses and other liabilities ............ 20,409 10,897
------------- ------------
Total liabilities ........................... 2,795,526 711,025
------------- ------------
Net assets, at value ..................... $ 246,418,400 $186,603,736
============= ============
Net assets consist of:
Paid-in capital ................................... $ 257,339,103 $180,170,947
Distributions in excess of net investment income .. (606,878) (747,099)
Net unrealized appreciation (depreciation) ........ 5,901,440 6,848,123
Accumulated net realized gain (loss) .............. (16,215,265) 331,765
------------- ------------
Net assets, at value ..................... $ 246,418,400 $186,603,736
============= ============

Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 81

Franklin Investors Securities Trust

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
April 30, 2008 (unaudited)

FRANKLIN LIMITED
MATURITY U.S.
GOVERNMENT FRANKLIN REAL
SECURITIES FUND RETURN FUND
---------------- -------------

CLASS A:
Net assets, at value......................................................... $222,157,928 $152,642,522
------------ ------------
Shares outstanding........................................................... 21,779,466 13,951,724
------------ ------------
Net asset value per.......................................................... $ 10.20 $ 10.94
------------ ------------
share(a).....................................................................
Maximum offering price per share (net asset value pershare/97.75% and
95.75%, respectively)..................................................... $ 10.43 $ 11.43
------------ ------------

ADVISOR CLASS:
Net assets, at value......................................................... $ 24,260,472 $ 33,961,214
------------ ------------
Shares outstanding........................................................... 2,380,766 3,099,436
------------ ------------
Net asset value and maximum offering price per share(a)...................... $ 10.19 $ 10.96
------------ ------------

(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable, and redemption fees retained by the Fund.

82 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report

Franklin Investors Securities Trust

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF OPERATIONS
for the six months ended April 30, 2008 (unaudited)

FRANKLIN BALANCED FRANKLIN CONVERTIBLE FRANKLIN EQUITY
FUND SECURITIES FUND INCOME FUND
----------------- -------------------- ---------------

Investment income:
Dividends:
Unaffiliated issuers ........................................... $ 549,828 $ 9,087,233 $ 14,481,895
Sweep Money Fund (Note 7) ...................................... 66,732 230,100 572,462
Interest .......................................................... 576,388 7,728,487 32,120
Income from securities loaned ..................................... -- -- 32,955
----------- ------------- -------------
Total investment income ..................................... 1,192,948 17,045,820 15,119,432
----------- ------------- -------------
Expenses:
Management fees (Note 3a) ......................................... 122,426 2,245,983 2,173,994
Administrative fees (Note 3b) ..................................... 51,455 -- --
Distribution fees: (Note 3c)
Class A ........................................................ 64,592 854,769 922,404
Class B ........................................................ -- -- 191,365
Class C ........................................................ 35,876 1,273,659 698,579
Class R ........................................................ 40 -- 24,064
Transfer agent fees (Note 3e) ..................................... 23,326 606,264 794,618
Custodian fees (Note 4) ........................................... 315 10,556 11,297
Reports to shareholders ........................................... 2,572 82,046 94,875
Registration and filing fees ...................................... 20,640 38,110 50,450
Professional fees ................................................. 11,638 21,412 19,041
Trustees' fees and expenses ....................................... 672 13,089 17,829
Other ............................................................. 2,600 24,986 12,454
----------- ------------- -------------
Total expenses .............................................. 336,152 5,170,874 5,010,970
Expense reductions (Note 4) ................................. -- (1,842) (3,929)
Expenses waived/paid by affiliates (Note 3f) ................ (52,978) -- --
----------- ------------- -------------
Net expenses ............................................. 283,174 5,169,032 5,007,041
----------- ------------- -------------
Net investment income ................................. 909,774 11,876,788 10,112,391
----------- ------------- -------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments .................................................... (982,759) 23,369,985 15,149,344
Written options (Note 1e) ...................................... 328,219 -- --
Realized gain distributions from REITs ......................... 5,324 -- 175,026
Foreign currency transactions .................................. 811 -- 834
----------- ------------- -------------
Net realized gain (loss) .............................. (648,405) 23,369,985 15,325,204
----------- ------------- -------------
Net change in unrealized appreciation (depreciation) on:
Investments .................................................... (1,937,952) (111,676,704) (129,064,881)
Translation of assets and liabilities denominated in foreign
currencies .................................................. (992) -- (1,584)
----------- ------------- -------------
Net change in unrealized appreciation (depreciation) .. (1,938,944) (111,676,704) (129,066,465)
----------- ------------- -------------
Net realized and unrealized gain (loss) .............................. (2,587,349) (88,306,719) (113,741,261)
----------- ------------- -------------
Net increase (decrease) in net assets resulting from operations ...... $(1,677,575) $ (76,429,931) $(103,628,870)
=========== ============= =============

Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 83

Franklin Investors Securities Trust

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF OPERATIONS (CONTINUED)
for the six months ended April 30, 2008 (unaudited)

FRANKLIN LIMITED
MATURITY U.S.
GOVERNMENT FRANKLIN REAL
SECURITIES FUND RETURN FUND
---------------- -------------

Investment income:
Dividends:
Unaffiliated issuers .................................................. $ -- $ 71,545
Sweep Money Fund (Note 7) ............................................. 79,751 --
Interest ................................................................. 5,217,117 2,529,430
----------- -----------
Total investment income ............................................ 5,296,868 2,600,975
----------- -----------
Expenses:
Management fees (Note 3a) ................................................ 636,712 255,713
Administrative fees (Note 3b) ............................................ -- 120,335
Distribution fees-Class A(Note 3c) ....................................... 102,809 121,347
Transfer agent fees (Note 3e) ............................................ 172,508 45,585
Custodian fees (Note 4) .................................................. 1,694 4,516
Reports to shareholders .................................................. 15,477 2,823
Registration and filing fees ............................................. 16,665 60,141
Professional fees ........................................................ 14,816 12,441
Trustees' fees and expenses .............................................. 2,616 756
Other .................................................................... 6,373 4,795
----------- -----------
Total expenses ..................................................... 969,670 628,452
Expense reductions (Note 4) ........................................ (10) (32)
Expenses waived/paid by affiliates (Note 3f) ....................... -- (114,068)
----------- -----------
Net expenses .................................................... 969,660 514,352
----------- -----------
Net investment income ........................................ 4,327,208 2,086,623
----------- -----------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ........................................................... 232,233 83,135
Realized gain distributions from REITs ................................ -- 28,254
Foreign currency transactions ......................................... -- 221,325
----------- -----------
Net realized gain (loss) ..................................... 232,233 332,714
----------- -----------
Net change in unrealized appreciation (depreciation) on:
Investments ........................................................... 4,319,080 3,776,710
Translation of assets and liabilities denominated in foreign
currencies ......................................................... -- (55,749)
----------- -----------
Net change in unrealized appreciation (depreciation) ......... 4,319,080 3,720,961
----------- -----------
Net realized and unrealized gain (loss) ..................................... 4,551,313 4,053,675
----------- -----------
Net increase (decrease) in net assets resulting from operations ............. $ 8,878,521 $ 6,140,298
=========== ===========

84 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report

Franklin Investors Securities Trust

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF CHANGES IN NET ASSETS

FRANKLIN CONVERTIBLE
FRANKLIN BALANCED FUND SECURITIES FUND
---------------------------- ---------------------------------
SIX MONTHS
ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2008 OCTOBER 31, APRIL 30, 2008 OCTOBER 31,
(UNAUDITED) 2007 (UNAUDITED) 2007
-------------- ----------- ---------------- --------------

Increase (decrease) in net assets:
Operations:
Net investment income ........... $ 909,774 $ 877,480 $ 11,876,788 $ 22,205,526
Net realized gain (loss)
from investments, written
options, realized gain
distributions from REITs,
and foreign currency
transactions ................. (648,405) 1,084,813 23,369,985 37,836,309
Net change in unrealized
appreciation (depreciation)
on investments and
translation of assets and
liabilities denominated in
foreign currencies ........... (1,938,944) 329,158 (111,676,704) 44,502,885
----------- ----------- -------------- --------------
Net increase (decrease) in
net assets resulting
from operations ........ (1,677,575) 2,291,451 (76,429,931) 104,544,720
----------- ----------- -------------- --------------
Distributions to shareholders
from:
Net investment income:
Class A ...................... (984,162) (719,653) (11,354,465) (26,527,413)
Class C ...................... (141,508) (53,488) (3,130,658) (7,845,592)
Class R ...................... (347) (384) -- --
Advisor Class ................ (27,883) (22,527) -- --
Net realized gains:
Class A ...................... (886,464) -- (27,669,004) (50,626,878)
Class C ...................... (154,165) -- (10,175,581) (19,206,544)
Class R ...................... (327) -- -- --
Advisor Class ................ (25,060) -- -- --
----------- ----------- -------------- --------------
Total distributions to
shareholders .................... (2,219,916) (796,052) (52,329,708) (104,206,427)
----------- ----------- -------------- --------------
Capital share transactions: (Note 2)
Class A ...................... 18,805,719 16,510,485 (85,483,151) 126,041,888
Class C ...................... 2,421,251 6,263,137 (25,939,142) 35,323,179
Class R ...................... 3,831 3,771 -- --
Advisor Class ................ 257,216 893,224 -- --
----------- ----------- -------------- --------------
Total capital share transactions ... 21,488,017 23,670,617 (111,422,293) 161,365,067
----------- ----------- -------------- --------------
Redemption fees .................... 589 759 2,901 18,999
----------- ----------- -------------- --------------
Net increase (decrease) in
net assets ............. 17,591,115 25,166,775 (240,179,031) 161,722,359
Net assets:
Beginning of period ................ 42,916,605 17,749,830 1,150,955,810 989,233,451
----------- ----------- -------------- --------------
End of period ...................... $60,507,720 $42,916,605 $ 910,776,779 $1,150,955,810
----------- ----------- -------------- --------------
Undistributed net investment
income (distributions in
excess of net investment
income) included in net assets:
End of period ................... $ (28,280) $ 215,846 $ (27,556,730) $ (24,948,395)
----------- ----------- ------------- --------------

Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 85

Franklin Investors Securities Trust

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)

FRANKLIN LIMITED MATURITY
FRANKLIN EQUITY U.S. GOVERNMENT
INCOME FUND SECURITIES FUND
--------------------------------- --------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2008 OCTOBER 31, APRIL 30, 2008 OCTOBER 31,
(UNAUDITED) 2007 (UNAUDITED) 2007
---------------- -------------- ---------------- -------------

Increase (decrease) in net assets:
Operations:
Net investment income ........... $ 10,112,391 $ 19,742,180 $ 4,327,208 $ 8,179,870
Net realized gain (loss)
from investments,
realized gain
distributions from
REITs, and foreign
currency transactions ........ 15,325,204 45,870,756 232,233 (515,289)
Net change in unrealized
appreciation
(depreciation) on
investments and
translation of assets
and liabilities
denominated in foreign
currencies ................... (129,066,465) 4,832,546 4,319,080 3,080,816
-------------- -------------- ------------ ------------
Net increase (decrease)
in net assets
resulting from
operations ................ (103,628,870) 70,445,482 8,878,521 10,745,397
-------------- -------------- ------------ ------------
Distributions to shareholders from:
Net investment income:
Class A ...................... (10,431,072) (15,972,888) (4,414,922) (7,617,448)
Class B ...................... (382,578) (630,546) -- --
Class C ...................... (1,388,833) (2,189,372) -- --
Class R ...................... (121,900) (293,600) -- --
Advisor Class ................ -- -- (522,141) (892,979)
Net realized gains:
Class A ...................... (36,401,371) (46,881,447) -- --
Class B ...................... (1,947,071) (3,228,819) -- --
Class C ...................... (7,038,555) (10,790,372) -- --
Class R ...................... (515,465) (1,172,131) -- --
-------------- -------------- ------------ ------------
Total distributions to
shareholders .................... (58,226,845) (81,159,175) (4,937,063) (8,510,427)
-------------- -------------- ------------ ------------
Capital share transactions: (Note 2)
Class A ...................... 6,672,576 128,326,523 29,526,952 (24,153,550)
Class B ...................... (3,904,905) (4,850,825) -- --
Class C ...................... (8,995,982) (4,298,881) -- --
Class R ...................... (3,479,909) (5,292,753) -- --
Advisor Class -- -- 1,674,006 (374,585)
-------------- -------------- ------------ ------------
Total capital share transactions (9,708,220) 113,884,064 31,200,958 (24,528,135)
-------------- -------------- ------------ ------------
Redemption fees 628 11,014 10,922 20,529
-------------- -------------- ------------ ------------
Net increase (decrease)
in net assets .......... (171,563,307) 103,181,385 35,153,338 (22,272,636)
Net assets:
Beginning of period ................ 1,081,866,315 978,684,930 211,265,062 233,537,698
-------------- -------------- ------------ ------------
End of period ...................... $ 910,303,008 $1,081,866,315 $246,418,400 $211,265,062
-------------- -------------- ------------ ------------
Undistributed net investment income
(distributions in excess of net
investment income) included in net
assets:
End of period ................... $ 154,383 $ 2,366,375 $ (606,878) $ 2,977
-------------- -------------- ------------ ------------

86 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report

Franklin Investors Securities Trust

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)

FRANKLIN REAL RETURN FUND
----------------------------------
SIX MONTHS ENDED
APRIL 30, 2008 YEAR ENDED
(UNAUDITED) OCTOBER 31, 2007
---------------- ----------------

Increase (decrease) in net assets:
Operations:
Net investment income ................................................................... $ 2,086,623 $ 1,579,097
Net realized gain (loss) from investments, realized gain distributions from REITs, and
foreign currency transactions ........................................................ 332,714 1,085,623
Net change in unrealized appreciation (depreciation) on investments and translation of
assets and liabilities denominated in foreign currencies ............................. 3,720,961 2,185,853
------------ -----------
Net increase (decrease) in net assets resulting from operations ................... 6,140,298 4,850,573
------------ -----------
Distributions to shareholders from:
Net investment income:
Class A .............................................................................. (2,316,333) (1,192,254)
Advisor Class ........................................................................ (632,629) (614,695)
Net realized gains:
Class A .............................................................................. (180,301) --
Advisor Class ........................................................................ (62,307) --
------------ -----------
Total distributions to shareholders ........................................................ (3,191,570) (1,806,949)
------------ -----------
Capital share transactions: (Note 2)
Class A .............................................................................. 103,488,201 13,198,443
Advisor Class ........................................................................ 13,412,345 1,164,113
------------ -----------
Total capital share transactions ........................................................... 116,900,546 14,362,556
------------ -----------
Redemption fees ............................................................................ 4,218 104
------------ -----------
Net increase (decrease) in net assets ............................................. 119,853,492 17,406,284
Net assets:
Beginning of period ........................................................................ 66,750,244 49,343,960
------------ -----------
End of period .............................................................................. $186,603,736 $66,750,244
============ ===========
Undistributed net investment income (distributions in excess of net investment income)
included in net assets:
End of period $ (747,099) $ 115,240
============ ===========

Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 87

Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Investors Securities Trust (Trust) is registered under the Investment
Company Act of 1940, as amended, (1940 Act) as an open-end investment company,
consisting of nine separate funds. All funds included in this report (Funds) are
diversified. The financial statements of the remaining funds in the Trust are
presented separately. The classes of shares offered within each of the Funds are
indicated below. Each class of shares differs by its initial sales load,
contingent deferred sales charges, distribution fees, voting rights on matters
affecting a single class and its exchange privilege.

CLASS A, CLASS C, CLASS A, CLASS B,
CLASS R & ADVISOR CLASS CLASS A & CLASS C CLASS C & CLASS R CLASS A & ADVISOR CLASS
- ----------------------- -------------------- ----------------- ---------------------------------

Franklin Balanced Franklin Convertible Franklin Equity Franklin Limited Maturity
Fund Securities Fund Income Fund U.S. Government Securities Fund
Franklin Real Return Fund

The following summarizes the Funds' significant accounting policies.

A. SECURITY VALUATION

Securities listed on a securities exchange or on the NASDAQ National Market
System are valued at the last quoted sale price or the official closing price of
the day, respectively. Over-the-counter securities and listed securities for
which there is no reported sale are valued within the range of the most recent
quoted bid and ask prices. Securities that trade in multiple markets or on
multiple exchanges are valued according to the broadest and most representative
market. Investments in open-end mutual funds are valued at the closing net asset
value.

Corporate debt securities, government securities, mortgage pass-through
securities, other mortgage-backed securities, collateralized mortgage
obligations and asset-backed securities generally trade in the over-the-counter
market rather than on a securities exchange. The Trust may utilize independent
pricing services, quotations from bond dealers, and information with respect to
bond and note transactions, to assist in determining a current market value for
each security. The Trust's pricing services may use valuation models or matrix
pricing which considers information with respect to comparable bond and note
transactions, quotations from bond dealers, or by reference to other securities
that are considered comparable in such characteristics as rating, interest rate
and maturity date, option adjusted spread models, prepayment projections,
interest rate spreads and yield curves, to determine current value.

Foreign securities are valued as of the close of trading on the foreign stock
exchange on which the security is primarily traded, or the NYSE, whichever is
earlier. If no sale is reported at that time, the foreign security will be
valued within the range of the most recent quoted bid and ask prices. The value
is then converted into its U.S. dollar equivalent at the foreign exchange rate
in effect at the close of the NYSE on the day that the value of the foreign
security is determined.

88 | Semiannual Report

Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

A. SECURITY VALUATION (CONTINUED)

The Trust has procedures to determine the fair value of individual securities
and other assets for which market prices are not readily available or which may
not be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the availability (including the reliability) of the value of a portfolio
security held by the fund. The investment manager monitors price movements
following the close of trading in foreign stock markets through a series of
country specific market proxies (such as baskets of American Depository
Receipts, futures contracts and exchange traded funds). These price movements
are measured against established trigger thresholds for each specific market
proxy to assist in determining if an event has occurred. If such an event
occurs, the securities may be valued using fair value procedures, which may
include the use of independent pricing services. All security valuation
procedures are approved by the Trust's Board of Trustees.

B. FOREIGN CURRENCY TRANSLATION

Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities, income and expense items denominated in foreign currencies are
translated into U.S. dollars at the exchange rate in effect on the transaction
date. Occasionally, events may impact the availability or reliability of foreign
exchange rates used to convert the U.S. dollar equivalent value. If such an
event occurs, the foreign exchange rate will be valued at fair value using
procedures established and approved by the Trust's Board of Trustees.

The Funds do not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments on the
Statement of Operations.

Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.

Semiannual Report | 89

Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

C. JOINT REPURCHASE AGREEMENT

Certain funds may enter into a joint repurchase agreement whereby their
uninvested cash balance is deposited into a joint cash account with other funds
managed by the investment manager or an affiliate of the investment manager and
is used to invest in one or more repurchase agreements. The value and face
amount of the joint repurchase agreement are allocated to the funds based on
their pro-rata interest. A repurchase agreement is accounted for as a loan by
the fund to the seller, collateralized by securities which are delivered to the
fund's custodian. The market value, including accrued interest, of the initial
collateralization is required to be at least 102% of the dollar amount invested
by the funds, with the value of the underlying securities marked to market daily
to maintain coverage of at least 100%. The joint repurchase agreement held by
the funds at period end had been entered into on April 30, 2008. The joint
repurchase agreement is valued at cost.

D. FOREIGN CURRENCY CONTRACTS

When the Funds purchase or sell foreign securities it may enter into foreign
exchange contracts to minimize foreign exchange risk from the trade date to the
settlement date of the transactions. A foreign exchange contract is an agreement
between two parties to exchange different currencies at an agreed upon exchange
rate at a future date. Realized and unrealized gains and losses on these
contracts are included in the Statement of Operations.

The Franklin Real Return Fund may also enter into forward exchange contracts to
hedge against fluctuations in foreign exchange rates or to gain exposure to
certain foreign currencies. These contracts are valued daily by the fund and the
unrealized gains or losses on the contracts, as measured by the difference
between the contractual forward foreign exchange rates and the forward rates at
the reporting date, are included in the Statement of Assets and Liabilities.
Realized and unrealized gains and losses on these contracts are included in the
Statement of Operations.

The risks of these contracts include movement in the values of the foreign
currencies relative to the U.S. dollar and the possible inability of the
counterparties to fulfill their obligations under the contracts, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities.

E. OPTIONS

The Franklin Balanced Fund may purchase or write options. Options are contracts
entitling the holder to purchase or sell a specified number of shares or units
of a particular security at a specified price. Options purchased are recorded as
investments; options written (sold) are recorded as liabilities. Upon closing of
an option, other than by exercise, which results in a cash settlement, the
difference between the premium (original option value) and the settlement
proceeds is realized as a gain or loss. When securities are acquired or
delivered upon exercise of an option, the acquisition cost or sale proceeds are
adjusted by the amount of the premium. When an option is closed, the difference
between the premium and the cost to close the position is realized as a gain

90 | Semiannual Report

Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

E. OPTIONS (CONTINUED)

or loss. When an option expires, the premium is realized as a gain for options
written or as a loss for options purchased. The risks include the possibility
there may be an illiquid options market or the inability of the counterparties
to fulfill their obligations under the contract. Writing options involves, to
varying degrees, elements of market risk in excess of the amount recognized in
the Statement of Assets and Liabilities.

F. SECURITIES LENDING

The Franklin Equity Income Fund may loan securities to certain brokers through a
securities lending agent for which it receives initial cash collateral against
the loaned securities in an amount equal to at least 102% of the market value of
the loaned securities. Collateral is maintained over the life of the loan in an
amount not less than 100% of the market value of loaned securities, as
determined at the close of fund business each day; any additional collateral
required due to changes in security values is delivered to the fund on the next
business day. The fund receives interest income from the investment of cash
collateral, adjusted by lender fees and broker rebates. The fund bears the risk
of loss with respect to the investment of the collateral and the securities
loaned. The securities lending agent has agreed to indemnify the fund in the
case of default of any securities borrower. At April 30, 2008, the fund had no
securities on loan.

G. INCOME TAXES

No provision has been made for U.S. income taxes because it is each fund's
policy to qualify as a regulated investment company under the Internal Revenue
Code and to distribute to shareholders substantially all of its taxable income
and net realized gains.

H. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Amortization of
premium and accretion of discount on debt securities are included in interest
income. Dividend income is recorded on the ex-dividend date except that certain
dividends from foreign securities are recognized as soon as the Funds are
notified of the ex-dividend date. Distributions to shareholders are recorded on
the ex-dividend date and are determined according to income tax regulations (tax
basis). Distributable earnings determined on a tax basis may differ from
earnings recorded in accordance with accounting principles generally accepted in
the United States of America. These differences may be permanent or temporary.
Permanent differences are reclassified among capital accounts to reflect their
tax character. These reclassifications have no impact on net assets or the
results of operations. Temporary differences are not reclassified, as they may
reverse in subsequent periods.

Semiannual Report | 91

Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

H. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)

Common expenses incurred by the Trust are allocated among the funds based on the
ratio of net assets of each fund to the combined net assets of the Trust. Fund
specific expenses are charged directly to the fund that incurred the expense.

Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class. Differences in per share
distributions, by class, are generally due to differences in class specific
expenses.

Distributions received by the Trust from certain securities may be a return of
capital (ROC). Such distributions reduce the cost basis of the securities, and
any distributions in excess of the cost basis are recognized as capital gains.

Inflation-indexed bonds provide an inflation hedge through periodic increases in
the security's interest accruals and principal redemption value, by amounts
corresponding to the current rate of inflation. Any such adjustments, including
adjustments to principal redemption value, are recorded as interest income.

I. ACCOUNTING ESTIMATES

The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the amounts of income
and expenses during the reporting period. Actual results could differ from those
estimates.

J. REDEMPTION FEES

A short term trading redemption fee will be imposed, with some exceptions, on
any fund shares that are redeemed or exchanged within seven calendar days
following their purchase date. The redemption fee is 2% of the amount redeemed.
Such fees are retained by the fund and accounted for as an addition to paid-in
capital.

K. GUARANTEES AND INDEMNIFICATIONS

Under the Trust's organizational documents, its officers and directors are
indemnified by the Trust against certain liabilities arising out of the
performance of their duties to the Trust. Additionally, in the normal course of
business, the Trust, on behalf of the Funds, enters into contracts with service
providers that contain general indemnification clauses. The Trust's maximum
exposure under these arrangements is unknown as this would involve future claims
that may be made against the Trust that have not yet occurred. Currently, the
Trust expects the risk of loss to be remote.

92 | Semiannual Report

Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

2. SHARES OF BENEFICIAL INTEREST

At April 30, 2008, there were an unlimited number of shares authorized (without
par value). Transactions in the Funds' shares were as follows:

FRANKLIN FRANKLIN CONVERTIBLE
BALANCED FUND SECURITIES FUND
----------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- ----------- -------------

CLASS A SHARES:
Six Months ended April 30, 2008
Shares sold ......................... 2,146,251 $22,715,314 5,861,435 $ 88,007,769
Shares issued in reinvestment of
distributions .................... 104,676 1,084,841 2,023,759 30,538,188
Shares redeemed ..................... (481,227) (4,994,436) (13,554,703) (204,029,108)
--------- ----------- ----------- -------------
Net increase (decrease) ............. 1,769,700 $18,805,719 (5,669,509) $ (85,483,151)
========= =========== =========== =============
Year ended October 31, 2007
Shares sold ......................... 1,687,911 $18,910,449 14,399,024 $ 244,834,632
Shares issued in reinvestment of
distributions .................... 18,777 210,061 3,570,065 58,931,326
Shares redeemed ..................... (232,320) (2,610,025) (10,459,036) (177,724,070)
--------- ----------- ----------- -------------
Net increase (decrease) ............. 1,474,368 $16,510,485 7,510,053 $ 126,041,888
========= =========== =========== =============
CLASS C SHARES:
Six Months ended April 30, 2008
Shares sold ......................... 321,999 $ 3,386,519 1,158,393 $ 17,388,658
Shares issued in reinvestment of
distributions .................... 25,789 266,689 586,843 8,796,541
Shares redeemed ..................... (118,345) (1,231,957) (3,507,391) (52,124,341)
--------- ----------- ----------- -------------
Net increase (decrease) ............. 229,443 $ 2,421,251 (1,762,155) $ (25,939,142)
========= =========== =========== =============
Year ended October 31, 2007
Shares sold ......................... 588,047 $ 6,611,187 3,729,693 $ 62,618,890
Shares issued in reinvestment of
distributions .................... 4,412 49,338 1,118,289 18,292,787
Shares redeemed ..................... (36,163) (397,388) (2,715,193) (45,588,498)
--------- ----------- ----------- -------------
Net increase (decrease) ............. 556,296 $ 6,263,137 2,132,789 $ 35,323,179
========= =========== =========== =============
CLASS R SHARES:
Six Months ended April 30, 2008
Shares sold ......................... 351 $ 3,629
Shares issued in reinvestment of
distributions .................... 20 202
--------- -----------
Net increase (decrease) ............. 371 $ 3,831
========= ===========
Year ended October 31, 2007
Shares sold ......................... 340 $ 3,701
Shares issued in reinvestment of
distributions .................... 6 70
--------- -----------
Net increase (decrease) ............. 346 $ 3,771
========= ===========

Semiannual Report | 93

Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

2. SHARES OF BENEFICIAL INTEREST (CONTINUED)

FRANKLIN
BALANCED FUND
-----------------
SHARES AMOUNT
------ --------

ADVISOR CLASS SHARES:
Six Months ended April 30, 2008
Shares sold ......................... 20,853 $215,235
Shares issued in reinvestment of
distributions .................... 5,093 52,943
Shares redeemed ..................... (1,018) (10,962)
------ --------
Net increase (decrease) ............. 24,928 $257,216
====== ========
Year ended October 31, 2007
Shares sold ......................... 83,546 $918,347
Shares issued in reinvestment of
distributions .................... 2,002 22,404
Shares redeemed ..................... (4,326) (47,527)
------ --------
Net increase (decrease) ............. 81,222 $893,224
====== ========

FRANKLIN LIMITED
FRANKLIN EQUITY MATURITY U.S. GOVERNMENT
INCOME FUND SECURITIES FUND
-------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- ------------

CLASS A SHARES:
Six Months ended April 30, 2008
Shares sold ......................... 3,540,219 $ 68,100,350 6,128,052 $ 62,661,336
Shares issued in reinvestment of
distributions .................... 2,254,369 43,506,152 352,431 3,597,644
Shares redeemed ..................... (5,466,558) (104,933,926) (3,603,791) (36,732,028)
---------- ------------- ---------- ------------
Net increase (decrease) ............. 328,030 $ 6,672,576 2,876,692 $ 29,526,952
========== ============= ========== ============
Year ended October 31, 2007
Shares sold ......................... 10,585,130 $ 239,170,803 4,454,202 $ 44,178,835
Shares issued in reinvestment of
distributions .................... 2,605,129 57,408,622 614,512 6,096,010
Shares redeemed ..................... (7,467,396) (168,252,902) (7,503,970) (74,428,395)
---------- ------------- ---------- ------------
Net increase (decrease) ............. 5,722,863 $ 128,326,523 (2,435,256) $(24,153,550)
========== ============= ========== ============
CLASS B SHARES:
Six Months ended April 30, 2008
Shares sold ......................... 24,774 $ 477,820
Shares issued in reinvestment of
distributions .................... 106,264 2,045,691
Shares redeemed ..................... (336,719) (6,428,416)
---------- -------------
Net increase (decrease) ............. (205,681) $ (3,904,905)
========== =============
Year ended October 31, 2007
Shares sold ......................... 105,074 $ 2,363,637
Shares issued in reinvestment of
distributions .................... 154,945 3,390,324
Shares redeemed ..................... (472,417) (10,604,786)
---------- -------------
Net increase (decrease) ............. (212,398) $ (4,850,825)
========== =============

94 | Semiannual Report

Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

2. SHARES OF BENEFICIAL INTEREST (CONTINUED)

FRANKLIN EQUITY FRANKLIN LIMITED MATURITY U.S.
INCOME FUND GOVERNMENT SECURITIES FUND
------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ -------- ------------

CLASS C SHARES:
Six Months ended April 30, 2008
Shares sold ........................................ 472,037 $ 9,072,690
Shares issued in reinvestment of distributions ..... 394,623 7,600,419
Shares redeemed .................................... (1,345,659) (25,669,091)
---------- ------------
Net increase (decrease) ............................ (478,999) $ (8,995,982)
========== ============
Year ended October 31, 2007
Shares sold ........................................ 978,767 $ 21,854,647
Shares issued in reinvestment of distributions ..... 534,361 11,699,188
Shares redeemed .................................... (1,685,264) (37,852,716)
---------- ------------
Net increase (decrease) ............................ (172,136) $ (4,298,881)
========== ============
CLASS R SHARES:
Six Months ended April 30, 2008
Shares sold ........................................ 56,138 $ 1,087,003
Shares issued in reinvestment of distributions ..... 32,898 636,564
Shares redeemed .................................... (266,368) (5,203,476)
---------- ------------
Net increase (decrease) ............................ (177,332) $ (3,479,909)
========== ============
Year ended October 31, 2007
Shares sold ........................................ 189,919 $ 4,248,628
Shares issued in reinvestment of distributions ..... 66,257 1,459,144
Shares redeemed .................................... (486,335) (11,000,525)
---------- ------------
Net increase (decrease) ............................ (230,159) $ (5,292,753)
========== ============
ADVISOR CLASS SHARES:
Six Months ended April 30, 2008
Shares sold ........................................ 280,288 $ 2,854,104
Shares issued in reinvestment of distributions ..... 31,833 324,646
Shares redeemed .................................... (146,860) (1,504,744)
-------- -----------
Net increase (decrease) ............................ 165,261 $ 1,674,006
======== ===========
Year ended October 31, 2007
Shares sold ........................................ 244,139 $ 2,420,255
Shares issued in reinvestment of distributions ..... 54,375 538,821
Shares redeemed .................................... (337,095) (3,333,661)
-------- -----------
Net increase (decrease) ............................ (38,581) $ (374,585)
======== ===========

Semiannual Report | 95

Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

2. SHARES OF BENEFICIAL INTEREST (CONTINUED)

FRANKLIN REAL RETURN FUND
--------------------------
SHARES AMOUNT
---------- -------------

CLASS A SHARES:
Six Months ended April 30, 2008
Shares sold ........................................ 13,228,106 $143,628,623
Shares issued in reinvestment of distributions ..... 195,244 2,114,057
Shares redeemed .................................... (3,859,527) (42,254,479)
---------- ------------
Net increase (decrease) ............................ 9,563,823 $103,488,201
========== ============
Year ended October 31, 2007
Shares sold ........................................ 2,490,410 $ 25,763,946
Shares issued in reinvestment of distributions ..... 95,318 986,170
Shares redeemed .................................... (1,311,467) (13,551,673)
---------- ------------
Net increase (decrease) ............................ 1,274,261 $ 13,198,443
========== ============
ADVISOR CLASS SHARES:
Six Months ended April 30, 2008
Shares sold ........................................ 1,413,289 $ 15,537,350
Shares issued in reinvestment of distributions ..... 23,606 255,333
Shares redeemed .................................... (221,642) (2,380,338)
---------- ------------
Net increase (decrease) ............................ 1,215,253 $ 13,412,345
========== ============
Year ended October 31, 2007
Shares sold ........................................ 441,613 $ 4,557,542
Shares issued in reinvestment of distributions ..... 5,479 56,816
Shares redeemed .................................... (332,374) (3,450,245)
---------- ------------
Net increase (decrease) ............................ 114,718 $ 1,164,113
========== ============

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Trust are also officers and/or directors of the following
subsidiaries:

SUBSIDIARY AFFILIATION
- ------------------------------------------------------------- ----------------------

Franklin Advisers, Inc. (Advisers) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent

96 | Semiannual Report

Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. TRANSACTIONS WITH AFFILIATES (CONTINUED)

A. MANAGEMENT FEES

The Franklin Balanced Fund pays an investment management fee to Advisers based
on the average daily net assets of the fund as follows:

ANNUALIZED FEE RATE NET ASSETS
- ------------------- ---------------------------------------------------

0.500% Up to and including $250 million
0.475% Over $250 million, up to and including $500 million
0.450% Over $500 million, up to and including $1 billion
0.425% Over $1 billion, up to and including $2.5 billion
0.400% Over $2.5 billion, up to and including $5 billion
0.375% Over $5 billion, up to and including $10 billion
0.350% Over $10 billion, up to and including $15 billion
0.325% Over $15 billion, up to and including $20 billion
0.300% In excess of $20 billion

Effective January 1, 2008, the Franklin Convertible Securities Fund and the
Franklin Equity Income Fund pay an investment management fee to Advisers based
on the month-end net assets of each of the funds as follows:

ANNUALIZED FEE RATE NET ASSETS
- ------------------- ---------------------------------------------------

0.625% Up to and including $100 million
0.500% Over $100 million, up to and including $250 million
0.450% Over $250 million, up to and including $7.5 billion
0.440% Over $7.5 billion, up to and including $10 billion
0.430% Over $10 billion, up to and including $12.5 billion
0.420% Over $12.5 billion, up to and including $15 billion
0.400% Over $15 billion, up to and including $17.5 billion
0.380% Over $17.5 billion, up to and including $20 billion
0.360% Over $20 billion, up to and including $35 billion
0.355% Over $35 billion, up to and including $50 billion
0.350% In excess of $50 billion

Prior to January 1, 2008, the Franklin Convertible Securities Fund and the
Franklin Equity Income Fund paid fees to Advisers based on the month-end net
assets of each of the funds as follows:

ANNUALIZED FEE RATE NET ASSETS
- ------------------- ---------------------------------------------------

0.625% Up to and including $100 million
0.500% Over $100 million, up to and including $250 million
0.450% Over $250 million, up to and including $10 billion
0.440% Over $10 billion, up to and including $12.5 billion
0.420% Over $12.5 billion, up to and including $15 billion
0.400% Over $15 billion, up to and including $17.5 billion
0.380% Over $17.5 billion, up to and including $20 billion
0.360% Over $20 billion, up to and including $35 billion
0.355% Over $35 billion, up to and including $50 billion
0.350% In excess of $50 billion

Semiannual Report | 97

Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. TRANSACTIONS WITH AFFILIATES (CONTINUED)

A. MANAGEMENT FEES (CONTINUED)

The Franklin Limited Maturity U.S. Government Securities Fund pays an investment
management fee to Advisers based on the month-end net assets of the fund as
follows:

ANNUALIZED FEE RATE NET ASSETS
- ------------------- -----------------------------------------------------

0.625% Up to and including $100 million
0.500% Over $100 million, up to and including $250 million
0.450% In excess of $250 million

The Franklin Real Return Fund pays an investment management fee to Advisers
based on the average daily net assets of the fund as follows:

ANNUALIZED FEE RATE NET ASSETS
- ------------------- -----------------------------------------------------

0.425% Up to and including $500 million
0.325% Over $500 million, up to and including $1 billion
0.280% Over $1 billion, up to and including $1.5 billion
0.235% Over $1.5 billion, up to and including $6.5 billion
0.215% Over $6.5 billion, up to and including $11.5 billion
0.200% Over $11.5 billion, up to and including $16.5 billion
0.190% Over $16.5 billion, up to and including $19 billion
0.180% Over $19 billion, up to and including $21.5 billion
0.170% In excess of $21.5 billion

B. ADMINISTRATIVE FEES

The Franklin Balanced Fund and Franklin Real Return Fund pay an administrative
fee to FT Services of 0.20% per year of the average daily net assets of each of
the funds.

Under an agreement with Advisers, FT Services provides administrative services
to the Franklin Convertible Securities Fund, Franklin Equity Income Fund and the
Franklin Limited Maturity U.S. Government Securities Fund. The fee is paid by
Advisers based on average daily net assets, and is not an additional expense of
the funds.

C. DISTRIBUTION FEES

The Trust's Board of Trustees has adopted distribution plans for each share
class with the exception of Advisor Class shares, pursuant to Rule 12b-1 under
the 1940 Act. Under the Funds' Class A reimbursement distribution plans, the
funds reimburse Distributors for costs incurred in connection with the
servicing, sale and distribution of each fund's shares up to the maximum annual
plan rate. Under the Class A reimbursement distribution plans, costs exceeding
the maximum for the current plan year cannot be reimbursed in subsequent
periods.

In addition, under the funds' compensation distribution plans, the funds pay
Distributors for costs incurred in connection with the servicing, sale and
distribution of each fund's shares up to the maximum annual plan rate for each
class.

98 | Semiannual Report

Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. TRANSACTIONS WITH AFFILIATES (CONTINUED)

C. DISTRIBUTION FEES (CONTINUED)

The maximum annual plan rates, based on the average daily net assets, for each
class, are as follows:

FRANKLIN FRANKLIN
FRANKLIN FRANKLIN LIMITED MATURITY REAL
FRANKLIN CONVERTIBLE EQUITY U.S. GOVERNMENT RETURN
BALANCED FUND SECURITIES FUND INCOME FUND SECURITIES FUND FUND
------------- --------------- ----------- ---------------- --------

Reimbursement Plans:
Class A ......... -- 0.25% 0.25% 0.10% --
Compensation Plans:
Class A ......... 0.35% -- -- -- 0.25%
Class B ......... -- -- 1.00% -- --
Class C ......... 1.00% 1.00% 1.00% -- --
Class R ......... 0.50% -- 0.50% -- --

Distributors has agreed to limit the current rate to 0.30% per year for Class A
shares for the Franklin Balanced Fund for the period of August 1, 2007 through
January 31, 2009.

D. SALES CHARGES/UNDERWRITING AGREEMENTS

Distributors has advised the Funds of the following commission transactions
related to the sales and redemptions of the Funds' shares for the period:

RANKLIN FRANKLIN
FRANKLIN FRANKLIN LIMITED MATURITY REAL
FRANKLIN CONVERTIBLE EQUITY U.S. GOVERNMENT RETURN
BALANCED FUND SECURITIES FUND INCOME FUND SECURITIES FUND FUND
------------- --------------- ----------- ---------------- --------

Sales charges retained
net of commissions
paid to unaffiliated
broker/dealers .......... $39,095 $53,978 $270,038 $14,692 $116,812
Contingent deferred sales
charges retained ........ $ 1,220 $15,987 $ 29,150 $ 1,804 $ 1,992

E. TRANSFER AGENT FEES

For the period ended April 30, 2008, the Funds paid transfer agent fees as noted
in the Statements of Operations of which the following amounts were retained by
Investor Services:

Transfer agent fees ... $13,831 $305,700 $451,459 $131,914 $29,999

Semiannual Report | 99

Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. TRANSACTIONS WITH AFFILIATES (CONTINUED)

F. WAIVER AND EXPENSE REIMBURSEMENTS

For the Franklin Balanced Fund and the Franklin Real Return Fund, FT Services
and Advisers have agreed in advance to waive all or a portion of their
respective fees and to assume payment of other expenses through February 28,
2009. Total expenses waived or paid are not subject to reimbursement by the
funds subsequent to the funds' fiscal year end. After February 28, 2009, FT
Services and Advisers may discontinue this waiver at any time upon notice to the
funds' Board of Trustees.

G. OTHER AFFILIATED TRANSACTIONS

At April 30, 2008, Advisers owned 25.81% of the Franklin Balanced Fund's
outstanding shares.

4. EXPENSE OFFSET ARRANGEMENT

The Funds have entered into an arrangement with their custodian whereby credits
realized as a result of uninvested cash balances are used to reduce a portion of
the Funds' custodian expenses. During the period ended April 30, 2008, the
custodian fees were reduced as noted in the Statements of Operations.

5. INCOME TAXES

For tax purposes, capital losses may be carried over to offset future capital
gains, if any. At October 31, 2007, the capital loss carryforwards were as
follows:

FRANKLIN
LIMITED MATURITY
U.S. GOVERNMENT
SECURITIES FUND
----------------

Capital loss carryforwards expiring in:
2008 ............................... $ 2,364,551
2011 ............................... 1,752,525
2012 ............................... 3,322,647
2013 ............................... 3,980,527
2014 ............................... 4,303,979
2015 ............................... 723,269
-----------
$16,447,498
===========

100 | Semiannual Report

Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

5. INCOME TAXES (CONTINUED)

At April 30, 2008, the cost of investments and net unrealized appreciation
(depreciation) for income tax purposes were as follows:

FRANKLIN FRANKLIN FRANKLIN
BALANCED CONVERTIBLE EQUITY
FUND SECURITIES FUND INCOME FUND
----------- --------------- -------------

Cost of investments ......................... $61,012,922 $ 919,898,062 $ 854,103,367
----------- ------------- -------------
Unrealized appreciation ..................... $ 2,339,810 $ 112,954,624 $ 158,509,711
Unrealized depreciation ..................... (2,943,852) (136,294,468) (102,226,272)
----------- ------------- -------------
Net unrealized appreciation (depreciation) .. $ (604,042) $ (23,339,844) $ 56,283,439
=========== ============= =============

FRANKLIN
LIMITED MATURITY FRANKLIN
U.S. GOVERNMENT REAL
SECURITIES RETURN
FUND FUND
---------------- -------------

Cost of investments ......................... $240,807,887 $175,920,853
------------ ------------
Unrealized appreciation ..................... $ 6,244,593 $ 6,993,983
Unrealized depreciation ..................... (735,822) (695,067)
------------ ------------
Net unrealized appreciation (depreciation) .. $ 5,508,771 $ 6,298,916
============ ============

Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions, paydown losses,
bond discounts and premiums, partnership distributions and recognition of
partnership income, and inflation related adjustments on foreign securities.

Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales, foreign currency
transactions, paydown losses, bond discounts and premiums, and partnership
distributions and recognition of partnership income.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the
period ended April 30, 2008, were as follows:

Purchases.. $33,709,566 $151,864,488 $171,570,156 $49,992,622 $117,337,864
Sales...... $12,813,977 $326,146,521 $200,046,708 $27,447,567 $ 10,635,007

Semiannual Report | 101

Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

6. INVESTMENT TRANSACTIONS (CONTINUED)

Transactions in options written during the period ended April 30, 2008, were as
follows:

NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ---------

FRANKLIN BALANCED FUND
Options outstanding at October 31, 2007 ... 920 $ 29,328
Options written ........................... 8,801 407,830
Options expired ........................... (7,156) (328,798)
Options exercised ......................... (1,605) (56,850)
Options closed ............................ (200) (10,300)
------ ---------
Options outstanding at March 31, 2008 ..... 760 $ 41,210
====== =========

7. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO

The Funds may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (Sweep Money Fund), an open-end investment company managed by
Advisers. Management fees paid by the Funds are reduced on assets invested in
the Sweep Money Fund, in an amount not to exceed the management and
administrative fees paid by the Sweep Money Fund.

8. CREDIT RISK

The Franklin Convertible Securities Fund has 57.06% of its portfolio invested in
high yield or other securities rated below investment grade. These securities
may be more sensitive to economic conditions causing greater price volatility
and are potentially subject to a greater risk of loss due to default than higher
rated securities.

9. NEW ACCOUNTING PRONOUNCEMENTS

The Funds adopted Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (FIN 48), on April 30, 2008. FIN 48
clarifies the accounting for uncertainty in tax positions taken or expected to
be taken in a tax return. FIN 48 provides guidance on the measurement,
recognition, classification and disclosure of tax positions, along with
accounting for the related interest and penalties. The Funds have reviewed the
tax positions for each of the three open tax years as of October 31, 2007 and
have determined that the implementation of FIN 48 did not have a material impact
on the Funds' financial statements.

In September 2006, FASB issued FASB Statement No. 157, "Fair Value Measurement"
(SFAS 157), which defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements. SFAS 157 is
effective for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The Trust believes the adoption of SFAS 157
will have no material impact on its financial statements.

102 | Semiannual Report

Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

9. NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In March 2008, FASB issued FASB Statement No. 161, "Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133"
(SFAS 161), which expands disclosures about derivative investments and hedging
activities. SFAS 161 is effective for fiscal years beginning after November 15,
2008, and interim periods within those fiscal years. The Funds are currently
evaluating the impact, if any, of applying the various provisions of SFAS 161.

Semiannual Report | 103

Franklin Investors Securities Trust

SHAREHOLDER INFORMATION

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT

At a meeting held February 25, 2008, the Board of Trustees (Board), including a
majority of non-interested or independent Trustees, approved renewal of the
investment management agreement for each of the separate funds comprising
Franklin Investors Securities Trust (Fund(s)). In reaching this decision, the
Board took into account information furnished throughout the year at regular
Board meetings, as well as information prepared specifically in connection with
the annual renewal review process. Information furnished and discussed
throughout the year included investment performance reports and related
financial information for each Fund, as well as periodic reports on shareholder
services, legal, compliance, pricing, brokerage commissions and execution and
other services provided by the Investment Manager (Manager) and its affiliates.
Information furnished specifically in connection with the renewal process
included a report for each Fund prepared by Lipper, Inc. (Lipper), an
independent organization, as well as a Fund profitability analysis report
prepared by management. The Lipper reports compared each Fund's investment
performance and expenses with those of other mutual funds deemed comparable to
the Fund as selected by Lipper. The Fund profitability analysis report discussed
the profitability to Franklin Templeton Investments from its overall U.S. fund
operations, as well as on an individual fund-by-fund basis. Included with such
profitability analysis report was information on a fund-by-fund basis listing
portfolio managers and other accounts they manage, as well as information on
management fees charged by the Manager and its affiliates including management's
explanation of differences where relevant and a three-year expense analysis with
an explanation for any increase in expense ratios. Additional material
accompanying such report was a memorandum prepared by management describing
project initiatives and capital investments relating to the services provided to
the Funds by the Franklin Templeton Investments organization, as well as a
memorandum relating to economies of scale and a comparative analysis concerning
transfer agent fees charged each Fund.

In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel. While the investment
management agreements for all Funds were considered at the same Board meeting,
the Board dealt with each Fund separately. In approving continuance of the
investment management agreement for each Fund, the Board, including a
majority of independent Trustees, determined that the existing management fee
structure was fair and reasonable and that continuance of the investment
management agreement was in the best interests of each Fund and its
shareholders. While attention was given to all information furnished, the
following discusses some primary factors relevant to the Board's decision.

NATURE, EXTENT AND QUALITY OF SERVICES. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Funds and their shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished them showing that the investment policies and restrictions for
each Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other management personnel with the code of ethics adopted
throughout the Franklin Templeton fund complex, the adherence to fair value
pricing procedures established by the Board, and the accuracy

104 | Semiannual Report

Franklin Investors Securities Trust

SHAREHOLDER INFORMATION (CONTINUED)

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)

of net asset value calculations. The Board also noted the extent of benefits
provided Fund shareholders from being part of the Franklin Templeton family of
funds, including the right to exchange investments between the same class of
funds without a sales charge, the ability to reinvest Fund dividends into other
funds and the right to combine holdings in other funds to obtain a reduced sales
charge. Favorable consideration was given to management's continuous efforts and
expenditures in establishing back-up systems and recovery procedures to function
in the event of a natural disaster, it being noted by the Board that such
systems and procedures had functioned smoothly during the Florida hurricanes and
blackouts experienced in recent years. Among other factors taken into account by
the Board were the Manager's best execution trading policies, including a
favorable report by an independent portfolio trading analytical firm.
Consideration was also given to the experience of each Fund's portfolio
management team, the number of accounts managed and general method of
compensation. In this latter respect, the Board noted that a primary factor in
management's determination of a portfolio manager's bonus compensation was the
relative investment performance of the funds he or she managed and that a
portion of such bonus was required to be invested in a predesignated list of
funds within such person's fund management area so as to be aligned with the
interests of Fund shareholders. The Board also took into account the quality of
transfer agent and shareholder services provided Fund shareholders by an
affiliate of the Manager, noting continuing expenditures by management to
increase and improve the scope of such services, periodic favorable reports on
such service conducted by third parties, the high industry ranking given the
Franklin Templeton website, and the firsthand experience of individual Board
members who deal with the shareholder services department in their capacities as
shareholders in one or more of the various Franklin Templeton funds.

INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of each Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings during the year, particular attention in assessing
performance was given to the Lipper reports furnished for the agreement
renewals. The Lipper reports prepared for each Fund showed the investment
performance of its Class A shares in comparison with its selected performance
universe during 2007 and during the previous 10 years ended December 31, 2007,
unless otherwise noted. Performance on a total return basis was shown by Lipper
for all Funds, with performance on an income return basis being shown for those
Funds having income return as an element of their investment objective. The
following summarizes the performance results for each Fund.

FRANKLIN BALANCED FUND - The Fund's investment performance was shown in
comparison with a performance universe consisting of all retail and
institutional mixed-asset target allocation growth funds as selected by Lipper
during 2007, the Fund's first full year of operations. The Lipper report showed
the Fund's income return to be in the second-highest quintile of its performance
universe and its total return to be in the second-lowest quintile of such
universe. In view of the Fund's small size and recent formation, the Board did
not believe such performance to be particularly meaningful.

Semiannual Report | 105

Franklin Investors Securities Trust

SHAREHOLDER INFORMATION (CONTINUED)

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)

FRANKLIN CONVERTIBLE SECURITIES FUND - The Fund's investment performance was
shown in comparison with a performance universe consisting of all retail and
institutional convertible securities funds as selected by Lipper. Such
comparison showed the Fund's income return during 2007 and on an annualized
basis during each of the previous three-, five- and 10-year periods to be in the
highest quintile of its performance universe. The Lipper report showed that the
Fund's total return during 2007 was in the lowest quintile of its performance
universe and in the previous three-, five-and 10-year periods on an annualized
basis was in the middle, highest and second-highest quintiles of such universe,
respectively. In discussing the 2007 total return underperformance, management
pointed out the Fund's underexposure to equity sensitive convertibles and
overexposure to financial sector holdings and discussed steps being taken to
improve performance, including an addition to the Fund's portfolio management
team. The Board found the Fund's overall performance to be acceptable.

FRANKLIN EQUITY INCOME FUND - The Fund's investment performance was shown in
comparison with a performance universe consisting of all retail and
institutional equity income funds as selected by Lipper. Such comparison showed
the Fund's income return during 2007 to be in the second-highest quintile, and
on an annualized basis during each of the previous three-, five-, and 10-year
periods to be in the highest quintile of its performance universe. The Lipper
report showed the Fund's total return during 2007 to be in the lowest quintile
of such universe and on an annualized basis during the previous three- and
five-year periods to also be in the lowest quintile of its performance universe,
and for the previous 10-year period to be in the second-lowest quintile of such
universe. In discussing the relative total return underperformance with the
Board, management pointed out the Fund's longstanding strategy of investing in
higher yielding securities and exposure to stocks in the financial sector and
discussed steps being taken to improve such performance. While intending to
monitor management's efforts to improve total return, the Board did not believe
the Fund's overall performance warranted any immediate change in its portfolio
management.

FRANKLIN LIMITED MATURITY U.S. GOVERNMENT SECURITIES FUND - The Fund's
investment performance was shown in comparison to a performance universe
consisting of all retail and institutional short U.S. Government funds as
selected by Lipper. The Lipper report showed the Fund's income return during
2007 to be in the second-lowest quintile of its performance universe and on an
annualized basis to be in the middle quintile of such universe during the
previous three-year period and second-highest quintile of such universe during
each of the previous five- and 10-year periods. The Lipper report showed the
Fund's total return to be in the highest quintile of its performance universe
during 2007 and on an annualized basis to be in the second-lowest quintile,
middle quintile and second-highest quintile, respectively, for the previous
three-, five- and 10-year periods. The Board found such performance acceptable,
noting the Fund's conservative investment policy and that its 2007 income return
was within two-tenths of a percent of the performance universe average and its
annualized three-year total return had exceeded the performance universe average
as shown in the Lipper report.

106 | Semiannual Report

Franklin Investors Securities Trust

SHAREHOLDER INFORMATION (CONTINUED)

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)

FRANKLIN REAL RETURN FUND - The Fund has only been in operation for three full
calendar years and its investment performance was shown in comparison to a
performance universe consisting of all retail and institutional Treasury
inflation-protected securities (TIPS) funds as selected by Lipper. The Lipper
report showed the Fund's income return during 2007 and during each of the
previous two- and three-year periods on an annualized basis to be in the middle
quintile of such performance universe. The Lipper report showed the Fund's 2007
total return to be in the second-lowest quintile of its performance universe,
but on an annualized basis to be in the highest quintile of such universe during
each of the previous two- and three-year periods. The Board was satisfied with
such performance, noting that the Fund's 2007 total return exceeded the 2007
performance universe average as shown in the Lipper report.

COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the
management fees and total expense ratios of each Fund compared with those of a
group of other funds selected by Lipper as constituting its appropriate Lipper
expense group. Prior to making such comparison, the Board relied upon a survey
showing that the scope of services covered under the Fund's investment
management agreement was similar to those provided by fund managers to other
mutual fund groups. In reviewing comparative costs, emphasis was given to each
Fund's contractual investment management fee in comparison with the contractual
investment management fee that would have been charged by other funds within its
Lipper expense group assuming they were similar in size to the Fund, as well as
the actual total expenses of the Fund in comparison with those of its expense
group. The Lipper contractual investment management fee analysis includes within
such fee any separate administrative fees, and the Lipper total expenses, for
comparative consistency, are shown by Lipper for Fund Class A shares. The
results of such expense comparisons showed that the contractual investment
management fee rate and total expense rates for each of Franklin Convertible
Securities Fund, Franklin Equity Income Fund, and Franklin Balanced Fund were in
either the least expensive or second least expensive quintiles of their
respective Lipper expense groups. The Board was satisfied with the investment
management fee and total expense rates of these Funds. The contractual
investment management fee and total expense rates for Franklin Limited Maturity
U.S. Government Securities Fund were both above, but in each case within nine
basis points of, the medians of its Lipper expense group, while the contractual
investment management fee rate for Franklin Real Return Fund was within 10 basis
points of the median of its Lipper expense group, and total expenses were within
five basis points of the median of its Lipper expense group. The Board found the
management fees and total expenses of the Fund to be acceptable in comparison to
its Lipper expense group as shown in the Lipper reports, noting this was among
the smallest Funds within Franklin Investors Securities Trust and that expenses
of Franklin Real Return Fund were subsidized through management fee waivers and
reimbursements.

Semiannual Report | 107

Franklin Investors Securities Trust

SHAREHOLDER INFORMATION (CONTINUED)

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)

MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
each Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin Templeton's U.S. fund
business, as well as its profits in providing management and other services to
each Fund. Specific attention was given to the methodology followed in
allocating costs to each Fund, it being recognized that allocation methodologies
are inherently subjective and various allocation methodologies may each be
reasonable while producing different results. In this respect, the Board noted
that, while being continuously refined and reflecting changes in the Manager's
own cost accounting, the cost allocation methodology was consistent with that
followed in profitability report presentations for the Funds made in prior years
and that the Funds' independent registered public accounting firm had been
engaged by the Manager to perform certain procedures on a biennial basis,
specified and approved by the Manager and the Funds' Board solely for their
purposes and use in reference to the profitability analysis. In reviewing and
discussing such analysis, management discussed with the Board its belief that
costs incurred in establishing the infrastructure necessary for the type of
mutual fund operations conducted by the Manager and its affiliates may not be
fully reflected in the expenses allocated to each Fund in determining its
profitability, as well as the fact that the level of profits, to a certain
extent, reflected operational cost savings and efficiencies initiated by
management. The Board also took into account management's expenditures in
improving shareholder services provided the Funds, as well as the need to meet
additional regulatory and compliance requirements resulting from the
Sarbanes-Oxley Act and recent SEC and other regulatory requirements. In
addition, the Board considered a third-party study comparing the profitability
of the Manager's parent on an overall basis as compared to other publicly held
managers broken down to show profitability from management operations exclusive
of distribution expenses, as well as profitability including distribution
expenses. The Board also considered the extent to which the Manager and its
affiliates might derive ancillary benefits from fund operations, including its
interest in a joint venture entity that financed up-front commissions paid to
brokers/dealers who sold fund Class B shares prior to February 2005, when the
offering of such shares was discontinued, as well as potential benefits
resulting from allocation of fund brokerage and the use of "soft" commission
dollars to pay for research. Based upon its consideration of all these factors,
the Board determined that the level of profits realized by the Manager and its
affiliates from providing services to each Fund was not excessive in view of the
nature, quality and extent of services provided.

108 | Semiannual Report

Franklin Investors Securities Trust

SHAREHOLDER INFORMATION (CONTINUED)

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)

in size, its effective management fee rate declines. The management fee
structure, which includes administrative expenses for Franklin Limited Maturity
U.S. Government Securities Fund, provides an initial fee of 0.625% on the first
$100 million of assets; 0.50% on the next $150 million of assets; and 0.45% of
assets in excess of $250 million, which exceeded that Fund's size at year-end,
and the Board believed that to the extent economies of scale may be realized by
the Manager and its affiliates, there was a sharing of benefits with this Fund
and its shareholders. The management fee structure, which includes
administrative expenses for each of Franklin Convertible Securities Fund and
Franklin Equity Income Fund, provides an initial fee of 0.625% on the first $100
million of assets; 0.50% on the next $150 million of assets; and 0.45% on assets
in excess of $250 million, with additional or reduced breakpoints for assets in
excess of $7.5 billion and $10 billion having been added effective January 1,
2008, and other breakpoints continuing thereafter. Each of these Funds had
approximately $1 billion in assets at year-end and the Board believed that to
the extent economies of scale may be realized by the Manager and its affiliates,
the schedule of fees under the investment management agreement for Franklin
Convertible Securities Fund and Franklin Equity Income Fund provides a sharing
of benefits with each of these Funds and their shareholders. The Board did not
believe the small sizes of Franklin Real Return Fund and Franklin Balanced Fund,
whose expenses were subsidized by management, afforded any economies of scale.

PROXY VOTING POLICIES AND PROCEDURES

The Trust has established Proxy Voting Policies and Procedures (Policies) that
the Trust uses to determine how to vote proxies relating to portfolio
securities. Shareholders may view the Trust's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/527-7678 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group. Copies of the Trust's proxy voting records are also made available online
at franklintempleton.com and posted on the U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.

QUARTERLY STATEMENT OF INVESTMENTS

The Trust files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.

Semiannual Report | 109

(FRANKLIN TEMPLETON INVESTMENTS LOGO)

One Franklin Parkway
San Mateo, CA 94403-1906

- - WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?

Eligible shareholders can sign up for eDelivery at franklintempleton.com.
See inside for details.

SEMIANNUAL REPORT AND SHAREHOLDER LETTER

FRANKLIN INVESTORS SECURITIES TRUST

INVESTMENT MANAGER

Franklin Advisers, Inc.

DISTRIBUTOR

Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com

SHAREHOLDER SERVICES

1-800/632-2301

Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. The prospectus contains this and other
information; please read it carefully before investing.

To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.

FIST1 S2008 06/08

(GRAPHIC)

APRIL 30, 2008

Franklin Adjustable U.S. Government Securities Fund

Franklin Floating Rate Daily Access Fund

Franklin Low Duration Total Return Fund

Franklin Total Return Fund

SEMIANNUAL REPORT AND SHAREHOLDER LETTER

INCOME

FRANKLIN
INVESTORS SECURITIES TRUST

WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?

Eligible shareholders can sign up for eDelivery at franklintempleton.com. See
inside for details.

(FRANKLIN TEMPLETON INVESTMENTS LOGO)
FRANKLIN TEMPLETON INVESTMENTS

FRANKLIN - Templeton - Mutual Series

Semiannual Report

Economic and Market Overview

Volatile oil prices reached a historical high in April, topping $119 per barrel,
before retreating to $113 by period-end. Despite inflation risks from higher
food and energy costs, core inflation, which excludes such costs, remained
relatively subdued at an annual 2.3% rate in April 2008.(1) This level was above
the Federal Reserve Board's (Fed's) informal target range of 1%-2%. The core
personal consumption expenditures price index reported a 12-month increase of
2.1%.(2)

(1.) Source: Bureau of Labor Statistics.

(2.) Source: Bureau of Economic Analysis.

Semiannual Report | 3

Despite the Fed's actions, U.S. Treasuries rallied and financial stocks
continued to sell off for most of the reporting period. Fixed income spreads
generally widened relative to Treasury yields over the period due to heightened
market turbulence. Investors continued to seek the relative safety of short- and
intermediate-term U.S. Treasury securities as Treasury yields declined and the
yield curve steepened. Short-term, two- and five-year yields declined
significantly, with the two-year bill yielding 2.29% at the end of April, down
from 3.94% six months prior. The 10-year U.S. Treasury note ended April yielding
3.77%, compared with 4.48% at the beginning of the period. However, by
period-end, it appeared that the Fed's aggressive campaigns were beginning to
take effect as non-Treasury investment grade sectors showed signs of
improvement.

4 | Semiannual Report

Franklin Adjustable
U.S. Government Securities Fund

YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Adjustable U.S. Government
Securities Fund seeks to provide a high level of current income while providing
lower volatility of principal than a fund that invests in fixed-rate securities
by investing at least 80% of its net assets in adjustable-rate U.S. government
mortgage securities, which are issued or guaranteed by the U.S. government, its
agencies or instrumentalities.(1) Some of the Fund's investments may include
securities issued by government-sponsored entities, such as Fannie Mae and
Freddie Mac.(2)

PORTFOLIO BREAKDOWN
Franklin Adjustable U.S. Government Securities Fund
Based on Total Net Assets as of 4/30/08

(PIE CHART)

Fannie Mae (FNMA) .......................... 65.4%
Freddie Mac (FHLMC) ........................ 15.6%
Ginnie Mae (GNMA) .......................... 6.5%
Short-Term Investments & Other Net Assets .. 12.5%

This semiannual report for Franklin Adjustable U.S. Government Securities Fund
covers the period ended April 30, 2008.

PERFORMANCE OVERVIEW

Franklin Adjustable U.S. Government Securities Fund - Class A posted a +2.56%
cumulative total return for the six months under review. The Fund

(1.) Securities owned by the Fund, but not shares of the Fund, are guaranteed by
the U.S. government, its agencies or instrumentalities as to timely payment
of principal and interest.

(2.) Although U.S. government-sponsored entities may be chartered or sponsored
by acts of Congress, their securities are neither issued nor guaranteed by
the U.S. Treasury. Please see the Fund's prospectus for a detailed
discussion regarding various levels of credit support for government agency
or instrumentality securities. The Fund's yield and share price are not
guaranteed and will vary with market conditions.

THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 44.

Semiannual Report | 5

DIVIDEND DISTRIBUTIONS*
Franklin Adjustable U.S. Government Securities Fund
11/1/07-4/30/08

DIVIDEND PER SHARE
-----------------------------
MONTH CLASS A CLASS C
- ---------- ------------- -------------

November 3.6679 cents 3.3487 cents
December 3.6698 cents 3.3447 cents
January 3.5282 cents 3.2430 cents
February 3.3106 cents 3.0256 cents
March 3.2449 cents 2.9418 cents
April 3.1548 cents 2.8641 cents
------------- -------------
TOTAL 20.5762 CENTS 18.7679 CENTS

underperformed its benchmark, the Lehman Brothers (LB) U.S. Government Index:
1-2 Year Component, which posted a +3.72% total return for the same period.(3)
You can find the Fund's long-term performance data in the Performance Summary
beginning on page 9.

INVESTMENT STRATEGY

We employ a conservative investment strategy as we strive to produce solid
performance in a variety of interest rate climates. We tend to invest in
seasoned adjustable-rate mortgage (ARM) securities, which tend to prepay at
slower rates than newer-production ARMs that have not been through previous
refinancing cycles. We choose securities using a value-oriented approach,
emphasizing the bonds' economic fundamentals in relation to comparable
securities as well as their historical prepayment performance.

(3.) Source: Standard & Poor's Micropal. The LB U.S. Government Index: 1-2 Year
Component includes fixed-rate securities issued by the U.S. government with
remaining maturities of one year up to, but not including, two years.
Securities must have at least $250 million par amount outstanding and be
rated investment grade. All issues included must be publicly issued, dollar
denominated and nonconvertible. The index is unmanaged and includes
reinvested interest. One cannot invest directly in an index, nor is an
index representative of the Fund's portfolio.

6 | Semiannual Report

MANAGER'S DISCUSSION

During the six months under review, financial markets were in turmoil, driven by
fear and uncertainty as investors lost their appetite for risk due to ongoing
deterioration in the financial, labor and housing markets. Late in the review
period, however, the markets shifted and investors' risk tolerance improved
somewhat. Against this backdrop, Ginnie Mae ARMs underperformed their Fannie Mae
and Freddie Mac ARM counterparts.

As a result of the recent market turbulence and heightened volatility, spreads
on fixed income sectors generally widened relative to Treasuries during the
review period. From agency debentures to mortgage-backed securities,
non-Treasury investment sectors were unable to keep pace with the substantial
rally in U.S. Treasuries, and ARMs underperformed their fixed-rate
mortgage-backed securities counterparts. Despite the Fund's positive returns
during the reporting period, its predominant weightings in Fannie Mae, Freddie
Mac and Ginnie Mae securities hindered Fund performance relative to the
benchmark index.

Consistent with our investment strategy, we continued to look for strong cash
flow fundamentals and attractive valuations to uncover opportunities within the
ARM universe. Given the dislocations across the fixed income markets, we held
higher cash levels as mortgage-backed securities generally declined in price.
Based on our analysis, we added to our Fannie Mae ARM position as we found
isolated pockets of value in higher-coupon securities.

Semiannual Report | 7

Thank you for your continued participation in Franklin Adjustable U.S.
Government Securities Fund. We look forward to serving your future investment
needs.

(PHOTO OF T. ANTHONY COFFEY)

/s/ T. Anthony Coffey
T. Anthony Coffey, CFA

(PHOTO OF PAUL VARUNOK)

/s/ Paul Varunok
Paul Varunok

Portfolio Management Team
Franklin Adjustable U.S. Government Securities Fund

8 | Semiannual Report

Performance Summary as of 4/30/08

FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND

PRICE AND DISTRIBUTION INFORMATION

CLASS A (SYMBOL: FISAX) CHANGE 4/30/08 10/31/07
- ------------------------------- ------ ------- --------

Net Asset Value (NAV) +$0.02 $8.89 $8.87
DISTRIBUTIONS (11/1/07-4/30/08)
Dividend Income $0.205762

CLASS C (SYMBOL: FCSCX) CHANGE 4/30/08 10/31/07
- ------------------------------- ------ ------- --------

Net Asset Value (NAV) +$0.01 $8.88 $8.87
DISTRIBUTIONS (11/1/07-4/30/08)
Dividend Income $0.187679

PERFORMANCE

CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 2.25% MAXIMUM INITIAL SALES CHARGE;
CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY. UNTIL AUGUST
31, 2008, THE FUND MAY CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF
PURCHASE.

CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------- ------- ------ ------ ------------------

Cumulative Total Return(1) +2.56% +4.94% +15.91% +46.45%
Average Annual Total Return(2) +0.30% +2.63% +2.54% +3.65%
Avg. Ann. Total Return (3/31/08)(3) +3.05% +2.55% +3.69%
Distribution Rate(4) 4.22%
30-Day Standardized Yield(5) 3.73%
Total Annual Operating Expenses(6) 0.93%

CLASS C 6-MONTH 1-YEAR 3-YEAR INCEPTION (7/1/03)
- ------------------------------------- ------- ------ ------ ------------------

Cumulative Total Return(1) +2.24% +4.51% +11.23% +13.31%
Average Annual Total Return(2) +1.24% +3.51% +3.61% +2.62%
Avg. Ann. Total Return (3/31/08)(3) +3.94% +3.65% +2.67%
Distribution Rate(4) 3.92%
30-Day Standardized Yield(5) 3.42%
Total Annual Operating Expenses(6) 1.33%

PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND
PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.

Semiannual Report | 9

Performance Summary (CONTINUED)

ENDNOTES

INTEREST RATE MOVEMENTS, UNSCHEDULED MORTGAGE PREPAYMENTS AND OTHER RISK FACTORS
WILL AFFECT THE FUND'S SHARE PRICE AND YIELD. BOND PRICES GENERALLY MOVE IN THE
OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS PRICES OF BONDS IN THE FUND
ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE PRICE MAY DECLINE. THE
FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.

CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These shares
have higher annual fees and expenses than Class A shares.

(1.) Cumulative total return represents the change in value of an investment
over the periods indicated.

(2.) Average annual total return represents the average annual change in value
of an investment over the periods indicated. Six-month return has not been
annualized.

(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.

(4.) Distribution rate is based on an annualization of the sum of the respective
class's past 30 days' daily distributions and the maximum offering price
(NAV for Class C) per share on 4/30/08.

(5.) Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 4/30/08.

(6.) Figures are as stated in the Fund's prospectus current as of the date of
this report.

10 | Semiannual Report

Your Fund's Expenses

FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND

As a Fund shareholder, you can incur two types of costs:

- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and

- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.

ACTUAL FUND EXPENSES

You can estimate the expenses you paid during the period, by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:

1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.

2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS

Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% semiannual rate of return before expenses, which does not represent
the Fund's actual return. The figure under the heading "Expenses Paid During
Period" shows the hypothetical expenses your account would have incurred under
this scenario. You can compare this figure with the 5% hypothetical examples
that appear in shareholder reports of other funds.

Semiannual Report | 11

Your Fund's Expenses (CONTINUED)

BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 11/1/07 VALUE 4/30/08 PERIOD* 11/1/07- 4/30/08
----------------- -------------- ------------------------

CLASS A
Actual $1,000 $1,025.60 $4.58
Hypothetical (5% return before expenses) $1,000 $1,020.34 $4.57
CLASS C
Actual $1,000 $1,022.40 $6.54
Hypothetical (5% return before expenses) $1,000 $1,018.40 $6.52

* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.91% and C: 1.30%), multiplied by the
average account value over the period, multiplied by 182/366 to reflect the
one-half year period.

12 | Semiannual Report

Franklin Floating Rate Daily Access Fund

YOUR FUND'S GOALS AND MAIN INVESTMENTS: Franklin Floating Rate Daily Access Fund
seeks to provide a high level of current income and, secondarily, preservation
of capital by investing at least 80% of its net assets in income-producing
floating interest rate corporate loans and corporate debt securities.

PORTFOLIO BREAKDOWN
Franklin Floating Rate Daily Access Fund
Based on Total Net Assets as of 4/30/08

(PIE CHART)

Senior Floating Rate Interests ... 89.0%
Short-Term Investments &
Other Net Assets .............. 11.0%

This semiannual report for Franklin Floating Rate Daily Access Fund covers the
period ended April 30, 2008.

PERFORMANCE OVERVIEW

Franklin Floating Rate Daily Access Fund - Class A had a -1.62% cumulative total
return for the six months under review. The Fund performed better than its
benchmark, the Credit Suisse (CS) Leveraged Loan Index, which had a -3.50% total
return for the same period.(1) You can find the Fund's long-term performance
data in the Performance Summary beginning on page 20.

(1.) Source: Credit Suisse. The CS Leveraged Loan Index is designed to mirror
the investible universe of the $US-denominated leveraged loan market. The
index is unmanaged and includes reinvested interest. One cannot invest
directly in an index, nor is an index representative of the Fund's
portfolio.

THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 55.

Semiannual Report | 13

WHAT ARE SYNDICATED BANK LOANS?

Syndicated bank loans are typically floating rate loans to corporate borrowers
made by a group, or syndicate, of banks and other lenders. A group of lenders
provides capital to companies for varied purposes, such as merger and
acquisition activity, leveraged buyouts or refinancings. Borrowing rates are
generally pegged to an index, such as LIBOR, the London InterBank Offered Rate.

SYNDICATED BANK LOAN MARKET OVERVIEW

During the six-month period under review, short-term interest rates fell as the
Federal Reserve Board (Fed) aggressively lowered the federal funds target rate
in an attempt to improve liquidity and ease the credit crunch. The Fed cut the
federal funds target rate 250 basis points from 4.50% to 2.00%. As a result, the
three-month LIBOR fell significantly from 4.89% to 2.85%. The 10-year Treasury
bond yield declined 71 basis points to 3.77% during the period.

The period under review was one of the bank loan market's worst performing and
most volatile periods ever. In the first three months of 2008, bank loan prices
declined significantly, and yield spreads widened amid slower economic growth
and expectations of higher default rates going forward. Loan credit spreads
widened to unprecedented levels.

The new-issue pipeline remained large at approximately $170 billion in early
November, which weighed heavily on the market for most of the period under
review. In January and February, credit markets and liquidity deteriorated
further, prompting many investors to sell. Some non-traditional investors (such
as hedge funds and high yield accounts) sold out of loans and into high yield
bonds as they had in November; however, this time it was due to the sharp drop
in LIBOR, which reduced overall yields for bank loans. The loan market's
weakness was further exacerbated by the overall deleveraging of the bank loan
asset class as investors that employed leverage to purchase bank loans faced
margin calls as loan prices dropped, which in turn created more selling
pressure. At the same time, collateralized loan obligations (CLOs) faced selling
pressure, which increased secondary market supply. Also, mutual fund investors
began to sell, as did bank loan arrangers who started selling large blocks of
loans that had been on their books since year-end 2007.

This selling pressure led to a downward price spiral, causing loan prices to
fall to an all-time low of 86 cents on the dollar in early February.(2) Most of
the weakness during the period seemed to be a technical correction as corporate
fundamentals remained intact and default rates were below historical averages.

The loan market rebounded considerably toward the end of the period under
review. In February, as prices fell to an all-time low and spreads widened,
non-traditional investors seemed to find value in the asset class, as they could
generate attractive returns even on an unleveraged basis. As a result, prices
rallied to almost 92 cents on the dollar at period-end.(2) At the same time, the
new-issue pipeline was whittled down to a more manageable $93 billion at the end
of April, and few underwriting mandates were expected to be added to the

(2.) Source: S&P Leveraged Commentary & Data.

14 | Semiannual Report

supply pipeline.(2) As a result, April's performance was the loan market's
strongest monthly performance, with a +3.31% total return as measured by the CS
Leveraged Loan Index, exceeding the previous record gain of +1.59% in September
2007.(1)

During the period, only the seasoned issuers that already had an institutional
loan outstanding were able to access the primary markets to add incremental
loans to fund acquisitions or capital needs. Bank loan arrangers also sought to
take advantage of the recent market rally and offered loans through the
traditional syndication route as well as through privately arranged and
coordinated large sell-downs of new-issue loans committed to in mid-2007. As a
result, new-issue volume fell dramatically from the record levels a year
earlier.

Overall volume was low during the period. In addition, any new institutional
deals syndicated in the period's latter half were typically smaller in size
(less than $1 billion) than earlier in the period, as companies sought more of
the financing through the traditional bank market. As a result, many
transactions completed in this time frame were more traditional and better
structured with lower leverage ratios and higher cash flow coverage ratios. They
also had better covenant packages and more favorable pricing. A number of deals
added "LIBOR floors," which set minimum LIBOR rates, providing downside
protection against further declines in LIBOR. With tightening available credit
and an overall repricing of risk in the credit markets, new-issue loan spreads
widened significantly and offered price discounts.

Although loan market conditions were largely weak due to technical factors
related to the excess supply and deleveraging of the asset class, loan defaults
trended a little higher beginning in January. Although default rates rose, at
period-end, the market seemed to be factoring in a much higher worst-case
scenario default rate than occurred during the last down cycle of 2001-2002,
based on the recent decline in prices and loan spreads.

During the current credit cycle, many companies added liquidity and improved
their balance sheets since the last 2001-2002 downturn. The price declines and
spread widening experienced in early 2008 priced in much higher peak default
rates than what corresponding high yield bond spreads and equity index
valuations would otherwise suggest. At period-end, the default rate over the
past 12 months by number of loans was 1.95%, up from an all-time low of 0.26% at
the end of December, but still below the historical average of around 3.00%.(2)
During the period, most companies within our bank loan universe continued to
perform adequately.

Semiannual Report | 15

TOP 10 HOLDINGS
Franklin Floating Rate Daily Access Fund
4/30/08

COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- ----------------------------------------------- ----------

Georgia-Pacific Corp. 1.4%
PAPER PRODUCTS
Community Health Systems Inc. 1.4%
HEALTH CARE FACILITIES
Univision Communications Inc. 1.4%
BROADCASTING & CABLE TV
NRG Energy Inc. 1.4%
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS
Regal Cinemas Corp. 1.4%
MOVIES & ENTERTAINMENT
Idearc Inc. 1.4%
PUBLISHING
HCA Inc. 1.3%
HEALTH CARE FACILITIES
Texas Competitive Electric Holdings Co. LLC 1.3%
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS
Hexion Specialty Chemicals Inc. 1.2%
SPECIALTY CHEMICALS
Oshkosh Truck Corp. 1.2%
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS

INVESTMENT STRATEGY

We use credit analysis to select corporate loan and corporate debt securities
that meet our criteria. The Fund invests in a corporate loan or corporate debt
security only if the manager judges that the borrower can meet the scheduled
payments on the obligations. To help manage the credit risk associated with
investing in below-investment-grade securities, we diversify the Fund by
investing in a large number of loans of companies that we have identified as
having attractive risk/reward profiles, favorable capital structures, strong
asset coverage and dominant market shares. This diversification potentially
reduces credit risk by spreading assets across many different industries.

MANAGER'S DISCUSSION

During the period under review, the Fund favored investments in the paper and
packaging, telecommunications and health care industries.

The Fund added to its paper and packaging exposure through investment in two
companies: Graphic Packaging and Rock-Tenn Company. We invested in Graphic
Packaging, a leading global provider of paperboard packaging solutions to a
variety of multinational food, beverage and consumer products companies.
Recently, Graphic Packaging acquired Altivity Packaging, a leading North
American provider of packaging solutions. This acquisition led to the repayment
of our existing Altivity loan position at par. We believed that the combination
of Graphic Packaging and Altivity had a better and stronger position across
multiple markets, so we purchased Graphic Packaging's existing term loan at a
significant discount in the secondary market. We also invested modestly in the
company's new issue. We found the loans attractive due to their stable end
markets (food and beverage; nondurable consumer goods), large customer base, and
favorable cost structure with profit-improvement potential.

Rock-Tenn Company is a leading domestic manufacturer of packaging products,
merchandising displays, bleached and recycled paperboard, and corrugated medium.
We invested in the loan transaction to finance Rock-Tenn's acquisition of
Southern Container, a vertically integrated North American manufacturer of
corrugated packaging products, high-impact graphics and containerboard. We found
the loan attractive due to the company's large-scale operations, well-recognized
brand name, low-cost operations, stable and recession-resistant end markets
(food and beverage), strong free cash flow generation, and adequate asset
coverage.

The Fund invested in two telecommunications companies during the period. We
invested in Alltel, the fifth-largest provider of wireless services in the U.S.,

16 | Semiannual Report

DIVIDEND DISTRIBUTIONS*
Franklin Floating Rate Daily Access Fund
11/1/07-4/30/08

DIVIDEND PER SHARE
-------------------------------------------------------------
MONTH CLASS A CLASS B CLASS C ADVISOR CLASS
- -------- ------------- ------------- ------------- -------------

November 4.7934 cents 4.1996 cents 4.4762 cents 5.0019 cents
December 5.1500 cents 4.5764 cents 4.8230 cents 5.3566 cents
January 5.0468 cents 4.4548 cents 4.7314 cents 5.2533 cents
February 4.2778 cents 3.7416 cents 3.9895 cents 4.4551 cents
March 4.1567 cents 3.5912 cents 3.8489 cents 4.3468 cents
April 3.3567 cents 2.7797 cents 3.0985 cents 3.5451 cents
------------- ------------- ------------- -------------
TOTAL 26.7814 CENTS 23.3433 CENTS 24.9675 CENTS 27.9588 CENTS

serving more than 15 million customers in 36 states, and GCI Holdings, the
largest Alaska-based telecommunications provider of local, wireless,
long-distance, cable television, and data and Internet services. We found these
loans attractive from a risk/reward standpoint and due to the companies' leading
market positions, stable cash flow generation, and adequate asset coverage.

The Fund increased its exposure to the health care industry by investing in DJO
Finance LLC following the merger of DJO Incorporated and ReAble Therapeutics.
The merger created a leading global medical devices company specializing in
non-surgical orthopedic devices including a broad range of products used for
rehabilitation, pain management and physical therapy. We found this investment
attractive due to the company's leading market position, strong brand name and
complementary product offering following the merger, as well as its stable cash
flow generation.

During the six months under review, the Fund performed better than the CS
Leveraged Loan Index primarily due to its higher overall credit quality compared
with the index, as BB-rated loans outperformed B-rated loans. Additionally, the
Fund's performance was helped by not owning any second-lien loans during the
period.

The Fund's performance also benefited from an underweighted allocation to the
retail industry. We generally avoided retail loans that consisted of specialty
and niche stores structured with few maintenance covenants. Such loans fell out
of favor as consumer spending slowed amid weakening economic conditions. The
Fund also benefited from its overweighted exposure to the chemicals industry.

Semiannual Report | 17

We focused primarily on specialty chemical companies, which typically face less
cyclical demand than other companies in the industry.

The Fund's performance was negatively impacted by an overweighted position in
the broadcasting industry relative to the index. This underperformance was
driven by the Fund's relatively large positions in a couple of issuers whose
loans experienced significant price declines due to lower stated yield spreads,
higher leverage ratios and declining valuations (following lower proceeds from
recent asset sales).

At period-end, volatility remained at or above pre-July 2007 levels due to
tighter liquidity conditions and the activity of non-traditional investors with
relatively short time horizons and a greater tendency to rotate between asset
classes.

Recent market volatility has created many attractive long-term investment
opportunities in the primary and secondary markets in our view. In the current
primary loan market, only strong companies can access capital, and most of these
deals are conservatively structured. The secondary market offers many
opportunities with valuations that are attractive on a historical basis and
relative to high yield bonds. These opportunities have discounted yield spreads
that surpass previous all-time highs with average prices near all-time lows.

Overall, the Fund remained conservatively and defensively positioned, focused on
higher credit quality loans, loans with maintenance covenants, and first lien
loans, which tend to hold up better if the economy and corporate fundamentals
weaken. At period-end, with the decline in prices and discounted spreads close
to all-time wides, we believed that valuations were attractive from a historical
basis and continued to add to positions in the primary and secondary markets.

18 | Semiannual Report

Thank you for your continued participation in Franklin Floating Rate Daily
Access Fund. We look forward to serving your future investment needs.

(PHOTO OF RICHARD S. HSU)

/s/ Richard S. Hsu
Richard S. Hsu, CFA

(PHOTO OF MADELINE LAM)

/s/ Madeline Lam
Madeline Lam

Portfolio Management Team
Franklin Floating Rate Daily Access Fund

Semiannual Report | 19

Performance Summary as of 4/30/08

FRANKLIN FLOATING RATE DAILY ACCESS FUND

PRICE AND DISTRIBUTION INFORMATION

CLASS A (SYMBOL: FAFRX) CHANGE 4/30/08 10/31/07
- ------------------------------- ------ ------- --------

Net Asset Value (NAV) -$0.43 $9.38 $9.81
DISTRIBUTIONS (11/1/07-4/30/08)
Dividend Income $0.267814

CLASS B (SYMBOL: FBFRX) CHANGE 4/30/08 10/31/07
- ------------------------------- ------ ------- --------

Net Asset Value (NAV) -$0.43 $9.37 $9.80
DISTRIBUTIONS (11/1/07-4/30/08)
Dividend Income $0.233433

CLASS C (SYMBOL: FCFRX) CHANGE 4/30/08 10/31/07
- ------------------------------- ------ ------- --------

Net Asset Value (NAV) -$0.43 $9.38 $9.81
DISTRIBUTIONS (11/1/07-4/30/08)
Dividend Income $0.249675

ADVISOR CLASS (SYMBOL: FDAAX) CHANGE 4/30/08 10/31/07
- ------------------------------- ------ ------- --------

Net Asset Value (NAV) -$0.43 $9.38 $9.81
DISTRIBUTIONS (11/1/07-4/30/08)
Dividend Income $0.279588

20 | Semiannual Report

Performance Summary (CONTINUED)

PERFORMANCE

CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 2.25% MAXIMUM INITIAL SALES CHARGE;
CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER
SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY;
ADVISOR CLASS: NO SALES CHARGES. UNTIL AUGUST 31, 2008, THE FUND MAY CHARGE A 2%
FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.

CLASS A 6-MONTH 1-YEAR 5-YEAR INCEPTION (5/1/01)
- ------------------------------------- ------- ------ ------ ------------------

Cumulative Total Return(1) -1.62% -1.15% +20.81% +31.15%
Average Annual Total Return(2) -3.87% -3.36% +3.38% +3.61%
Avg. Ann. Total Return (3/31/08)(3) -5.87% +2.88% +3.18%
Distribution Rate(4) 4.25%
30-Day Standardized Yield(5) 6.19%
Total Annual Operating Expenses(6) 0.95%

CLASS B 6-MONTH 1-YEAR 5-YEAR INCEPTION (5/1/01)
- ------------------------------------- ------- ------ ------ ------------------

Cumulative Total Return(1) -1.98% -1.88% +16.43% +24.87%
Average Annual Total Return(2) -5.81% -5.60% +2.75% +3.22%
Avg. Ann. Total Return (3/31/08)(3) -8.05% +2.26% +2.80%
Distribution Rate(4) 3.61%
30-Day Standardized Yield(5) 5.62%
Total Annual Operating Expenses(6) 1.67%

CLASS C 6-MONTH 1-YEAR 5-YEAR INCEPTION (5/1/01)
- ------------------------------------- ------- ------ ------ ------------------

Cumulative Total Return(1) -1.81% -1.55% +18.41% +27.66%
Average Annual Total Return(2) -2.77% -2.48% +3.44% +3.55%
Avg. Ann. Total Return (3/31/08)(3) -5.01% +2.93% +3.12%
Distribution Rate(4) 4.02%
30-Day Standardized Yield(5) 5.95%
Total Annual Operating Expenses(6) 1.35%

ADVISOR CLASS 6-MONTH 1-YEAR 5-YEAR INCEPTION (5/1/01)
- ------------------------------------- ------- ------ ------ ------------------

Cumulative Total Return(1) -1.50% -0.90% +22.22% +33.45%
Average Annual Total Return(2) -1.50% -0.90% +4.09% +4.21%
Avg. Ann. Total Return (3/31/08)(3) -3.48% +3.59% +3.78%
Distribution Rate(4) 4.60%
30-Day Standardized Yield(5) 6.59%
Total Annual Operating Expenses(6) 0.70%

PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND
PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.

Semiannual Report | 21

Performance Summary (CONTINUED)

ENDNOTES

INVESTORS SHOULD BE AWARE THAT THE FUND'S SHARE PRICE AND YIELD WILL FLUCTUATE
WITH MARKET CONDITIONS. THE FUND SHOULD NOT BE CONSIDERED AN ALTERNATIVE TO
MONEY MARKET FUNDS OR CERTIFICATES OF DEPOSIT. THE FLOATING-RATE LOANS AND DEBT
SECURITIES IN WHICH THE FUND INVESTS TEND TO BE RATED BELOW INVESTMENT GRADE.
INVESTING IN HIGHER-YIELDING, LOWER-RATED FLOATING-RATE LOANS AND DEBT
SECURITIES INVOLVES GREATER RISK OF DEFAULT, WHICH COULD RESULT IN LOSS OF
PRINCIPAL -- A RISK THAT MAY BE HEIGHTENED IN A SLOWING ECONOMY. THE INTEREST
EARNED ON FLOATING-RATE LOANS VARIES WITH CHANGES IN PREVAILING INTEREST RATES.
THEREFORE, WHILE FLOATING-RATE LOANS OFFER HIGHER INTEREST INCOME WHEN INTEREST
RATES RISE, THEY WILL ALSO GENERATE LESS INCOME WHEN INTEREST RATES DECLINE. THE
FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.

CLASS B: These shares have higher annual fees and expenses than Class A
shares.

CLASS C: These shares have higher annual fees and expenses than Class A
shares.

ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.

(1.) Cumulative total return represents the change in value of an investment
over the periods indicated.

(2.) Average annual total return represents the average annual change in value
of an investment over the periods indicated. Six-month return has not been
annualized.

(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.

(4.) Distribution rate is based on an annualization of the respective class's
past 30 days' daily distributions and the maximum offering price (NAV for
Classes B, C and Advisor) per share on 4/30/08.

(5.) Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 4/30/08.

(6.) Figures are as stated in the Fund's prospectus current as of the date of
this report.

22 | Semiannual Report

Your Fund's Expenses

FRANKLIN FLOATING RATE DAILY ACCESS FUND

As a Fund shareholder, you can incur two types of costs:

- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and

- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.

ACTUAL FUND EXPENSES

You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:

1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.

2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS

Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% semiannual rate of return before expenses, which does not represent
the Fund's actual return. The figure under the heading "Expenses Paid During
Period" shows the hypothetical expenses your account would have incurred under
this scenario. You can compare this figure with the 5% hypothetical examples
that appear in shareholder reports of other funds.

Semiannual Report | 23

Your Fund's Expenses (CONTINUED)

PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, such as sales charges or
redemption fees. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.

BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 11/1/07 VALUE 4/30/08 PERIOD* 11/1/07-4/30/08
----------------- -------------- -----------------------

CLASS A
Actual $1,000 $ 983.80 $4.64
Hypothetical (5% return before expenses) $1,000 $1,020.19 $4.72

CLASS B
Actual $1,000 $ 980.20 $8.22
Hypothetical (5% return before expenses) $1,000 $1,016.56 $8.37

CLASS C
Actual $1,000 $ 981.90 $6.55
Hypothetical (5% return before expenses) $1,000 $1,018.25 $6.67

ADVISOR CLASS
Actual $1,000 $ 985.00 $3.41
Hypothetical (5% return before expenses) $1,000 $1,021.43 $3.47

* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.94%; B: 1.67%; C: 1.33%; and Advisor:
0.69%), multiplied by the average account value over the period, multiplied
by 182/366 to reflect the one-half year period.

24 | Semiannual Report

Franklin Low Duration Total Return Fund

YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Low Duration Total Return Fund
seeks as high a level of current income as is consistent with prudent investing,
while seeking capital preservation. The Fund invests primarily in
investment-grade debt securities, including government and corporate debt
securities and mortgage- and asset-backed securities, targeting an estimated
average portfolio duration of three years or less.

DURATION IS A MEASURE OF A BOND'S PRICE SENSITIVITY TO INTEREST RATE CHANGES. IN
GENERAL, A PORTFOLIO OF SECURITIES WITH A LOWER DURATION CAN BE EXPECTED TO BE
LESS SENSITIVE TO INTEREST RATE CHANGES THAN A PORTFOLIO WITH A HIGHER DURATION.

This semiannual report for Franklin Low Duration Total Return Fund covers the
period ended April 30, 2008.

PERFORMANCE OVERVIEW

Franklin Low Duration Total Return Fund - Class A posted a +3.05% cumulative
total return for the six months under review. The Fund underperformed its
benchmark, the Lehman Brothers (LB) U.S. Government Index: 1-3 Year Component,
which posted a +4.12% total return for the same period.(1) You can find more of
the Fund's performance data in the Performance Summary beginning on page 28.

INVESTMENT STRATEGY

We seek to invest in a combination of fixed income securities, primarily from
across the investment-grade debt universe. We analyze securities using
proprietary and nonproprietary research to help us identify attractive
investment opportunities across the entire fixed income opportunity set on a
relative basis. When making investment decisions, we will evaluate business
cycles, yield curves, and values between and within markets. Through a low
duration portfolio, we seek to position the Fund to be less affected by interest
rate changes than a fund with a higher duration.

(1.) Source: Standard & Poor's Micropal. The LB U.S. Government Index: 1-3 Year
Component includes fixed-rate securities issued by the U.S. government with
remaining maturities of one year up to, but not including, three years.
Securities must have at least $250 million par amount outstanding and be
rated investment grade. All issues included must be publicly issued, dollar
denominated and nonconvertible. The index is unmanaged and includes
reinvested interest. One cannot invest directly in an index, nor is an
index representative of the Fund's portfolio.

THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 68.

Semiannual Report | 25

PORTFOLIO BREAKDOWN
Franklin Low Duration Total Return Fund
Based on Total Investments as of 4/30/08

(BAR CHART)

U.S. Government & Agency Securities 55.7%
Mortgage-Backed Securities 11.3%
Asset-Backed & Commercial Mortgage-Backed Securities 10.1%
Corporate Bonds 9.3%
Foreign Government & Agency Securities 5.7%
Convertible Bonds 0.6%
Preferred Stocks 0.4%
Short-Term Investments & Other Net Assets 6.9%

MANAGER'S DISCUSSION

During the six months under review, fear and uncertainty drove financial market
volatility as credit conditions tightened, employment weakened and the housing
market continued to deteriorate. Elevated investor concerns triggered a flight
to safety as investors shed riskier assets in favor of U.S. Treasuries. Ongoing
turmoil and investor unease prompted the Federal Reserve Board to act
aggressively as it sought to restore investor confidence and liquidity to the
financial markets.

In this environment, the Fund emphasized shorter-term and adjustable-rate
investments as it sought to maintain a lower interest rate risk profile than
would be possible with longer-term fixed-rate securities. As we searched for new
investment opportunities consistent with our investment strategy, we found
international debt and U.S. mortgage-related markets attractive.

During the review period, the Fund's international exposure helped performance
relative to the LB U.S. Government Index: 1-3 Year Component. Although we
maintained much of our international exposure and continued to find
opportunities in locally denominated Asian and non-euro European debt markets,
we reduced our net non-dollar exposure due to the strength of most currencies
relative to the U.S. dollar.

Conversely, relative Fund performance was hurt by some of the Fund's
mortgage-related holdings as interest rate spreads widened in mortgage-related
sectors. However, as we continued to believe that wider yield spreads
represented attractive investment opportunities, we were selective in areas such
as the commercial mortgage-backed securities market where we believed
fundamentals remained intact. Consequently, our exposure to this area increased
during the reporting period.

26 | Semiannual Report

Thank you for your continued participation in Franklin Low Duration Total Return
Fund. We look forward to serving your future investment needs.

(PHOTO OF ROGER A. BAYSTON)

/s/ Roger A. Bayston
Roger A. Bayston, CFA

(PHOTO OF KENT BURNS)

/s/ Kent Burns
Kent Burns, CFA

(PHOTO OF CHRISTOPHER J. MOLUMPHY)

/s/ Christopher J. Molumphy
Christopher J. Molumphy, CFA

Portfolio Management Team
Franklin Low Duration Total Return Fund

DIVIDEND DISTRIBUTIONS*
Franklin Low Duration Total Return Fund
Class A
11/1/07-4/30/08

MONTH DIVIDEND PER SHARE
- ---------- ------------------

November 3.5422 cents
December 3.7148 cents
January 3.6491 cents
February 3.0590 cents
March 3.1479 cents
April 2.9287 cents
-------------
TOTAL 20.0417 CENTS

Semiannual Report | 27

Performance Summary as of 4/30/08

FRANKLIN LOW DURATION TOTAL RETURN FUND

Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses. Capital
gain distributions are net profits realized from the sale of portfolio
securities. The performance table does not reflect any taxes that a shareholder
would pay on Fund dividends, capital gain distributions, if any, or any realized
gains on the sale of Fund shares. Total return reflects reinvestment of the
Fund's dividends and capital gain distributions, if any, and any unrealized
gains or losses.

PRICE AND DISTRIBUTION INFORMATION

CLASS A (SYMBOL: FLDAX) CHANGE 4/30/08 10/31/07
- ------------------------------- ------ ------- --------

Net Asset Value (NAV) +$0.10 $9.99 $9.89
DISTRIBUTIONS (11/1/07-4/30/08)
Dividend Income $0.200417

PERFORMANCE(1)

CUMULATIVE TOTAL RETURN EXCLUDES THE SALES CHARGE. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE THE MAXIMUM SALES CHARGE. CLASS A: 2.25% MAXIMUM INITIAL SALES CHARGE.
UNTIL AUGUST 31, 2008, THE FUND MAY CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN
SEVEN DAYS OF PURCHASE.

CLASS A 6-MONTH 1-YEAR 3-YEAR INCEPTION (11/17/04)
- ------------------------------------- ------- ------ ------ --------------------

Cumulative Total Return(2) +3.05% +5.65% +13.49% +13.76%
Average Annual Total Return(3) +0.71% +3.24% +3.51% +3.13%
Avg. Ann. Total Return (3/31/08)(4) +4.25% +3.78% +3.30%
Distribution Rate(5) 3.49%
30-Day Standardized Yield(6) 2.39%
Total Annual Operating Expenses(7)
Without Waiver 1.44%
With Waiver 0.90%

PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND
PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.

THE MANAGER AND ADMINISTRATOR HAVE CONTRACTUALLY AGREED TO LIMIT FUND EXPENSES
SO THAT TOTAL ANNUAL FUND OPERATING EXPENSES DO NOT EXCEED 0.90% (OTHER THAN
CERTAIN NON-ROUTINE EXPENSES) UNTIL 2/28/09.

28 | Semiannual Report

Performance Summary (CONTINUED)

ENDNOTES

INTEREST RATE MOVEMENTS WILL AFFECT THE FUND'S SHARE PRICE AND YIELD. BOND
PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS
PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE
PRICE MAY DECLINE. THE FUND'S INVESTMENTS IN DERIVATIVES, SUCH AS FINANCIAL
FUTURES AND OPTION CONTRACTS, MAY INVOLVE A SMALL INVESTMENT RELATIVE TO THE
AMOUNT OF RISK ASSUMED. SOME DERIVATIVES ARE PARTICULARLY SENSITIVE TO CHANGES
IN INTEREST RATES. THE RISKS OF FOREIGN SECURITIES INCLUDE CURRENCY FLUCTUATIONS
AND POLITICAL UNCERTAINTY. DURING PERIODS OF DECLINING INTEREST RATES, PRINCIPAL
PREPAYMENTS TEND TO INCREASE AS BORROWERS REFINANCE THEIR MORTGAGES AT LOWER
RATES; THEREFORE THE FUND MAY BE FORCED TO REINVEST RETURNED PRINCIPAL AT LOWER
INTEREST RATES, REDUCING ITS INCOME. THE FUND'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.

(1.) If the manager and administrator had not waived fees, the Fund's
distribution rate and total return would have been lower, and yield for the
period would have been 2.15%.

(2.) Cumulative total return represents the change in value of an investment
over the periods indicated.

(3.) Average annual total return represents the average annual change in value
of an investment over the periods indicated. Six-month return has not been
annualized.

(4.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.

(5.) Distribution rate is based on an annualization of the sum of the past 30
days' daily distributions per share and the maximum offering price of
$10.22 per share on 4/30/08.

(6.) Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 4/30/08.

(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report.

Semiannual Report | 29

Your Fund's Expenses

FRANKLIN LOW DURATION TOTAL RETURN FUND

As a Fund shareholder, you can incur two types of costs:

- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and

- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.

ACTUAL FUND EXPENSES

You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:

1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.

2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS

Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% semiannual rate of return before expenses, which does not represent
the Fund's actual return. The figure under the heading "Expenses Paid During
Period" shows the hypothetical expenses your account would have incurred under
this scenario. You can compare this figure with the 5% hypothetical examples
that appear in shareholder reports of other funds.

30 | Semiannual Report

Your Fund's Expenses (CONTINUED)

BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 11/1/07 VALUE 4/30/08 PERIOD* 11/1/07- 4/30/08
- ---------------------------------------- ----------------- -------------- ------------------------

Actual $1,000 $1,030.50 $4.54
Hypothetical (5% return before expenses) $1,000 $1,020.39 $4.52

* Expenses are calculated using the most recent six-month annualized expense
ratio, net of expense waiver, of 0.90%, multiplied by the average account
value over the period, multiplied by 182/366 to reflect the one-half year
period.

Semiannual Report | 31

Franklin Total Return Fund

YOUR FUND'S GOALS AND MAIN INVESTMENTS: Franklin Total Return Fund seeks to
provide investors with high current income consistent with preservation of
capital. Capital appreciation over the long term is a secondary goal. The Fund
invests at least 80% of its assets in investment-grade debt securities. The Fund
focuses on government and corporate debt securities and mortgage- and
asset-backed securities.

This semiannual report for Franklin Total Return Fund covers the period ended
April 30, 2008.

PERFORMANCE OVERVIEW

Franklin Total Return Fund - Class A posted a +2.10% cumulative total return for
the six months under review. The Fund underperformed its benchmark, the Lehman
Brothers (LB) U.S. Aggregate Index, which returned +4.08%.(1) You can find the
Fund's long-term performance data in the Performance Summary beginning on page
36.

INVESTMENT STRATEGY

We seek to invest in a combination of fixed income securities, predominantly
from across the investment-grade debt universe. We analyze securities using
proprietary and nonproprietary research to help us identify attractive
investment opportunities, across the entire fixed income opportunity set, on a
relative basis. The Fund may also invest up to 20% of its total assets in
non-investment-grade debt securities.

(1.) Source: Standard & Poor's Micropal. The LB U.S. Aggregate Index represents
securities that are SEC-registered, taxable and dollar denominated. The
index covers the U.S. investment grade fixed-rate bond market, with index
components for government and corporate securities, mortgage pass-through
securities and asset-backed securities. All issues included must have at
least one year to final maturity and must be rated investment grade (Baa3
or better) by Moody's Investors Service. They must also be dollar
denominated and nonconvertible. Total return includes price
appreciation/depreciation and income as a percentage of the original
investment. The index is rebalanced monthly by market capitalization. The
index is unmanaged and includes reinvested interest. One cannot invest
directly in an index, nor is an index representative of the Fund's
portfolio.

THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 79.

32 | Semiannual Report

PORTFOLIO BREAKDOWN
Franklin Total Return Fund
Based on Total Investments

SECTOR 4/30/08 10/31/07
- ---------------------------------------------------- ------- --------

Mortgage-Backed Securities 32.7% 33.8%
Corporate Bonds 26.1% 20.5%
Asset-Backed & Commercial Mortgage-Backed Securities 20.4% 19.8%
Foreign Government & Agency Securities 6.7% 7.2%
Senior Floating Rate Interests 4.6% 3.7%
U.S. Government & Agency Securities 0.0% 3.5%
Convertible Bonds 1.1% 1.2%
Municipal Bonds 0.9% 0.0%
Preferred Stocks 0.8% 0.0%
Convertible Preferred Stocks 0.2% 0.3%
Credit-Linked Structured Notes 0.1% 0.1%
Short-Term Investments 6.4% 9.9%

MANAGER'S DISCUSSION

During the six months under review, fear and uncertainty drove financial market
volatility as credit conditions tightened, employment weakened and the housing
market continued to deteriorate. Elevated investor concerns triggered a flight
to safety as investors shed riskier assets in favor of U.S. Treasuries and
spreads on non-Treasury sectors widened. Ongoing turmoil and investor unease
prompted the Federal Reserve Board to act aggressively as it sought to restore
investor confidence and liquidity to the financial markets. Late in the review
period, liquidity improved somewhat, although overall economic concerns and a
supply backlog continued to weigh on investor sentiment.

Despite the challenging environment, we sought to take advantage of the wider
yield spreads and selectively increased our risk exposure by adding to our
corporate bond holdings. In our search for fundamentally sound bonds with
attractive yields, we continued to emphasize higher-quality securitized sectors
consistent with our investment strategy. In particular, we found higher-quality
commercial mortgage-backed and certain asset-backed sectors attractive and
increased our allocations to these areas at the expense of our U.S. agency and
Treasury holdings. We also believed the senior secured floating rate loan sector
offered compelling value due to the sector's characteristically defensive
positioning in a company's capital structure.

Semiannual Report | 33

DIVIDEND DISTRIBUTIONS*
Franklin Total Return Fund
11/1/07-4/30/08

DIVIDEND PER SHARE (CENTS)
-----------------------------------------------------
MONTH CLASS A CLASS B CLASS C CLASS R ADVISOR CLASS
- -------- ------- ------- ------- ------- -------------

November 4.2564 3.9336 3.9259 4.0532 4.4674
December 3.9927 3.6576 3.6542 3.7822 4.2076
January 3.9957 3.6572 3.6566 3.7846 4.2129
February 3.6406 3.3286 3.3266 3.4440 3.8416
March 4.1637 3.8356 3.8267 3.9541 4.3782
April 3.6145 3.3029 3.3016 3.4197 3.8150
------- ------- ------- ------- -------
TOTAL 23.6636 21.7155 21.6916 22.4378 24.9227

During the period, the Fund's foreign currency exposure helped performance
relative to the LB U.S. Aggregate Index as the prospect of lower U.S. interest
rates and the ongoing U.S. current account deficit continued to weigh on the
U.S. dollar. Although we maintained much of our international exposure and
continued to find opportunities in the locally denominated Asian and non-euro
European debt markets, we reduced our net non-dollar exposure because of the
relative strength of most currencies versus the U.S. dollar.

34 | Semiannual Report

Thank you for your continued participation in Franklin Total Return Fund.
We look forward to serving your future investment needs.

(PHOTO OF ROGER A. BAYSTON)

/s/ Roger A. Bayston
Roger A. Bayston, CFA

(PHOTO OF KENT BURNS)

/s/ Kent Burns
Kent Burns, CFA

(PHOTO OF CHRISTOPHER J. MOLUMPHY)

/s/ Christopher J. Molumphy
Christopher J. Molumphy, CFA

(PHOTO OF DAVID YUEN)

/s/ David Yuen
David Yuen, CFA, FRM

Portfolio Management Team
Franklin Total Return Fund

Semiannual Report | 35

Performance Summary as of 4/30/08

FRANKLIN TOTAL RETURN FUND

PRICE AND DISTRIBUTION INFORMATION

CLASS A (SYMBOL: FKBAX) CHANGE 4/30/08 10/31/07
- ------------------------------- ------ ------- --------

Net Asset Value (NAV) -$0.04 $9.88 $9.92
DISTRIBUTIONS (11/1/07-4/30/08)
Dividend Income $0.236636

CLASS B (SYMBOL: FBTLX) CHANGE 4/30/08 10/31/07
- ------------------------------- ------ ------- --------

Net Asset Value (NAV) -$0.04 $9.88 $9.92
DISTRIBUTIONS (11/1/07-4/30/08)
Dividend Income $0.217155

CLASS C (SYMBOL: FCTLX) CHANGE 4/30/08 10/31/07
- ------------------------------- ------ ------- --------

Net Asset Value (NAV) -$0.03 $9.88 $9.91
DISTRIBUTIONS (11/1/07-4/30/08)
Dividend Income $0.216916

CLASS R (SYMBOL: FTRRX) CHANGE 4/30/08 10/31/07
- ------------------------------- ------ ------- --------

Net Asset Value (NAV) -$0.04 $9.88 $9.92
DISTRIBUTIONS (11/1/07-4/30/08)
Dividend Income $0.224378

ADVISOR CLASS (SYMBOL: FBDAX) CHANGE 4/30/08 10/31/07
- ------------------------------- ------ ------- --------

Net Asset Value (NAV) -$0.03 $9.90 $9.93
DISTRIBUTIONS (11/1/07-4/30/08)
Dividend Income $0.249227

36 | Semiannual Report

Performance Summary (CONTINUED)

PERFORMANCE(1)

CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER
SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY; CLASS
R/ADVISOR CLASS: NO SALES CHARGES. UNTIL AUGUST 31, 2008, THE FUND MAY CHARGE A
2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.

CLASS A 6-MONTH 1-YEAR 5-YEAR INCEPTION (8/3/98)
- ------------------------------------- ------- ------ ------ ------------------

Cumulative Total Return(2) +2.10% +3.62% +24.35% +70.54%
Average Annual Total Return(3) -2.24% -0.74% +3.55% +5.16%
Avg. Ann. Total Return (3/31/08)(4) -0.73% +3.69% +5.11%
Distribution Rate(5) 4.84%
30-Day Standardized Yield(6) 4.71%
Total Annual Operating Expenses(7)
Without Waiver 1.09%
With Waiver 0.85%

CLASS B 6-MONTH 1-YEAR 5-YEAR INCEPTION (3/1/02)
- ------------------------------------- ------- ------ ------ ------------------

Cumulative Total Return(2) +1.90% +3.31% +21.91% +34.93%
Average Annual Total Return(3) -2.08% -0.64% +3.71% +4.98%
Avg. Ann. Total Return (3/31/08)(4) -0.71% +3.84% +4.90%
Distribution Rate(5) 4.66%
30-Day Standardized Yield(6) 4.53%
Total Annual Operating Expenses(7)
Without Waiver 1.49%
With Waiver 1.25%

CLASS C 6-MONTH 1-YEAR 5-YEAR INCEPTION (3/1/02)
- ------------------------------------- ------- ------ ------ ------------------

Cumulative Total Return(2) +1.90% +3.31% +21.98% +35.02%
Average Annual Total Return(3) +0.90% +2.32% +4.05% +4.99%
Avg. Ann. Total Return (3/31/08)(4) +2.25% +4.16% +4.90%
Distribution Rate(5) 4.65%
30-Day Standardized Yield(6) 4.53%
Total Annual Operating Expenses(7)
Without Waiver 1.49%
With Waiver 1.25%

CLASS R 6-MONTH 1-YEAR 5-YEAR INCEPTION (1/1/02)
- ------------------------------------- ------- ------ ------ ------------------

Cumulative Total Return(2) +1.98% +3.36% +22.81% +37.53%
Average Annual Total Return(3) +1.98% +3.36% +4.19% +5.17%
Avg. Ann. Total Return (3/31/08)(4) +3.40% +4.33% +5.09%
Distribution Rate(5) 4.80%
30-Day Standardized Yield(6) 4.68%
Total Annual Operating Expenses(7)
Without Waiver 1.34%
With Waiver 1.10%

Semiannual Report | 37

Performance Summary (CONTINUED)

PERFORMANCE(1) (CONTINUED)

ADVISOR CLASS 6-MONTH 1-YEAR 5-YEAR INCEPTION (8/3/98)
- ------------------------------------- ------- ------ ------ ------------------

Cumulative Total Return(2) +2.23% +3.98% +26.04% +74.99%
Average Annual Total Return(3) +2.23% +3.98% +4.74% +5.91%
Avg. Ann. Total Return (3/31/08)(4) +3.92% +4.85% +5.85%
Distribution Rate(5) 5.31%
30-Day Standardized Yield(6) 5.16%
Total Annual Operating Expenses(7)
Without Waiver 0.84%
With Waiver 0.60%

PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND
PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.

38 | Semiannual Report

Performance Summary (CONTINUED)

ENDNOTES

INTEREST RATE MOVEMENTS AND MORTGAGE PREPAYMENTS WILL AFFECT THE FUND'S SHARE
PRICE AND YIELD. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF
INTEREST RATES. THUS, AS PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN
INTEREST RATES, THE FUND'S SHARE PRICE MAY DECLINE. INVESTING IN DERIVATIVE
SECURITIES SUCH AS FINANCIAL FUTURES AND OPTION CONTRACTS INVOLVES SPECIAL
RISKS. THE RISKS ASSOCIATED WITH HIGHER-YIELDING, LOWER-RATED SECURITIES
(FORMERLY CALLED JUNK BONDS) INCLUDE HIGHER RISK OF DEFAULT AND LOSS OF
PRINCIPAL. THE RISKS OF FOREIGN SECURITIES INCLUDE CURRENCY FLUCTUATIONS AND
POLITICAL AND ECONOMIC UNCERTAINTY. THE FUND'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.

CLASS B: These shares have higher annual fees and expenses than Class A
shares.

CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.

CLASS R: Shares are available to certain eligible investors as described
in the prospectus. These shares have higher annual fees and
expenses than Class A shares.

ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.

(1.) If the manager and administrator had not waived fees, the Fund's
distribution rate and total return would have been lower, and yield for the
period would have been 4.61%, 4.42%, 4.42%, 4.57% and 5.06% for Classes A,
B, C, R and Advisor, respectively.

(2.) Cumulative total return represents the change in value of an investment
over the periods indicated.

(3.) Average annual total return represents the average annual change in value
of an investment over the periods indicated. Six-month return has not been
annualized.

(4.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.

(5.) Distribution rate is based on an annualization of the sum of the respective
class's past 30 days' daily distributions and the maximum offering price
(NAV for Classes B, C, R and Advisor) per share on 4/30/08.

(6.) Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 4/30/08.

(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report.

Semiannual Report | 39

Your Fund's Expenses

FRANKLIN TOTAL RETURN FUND

As a Fund shareholder, you can incur two types of costs:

- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and

- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.

ACTUAL FUND EXPENSES

You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:

1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.

2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS

40 | Semiannual Report

Your Fund's Expenses (CONTINUED)

BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 11/1/07 VALUE 4/30/08 PERIOD* 11/1/07-4/30/08
----------------- -------------- -----------------------

CLASS A
Actual $1,000 $1,021.00 $4.27
Hypothetical (5% return before expenses) $1,000 $1,020.64 $4.27

CLASS B
Actual $1,000 $1,019.00 $6.27
Hypothetical (5% return before expenses) $1,000 $1,018.65 $6.27

CLASS C
Actual $1,000 $1,019.00 $6.27
Hypothetical (5% return before expenses) $1,000 $1,018.65 $6.27

CLASS R
Actual $1,000 $1,019.80 $5.52
Hypothetical (5% return before expenses) $1,000 $1,019.39 $5.52

ADVISOR CLASS
Actual $1,000 $1,022.30 $3.02
Hypothetical (5% return before expenses) $1,000 $1,021.88 $3.02

* Expenses are calculated using the most recent six-month expense ratio, net
of expense waivers, annualized for each class (A: 0.85%; B: 1.25%; C:
1.25%; R: 1.10%; and Advisor: 0.60%), multiplied by the average account
value over the period, multiplied by 182/366 to reflect the one-half year
period.

Semiannual Report | 41

Franklin Investors Securities Trust

FINANCIAL HIGHLIGHTS

FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND

SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2008 ----------------------------------------------------------------
CLASS A (UNAUDITED) 2007 2006 2005 2004 2003
- ----------------------------------------------- ---------------- -------- -------- -------- -------- --------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 8.87 $ 8.88 $ 8.93 $ 9.06 $ 9.16 $ 9.38
-------- -------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income ...................... 0.188 0.380 0.303 0.292 0.277 0.313
Net realized and unrealized gains
(losses) ................................ 0.038 0.053 0.025 (0.129) (0.102) (0.220)
-------- -------- -------- -------- -------- --------
Total from investment operations .............. 0.226 0.433 0.328 0.163 0.175 0.093
-------- -------- -------- -------- -------- --------
Less distributions from net investment
income ..................................... (0.206) (0.443) (0.378) (0.293) (0.275) (0.313)
-------- -------- -------- -------- -------- --------
Redemption fees ............................... --(g) --(g) --(g) --(g) --(g) --
-------- -------- -------- -------- -------- --------
Net asset value, end of period ................ $ 8.89 $ 8.87 $ 8.88 $ 8.93 $ 9.06 $ 9.16
======== ======== ======== ======== ======== ========
Total return(b) ............................... 2.56% 4.99% 3.75% 1.82% 1.94% 1.00%
RATIOS TO AVERAGE NET ASSETS(c)
Expensesd ..................................... 0.92%(h) 0.91%(h) 0.89%(h) 0.90% 0.89% 0.88%
Net investment income ......................... 4.18% 4.29% 3.50% 3.23% 3.01% 3.30%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............ $386,036 $333,425 $372,703 $475,213 $577,073 $651,701
Portfolio turnover ratee ...................... 13.72% 27.39% 15.91% 24.99% 49.67% 130.32%
Portfolio turnover rate excluding mortgage
dollar rolls(e, f) ......................... 13.72% 27.39% 15.91% 24.99% 45.38% 96.52%

(a) The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of sales and repurchase of the Fund shares in relation to income
earned and/or fluctuating market value of the investments of the Fund.

(b) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.

(d) Prior to October 27, 2005, the expense ratio includes the fund's share of
the U.S. Government Adjustable Rate Mortgage Portfolio's (Portfolio)
allocated net expenses.

(e) Prior to October 27, 2005, represents the Portfolio's rate of turnover.

(f) See Note 1(i) regarding mortgage dollar rolls.

(g) Amount rounds to less than $0.001 per share.

(h) Benefit of expense reduction rounds to less than 0.01%.

42 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report

Franklin Investors Securities Trust

FINANCIAL HIGHLIGHTS (CONTINUED)

FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND

SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2008 ---------------------------------------------------------------
CLASS C (UNAUDITED) 2007 2006 2005 2004 2003
- ----------------------------------------------- ---------------- -------- -------- -------- -------- -------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 8.87 $ 8.88 $ 8.92 $ 9.05 $ 9.16 $ 9.28
------- ------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income ...................... 0.171 0.348 0.266 0.258 0.232 0.081
Net realized and unrealized gains
(losses) ................................ 0.027 0.048 0.038 (0.129) (0.104) (0.120)
------- ------- ------- ------- ------- -------
Total from investment operations .............. 0.198 0.396 0.304 0.129 0.128 (0.039)
------- ------- ------- ------- ------- -------
Less distributions from net investment
income ..................................... (0.188) (0.406) (0.344) (0.259) (0.238) (0.081)
------- ------- ------- ------- ------- -------
Redemption fees ............................... --(g) --(g) --(g) --(g) --(g) --
------- ------- ------- ------- ------- -------
Net asset value, end of period ................ $ 8.88 $ 8.87 $ 8.88 $ 8.92 $ 9.05 $ 9.16
======= ======= ======= ======= ======= =======
Total return(b) ............................... 2.24% 4.56% 3.47% 1.43% 1.41% (0.42)%
RATIOS TO AVERAGE NET ASSETS(c)
Expenses(d) ................................... 1.32%(h) 1.32%(h) 1.28%(h) 1.28% 1.29% 1.26%
Net investment income ......................... 3.78% 3.88% 3.11% 2.85% 2.61% 2.92%
SUPPLEMENTAL DATA
Net assets, end of period (000's) $55,471 $ 36,684 $35,967 $48,461 $49,423 $12,868
Portfolio turnover rate (e) ................... 13.72% 27.39% 15.91% 24.99% 49.67% 130.32%
Portfolio turnover rate excluding mortgage
dollar rolls (e, f) ........................ 13.72% 27.39% 15.91% 24.99% 45.38% 96.52%

(b) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.

(d) Prior to October 27, 2005, the expense ratio includes the fund's share of
the U.S. Government Adjustable Rate Mortgage Portfolio's (Portfolio)
allocated net expenses.

(e) Prior to October 27, 2005, represents the Portfolio's rate of turnover.

(f) See Note 1(i) regarding mortgage dollar rolls.

(g) Amount rounds to less than $0.001 per share.

(h) Benefit of expense reduction rounds to less than 0.01%.

(i) For the period July 1, 2003 (effective date) to October 31, 2003.

Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 43

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED)

FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------- ---------------- -----------

LONG TERM INVESTMENTS 87.5%
MORTGAGE-BACKED SECURITIES 87.5%
(a) FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) ADJUSTABLE RATE 15.6%
FHLMC, 4.215%, 1/01/34 .............................................. $ 4,077,914 $ 4,124,405
FHLMC, 5.079%, 10/01/33 ............................................. 1,088,467 1,103,160
FHLMC, 5.508%, 3/01/18 .............................................. 172,904 174,872
FHLMC, 5.78%, 2/01/37 ............................................... 6,136,934 6,266,760
FHLMC, 5.826%, 3/01/32 .............................................. 1,205,107 1,217,212
FHLMC, 5.845%, 5/01/32 .............................................. 298,514 300,378
FHLMC, 5.875%, 11/01/16 ............................................. 389,340 396,969
FHLMC, 5.914%, 2/01/33 .............................................. 170,780 172,016
FHLMC, 5.955%, 2/01/19 .............................................. 144,756 146,697
FHLMC, 6.037%, 12/01/19 ............................................. 1,758,317 1,797,203
FHLMC, 6.111%, 6/01/29 .............................................. 2,973,754 3,040,697
FHLMC, 6.142%, 5/01/32 .............................................. 587,969 598,490
FHLMC, 6.197%, 5/01/20 .............................................. 1,315,918 1,328,977
FHLMC, 6.226%, 9/01/36 .............................................. 3,950,106 4,054,028
FHLMC, 6.278%, 10/01/29 ............................................. 144,662 146,804
FHLMC, 6.302%, 9/01/34 .............................................. 2,431,145 2,464,709
FHLMC, 6.381%, 11/01/25 ............................................. 4,078,295 4,117,006
FHLMC, 6.401%, 12/01/16 ............................................. 250,521 253,393
FHLMC, 6.408%, 4/01/29 .............................................. 1,319,806 1,334,027
FHLMC, 6.413%, 9/01/19 .............................................. 387,539 392,665
FHLMC, 6.416%, 11/01/31 ............................................. 1,734,091 1,752,482
FHLMC, 6.417%, 4/01/19 .............................................. 798,691 807,650
FHLMC, 6.448%, 6/01/26 .............................................. 416,726 433,943
FHLMC, 6.502%, 3/01/33 .............................................. 59,896 61,020
FHLMC, 6.524%, 1/01/23 .............................................. 478,398 484,230
FHLMC, 6.526%, 5/01/26 .............................................. 192,959 198,228
FHLMC, 6.59%, 5/01/25 ............................................... 305,009 308,289
FHLMC, 6.604%, 8/01/30 .............................................. 2,744,257 2,763,196
FHLMC, 6.623%, 11/01/35 ............................................. 475,417 482,890
FHLMC, 6.645%, 1/01/23 .............................................. 3,672,692 3,756,716
FHLMC, 6.677%, 4/01/18 .............................................. 744,175 750,772
FHLMC, 6.679%, 3/01/32 .............................................. 280,126 282,139
FHLMC, 6.72%, 9/01/18 - 11/01/29 .................................... 3,894,199 3,981,824
FHLMC, 6.725%, 12/01/27 ............................................. 52,859 54,527
FHLMC, 6.73%, 10/01/25 .............................................. 459,305 462,230
FHLMC, 6.791%, 4/01/25 .............................................. 1,240,515 1,251,253
FHLMC, 6.847%, 10/01/24 ............................................. 1,141,691 1,157,060
FHLMC, 6.851%, 10/01/31 ............................................. 2,699,578 2,751,643
FHLMC, 6.876%, 12/01/21 ............................................. 60,279 63,424
FHLMC, 6.927%, 4/01/25 .............................................. 1,369,153 1,405,795
FHLMC, 6.954%, 8/01/27 .............................................. 966,468 987,310
FHLMC, 6.967%, 7/01/29 .............................................. 104,313 106,345
FHLMC, 6.971%, 8/01/32 .............................................. 2,375,108 2,419,663
FHLMC, 6.992%, 6/01/26 .............................................. 3,096,556 3,152,362
FHLMC, 7.009%, 7/01/18 .............................................. 199,469 201,709
FHLMC, 7.025%, 12/01/30 ............................................. 1,231,663 1,248,318

44 | Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------- ---------------- -----------

LONG TERM INVESTMENTS (CONTINUED)
MORTGAGE-BACKED SECURITIES (CONTINUED)
(a) FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) ADJUSTABLE RATE (CONTINUED)
FHLMC, 7.037%, 7/01/27 .............................................. $ 382,890 $ 386,169
FHLMC, 7.175%, 10/01/18 ............................................. 134,681 137,642
FHLMC, 7.177%, 7/01/20 .............................................. 103,047 104,525
FHLMC, 7.188%, 11/01/29 ............................................. 714,000 722,474
FHLMC, 7.21%, 8/01/30 ............................................... 172,853 176,216
FHLMC, 7.23%, 9/01/31 ............................................... 151,725 153,556
FHLMC, 7.24%, 3/01/19 ............................................... 48,372 49,482
FHLMC, 7.25%, 9/01/31 ............................................... 324,986 327,365
FHLMC, 7.283%, 8/01/31 .............................................. 113,154 113,518
FHLMC, 7.361%, 4/01/30 .............................................. 331,911 336,214
FHLMC, 7.416%, 8/01/32 .............................................. 354,376 359,640
FHLMC, 7.478%, 9/01/32 .............................................. 935,308 953,570
FHLMC, 7.585%, 12/01/28 ............................................. 335,363 341,652
------------
68,917,509
------------
(a) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE 65.4%
FNMA, 2.94%, 9/01/16 ................................................ 25,560 24,614
FNMA, 3.094%, 8/01/16 ............................................... 145,204 141,197
FNMA, 4.26%, 10/01/33 ............................................... 88,832 89,912
FNMA, 4.282%, 12/01/33 .............................................. 16,105 16,089
FNMA, 4.304%, 2/01/34 ............................................... 6,206,829 6,232,545
FNMA, 4.50%, 3/01/34 ................................................ 1,504,951 1,521,066
FNMA, 4.579%, 4/01/34 ............................................... 3,463,783 3,462,180
FNMA, 4.63%, 2/01/34 ................................................ 7,817,771 7,843,021
FNMA, 4.669%, 4/01/33 ............................................... 152,468 153,702
FNMA, 4.679%, 6/01/33 ............................................... 2,577,087 2,609,219
FNMA, 4.686%, 9/01/34 ............................................... 273,381 277,398
FNMA, 4.79%, 6/01/33 ................................................ 70,470 70,627
FNMA, 4.81%, 1/01/29 ................................................ 3,658,482 3,674,292
FNMA, 4.825%, 6/01/20 ............................................... 1,351,646 1,358,198
FNMA, 4.835%, 1/01/18 ............................................... 7,045,354 7,038,793
FNMA, 4.851%, 9/01/34 ............................................... 181,987 181,049
FNMA, 4.893%, 4/01/33 ............................................... 184,748 190,978
FNMA, 4.929%, 8/01/34 ............................................... 181,886 187,409
FNMA, 4.93%, 4/01/35 ................................................ 773,428 778,504
FNMA, 4.981%, 4/01/32 ............................................... 527,923 529,817
FNMA, 4.998%, 12/01/34 .............................................. 8,618,304 8,969,218
FNMA, 5.021%, 2/01/34 ............................................... 103,614 104,509
FNMA, 5.022%, 1/01/38 ............................................... 42,598,338 43,207,208
FNMA, 5.025%, 7/01/34 - 8/01/34 ..................................... 247,812 252,445
FNMA, 5.065%, 3/01/22 ............................................... 1,345 1,367
FNMA, 5.108%, 3/01/18 ............................................... 135,482 136,029
FNMA, 5.116%, 7/01/34 ............................................... 935,294 940,478
FNMA, 5.128%, 10/01/32 .............................................. 133,847 136,487
FNMA, 5.16%, 2/01/36 ................................................ 1,844,417 1,847,777
FNMA, 5.168%, 3/01/36 ............................................... 288,932 295,570

Semiannual Report | 45

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------- ---------------- -----------

LONG TERM INVESTMENTS (CONTINUED)
MORTGAGE-BACKED SECURITIES (CONTINUED)
(a) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE
(CONTINUED)
FNMA, 5.199%, 4/01/32 ............................................... $ 543,644 $ 555,363
FNMA, 5.217%, 5/01/36 ............................................... 3,004,271 3,020,195
FNMA, 5.22%, 9/01/18 - 9/01/34 ...................................... 6,253,257 6,268,974
FNMA, 5.22%, 8/01/33 ................................................ 7,109,000 7,138,706
FNMA, 5.22%, 3/01/35 ................................................ 4,842,672 4,847,304
FNMA, 5.252%, 5/01/36 ............................................... 1,787,200 1,796,687
FNMA, 5.301%, 3/01/36 ............................................... 818,586 833,872
FNMA, 5.303%, 12/01/34 .............................................. 289,300 299,640
FNMA, 5.322%, 3/01/33 ............................................... 2,434,859 2,445,230
FNMA, 5.327%, 5/01/18 ............................................... 4,915,431 4,964,484
FNMA, 5.333%, 7/01/35 ............................................... 87,833 87,876
FNMA, 5.336%, 5/01/32 ............................................... 642,344 657,895
FNMA, 5.34%, 3/01/32 - 5/01/32 ...................................... 795,151 809,571
FNMA, 5.345%, 3/01/28 ............................................... 94,585 95,615
FNMA, 5.356%, 3/01/19 ............................................... 144,417 145,866
FNMA, 5.429%, 7/01/24 ............................................... 928,657 937,641
FNMA, 5.439%, 3/01/35 ............................................... 5,008,214 5,079,280
FNMA, 5.483%, 4/01/22 ............................................... 1,054,228 1,058,759
FNMA, 5.49%, 10/01/37 ............................................... 8,996,745 9,136,510
FNMA, 5.50%, 10/01/28 ............................................... 116,872 116,674
FNMA, 5.507%, 5/01/19 ............................................... 842,844 842,798
FNMA, 5.509%, 3/01/19 ............................................... 2,407,654 2,407,463
FNMA, 5.533%, 1/01/32 ............................................... 1,451,456 1,491,903
(b) FNMA, 5.541%, 8/01/35 ............................................... 6,392,274 6,433,984
FNMA, 5.633%, 3/01/32 ............................................... 1,679,716 1,701,658
FNMA, 5.645%, 11/01/31 .............................................. 302,994 303,775
FNMA, 5.645%, 1/01/34 ............................................... 693,387 708,123
FNMA, 5.691%, 8/01/35 ............................................... 10,739,481 10,876,264
FNMA, 5.699%, 5/01/21 ............................................... 702,221 715,818
FNMA, 5.705%, 6/01/19 ............................................... 100,789 101,787
FNMA, 5.707%, 1/01/19 ............................................... 391,865 389,587
FNMA, 5.719%, 1/01/19 ............................................... 1,551,258 1,559,618
FNMA, 5.75%, 11/01/17 ............................................... 1,710,182 1,722,280
FNMA, 5.84%, 12/01/33 ............................................... 85,056 86,154
FNMA, 5.854%, 4/01/19 ............................................... 752,850 756,976
FNMA, 5.857%, 6/01/32 ............................................... 370,915 376,556
FNMA, 5.863%, 6/01/35 ............................................... 319,270 331,400
FNMA, 5.866%, 5/01/36 ............................................... 7,772,908 7,849,458
FNMA, 5.874%, 7/01/33 ............................................... 725,263 734,471
FNMA, 5.875%, 1/01/17 ............................................... 602,568 610,424
FNMA, 5.901%, 4/01/34 ............................................... 5,668,337 5,723,082
FNMA, 5.903%, 6/01/19 ............................................... 308,625 311,729
FNMA, 5.934%, 1/01/35 ............................................... 321,469 326,916
FNMA, 5.945%, 4/01/19 ............................................... 587,368 595,295
FNMA, 5.945%, 12/01/24 .............................................. 510,100 525,571
FNMA, 5.947%, 1/01/35 ............................................... 189,264 192,922

46 | Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------- ---------------- -----------

LONG TERM INVESTMENTS (CONTINUED)
MORTGAGE-BACKED SECURITIES (CONTINUED)
(a) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE
(CONTINUED)
FNMA, 5.956%, 3/01/20 ............................................... $ 2,090,070 $ 2,121,909
FNMA, 5.961%, 10/01/32 .............................................. 816,637 829,811
FNMA, 5.968%, 8/01/21 ............................................... 1,903,031 1,921,182
FNMA, 5.985%, 1/01/19 ............................................... 818,684 823,204
FNMA, 5.989%, 4/01/18 ............................................... 143,816 147,139
FNMA, 6.008%, 12/01/20 .............................................. 197,644 202,747
FNMA, 6.011%, 6/01/19 ............................................... 194,217 197,569
FNMA, 6.022%, 6/01/29 ............................................... 690,918 713,336
FNMA, 6.051%, 5/01/21 ............................................... 314,536 322,794
FNMA, 6.073%, 2/01/19 ............................................... 266,722 268,061
FNMA, 6.074%, 6/01/19 ............................................... 247,432 249,650
FNMA, 6.076%, 2/01/16 ............................................... 310,659 313,281
FNMA, 6.102%, 2/01/32 ............................................... 619,806 625,593
FNMA, 6.103%, 3/01/33 ............................................... 102,947 104,081
FNMA, 6.113%, 3/01/20 ............................................... 93,744 95,446
FNMA, 6.125%, 2/01/33 ............................................... 395,805 401,054
FNMA, 6.154%, 5/01/19 ............................................... 268,268 269,871
FNMA, 6.163%, 8/01/36 ............................................... 21,069,127 21,542,535
FNMA, 6.174%, 1/01/35 ............................................... 838,093 845,785
FNMA, 6.175%, 9/01/33 ............................................... 587,809 585,003
FNMA, 6.185%, 5/01/25 ............................................... 615,418 629,561
FNMA, 6.196%, 9/01/32 ............................................... 530,601 534,945
FNMA, 6.197%, 2/01/31 ............................................... 148,302 150,296
FNMA, 6.198%, 5/01/29 ............................................... 278,911 282,545
FNMA, 6.202%, 5/01/35 ............................................... 487,010 498,761
FNMA, 6.228%, 4/01/31 ............................................... 1,337,179 1,348,471
FNMA, 6.234%, 12/01/17 .............................................. 111,895 112,393
FNMA, 6.237%, 9/01/36 ............................................... 5,380,972 5,479,040
FNMA, 6.239%, 10/01/22 .............................................. 488,842 494,151
FNMA, 6.25%, 6/01/32 ................................................ 641,620 652,402
FNMA, 6.251%, 6/01/36 ............................................... 215,121 216,760
FNMA, 6.263%, 11/01/34 .............................................. 319,499 324,466
FNMA, 6.277%, 2/01/18 ............................................... 177,873 179,063
FNMA, 6.277%, 2/01/33 ............................................... 222,504 225,044
FNMA, 6.281%, 1/01/31 ............................................... 303,631 305,809
FNMA, 6.285%, 3/01/19 ............................................... 275,584 276,441
FNMA, 6.29%, 12/01/32 ............................................... 1,864,462 1,892,918
FNMA, 6.301%, 1/01/16 ............................................... 684,578 688,468
FNMA, 6.316%, 5/01/25 ............................................... 920,555 925,874
FNMA, 6.322%, 5/01/27 ............................................... 1,367,977 1,397,441
FNMA, 6.327%, 1/01/25 ............................................... 2,010,733 2,033,192
FNMA, 6.329%, 1/01/37 ............................................... 1,192,140 1,199,170
FNMA, 6.331%, 4/01/27 ............................................... 2,733,218 2,821,464
FNMA, 6.333%, 1/01/29 ............................................... 541,141 553,052
FNMA, 6.345%, 12/01/33 .............................................. 606,695 616,510
FNMA, 6.349%, 2/01/29 ............................................... 265,358 269,332

Semiannual Report | 47

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------- ---------------- -----------

LONG TERM INVESTMENTS (CONTINUED)
MORTGAGE-BACKED SECURITIES (CONTINUED)
(a) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE
(CONTINUED)
FNMA, 6.352%, 2/01/33 ............................................... $ 373,246 $ 378,931
FNMA, 6.36%, 10/01/24 ............................................... 5,638,970 5,784,033
FNMA, 6.362%, 9/01/22 ............................................... 958,797 965,529
FNMA, 6.409%, 3/01/33 ............................................... 1,978,795 1,997,033
FNMA, 6.467%, 5/01/32 ............................................... 412,332 419,035
FNMA, 6.482%, 11/01/33 .............................................. 448,365 455,254
FNMA, 6.487%, 6/01/27 ............................................... 407,168 412,100
FNMA, 6.508%, 7/01/17 - 8/01/22 ..................................... 880,942 883,555
FNMA, 6.51%, 3/01/34 ................................................ 81,281 81,680
FNMA, 6.511%, 7/01/34 ............................................... 352,138 358,353
FNMA, 6.514%, 11/01/30 .............................................. 4,614,253 4,734,684
FNMA, 6.516%, 2/01/25 ............................................... 739,284 751,997
FNMA, 6.52%, 3/01/32 ................................................ 166,016 168,618
FNMA, 6.53%, 1/01/19 ................................................ 320,231 324,008
FNMA, 6.533%, 6/01/33 ............................................... 204,929 204,753
FNMA, 6.539%, 12/01/19 .............................................. 264,356 262,711
FNMA, 6.552%, 10/01/14 .............................................. 103,294 105,484
FNMA, 6.554%, 10/01/19 .............................................. 367,763 375,485
FNMA, 6.557%, 2/01/30 ............................................... 220,689 225,341
FNMA, 6.57%, 12/01/19 ............................................... 605,140 612,808
FNMA, 6.581%, 11/01/31 .............................................. 174,930 176,663
FNMA, 6.593%, 11/01/26 .............................................. 84,263 85,269
FNMA, 6.605%, 6/01/19 ............................................... 356,509 359,008
FNMA, 6.628%, 9/01/39 ............................................... 665,308 674,826
FNMA, 6.633%, 11/01/27 .............................................. 75,251 76,273
FNMA, 6.642%, 9/01/32 ............................................... 762,391 776,253
FNMA, 6.655%, 4/01/30 ............................................... 680,683 690,927
FNMA, 6.671%, 12/01/27 .............................................. 819,908 829,529
FNMA, 6.681%, 3/01/26 ............................................... 762,902 794,530
FNMA, 6.699%, 12/01/18 .............................................. 220,295 222,648
FNMA, 6.707%, 11/01/20 .............................................. 162,161 163,912
FNMA, 6.733%, 1/01/31 ............................................... 792,157 808,413
FNMA, 6.734%, 5/01/29 ............................................... 145,396 148,491
FNMA, 6.738%, 9/01/15 ............................................... 493,501 512,347
FNMA, 6.74%, 1/01/26 ................................................ 613,067 625,636
FNMA, 6.747%, 9/01/32 ............................................... 1,573,528 1,602,975
FNMA, 6.814%, 10/01/31 .............................................. 222,684 226,165
FNMA, 6.819%, 12/01/20 .............................................. 301,328 306,890
FNMA, 6.82%, 7/01/32 ................................................ 123,542 124,206
FNMA, 6.822%, 12/01/32 .............................................. 821,613 837,850
FNMA, 6.826%, 11/01/18 .............................................. 98,224 99,724
FNMA, 6.835%, 10/01/17 .............................................. 204,830 214,138
FNMA, 6.853%, 7/01/24 ............................................... 439,464 455,962
FNMA, 6.863%, 3/01/20 ............................................... 121,259 123,016
FNMA, 6.867%, 3/01/21 ............................................... 102,458 103,672
FNMA, 6.875%, 5/01/28 ............................................... 545,006 557,068

48 | Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------- ---------------- -----------

LONG TERM INVESTMENTS (CONTINUED)
MORTGAGE-BACKED SECURITIES (CONTINUED)
(a) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE
(CONTINUED)
FNMA, 6.941%, 7/01/26 ............................................... $ 863,389 $ 878,951
FNMA, 6.947%, 8/01/28 ............................................... 1,377,758 1,402,199
FNMA, 6.958%, 12/01/17 .............................................. 145,318 148,600
FNMA, 6.98%, 8/01/34 ................................................ 175,285 179,631
FNMA, 6.989%, 2/01/20 ............................................... 487,733 494,858
FNMA, 7.023%, 11/01/17 .............................................. 457,179 463,654
FNMA, 7.048%, 6/01/31 ............................................... 429,549 439,176
FNMA, 7.052%, 11/01/36 .............................................. 569,028 574,801
FNMA, 7.058%, 7/01/31 ............................................... 25,451 26,044
FNMA, 7.113%, 6/01/28 ............................................... 2,146,137 2,236,666
FNMA, 7.135%, 8/01/29 ............................................... 163,998 163,643
FNMA, 7.155%, 6/01/31 - 11/01/31 .................................... 605,303 615,764
FNMA, 7.17%, 9/01/31 ................................................ 206,897 210,096
FNMA, 7.175%, 6/01/17 ............................................... 5,159 5,252
FNMA, 7.18%, 8/01/31 ................................................ 193,921 194,149
FNMA, 7.185%, 6/01/32 ............................................... 70,405 72,150
FNMA, 7.215%, 5/01/31 ............................................... 116,364 118,391
FNMA, 7.25%, 10/01/30 ............................................... 261,179 263,664
FNMA, 7.262%, 9/01/32 ............................................... 545,088 552,406
FNMA, 7.31%, 8/01/32 ................................................ 58,702 59,606
FNMA, 7.348%, 9/01/29 ............................................... 168,266 170,175
FNMA, 7.379%, 9/01/29 ............................................... 278,544 283,690
FNMA, 7.439%, 1/01/29 ............................................... 345,112 352,032
FNMA, 7.598%, 9/01/25 ............................................... 455,090 462,124
FNMA, 7.707%, 3/01/25 ............................................... 145,271 149,491
FNMA, 7.72%, 5/01/19 ................................................ 258,483 264,637
------------
288,811,105
------------
(a) GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) ADJUSTABLE RATE 6.5%
GNMA, 5.125%, 10/20/23 - 10/20/26 ................................... 8,174,942 8,218,862
GNMA, 5.375%, 1/20/23 - 2/20/28 ..................................... 8,754,742 8,907,009
GNMA, 5.625%, 7/20/21 - 9/20/31 ..................................... 7,462,757 7,528,300
GNMA, 6.375%, 4/20/22 - 6/20/31 ..................................... 3,806,795 3,854,974
------------
28,509,145
============
TOTAL MORTGAGE-BACKED SECURITIES (COST $387,750,797) ................ 386,237,759
============
ASSET-BACKED SECURITIES AND COMMERCIAL MORTGAGE-BACKED SECURITIES
(COST $70,432) 0.0%(c)
FINANCE 0.0%(c)
(a) Travelers Mortgage Services Inc., 1998-5A, A, FRN,
6.687%, 12/25/18 ................................................. 69,242 65,087
============
TOTAL LONG TERM INVESTMENTS (COST $387,821,229) ..................... 386,302,846
============

SHARES
----------------

SHORT TERM INVESTMENTS 13.1%
MONEY MARKET FUND (COST $22,053,759) 4.9%
(d) Franklin Institutional Fiduciary Trust Money Market Portfolio,
2.29% ............................................................ 22,053,759 22,053,759
============

Semiannual Report | 49

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------- ---------------- ------------

SHORT TERM INVESTMENTS (CONTINUED)
REPURCHASE AGREEMENT (COST $36,028,966) 8.2%
(e) Joint Repurchase Agreement, 1.910%, 5/01/08 (Maturity Value
$36,030,878) ..................................................... $ 36,028,966 $ 36,028,966
ABN AMRO Bank, NV, New York Branch (Maturity Value $3,303,671)
Banc of America Securities LLC (Maturity Value $3,109,104)
Barclays Capital Inc. (Maturity Value $3,109,104)
BNP Paribas Securities Corp. (Maturity Value $3,109,104)
Credit Suisse Securities (USA) LLC (Maturity Value $2,590,980)
Deutsche Bank Securities Inc. (Maturity Value $3,109,104)
Goldman, Sachs & Co. (Maturity Value $3,109,104)
Greenwich Capital Markets Inc. (Maturity Value $3,497,878)
Lehman Brothers Inc. (Maturity Value $2,477,483)
Merrill Lynch Government Securities Inc. (Maturity Value
$3,109,104) Morgan Stanley & Co. Inc. (Maturity Value $2,397,138)
UBS Securities LLC (Maturity Value $3,109,104)
Collateralized by U.S. Government Agency Securities,
1.96% - 6.375%, 5/13/08 - 2/21/13;
(f) U.S. Government Agency Discount Notes, 5/05/08 - 6/06/08
and U.S. Treasury Notes, 3.00% - 5.00%, 7/31/08 - 5/31/12
------------
TOTAL SHORT TERM INVESTMENTS (COST $58,082,725) ..................... 58,082,725
------------
TOTAL INVESTMENTS (COST $445,903,954) 100.6% ........................ 444,385,571
OTHER ASSETS, LESS LIABILITIES (0.6)% ............................... (2,878,780)
============
NET ASSETS 100.0% ................................................... $441,506,791
============

See Selected Portfolio Abbreviations on page 98.

(a) The coupon rate shown represents the rate at period end.

(b) A portion or all of the security purchased on a TBA basis. See Note 1(d).

(d) See Note 7 regarding investments in the Franklin Institutional Fiduciary
Trust Money Market Portfolio. The rate shown is the annualized seven-day
yield at period end.

(e) See Note 1(c) regarding joint repurchase agreement.

(f) The security is traded on a discount basis with no stated coupon rate.

50 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report

Franklin Investors Securities Trust

FINANCIAL HIGHLIGHTS

FRANKLIN FLOATING RATE DAILY ACCESS FUND

SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2008 ------------------------------------------------------------------
CLASS A (UNAUDITED) 2007 2006 2005 2004 2003
- ----------------------------------------------- ---------------- -------------- -------------- -------------- ------------ --------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 9.81 $ 10.06 $ 10.11 $ 10.13 $ 10.03 $ 9.69
---------- ---------- ---------- ---------- -------- --------
Income from investment operations(a):
Net investment income ...................... 0.269 0.645 0.599 0.416 0.281 0.388
Net realized and unrealized gains
(losses) ................................ (0.431) (0.249) (0.048) (0.018) 0.102 0.341
---------- ---------- ---------- ---------- -------- --------
Total from investment operations .............. (0.162) 0.396 0.551 0.398 0.383 0.729
---------- ---------- ---------- ---------- -------- --------
Less distributions from net investment
income ..................................... (0.268) (0.646) (0.601) (0.418) (0.283) (0.389)
========== ========== ========== ========== ======== ========
Redemption fees ............................... --(d) --(d) --(d) --(d) --(d) --
========== ========== ========== ========== ======== ========
Net asset value, end of period ................ $ 9.38 $ 9.81 $ 10.06 $ 10.11 $ 10.13 $ 10.03
========== ========== ========== ========== ======== ========
Total return(b) ............................... (1.62)% 4.02% 5.59% 4.00% 3.87% 7.65%
RATIOS TO AVERAGE NET ASSETS(c)
Expenses ...................................... 0.94%(e) 0.89%(e) 0.87%(e) 0.89%(e) 0.94%(e) 1.05%
Net investment income ......................... 5.85% 6.44% 5.94% 4.26% 2.71% 3.83%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $1,049,337 $1,375,871 $1,742,514 $1,890,591 $615,002 $127,660
Portfolio turnover rate ....................... 11.52% 69.25% 74.56% 77.13% 50.52% 85.54%

(b) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.

(d) Amount rounds to less than $0.001 per share.

(e) Benefit of expense reduction rounds to less than 0.01%.

Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 51

Franklin Investors Securities Trust

FINANCIAL HIGHLIGHTS (CONTINUED)

FRANKLIN FLOATING RATE DAILY ACCESS FUND

SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2008 ----------------------------------------------------------------
CLASS B (UNAUDITED) 2007 2006 2005 2004 2003
- ----------------------------------------------- ---------------- ------------ ------------ ------------ ------------ --------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 9.80 $ 10.06 $ 10.10 $ 10.12 $ 10.02 $ 9.68
------- ------- ------- -------- ------- -------
Income from investment operations(a):
Net investment income ...................... 0.229 0.567 0.524 0.339 0.207 0.328
Net realized and unrealized gains
(losses) ................................ (0.426) (0.254) (0.037 (0.015) 0.105 0.333
------- ------- ------- -------- ------- -------
Total from investment operations .............. (0.197) 0.313 0.487 0.324 0.312 0.661
------- ------- ------- -------- ------- -------
Less distributions from net investment
income ..................................... (0.233) (0.573) (0.527 (0.344) (0.212) (0.321)
======= ======= ======= ======== ======= =======
Redemption fees ............................... --(d) --(d) --(d) --(d) --(d) --
======= ======= ======= ======== ======= =======
Net asset value, end of period ................ $ 9.37 $ 9.80 $ 10.06 $ 10.10 $ 10.12 $ 10.02
======= ======= ======= ======== ======= =======
Total return(b) ............................... (1.98)% 3.17% 4.93% 3.25% 3.14% 6.92%
RATIOS TO AVERAGE NET ASSETS(c)
Expenses ...................................... 1.67%(e) 1.61%(e) 1.60%(e) 1.62%(e) 1.68%(e) 1.74%
Net investment income ......................... 5.12% 5.72% 5.21% 3.53% 1.97% 3.14%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $26,927 $39,548 $ 60,97 $ 65,687 $69,331 $28,637
Portfolio turnover rate ....................... 11.52% 69.25% 74.56% 77.13% 50.52% 85.54%

(b) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.

(d) Amount rounds to less than $0.001 per share.

(e) Benefit of expense reduction rounds to less than 0.01%.

52 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report

Franklin Investors Securities Trust

FINANCIAL HIGHLIGHTS (CONTINUED)

FRANKLIN FLOATING RATE DAILY ACCESS FUND

SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2008 ----------------------------------------------------------------
CLASS C (UNAUDITED) 2007 2006 2005 2004 2003
- ----------------------------------------------- ---------------- -------- -------- -------- -------- --------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 9.81 $ 10.07 $ 10.11 $ 10.13 $ 10.03 $ 9.69
-------- -------- -------- -------- -------- -------
Income from investment operations(a):
Net investment income ...................... 0.250 0.605 0.561 0.373 0.239 0.351
Net realized and unrealized gains
(losses) ................................ (0.430) (0.259) (0.039) (0.015) 0.102 0.337
-------- -------- -------- -------- -------- -------
Total from investment operations .............. (0.180) 0.346 0.522 0.358 0.341 0.688
-------- -------- -------- -------- -------- -------
Less distributions from net investment
income ..................................... (0.250) (0.606) (0.562) (0.378) (0.241) (0.348)
======== ======== ======== ======== ======== =======
Redemption fees ............................... --(d) --(d) --(d) --(d) --(d) --
======== ======== ======== ======== ======== =======
Net asset value, end of period ................ $ 9.38 $ 9.81 $ 10.07 $ 10.11 $ 10.13 $ 10.03
======== ======== ======== ======== ======== =======
Total return(b) ............................... (1.81)% 3.50% 5.29% 3.59% 3.44% 7.21%
RATIOS TO AVERAGE NET ASSETS(c)
Expenses ...................................... 1.33%(e) 1.29%(e) 1.26%(e) 1.29%(e) 1.34%(e) 1.46%
Net investment income ......................... 5.46% 6.04% 5.55% 3.86% 2.31% 3.42%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $271,124 $382,911 $380,599 $331,218 $270,104 $95,802
Portfolio turnover rate ....................... 11.52% 69.25% 74.56% 77.13% 50.52% 85.54%

(b) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.

(d) Amount rounds to less than $0.001 per share.

(e) Benefit of expense reduction rounds to less than 0.01%.

Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 53

Franklin Investors Securities Trust

FINANCIAL HIGHLIGHTS (CONTINUED)

FRANKLIN FLOATING RATE DAILY ACCESS FUND

SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2008 ----------------------------------------------------------------
ADVISOR CLASS (UNAUDITED) 2007 2006 2005 2004 2003
- ----------------------------------------------- ---------------- -------- ------- -------- -------- --------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 9.81 $ 10.08 $ 10.12 $ 10.13 $ 10.04 $ 9.70
------- ------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income ...................... 0.280 0.671 0.630 0.438 0.307 0.411
Net realized and unrealized gains
(losses) ................................ (0.430) (0.269) (0.043) (0.004) 0.092 0.343
------- ------- ------- ------- ------- -------
Total from investment operations .............. (0.150) 0.402 0.587 0.434 0.399 0.754
------- ------- ------- ------- ------- -------
Less distributions from net investment
income ..................................... (0.280) (0.672) (0.627) (0.444) (0.309) (0.414)
------- ------- ------- ------- ------- -------
Redemption fees ............................... --(d) --(d) --(d) --(d) --(d) --
------- ------- ------- ------- ------- -------
Net asset value, end of period ................ $ 9.38 $ 9.81 $ 10.08 $ 10.12 $ 10.13 $ 10.04
======= ======= ======= ======= ======= =======
Total return(b) ............................... (1.50)% 4.08% 5.96% 4.37% 4.03% 7.92%
RATIOS TO AVERAGE NET ASSETS(c)
Expenses ...................................... 0.69%(e) 0.64%(e) 0.62%(e) 0.64%(e) 0.69%(e) 0.80%
Net investment income ......................... 6.10% 6.69% 6.19% 4.51% 2.96% 4.08%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $90,923 $85,416 $94,185 $38,822 $37,810 $ 7,602
Portfolio turnover rate ....................... 11.52% 69.25% 74.56% 77.13% 50.52% 85.54%

(b) Total return is not annualized for periods less than one year.

(d) Amount rounds to less than $0.001 per share.

(e) Benefit of expense reduction rounds to less than 0.01%.

54 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED)

FRANKLIN FLOATING RATE DAILY ACCESS FUND COUNTRY PRINCIPAL AMOUNT(a) VALUE
- ------------------------------------------------------------------------------ -------------- ------------------- --------------

LONG TERM INVESTMENTS 89.0%
(b, c) SENIOR FLOATING RATE INTERESTS 89.0%
AEROSPACE & DEFENSE 2.5%
BE Aerospace Inc., Term Loan B, 4.75% - 6.47%, 8/24/12 ................ United States $ 5,183,333 $ 5,180,094
Dyncorp International LLC, Term Loan B, 4.625%, 2/11/11 ............... United States 4,969,927 4,777,343
Hawker Beechcraft Inc.,
Synthetic L/C, 4.696%, 3/26/14 ..................................... United States 212,396 203,037
Term Loan B, 4.696%, 3/26/14 ....................................... United States 3,644,708 3,484,115
ILC Industries Inc., Term Loan B, 4.921%, 2/24/12 ..................... United States 2,509,306 2,408,934
Spirit Aerosystems Inc. (Onex Wind Finance LP), Term Loan B, 4.568%,
12/31/11 ........................................................... United States 6,051,431 5,979,570
TransDigm Inc., Term Loan B, 4.655%, 6/23/13 .......................... United States 10,715,000 10,246,219
Vought Aircraft Industries Inc.,
Term Loan B, 5.12%, 12/22/11 ....................................... United States 3,444,036 3,253,178
L/C Term Loan, 5.768%, 12/22/10 .................................... United States 1,000,000 922,170
--------------
36,454,660
--------------
APPAREL, ACCESSORIES & LUXURY GOODS 0.6%
Warnaco Inc., Term Loan, 4.079% - 6.62%, 1/31/13 ...................... United States 1,520,077 1,428,873
The William Carter Co., Term Loan B, 4.384% - 4.399%, 7/14/12 ......... United States 7,017,457 6,701,671
--------------
8,130,544
--------------
APPLICATION SOFTWARE 0.9%
CCC Information Services Group Inc., Term Loan B, 4.91%, 2/10/13 ...... United States 2,417,999 2,345,459
Dealer Computer Services Inc. (Reynolds & Reynolds), First Lien Term
Loan, 4.886%, 10/26/12 ............................................. United States 10,574,758 10,125,331
--------------
12,470,790
--------------
ASSET MANAGEMENT & CUSTODY BANKS 0.4%
Nuveen Investments Inc., Term Loan B, 5.863% - 5.886%, 11/13/14 ....... United States 6,000,000 5,730,936
--------------
AUTO PARTS & EQUIPMENT 3.1%
Affinia Group Inc., Term Loan B, 5.899%, 11/30/11 ..................... United States 9,339,369 8,312,039
Cooper Standard Automotive Inc.,
Term Loan B, 5.25%, 12/23/11 ....................................... Canada 2,603,213 2,512,100
Term Loan C, 5.25%, 12/23/11 ....................................... United States 6,809,356 6,571,029
Dayco Products LLC (Mark IV), Replacement Term Loan, 7.08% - 8.26%,
6/23/11 ............................................................ United States 7,976,553 6,311,448
(d) Key Safety Systems Inc., Term Loan B, 7.25%, 3/10/14 .................. United States 12,071,166 9,958,712
Tenneco Inc., Synthetic L/C, 4.224%, 3/16/14 .......................... United States 6,463,122 5,881,441
TRW Automotive Inc., Tranche B-1 Term Loan, 4.25% - 4.688%,
2/09/14 ............................................................ United States 2,838,769 2,755,971
United Components Inc., Term Loan D, 4.72% - 5.10%, 6/29/12 ........... United States 3,377,245 3,172,516
--------------
45,475,256
--------------
BROADCASTING & CABLE TV 12.0%
Charter Communications Operating LLC,
Specified Incremental Term Loan B, 8.50%, 3/06/14 .................. United States 2,500,000 2,500,000
Term Loan, 4.89% - 4.90%, 3/06/14 .................................. United States 9,766,643 8,651,614
Citadel Broadcasting Corp., Term Loan B, 4.305% - 4.495%, 6/12/14 ..... United States 17,882,075 15,423,290
CSC Holdings Inc. (Cablevision), Incremental Term Loan, 4.477%,
3/29/13 ............................................................ United States 17,551,169 16,947,847

Semiannual Report | 55

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
(b, c) SENIOR FLOATING RATE INTERESTS (CONTINUED)
BROADCASTING & CABLE TV (CONTINUED)
DIRECTV Holdings LLC, Term Loan B, 4.381%, 4/13/13 .................... United States $ 2,503,357 $ 2,469,980
Discovery Communications Inc., Term Loan B, 4.696%, 5/14/14 ........... United States 8,138,500 7,901,979
Entravision Communications Corp., Term Loan B, 4.20%, 3/29/13 ......... United States 16,512,667 14,737,555
Gray Television Inc., Term Loan B, 4.19%, 12/31/14 .................... United States 6,284,250 5,483,008
Insight Midwest Holdings, Term Loan B, 4.69%, 4/02/14 ................. United States 12,487,500 11,905,495
Intelsat Corp. (Panamsat),
Tranche B-2-A, 5.184%, 1/03/14 ..................................... United States 4,548,051 4,322,072
Tranche B-2-B, 5.184%, 1/03/14 ..................................... United States 4,546,684 4,320,773
Tranche B-2-C, 5.184%, 1/03/14 ..................................... United States 4,546,684 4,320,773
Intelsat Subsidiary Holding Co. Ltd., Term Loan B, 5.184%, 6/30/13 .... United States 4,236,004 4,058,092
LBI Media Inc., Term Loan B, 4.204%, 3/31/12 .......................... United States 980,000 867,937
MCC Iowa,
Term Loan D-1, 4.46% - 4.65%, 1/31/15 .............................. United States 9,187,862 8,383,924
Term Loan D-2 (Delayed Draw), 4.46% - 4.65%, 1/31/15 ............... United States 2,489,734 2,271,883
Mediacom LLC, Term Loan C, 4.46% - 4.65%, 1/31/15 ..................... United States 5,049,744 4,607,891
Mission Broadcasting Inc., Term Loan B, 4.446%, 10/01/12 .............. United States 3,871,192 3,561,497
NEP II Inc., Term Loan B, 7.108%, 2/18/14 ............................. United States 1,887,162 1,713,387
Nexstar Broadcasting Inc., Term Loan B, 4.649%, 10/01/12 .............. United States 3,664,795 3,371,611
Spanish Broadcasting System Inc., Term Loan B, 4.45%, 6/11/12 ......... United States 4,559,000 3,852,355
Univision Communications Inc., Initial Term Loan, 6.25%, 9/29/14 ...... United States 23,500,000 19,850,168
UPC Financing Partnership, Term Loan N, 4.459%, 12/31/14 .............. Netherlands 15,100,000 14,236,476
Virgin Media Dover LLC (NTL Dover LLC), Tranche B4, 4.937%, 9/03/12 ... United States 7,953,108 7,323,484
--------------
173,083,091
--------------
BUILDING PRODUCTS 1.2%
Goodman Global Holdings Co. Inc., Term Loan B, 7.50%, 2/13/14 ......... United States 3,500,000 3,472,658
NCI Building Systems Inc., Term Loan B, 4.30% - 4.40%, 6/18/10 ........ United States 5,176,516 4,982,397
Nortek Inc., Term Loan, 5.15% - 6.50%, 8/27/11 ........................ United States 8,676,753 7,852,461
Stile Acquisition Corp. (Masonite), Canadian Term Loan, 4.63% - 4.92%,
4/05/13 ............................................................ Canada 651,474 590,353
Stile U.S. Acquisition Corp. (Masonite), U.S. Term Loan, 4.63% - 4.92%,
4/05/13 ............................................................ United States 652,584 591,359
--------------
17,489,228
--------------
CASINOS & GAMING 2.6%
Ameristar Casinos Inc., Term Loan B, 5.017%, 11/10/12 ................. United States 5,352,446 5,178,492
CCM Merger Inc. (MotorCity Casino), Term Loan B, 4.671% - 5.08%,
7/13/12 ............................................................ United States 2,648,723 2,489,799
Greektown Holdings LLC,
Term Loan B Add-On, 5.50%, 12/03/12 ................................ United States 841,117 733,875
Term Loan B, 5.438%, 12/03/12 ...................................... United States 4,680,405 4,083,653
Green Valley Ranch Gaming LLC, Term Loan B, 4.671% - 5.085%, 2/16/14 .. United States 5,639,050 4,539,435
Las Vegas Sands LLC, Term Loan B, 4.45%, 5/23/14 ...................... United States 6,114,127 5,629,858
Penn National Gaming Inc.,
Term Loan A, 4.36% - 6.35%, 10/03/11 ............................... United States 2,281,395 2,208,201
Term Loan B, 6.00%, 10/03/12 ....................................... United States 4,560,742 4,421,384

56 | Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
(b, c) SENIOR FLOATING RATE INTERESTS (CONTINUED)
CASINOS & GAMING (CONTINUED)
VML U.S. Finance LLC (Venetian Macau),
Delay Draw, 4.95%, 5/25/12 ......................................... Macau $ 4,120,076 $ 3,937,507
New Project Term Loans, 4.95%, 5/25/13 ............................. Macau 900,000 860,119
Term Loan B, 4.95%, 5/24/13 ........................................ Macau 3,279,924 3,134,584
--------------
37,216,907
--------------
COAL & CONSUMABLE FUELS 0.2%
Alpha Natural Resources LLC, Term Loan B, 4.421%, 10/26/12 ......... United States 2,664,489 2,604,538
--------------
COMMERCIAL PRINTING 0.2%
Cenveo Corp.,
Delayed Draw Term Loan, 4.349%, 6/21/13 ............................ United States 24,604 22,974
Term Loan C, 4.349%, 6/21/13 ....................................... United States 2,486,306 2,321,589
--------------
2,344,563
--------------
COMMUNICATIONS EQUIPMENT 0.5%
CommScope Inc., Term Loan B, 5.171% - 5.196%, 12/27/14 ................ United States 7,259,398 6,941,799
--------------
CONSTRUCTION & ENGINEERING 0.3%
CONTECH Construction Products Inc., Term Loan B, 4.75% - 4.87%,
1/31/13 ............................................................ United States 5,482,836 4,763,214
--------------
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS 1.6%
Bucyrus International Inc., Tranche B Dollar Term Loan, 4.195% -
6.413%, 5/04/14 .................................................... United States 3,668,519 3,613,491
Oshkosh Truck Corp.,
Term Loan A, 4.51%, 12/06/11 ....................................... United States 2,187,500 2,023,438
Term Loan B, 4.76%, 12/06/13 ....................................... United States 17,765,245 17,059,574
--------------
22,696,503
--------------
CONSTRUCTION MATERIALS 0.2%
Headwaters Inc., Term Loan B, 4.90%, 4/30/11 .......................... United States 3,383,362 3,216,630
--------------
CONSUMER ELECTRONICS 0.2%
DEI Sales Inc., Term Loan B, 6.73%, 9/22/13 ........................... United States 4,246,343 3,322,763
--------------
DATA PROCESSING & OUTSOURCED SERVICES 3.3%
Affiliated Computer Services Inc.,
Additional Term Loan, 4.727% - 4.863%, 3/20/13 ..................... United States 5,437,567 5,255,322
Term Loan B, 4.886%, 3/20/13 ....................................... United States 2,339,036 2,260,641
Emdeon Business Services LLC, First Lien Term Loan, 4.70%, 11/16/13 ... United States 4,901,359 4,628,721
First Data Corp.,
Term Loan B-1, 5.349% - 5.645%, 9/24/14 ............................ United States 4,311,403 4,066,731
Term Loan B-2, 5.349% - 5.446%, 9/24/14 ............................ United States 674,828 635,834
Term Loan B-3, 5.349% - 5.446%, 9/24/14 ............................ United States 2,874,269 2,702,353
infoUSA Inc.,
2007 Term Loan, 4.70%, 2/10/12 ..................................... United States 2,962,500 2,844,000
Term Loan B, 4.70%, 2/10/12 ........................................ United States 4,597,128 4,413,242

Semiannual Report | 57

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
(b, c) SENIOR FLOATING RATE INTERESTS (CONTINUED)
DATA PROCESSING & OUTSOURCED SERVICES (CONTINUED)
Metavante Corp., Term Loan B, 4.989%, 11/01/14 ........................ United States $ 6,800,000 $ 6,431,664
SunGard Data Systems Inc., New U.S. Term Loan, 4.878%, 2/28/14 ........ United States 14,287,256 13,568,021
--------------
46,806,529
--------------
DISTILLERS & VINTNERS 0.2%
Constellation Brands Inc., Term Loan B, 4.188% - 6.438%, 6/05/13 ...... United States 3,350,000 3,275,225
--------------
DIVERSIFIED CHEMICALS 2.3%
Celanese U.S. Holdings LLC, Dollar Term Loan, 4.188%, 4/02/14 ......... United States 11,476,556 11,110,741
Huntsman International LLC, Term Loan B, 4.636%, 4/19/14 .............. United States 5,586,647 5,421,668
Ineos U.S. Finance LLC,
Term Loan B2, 6.25%, 12/16/13 ...................................... United States 4,028,000 3,767,441
Term Loan C2, 6.75%, 12/23/14 ...................................... United States 4,028,000 3,767,441
Invista Canada Co., Term Loan B2, 4.196%, 4/29/11 ..................... Canada 3,200,897 3,078,197
Invista SARL, Term Loan B1, 4.196%, 4/29/11 ........................... Luxembourg 6,076,884 5,843,938
--------------
32,989,426
--------------
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES 4.6%
Acosta Inc., Term Loan B, 5.12%, 7/26/13 .............................. United States 996,541 950,450
Affinion Group Inc., Term Loan B, 5.395% - 5.57%, 10/17/12 ............ United States 9,695,901 9,162,627
ARAMARK Corp.,
Synthetic L/C, 5.198%, 1/26/14 ..................................... United States 721,631 693,036
Term Loan B, 4.571%, 1/26/14 ....................................... United States 11,291,313 10,843,895
Audatex North America Inc., Domestic Term Loan C, 4.875%, 5/16/14 ..... United States 2,034,123 1,886,690
Language Lines Inc., Term Loan B, 5.95%, 6/11/11 ...................... United States 3,979,379 3,690,874
Nielsen Finance LLC (VNU Inc.), Dollar Term Loan, 5.346%, 8/09/13 ..... United States 17,899,129 16,974,335
Protection One Inc., Term Loan C, 5.12% - 5.34%, 3/31/12 .............. United States 1,554,265 1,344,439
TDS Investor Corp. (Travelport),
Delayed Draw Term Loan, 5.113%, 8/23/13 ............................ United States 7,146,698 6,605,336
Synthetic L/C, 4.946%, 8/23/13 ..................................... United States 420,113 388,289
Term Loan B, 5.113%, 8/23/13 ....................................... United States 1,986,512 1,836,034
West Corp.,
(d) Add-on Term Loan, 9.00%, 10/24/13 ..................................... United States 1,000,000 992,980
Term Loan B-2, 5.238% - 5.465%, 10/24/13 ........................... United States 12,703,804 11,644,269
--------------
67,013,254
--------------
DIVERSIFIED METALS & MINING 0.4%
Thompson Creek Metals Co., First Lien Term Loan, 7.48%, 10/26/12 ...... United States 6,089,375 6,028,481
--------------
EDUCATION SERVICES 0.8%
Education Management LLC, Term Loan C, 4.50%, 6/01/13 ................. United States 10,253,997 9,170,918
Laureate Education Inc., Closing Date Term Loan, 5.966%, 8/17/14 ...... United States 2,640,049 2,444,685
--------------
11,615,603
--------------
ELECTRICAL COMPONENTS & EQUIPMENT 0.7%
Baldor Electric Co., Term Loan B, 4.688%, 1/31/14 ..................... United States 1,494,193 1,444,387
EnerSys Capital Inc., New 2007 Term Loans, 4.349% - 4.878%, 3/17/11 ... United States 6,073,553 5,701,547
H3C Holdings Ltd., Term Loan B, 5.632%, 9/28/12 ....................... Cayman Islands 3,620,076 3,095,165
--------------
10,241,099
--------------

58 | Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
(b, c) SENIOR FLOATING RATE INTERESTS (CONTINUED)
ELECTRONIC EQUIPMENT MANUFACTURERS 0.6%
Sensus Metering Systems Inc.,
Term Loan B1, 4.818% - 6.901%, 12/17/10 ............................ United States $ 7,722,577 $ 6,950,319
Term Loan B2, 6.718% - 6.901%, 12/17/10 ............................ Luxembourg 532,715 479,443
--------------
7,429,762
--------------
ELECTRONIC MANUFACTURING SERVICES 0.7%
FCI USA,
Term Loan B1, 6.849%, 11/01/13 ..................................... United States 2,650,000 2,404,875
Term Loan C1, 6.849%, 11/03/14 ..................................... United States 2,650,000 2,427,400
Flextronics International USA Inc.,
Term Loan A, 4.934% - 4.963%, 10/01/14 ............................. United States 3,782,376 3,520,760
Term Loan A-1, 4.963%, 10/01/14 .................................... United States 1,086,890 1,011,713
--------------
9,364,748
--------------
ENVIRONMENTAL & FACILITIES SERVICES 1.6%
Allied Waste North America Inc.,
Credit Link, 5.50%, 3/28/14 ........................................ United States 3,514,028 3,400,620
Term Loan B, 4.08% - 4.59%, 3/28/14 ................................ United States 5,844,686 5,656,060
Duratek Inc. (EnergySolutions), Term Loan B, 7.099%, 6/07/13 .......... United States 2,017,937 1,885,762
EnergySolutions LLC,
Synthetic L/C (Add-On), 5.05%, 6/07/13 ............................. United States 1,830,189 1,761,557
Synthetic L/C, 5.05%, 6/07/13 ...................................... United States 269,683 259,570
Term Loan B, 7.099%, 6/07/13 ....................................... United States 4,206,005 4,048,280
EnviroSolutions Inc., Term Loan B, 8.25%, 7/07/12 ..................... United States 3,661,764 3,130,808
Safety-Kleen Systems Inc.,
Synthetic L/C, 2.75%, 8/02/13 ...................................... United States 528,814 518,237
Term Loan B, 5.25%, 8/02/13 ........................................ United States 1,996,712 1,956,778
--------------
22,617,672
--------------
FOOD RETAIL 0.2%
Pantry Inc.,
(e) Delayed Draw Term Loan, 4.62%, 5/14/14 ......................... United States 227,041 192,418
Term Loan B, 4.62%, 5/14/14 ........................................ United States 2,628,950 2,228,035
--------------
2,420,453
--------------
GENERAL MERCHANDISE STORES 0.2%
Dollar General Corp., Tranche B-1 Term Loan, 5.649%, 7/07/14 .......... United States 2,800,000 2,618,437
--------------
HEALTH CARE EQUIPMENT 0.6%
Carestream Health Inc., Term Loan, 4.696% - 4.899%, 4/30/13 ........... United States 901,918 768,885
DJO Finance LLC, Term Loan B, 5.696%, 5/20/14 ......................... United States 8,728,125 8,520,832
--------------
9,289,717
--------------
HEALTH CARE FACILITIES 5.5%
Community Health Systems Inc., Term Loan, 5.335%, 7/25/14 ............. United States 21,408,369 20,539,682
HCA Inc., Term Loan B-1, 4.946%, 11/18/13 ............................. United States 19,891,338 18,922,590
Health Management Associates Inc., Term Loan B, 4.446%, 2/28/14 ....... United States 6,092,655 5,637,881
HealthSouth Corp., Term Loan B, 5.23% - 5.37%, 3/10/13 ................ United States 4,281,773 4,074,377

Semiannual Report | 59

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
(b, c) SENIOR FLOATING RATE INTERESTS (CONTINUED)
HEALTH CARE FACILITIES (CONTINUED)
Iasis Healthcare LLC,
Delayed Draw Term Loan, 4.863%, 3/14/14 ............................ United States $ 2,933,227 $ 2,811,009
Initial Term Loan, 4.881%, 3/14/14 ................................. United States 8,498,733 8,144,616
Synthetic L/C, 2.609%, 3/14/14 ..................................... United States 782,194 749,602
LifePoint Hospitals Inc., Term Loan B, 4.71%, 4/15/12 ................. United States 2,806,042 2,700,815
Psychiatric Solutions Inc., Second Additional Term Loan, 4.45% -
4.613%, 7/01/12 .................................................... United States 2,881,635 2,773,574
United Surgical Partners International Inc.,
(e) Delayed Draw Term Loan, 4.62% - 6.791%, 4/19/14 ................ United States 342,361 314,972
Term Loan B, 5.49%, 4/19/14 .................................... United States 2,252,998 2,072,758
Vanguard Health Holding Co. II LLC, Replacement Term Loan, 5.134%,
9/23/11 ............................................................ United States 11,136,471 10,755,972
--------------
79,497,848
--------------
HEALTH CARE SERVICES 2.0%
AMR Holdco/EmCare Holdco, Term Loan B, 4.80% - 5.00%, 2/10/12 ......... United States 2,327,454 2,211,081
DaVita Inc., Term Loan B-1, 4.20% - 4.60%, 10/05/12 ................... United States 16,774,532 16,094,023
Fresenius Medical Care Holdings Inc., Term Loan B, 3.954% - 6.205%,
3/31/13 ............................................................ United States 6,616,964 6,411,216
U.S. Oncology Inc., Term Loan B, 5.446% - 5.649%, 8/20/11 ............. United States 2,575,385 2,504,562
VICAR Operating Inc., Incremental Term Loan, 4.375%, 5/16/11 .......... United States 1,485,000 1,447,875
--------------
28,668,757
--------------
HEALTH CARE SUPPLIES 0.4%
Bausch and Lomb Inc.,
(e) Delayed Draw Term Loan, 5.946%, 4/28/15 ........................ United States 600,000 593,406
Parent Term Loan B, 5.946%, 4/28/15 ............................ United States 4,788,000 4,735,380
--------------
5,328,786
--------------
HOME FURNISHINGS 0.7%
National Bedding Co. LLC, Term Loan, 4.70% - 4.80%, 2/28/13 ........... United States 4,529,168 3,645,980
(e) Sealy Mattress Co., Revolver, 4.454% - 7.75%, 4/14/11 ................. United States 962,500 875,875
Simmons Bedding Company, Term Loan D, 4.875% - 7.25%, 12/19/11 ........ United States 6,400,910 5,760,819
--------------
10,282,674
--------------
HOUSEHOLD PRODUCTS 0.4%
Central Garden & Pet Co., Term Loan B, 4.30% - 4.37%, 9/30/12 ......... United States 3,856,917 3,390,875
Prestige Brands Inc., Term Loan B, 5.163% - 6.968%, 4/06/11 ........... United States 2,465,496 2,385,367
--------------
5,776,242
--------------
HOUSEWARES & SPECIALTIES 1.0%
Jarden Corp.,
Term Loan B1, 4.446%, 1/24/12 ...................................... United States 608,373 580,025
Term Loan B2, 4.446%, 1/24/12 ...................................... United States 8,821,163 8,410,123
Jostens IH Corp. (Visant Holding Corp.), Term Loan C, 6.718%,
12/21/11 ........................................................... United States 6,011,589 5,791,162
--------------
14,781,310
--------------

60 | Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
(b, c) SENIOR FLOATING RATE INTERESTS (CONTINUED)
HUMAN RESOURCE & EMPLOYMENT SERVICES 0.1%
Allied Security Holdings LLC, Term Loan D, 5.87%, 6/30/10 ............. United States $ 1,881,103 $ 1,758,831
--------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS 3.3%
Dynegy Holdings Inc.,
Term L/C Facility, 4.363%, 4/02/13 ................................. United States 9,211,240 8,696,949
Term Loan B, 4.363%, 4/02/13 ....................................... United States 884,317 834,943
NRG Energy Inc.,
Credit Link, 6.48%, 2/01/13 ........................................ United States 6,477,368 6,228,799
Term Loan, 6.58%, 2/01/13 .......................................... United States 14,029,509 13,491,126
Texas Competitive Electric Holdings Co. LLC,
Term Loan B-2, 6.478% - 6.596%, 10/10/14 ........................... United States 14,922,506 14,316,279
Term Loan B-3, 6.478% - 6.596%, 10/10/14 ........................... United States 3,980,000 3,815,578
--------------
47,383,674
--------------
INDUSTRIAL CONGLOMERATES 0.6%
GPS CCMP Merger Corp. (Generac), Term Loan B, 5.184%, 11/12/13 ........ United States 4,625,966 3,751,659
TriMas Co. LLC,
Term Loan B, 5.146% - 5.157%, 8/02/13 .............................. United States 4,710,437 4,357,154
Tranche B-1 L/C, 7.086%, 8/02/13 ................................... United States 1,103,578 1,020,809
--------------
9,129,622
--------------
INDUSTRIAL MACHINERY 1.7%
CI Acquisition Inc. (Chart Industries), Term Loan B, 4.75% - 6.875%,
10/17/12 ........................................................... United States 1,735,586 1,692,197
Colfax Corp., Term Loan B, 5.00%, 12/19/11 ............................ United States 8,038,329 7,877,562
Husky Injection Molding Systems Ltd. (Ontario Inc.), Term Loan, 5.946%,
12/14/12 ........................................................... Canada 3,291,750 3,279,406
Mueller Water Products Inc., Term Loan B, 4.45% - 4.649%, 5/26/14 ..... United States 5,515,348 5,149,956
RBS Global Inc. (Rexnord Corp.),
Term Loan, 5.099% - 5.318%, 7/22/13 ................................ United States 5,606,557 5,256,148
Incremental Tranche B-2, 4.978%, 7/22/13 ........................... United States 1,871,158 1,754,211
--------------
25,009,480
--------------
INTEGRATED TELECOMMUNICATION SERVICES 3.2%
Alaska Communications Systems Holdings Inc., Term Loan, 4.446%,
2/01/12 ............................................................ United States 2,993,001 2,840,145
GCI Holdings Inc., Add-On Term Loan, 8.25%, 8/31/12 ................... United States 6,150,000 6,033,581
Iowa Telecommunications Services Inc., Term Loan B, 4.43% - 4.54%,
11/23/11 ........................................................... United States 3,750,000 3,660,938
NTELOS Inc., Term Loan B-1, 5.12% - 5.27%, 8/24/11 .................... United States 7,142,179 6,994,871
(d) Wind Telecomunicazioni SpA,
Term Loan B-2, 6.875%, 9/30/13 ..................................... Italy 7,150,000 6,973,688
Term Loan C-2, 7.375%, 9/30/14 ..................................... Italy 7,150,000 7,032,811
(d) Windstream Corp., Tranche B-1, 5.50%, 7/17/13 ......................... United States 11,871,005 11,610,270
(f) Winstar Communications Inc., DIP, 8.00%, 2/20/49 ...................... United States 837,576 1,291,961
--------------
46,438,265
--------------

Semiannual Report | 61

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
(b, c) SENIOR FLOATING RATE INTERESTS (CONTINUED)
INVESTMENT BANKING & BROKERAGE 0.3%
TD Ameritrade Holding Corp., Term Loan B, 4.37%, 12/31/12 ............. United States $ 4,702,660 $ 4,602,310
--------------
IT CONSULTING & OTHER SERVICES 0.5%
Acxiom Corp., Term Loan B, 4.468% - 6.599%, 9/14/12 ................... United States 5,195,167 5,071,782
CACI International Inc., Term Loan B-2, 4.22% - 4.49%, 5/03/11 ........ United States 2,086,393 2,055,097
--------------
7,126,879
--------------
LEISURE FACILITIES 0.3%
24 Hour Fitness Worldwide Inc., Term Loan B, 5.20% - 7.22%, 6/08/12 ... United States 3,920,000 3,508,400
AMF Bowling Worldwide Inc., Term Loan B, 5.196% - 5.49%, 6/08/13 ...... United States 866,706 693,365
--------------
4,201,765
--------------
LEISURE PRODUCTS 0.1%
PlayPower Inc., Term Loan B, 5.45%, 6/30/12 ........................... United States 1,259,055 1,199,250
--------------
LIFE & HEALTH INSURANCE 0.6%
Conseco Inc., Term Loan, 4.863%, 10/10/13 ............................. United States 11,162,940 8,558,258
--------------
MOVIES & ENTERTAINMENT 2.4%
Cinemark USA Inc., Term Loan, 4.46% - 4.82%, 10/05/13 ................. United States 7,901,892 7,553,094
National CineMedia LLC, Term Loan, 4.62%, 2/13/15 ..................... United States 2,513,360 2,342,811
Regal Cinemas Corp., Term Loan, 4.196%, 10/27/13 ...................... United States 20,592,648 19,601,627
Zuffa LLC, Term Loan B, 4.875%, 6/19/15 ............................... United States 7,046,750 4,756,556
--------------
34,254,088
--------------
OFFICE SERVICES & SUPPLIES 0.1%
Acco Brands Corp., Term Loan B, 4.292% - 4.82%, 8/17/12 ............... United States 1,941,251 1,858,748
--------------
OIL & GAS DRILLING 0.4%
Dresser Inc., Term Loan B, 5.113% - 5.315%, 5/04/14 ................... United States 5,899,361 5,702,717
--------------
OIL & GAS EQUIPMENT & SERVICES 0.8%
Helix Energy Solutions Group, Term Loan B, 4.71% - 4.863%, 7/01/13 .... United States 5,411,983 5,242,859
Petroleum Geo-Services ASA, Term Loan B, 4.45%, 6/29/15 ............... Norway 6,380,147 6,188,743
--------------
11,431,602
--------------
OIL & GAS REFINING & MARKETING 0.4%
Citgo Petroleum Corp., Term Loan B, 4.114%, 11/15/12 .................. United States 5,711,081 5,368,416
--------------
OIL & GAS STORAGE & TRANSPORTATION 0.4%
Niska Gas Storage Canada ULC (C/R Gas),
Asset Sale Term Loan, 4.55%, 5/13/11 ............................... Canada 288,392 276,856
Canadian Term Loan, 4.534%, 5/12/13 ................................ Canada 3,922,563 3,772,199
Niska Gas Storage U.S. LLC (C/R Gas),
Delay Draw, 4.60%, 5/12/13 ......................................... United States 430,031 412,830
U.S. Term Loan, 4.589%, 5/12/13 .................................... United States 634,835 610,500
--------------
5,072,385
--------------

62 | Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
(b, c) SENIOR FLOATING RATE INTERESTS (CONTINUED)
PACKAGED FOODS & MEATS 2.0%
Bumble Bee Foods LLC, Term Loan B, 4.959% - 5.489%, 5/02/12 ........... United States $ 2,000,000 $ 1,895,000
Dean Foods Co., Term Loan B, 4.45% - 4.62%, 4/02/14 ................... United States 15,543,000 14,858,673
Del Monte Foods Co., Term Loan B, 4.395% - 4.42%, 2/08/12 ............. United States 2,471,899 2,438,941
OSI Group LLC,
German Term Loan, 4.671%, 9/02/11 .................................. Germany 1,181,054 1,039,327
Netherlands Term Loan, 4.671%, 9/02/11 ............................. Netherlands 1,476,317 1,299,159
U.S. Term Loan, 4.671%, 9/02/11 .................................... United States 2,657,371 2,338,487
Pinnacle Foods Finance LLC, Term Loan B, 5.421% - 5.453%, 4/02/14 ..... United States 5,446,845 5,095,071
--------------
28,964,658
--------------
PAPER PACKAGING 1.5%
Graham Packaging Co. LP, New Term Loan, 4.875% - 5.25%, 10/07/11 ...... United States 6,829,635 6,488,624
Graphic Packaging International Inc.,
Incremental Term Loan, 5.44% - 5.67%, 5/16/14 ...................... United States 3,000,000 2,901,249
Term Loan B, 4.698% - 4.92%, 5/16/14 ............................... United States 3,600,000 3,435,501
Rock-Tenn Co., Term Loan B, 5.75%, 3/05/14 ............................ United States 3,600,000 3,609,000
(d) Smurfit-Stone Container Canada Inc.,
Term Loan C, 4.709% - 5.125%, 11/01/11 ............................. Canada 2,552,948 2,489,762
Term Loan C-1, 4.709%, 11/01/11 .................................... Canada 669,217 652,654
(d) Smurfit-Stone Container Enterprises,
L/C Term Loan, 2.584%, 11/01/10 .................................... United States 892,446 870,358
Term Loan B, 4.709% - 5.125%, 11/01/11 ............................. United States 868,810 847,308
--------------
21,294,456
--------------
PAPER PRODUCTS 1.9%
Domtar Corp., Term Loan, 4.175%, 3/07/14 .............................. United States 2,923,424 2,813,535
Georgia-Pacific Corp.,
Additional Term Loan, 4.446% - 4.74%, 12/20/12 ..................... United States 4,526,042 4,348,535
Term Loan B, 4.446% - 4.835%, 12/20/12 ............................. United States 17,064,918 16,395,649
NewPage Corp., Term Loan, 7.75%, 12/22/14 ............................. United States 1,709,825 1,702,227
Verso Paper Holdings LLC, Term Loan B, 4.446%, 8/01/13 ................ United States 2,980,358 2,784,153
--------------
28,044,099
--------------
PERSONAL PRODUCTS 0.4%
Chattem Inc., Term Loan B, 4.46% - 4.463%, 1/02/13 .................... United States 2,289,083 2,226,133
Herbalife International Inc., Term Loan B, 4.37%, 7/21/13 ............. United States 3,033,948 2,870,874
--------------
5,097,007
--------------
PHARMACEUTICALS 0.3%
Mylan Inc., Term Loan B, 5.938% - 6.125%, 10/02/14 .................... United States 3,890,250 3,822,711
--------------
PROPERTY & CASUALTY INSURANCE 0.1%
Affirmative Insurance Holdings Inc., Term Loan, 6.399% - 8.406%,
1/31/14 ............................................................ United States 1,318,240 1,127,096
--------------

Semiannual Report | 63

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
(b, c) SENIOR FLOATING RATE INTERESTS (CONTINUED)
PUBLISHING 4.4%
Canwest Mediaworks LP, Term Loan B, 6.00%, 7/10/12 .................... Canada $ 9,558,000 $ 9,175,680
Dex Media East LLC, Term Loan B, 4.70% - 5.08%, 10/24/14 .............. United States 2,000,000 1,824,376
Dex Media West LLC,
Term Loan B1, 4.20% - 4.57%, 3/09/10 ............................... United States 385,383 377,515
Term Loan B2, 4.20% - 4.59%, 3/09/10 ............................... United States 996,249 973,335
Idearc Inc., Term Loan B, 4.70% - 4.86%, 11/17/14 ..................... United States 23,675,151 19,591,187
MediaNews Group Inc.,
Term Loan B, 4.634%, 12/30/10 ...................................... United States 45,422 35,883
Term Loan C, 5.134%, 8/02/13 ....................................... United States 4,126,500 3,032,978
R.H. Donnelley Inc.,
Term Loan D-1, 4.05% - 6.33%, 6/30/11 .............................. United States 1,510,248 1,433,792
Term Loan D-2, 4.10% - 4.60%, 6/30/11 .............................. United States 7,782,443 7,394,534
Tribune Co.,
Term Loan B, 5.542%, 5/16/14 ....................................... United States 16,051,635 11,938,404
Term Loan X, 6.50%, 5/16/09 ........................................ United States 4,120,000 3,929,450
Wenner Media LLC, Term Loan B, 4.446%, 10/02/13 ....................... United States 4,627,634 4,164,871
--------------
63,872,005
--------------
RAILROADS 0.2%
Kansas City Southern Railway Co., Term Loan B, 4.43% - 6.35%,
4/26/13 ............................................................ United States 2,824,460 2,729,134
--------------
REAL ESTATE MANAGEMENT & DEVELOPMENT 0.4%
CB Richard Ellis Services Inc., Term Loan B, 4.30%, 12/20/13 .......... United States 6,359,911 5,819,318
--------------
RESTAURANTS 1.2%
Arby's Restaurant Holdings LLC, Term Loan B, 6.25%, 7/25/12 ........... United States 6,860,035 6,497,743
CBRL Group (Cracker Barrel),
Term Loan B1, 4.62%, 4/27/13 ....................................... United States 2,683,852 2,542,950
Term Loan B2 (Delayed Draw), 4.62%, 4/27/13 ........................ United States 621,033 588,429
OSI Restaurant Partners LLC (Outback),
Pre-Funded Revolving Credit, 2.67%, 6/14/13 ........................ United States 635,795 554,996
Term Loan B, 5.00%, 6/14/14 ........................................ United States 7,990,192 6,974,774
--------------
17,158,892
--------------
RETAIL REITS 0.6%
Capital Automotive, Term Loan B, 4.46%, 12/15/10 ...................... United States 1,806,876 1,752,388
Macerich Co., Term Loan B, 4.25%, 4/25/10 ............................. United States 7,200,000 6,610,680
--------------
8,363,068
--------------
SEMICONDUCTORS 1.0%
Fairchild Semiconductor Corp., Initial Term Loan, 4.196%, 6/26/13 ..... United States 4,943,358 4,683,832
Marvell Technology Group Ltd., Term Loan, 5.196%, 11/08/09 ............ Bermuda 10,434,375 10,121,344
--------------
14,805,176
--------------

64 | Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
(b, c) SENIOR FLOATING RATE INTERESTS (CONTINUED)
SPECIALIZED CONSUMER SERVICES 0.4%
Brickman Group Holdings Inc., Term Loan B, 4.696%, 1/23/14 ............ United States $ 2,764,519 $ 2,591,736
FTD Inc., Term Loan B, 4.613%, 7/28/13 ................................ United States 3,660,312 3,513,899
--------------
6,105,635
--------------
SPECIALTY CHEMICALS3.8%
Brenntag Holding GmbH & Co. KG,
Acquisition Facility, 5.794%, 1/20/14 .............................. Germany 824,727 763,904
Term Loan B2, 5.794%, 1/20/14 ...................................... United States 3,375,273 3,126,346
Cognis GmbH, Term Loan C, 6.00%, 9/15/13 ............................. Germany 5,500,000 4,961,787
Hexion Specialty Chemicals BV,
Term Loan C-2, 5.00%, 5/03/13 ...................................... Netherlands 4,064,816 3,842,523
Term Loan C-5, 5.00%, 5/03/13 ...................................... Netherlands 1,191,000 1,125,868
Hexion Specialty Chemicals Inc., Term Loan C-1, 4.938%, 5/03/13 ....... United States 18,712,168 17,688,856
ISP Chemco LLC, Term Loan B, 4.50% - 4.875%, 6/04/14 .................. United States 2,571,024 2,436,850
Nalco Co., Term Loan B, 4.477% - 6.48%, 11/04/10 ...................... United States 4,241,281 4,186,941
Oxbow Carbon LLC,
Delayed Draw Term Loan, 4.863%, 5/08/14 ............................ United States 527,557 478,538
Term Loan B, 4.718% - 5.75%, 5/08/14 ............................... United States 5,892,894 5,345,344
Polypore Inc., Incremental Term Loan, 5.11%, 7/03/14 .................. United States 1,885,750 1,800,891
Rockwood Specialties Group Inc., Term Loan E, 4.399%, 7/30/12 ......... United States 4,322,328 4,123,622
Univar Inc., OPCO Tranche B Term Loan, 5.696%, 10/11/14 ............... United States 2,344,125 2,188,827
Vertellus Specialties Inc., Term Loan, 6.938%, 12/10/12 ............... United States 3,117,188 3,023,672
--------------
55,093,969
--------------
SYSTEMS SOFTWARE 0.3%
Macrovision Solutions Corp., Term Loan B, 7.75%, 5/02/13 .............. United States 4,100,000 4,058,795
--------------
TRADING COMPANIES & DISTRIBUTORS1.3%
Ashtead Group PLC, Term Loan, 4.50%, 8/31/11 .......................... United Kingdom 3,762,000 3,517,470
Bakercorp., Term Loan C, 5.149% - 5.32%, 5/08/14 ...................... United States 4,158,000 3,835,755
Interline Brands,
Delayed Draw Term Loan, 4.61%, 6/23/13 ............................. United States 2,226,115 2,103,678
Term Loan B, 4.61%, 6/23/13 ........................................ United States 1,538,106 1,453,511
RSC Holdings III, ABL Term Loan, 4.45% - 4.48%, 11/27/12 .............. United States 8,372,500 8,100,394
--------------
19,010,808
--------------
TRUCKING 0.7%
(d) Avis Budget Car Rental LLC, Term Loan, 4.15%, 4/19/12 ................. United States 3,136,330 2,869,742
Hertz Corp.,
Credit Link, 2.599%, 12/21/12 ...................................... United States 1,078,931 1,036,386
Term Loan B, 4.22% - 4.23%, 12/21/12 ............................... United States 5,966,660 5,731,383
--------------
9,637,511
--------------
WIRELESS TELECOMMUNICATION SERVICES 0.6%
Alltel Communications Inc., Term Loan B-3, 5.466%, 5/18/15 ............ United States 9,452,500 8,704,834
--------------
TOTAL SENIOR FLOATING RATE INTERESTS (COST $1,364,192,189) ............ 1,280,792,907
--------------

Semiannual Report | 65

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

FRANKLIN FLOATING RATE DAILY ACCESS FUND COUNTRY SHARES/WARRANTS VALUE
- ------------------------------------------------------------------------------ -------------- ------------------- --------------

LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS AND WARRANTS 0.0%(g)
OTHER DIVERSIFIED FINANCIAL SERVICES 0.0%(g)
(h, i) Vertis Holdings Inc., wts., 6/30/11 ................................... United States 39,812 $ --
--------------
STEEL 0.0%(g)
(h, i) Copperweld Holding Co., B, Escrow ..................................... United States 1,741 150,405
--------------
TOTAL COMMON STOCKS AND WARRANTS (COST $156,558) 150,405
--------------
TOTAL LONG TERM INVESTMENTS (COST $1,364,348,747) 1,280,943,312
--------------
SHORT TERM INVESTMENT (COST $172,416,297) 12.0%
MONEY MARKET FUND 12.0%
(j) Franklin Institutional Fiduciary Trust Money Market Portfolio, 2.29% .. United States 172,416,297 172,416,297
--------------
TOTAL INVESTMENTS (COST $1,536,765,044) 101.0% ........................ 1,453,359,609
OTHER ASSETS, LESS LIABILITIES (1.0)% ................................. (15,048,867)
--------------
NET ASSETS 100.0% ..................................................... $1,438,310,742
==============

See Selected Portfolio Abbreviations on page 98.

(a) The principal amount is stated in U.S. dollars unless otherwise indicated.

(b) The coupon rate shown represents the rate at period end.

(d) A portion or all of the security purchased on a delayed delivery basis. See
Note 1(d).

(e) See Note 11 regarding unfunded loan commitments.

(f) See Note 10 regarding defaulted securities.

(g) Rounds to less than 0.1% of net assets.

(h) Security has been deemed illiquid because it may not be able to be sold
within seven days. At April 30, 2008, the aggregate value of these
securities was $150,405, representing 0.01% of net assets.

(i) Non-income producing for the twelve months ended April 30, 2008.

(j) See Note 7 regarding investments in the Franklin Institutional Fiduciary
Trust Money Market Portfolio. The rate shown is the annualized seven-day
yield at period end.

66 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report

Franklin Investors Securities Trust

FINANCIAL HIGHLIGHTS

FRANKLIN LOW DURATION TOTAL RETURN FUND

SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 20, 2008 -----------------------------------
CLASS A (UNAUDITED) 2007 2006 2005(g)
- ----------------------------------------------- ---------------- ------- ------- -------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 9.89 $ 9.79 $ 9.77 $ 10.00
------- ------- ------- -------
Income from investment operations(a):
Net investment income ...................... 0.184 0.398 0.346 0.263
Net realized and unrealized gains
(losses) ................................ 0.116 0.113 0.036 (0.186)
------- ------- ------- -------
Total from investment operations .............. 0.300 0.511 0.382 0.077
------- ------- ------- -------
Less distributions from net investment
income ..................................... (0.200) (0.411) (0.362) (0.307)
------- ------- ------- -------
Redemption fees(b) ............................ -- -- -- --
------- ------- ------- -------
Net asset value, end of period ................ $ 9.99 $ 9.89 $ 9.79 $ 9.77
======= ======= ======= =======
Total return(c) ............................... 3.05% 5.33% 3.99% 0.78%
RATIOS TO AVERAGE NET ASSETS(d)
Expenses before waiver and payments by
affiliates ................................. 1.34% 1.40% 1.37% 1.97%
Expenses net of waiver and payments by
affiliates ................................. 0.90%(f) 0.90%(f) 0.90%(f) 0.90%(f)
Net investment income ......................... 3.60% 3.97% 3.52% 2.68%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $25,130 $16,744 $11,722 $10,311
Portfolio turnover rate ....................... 35.02% 82.95% 86.38% 79.69%
Portfolio turnover rate excluding mortgage
dollar rolls(e) ............................ 26.07% 49.35% 86.38% 79.69%

(b) Amount rounds to less than $0.001 per share.

(c) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.

(d) Ratios are annualized for periods less than one year.

(e) See Note 1(i) regarding mortgage dollar rolls.

(f) Benefit of expense reduction rounds to less than 0.01%.

(g) For the period November 17, 2004 (commencement of operations) to October
31, 2005.

Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 67

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED)

COUNTRY/
FRANKLIN LOW DURATION TOTAL RETURN FUND ORGANIZATION SHARES VALUE
- ------------------------------------------------------------------------------- ------------- ------------------- --------------

LONG TERM INVESTMENTS 93.1%
CONVERTIBLE PREFERRED STOCK (COST $20,000) 0.0%(a)
DIVERSIFIED FINANCIALS 0.0%(a)
CIT Group Inc., 7.75%, cvt. pfd., Z .................................... United States 800 $ 9,360
--------------
PREFERRED STOCK (COST $104,200) 0.4%
BANKS 0.4%
Freddie Mac, 8.375%, pfd. .............................................. United States 4,000 102,400
--------------

PRINCIPAL AMOUNT(b)
-------------------

CORPORATE BONDS 9.3%
AUTOMOBILES & COMPONENTS 0.4%
Ford Motor Credit Co. LLC,
7.875%, 6/15/10 ..................................................... United States 50,000 47,603
senior note, 5.80%, 1/12/09 ......................................... United States 50,000 48,898
--------------
96,501
--------------
BANKS 0.3%
(c, d) Landsbanki Islands HF, 144A, FRN, 3.793%, 8/25/09....................... Iceland 100,000 91,238
--------------
DIVERSIFIED FINANCIALS 2.0%
(d) General Electric Capital Corp., FRN, 2.918%, 10/21/10................... United States 18,000 17,861
GMAC LLC, 6.875%, 9/15/11 .............................................. United States 50,000 41,690
(d) Lehman Brothers Holdings Inc., senior note, FRN,
2.954%, 7/18/11 ..................................................... United States 200,000 181,262
Textron Financial Corp., 5.125%, 11/01/10 .............................. United States 250,000 255,966
--------------
496,779
--------------
FOOD, BEVERAGE & TOBACCO 0.3%
Bunge Ltd. Finance Corp., 4.375%, 12/15/08 ............................. United States 75,000 75,181
--------------
HOUSEHOLD & PERSONAL PRODUCTS 0.4%
Avon Products Inc., 5.125%, 1/15/11 .................................... United States 100,000 101,513
--------------
MEDIA 4.3%
Clear Channel Communications Inc., senior note, 6.25%, 3/15/11 ......... United States 225,000 191,370
Comcast Corp., 5.50%, 3/15/11 ......................................... United States 100,000 100,762
The Interpublic Group of Cos. Inc., senior note,
5.40%, 11/15/09 ..................................................... United States 200,000 197,000
7.25%, 8/15/11 ...................................................... United States 500,000 492,500
Viacom Inc., senior note, 5.75%, 4/30/11 ............................... United States 100,000 101,208
--------------
1,082,840
--------------
TELECOMMUNICATION SERVICES 0.8%
AT&T Inc.,
4.95%, 1/15/13 ...................................................... United States 100,000 100,797
(d) FRN, 3.278%, 11/14/08 ........................................... United States 100,000 99,974
--------------
200,771
--------------

68 | Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

COUNTRY/
FRANKLIN LOW DURATION TOTAL RETURN FUND ORGANIZATION PRINCIPAL AMOUNT(b) VALUE
- ------------------------------------------------------------------------------- ------------- ------------------- --------------

LONG TERM INVESTMENTS (CONTINUED)
CORPORATE BONDS (CONTINUED)
UTILITIES 0.8%
CenterPoint Energy Inc., senior note, B, 5.875%, 6/01/08 ............... United States 100,000 $ 100,035
Public Service Electric and Gas Co., 4.00%, 11/01/08 ................... United States 100,000 99,998
--------------
200,033
--------------
TOTAL CORPORATE BONDS (COST $2,345,876) ................................ 2,344,856
--------------
CONVERTIBLE BONDS 0.6%
DIVERSIFIED FINANCIALS 0.1%
Merrill Lynch & Co. Inc., cvt., senior note, zero cpn., 3/13/32 ........ United States 31,000 35,291
--------------
MATERIALS 0.1%
Headwaters Inc., cvt., senior sub. note, 2.875%, 6/01/16 ............... United States 20,000 15,625
--------------
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES 0.1%
Protein Design Labs Inc., cvt., sub. note, 2.75%, 8/16/23 .............. United States 30,000 27,488
--------------
REAL ESTATE 0.2%
CapitalSource Inc., cvt., senior sub. note, 4.00%, 7/15/34 ............. United States 48,000 41,453
--------------
RETAILING 0.1%
Best Buy Co. Inc., cvt., sub. deb., 2.25%, 1/15/22 ..................... United States 25,000 27,406
--------------
TOTAL CONVERTIBLE BONDS (COST $171,205) ................................ 147,263
--------------
ASSET-BACKED SECURITIES AND COMMERCIAL MORTGAGE-BACKED SECURITIES 10.1%
BANKS 1.0%
(d) Countrywide Asset-Backed Certificates,
2001-BC3, A, FRN, 3.375%, 12/25/31 ................................. United States 3,216 2,831
2002-3, 1A1, FRN, 3.635%, 5/25/32 .................................. United States 1,795 1,656
(d) FHLMC, 2996, FK, FRN, 2.966%, 6/15/35 ................................. United States 209,258 203,431
FNMA, G93-33, K, 7.00%, 9/25/23 ....................................... United States 16,477 17,392
(c, d) GS Mortgage Securities Corp. II, 2007-E0P, A1, 144A, FRN, 2.831%,
3/06/20 ............................................................ United States 38,084 35,442
--------------
260,752
--------------
DIVERSIFIED FINANCIALS 8.4%
(d) ACE Securities Corp., 2005-HE7, A2B, FRN, 3.075%, 11/25/35 ............ United States 263,411 259,850
(d) Bank of America Credit Card Trust, 2007-A13, A13, FRN, 2.936%,
4/15/12 ............................................................ United States 400,000 396,242
Chase Funding Mortgage Loan Asset-Backed Certificates,
2003-6, 1A3, 3.34%, 5/25/26 ........................................ United States 12,493 12,446
(d)2004-2, 2A2, FRN, 3.145%, 2/25/35 ............................... United States 51,623 49,909
(d) Chase Issuance Trust,
2005-A9, A9, FRN, 2.736%, 11/15/11 ................................. United States 400,000 395,822
2007-A9, A9, FRN, 2.746%, 6/16/14 .................................. United States 500,000 477,037

Semiannual Report | 69

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
ASSET-BACKED SECURITIES AND COMMERCIAL MORTGAGE-BACKED SECURITIES
(CONTINUED)
DIVERSIFIED FINANCIALS (CONTINUED)
(d) MBNA Credit Card Master Note Trust, 2005-A4, A4,
FRN, 2.756%, 11/15/12 .............................................. United States 500,000 $ 490,134
Structured Asset Securities Corp., 2004-4XS, 1A4, 4.13%, 2/25/34 ...... United States 6,916 6,940
--------------
2,088,380
--------------
REAL ESTATE 0.7%
(d) Ownit Mortgage Loan Asset-Backed Certificates, 2006-6, A2B, FRN, 3.005%,
9/25/37 ............................................................ United States 193,940 173,532
--------------
TOTAL ASSET-BACKED SECURITIES AND COMMERCIAL MORTGAGE-BACKED
SECURITIES (COST $2,575,834) ....................................... 2,522,664
--------------
MORTGAGE-BACKED SECURITIES 11.3%
(d) FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) ADJUSTABLE RATE 0.9%
FHLMC, 4.226%, 12/01/34 ............................................... United States 130,071 129,523
FHLMC, 4.288%, 10/01/33 ............................................... United States 100,486 100,645
--------------
230,168
--------------
(d) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE 10.0%
FNMA, 3.432%, 4/01/34 ................................................. United States 29,260 30,115
FNMA, 4.173%, 6/01/34 ................................................. United States 50,929 51,120
FNMA, 4.287%, 12/01/33 ................................................ United States 130,740 130,462
FNMA, 4.366%, 2/01/34 ................................................. United States 61,728 61,807
FNMA, 4.456%, 8/01/34 ................................................. United States 132,963 136,897
FNMA, 4.573%, 7/01/34 ................................................. United States 60,821 62,239
FNMA, 4.77%, 4/01/35 .................................................. United States 23,088 23,063
FNMA, 4.86%, 4/01/33 .................................................. United States 141,773 141,758
FNMA, 4.956%, 3/01/33 ................................................. United States 57,106 58,496
FNMA, 5.04%, 3/01/34 .................................................. United States 26,759 26,922
FNMA, 5.041%, 9/01/35 ................................................. United States 949,422 967,253
FNMA, 5.22%, 8/01/33 .................................................. United States 141,248 141,838
FNMA, 5.228%, 5/01/33 ................................................. United States 25,972 26,289
FNMA, 5.306%, 11/01/32 ................................................ United States 110,799 112,176
FNMA, 5.463%, 4/01/33 ................................................. United States 23,360 24,109
FNMA, 5.73%, 2/01/35 .................................................. United States 121,602 123,176
FNMA, 5.742%, 3/01/35 ................................................. United States 247,955 251,108
FNMA, 5.762%, 1/01/35 ................................................. United States 36,523 36,807
FNMA, 5.944%, 8/01/34 ................................................. United States 25,846 25,836
FNMA, 5.992%, 12/01/34 ................................................ United States 10,584 10,775
FNMA, 6.097%, 1/01/33 ................................................. United States 23,508 23,691
FNMA, 6.263%, 11/01/34 ................................................ United States 38,982 39,588
--------------
2,505,525
--------------

70 | Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
MORTGAGE-BACKED SECURITIES (CONTINUED)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) FIXED RATE 0.1%
FNMA 30 Year, 9.00%, 12/01/20 ....................................... United States 15,183 $ 15,663
--------------
(d) GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) ADJUSTABLE RATE 0.3%
GNMA, 5.625%, 8/20/26 - 9/20/26 ..................................... United States 49,955 50,399
GNMA, 6.375%, 4/20/26 ............................................... United States 34,036 34,485
--------------
84,884
--------------
TOTAL MORTGAGE-BACKED SECURITIES (COST $2,810,316) .................. 2,836,240
--------------
FOREIGN GOVERNMENT AND AGENCY SECURITIES 5.7%
(d) European Investment Bank, senior note, FRN, 0.751%, 9/21/11 ......... Supranational(e) 9,000,000 JPY 86,537
(d, f) Government of Argentina, senior bond, 3.092% FRN, 8/03/12 ........... Argentina 30,000 15,961
Government of Indonesia,
14.00%, 6/15/09 .................................................. Indonesia 475,000,000 IDR 53,167
13.15%, 3/15/10 .................................................. Indonesia 150,000,000 IDR 16,722
11.50%, 9/15/19 .................................................. Indonesia 165,000,000 IDR 16,328
Government of Malaysia,
6.45%, 7/01/08 ................................................... Malaysia 250,000 MYR 79,545
7.00%, 3/15/09 ................................................... Malaysia 10,000 MYR 3,264
3.756%, 4/28/11 .................................................. Malaysia 60,000 MYR 19,162
3.833%, 9/28/11 .................................................. Malaysia 275,000 MYR 88,058
Government of Norway,
5.50%, 5/15/09 ................................................... Norway 235,000 NOK 46,249
6.00%, 5/16/11 ................................................... Norway 655,000 NOK 133,194
Government of Poland,
5.75%, 6/24/08 ................................................... Poland 135,000 PLN 61,013
6.00%, 5/24/09 ................................................... Poland 200,000 PLN 90,254
Government of Singapore,
5.625%, 7/01/08 .................................................. Singapore 20,000 SGD 14,862
4.375%, 1/15/09 .................................................. Singapore 20,000 SGD 15,097
Government of Sweden,
6.50%, 5/05/08 ................................................... Sweden 825,000 SEK 137,800
5.00%, 1/28/09 ................................................... Sweden 1,000,000 SEK 167,989
(g) Strip, 9/17/08 ............................................... Sweden 145,000 SEK 23,856
(d) KfW Bankengruppe, FRN, 0.658%, 8/08/11 .............................. Germany 8,000,000 JPY 76,874
Korea Treasury Note, 4.75%, 6/10/09 ................................. South Korea 100,000,000 KRW 99,476
Nota Do Tesouro Nacional, 9.762%, 1/01/10 ........................... Brazil 340(h)BRL 193,809
--------------
TOTAL FOREIGN GOVERNMENT AND AGENCY SECURITIES (COST $1,290,225) .... 1,439,217
--------------
U.S. GOVERNMENT AND AGENCY SECURITIES 55.7%
FHLB,
4.625%, 11/21/08 ................................................. United States 250,000 252,882
4.75%, 4/24/09 ................................................... United States 700,000 714,140
4.875%, 5/14/10 .................................................. United States 500,000 520,724

Semiannual Report | 71

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
U.S. GOVERNMENT AND AGENCY SECURITIES (CONTINUED)
FHLMC,
3.875%, 6/15/08 .................................................. United States 150,000 $ 150,260
5.25%, 5/21/09 ................................................... United States 600,000 615,919
4.25%, 7/15/09 ................................................... United States 250,000 254,395
4.875%, 2/09/10 .................................................. United States 200,000 207,040
2.875%, 4/30/10 .................................................. United States 500,000 501,021
2.375%, 5/28/10 .................................................. United States 700,000 694,172
4.125%, 7/12/10 .................................................. United States 400,000 410,993
5.125%, 8/23/10 .................................................. United States 600,000 630,172
4.75%, 1/18/11 ................................................... United States 400,000 417,466
5.625%, 3/15/11 .................................................. United States 500,000 532,993
5.125%, 4/18/11 .................................................. United States 400,000 422,858
6.00%, 6/15/11 ................................................... United States 300,000 324,501
5.25%, 7/18/11 ................................................... United States 300,000 318,579
4.50%, 1/15/13 ................................................... United States 200,000 208,332
FNMA,
7.25%, 1/15/10 ................................................... United States 500,000 536,464
2.50%, 4/09/10 ................................................... United States 500,000 497,450
4.125%, 5/15/10 .................................................. United States 300,000 308,196
7.125%, 6/15/10 .................................................. United States 200,000 217,716
4.25%, 8/15/10 ................................................... United States 750,000 773,108
4.375%, 9/13/10 .................................................. United States 300,000 310,225
4.50%, 2/15/11 ................................................... United States 500,000 518,816
5.50%, 3/15/11 ................................................... United States 400,000 424,807
5.00%, 10/15/11 .................................................. United States 50,000 52,953
5.00%, 2/16/12 ................................................... United States 200,000 211,899
U.S. Treasury Note,
3.625%, 1/15/10 .................................................. United States 500,000 511,992
6.50%, 2/15/10 ................................................... United States 800,000 859,438
5.75%, 8/15/10 ................................................... United States 300,000 322,992
4.75%, 1/31/12 ................................................... United States 400,000 428,469
4.625%, 7/31/12 .................................................. United States 400,000 427,250
(i) Index Linked, 0.875%, 4/15/10 ................................ United States 402,238 407,895
--------------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES (COST $13,719,551) ...... 13,986,117
--------------
TOTAL LONG TERM INVESTMENTS (COST $23,037,207) ...................... 23,388,117
--------------
SHORT TERM INVESTMENTS 6.4%
FOREIGN GOVERNMENT AND AGENCY SECURITIES 0.8%
(g) Egypt Treasury Bill, 10/28/08 ....................................... Egypt 150,000 EGP 26,970
Government of Malaysia, 3.17%, 5/15/08 .............................. Malaysia 225,000 MYR 71,220
(g) Malaysia Treasury Bills, 6/06/08 - 9/23/08 .......................... Malaysia 302,000 MYR 95,013
(g) Norway Treasury Bill, 6/18/08 ....................................... Norway 60,000 NOK 11,711
--------------
TOTAL FOREIGN GOVERNMENT AND AGENCY SECURITIES (COST $189,983) ...... 204,914
--------------

72 | Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

SHORT TERM INVESTMENTS (CONTINUED)
U.S. GOVERNMENT AND AGENCY SECURITIES 4.0%
FHLB, 1, 4.20%, 2/17/09 ............................................. United States 1,000,000 $ 1,000,088
(g, j) U.S. Treasury Bill, 5/29/08 ......................................... United States 5,000 4,995
--------------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES (COST $1,004,992) ....... 1,005,083
--------------
TOTAL INVESTMENTS BEFORE MONEY MARKET FUND
(COST $24,232,182) ............................................... 24,598,114
--------------

SHARES
-------------------

MONEY MARKET FUND (COST $402,336) 1.6%
(k) Franklin Institutional Fiduciary Trust Money Market
Portfolio, 2.29% ................................................. United States 402,336 402,336
--------------
TOTAL INVESTMENTS (COST $24,634,518) 99.5% .......................... 25,000,450
NET UNREALIZED LOSS ON CREDIT DEFAULT SWAPS (0.3)% .................. (69,901)
NET UNREALIZED GAIN ON FORWARD EXCHANGE CONTRACTS 0.1% .............. 16,327
OTHER ASSETS, LESS LIABILITIES 0.7% ................................. 183,257
--------------
NET ASSETS 100.0% ................................................... $ 25,130,133
==============

See Currency and Selected Portfolio Abbreviations on page 98.

(a) Rounds to less than 0.1% of net assets.

(b) The principal amount is stated in U.S. dollars unless otherwise indicated.

(c) Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be sold in transactions exempt from registration only to
qualified institutional buyers or in a public offering registered under the
Securities Act of 1933. These securities have been deemed liquid under
guidelines approved by the Trust's Board of Directors. At April 30, 2008,
the aggregate value of these securities was $126,680, representing 0.50% of
net assets.

(d) The coupon rate shown represents the rate at period end.

(e) A supranational organization is an entity formed by two or more central
governments through international treaties.

(f) The principal amount is stated in original face, and scheduled paydowns are
reflected in the market price on ex-date.

(g) The security is traded on a discount basis with no stated coupon rate.

(h) Principal amount is stated in 1,000 Brazilian Real units.

(i) Principal amount of security is adjusted for inflation. See Note 1(l).

(j) Security or a portion of the security has been segregated as collateral for
open future agreements. At April 30, 2008, the value of securities pledged
amounted to $4,995.

(k) See Note 7 regarding investments in the Franklin Institutional Fiduciary
Trust Money Market Portfolio. The rate shown is the annualized seven-day
yield at period end.

Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 73

Franklin Investors Securities Trust

FINANCIAL HIGHLIGHTS

FRANKLIN TOTAL RETURN FUND

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 9.92 $ 9.95 $ 9.91 $ 10.22 $ 10.06 $ 9.72
-------- -------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income ...................... 0.227 0.469 0.439 0.410 0.415 0.403
Net realized and unrealized gains
(losses) ................................ (0.030) (0.010) 0.096 (0.280) 0.226 0.458
-------- -------- -------- -------- -------- --------
Total from investment operations .............. 0.197 0.459 0.535 0.130 0.641 0.861
-------- -------- -------- -------- -------- --------
Less distributions from net investment
income ..................................... (0.237) (0.489) (0.495) (0.440) (0.481) (0.521)
-------- -------- -------- -------- -------- --------
Redemption fees ............................... --(e) --(e) --(e) --(e) --(e) --
-------- -------- -------- -------- -------- --------
Net asset value, end of period ................ $ 9.88 $ 9.92 $ 9.95 $ 9.91 $ 10.22 $ 10.06
======== ======== ======== ======== ======== ========
Total return(b) ............................... 2.10% 4.62% 5.56% 1.27% 6.63% 8.88%
RATIOS TO AVERAGE NET ASSETS(c)
Expenses before waiver and payments by
affiliates ................................. 0.97% 1.03% 1.03% 1.04% 1.04% 1.02%
Expenses net of waiver and payments by
affiliates ................................. 0.85%(f) 0.85%(f) 0.85%(f) 0.85%(f) 0.80% 0.68%
Net investment income ......................... 4.66% 4.69% 4.39% 3.88% 3.90% 3.88%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $849,368 $683,736 $406,242 $291,473 $208,943 $149,231
Portfolio turnover rate ....................... 157.62% 313.08% 251.50% 58.81% 100.05% 195.15%
Portfolio turnover rate excluding mortgage
dollar rolls(d) ............................ 46.75% 92.51% 89.19% 51.26% 45.85% 110.73%

(b) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.

(d) See Note 1(i) regarding mortgage dollar rolls.

(e) Amount rounds to less than $0.001 per share.

(f) Benefit of expense reduction rounds to less than 0.01%.

74 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report

Franklin Investors Securities Trust

FINANCIAL HIGHLIGHTS (CONTINUED)

FRANKLIN TOTAL RETURN FUND

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 9.92 $ 9.94 $ 9.91 $ 10.22 $ 10.05 $ 9.72
------- ------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income ...................... 0.208 0.422 0.392 0.356 0.366 0.392
Net realized and unrealized gains
(losses) ................................ (0.031) 0.007 0.094 (0.266) 0.245 0.418
------- ------- ------- ------- ------- -------
Total from investment operations .............. 0.177 0.429 0.486 0.090 0.611 0.810
------- ------- ------- ------- ------- -------
Less distributions from net investment
income ..................................... (0.217) (0.449) (0.456) (0.400) (0.441) (0.480)
------- ------- ------- ------- ------- -------
Redemption fees ............................... --(e) --(e) --(e) --(e) --(e) --
------- ------- ------- ------- ------- -------
Net asset value, end of period ................ $ 9.88 $ 9.92 $ 9.94 $ 9.91 $ 10.22 $ 10.05
======= ======= ======= ======= ======= =======
Total return(b) ............................... 1.90% 4.31% 5.04% 0.87% 6.21% 8.44%
RATIOS TO AVERAGE NET ASSETS(c)
Expenses before waiver and payments by
affiliates ................................. 1.37% 1.43% 1.43% 1.44% 1.44% 1.42%
Expenses net of waiver and payments by
affiliates ................................. 1.25%(f) 1.25%(f) 1.25%(f) 1.25%(f) 1.20% 1.08%
Net investment income ......................... 4.26% 4.29% 3.99% 3.48% 3.50% 3.48%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $22,508 $20,422 $21,028 $21,366 $19,387 $13,797
Portfolio turnover rate ....................... 157.62% 313.08% 251.50% 58.81% 100.05% 195.15%
Portfolio turnover rate excluding mortgage
dollar rolls(d) ............................ 46.75% 92.51% 89.19% 51.26% 45.85% 110.73%

(b) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.

(d) See Note 1(i) regarding mortgage dollar rolls.

(e) Amount rounds to less than $0.001 per share.

(f) Benefit of expense reduction rounds to less than 0.01%.

Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 75

Franklin Investors Securities Trust

FINANCIAL HIGHLIGHTS (CONTINUED)

FRANKLIN TOTAL RETURN FUND

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 9.91 $ 9.94 $ 9.91 $ 10.22 $ 10.05 $ 9.71
-------- ------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income ...................... 0.203 0.424 0.395 0.364 0.363 0.392
Net realized and unrealized gains
(losses) ................................ (0.016) (0.005) 0.089 (0.275) 0.247 0.430
-------- ------- ------- ------- ------- -------
Total from investment operations .............. 0.187 0.419 0.484 0.089 0.610 0.822
-------- ------- ------- ------- ------- -------
Less distributions from net investment
income ..................................... (0.217) (0.449) (0.454) (0.399) (0.440) (0.482)
-------- ------- ------- ------- ------- -------
Redemption fees ............................... --(e) --(e) --(e) --(e) --(e) --
-------- ------- ------- ------- ------- -------
Net asset value, end of period ................ $ 9.88 $ 9.91 $ 9.94 $ 9.91 $ 10.22 $ 10.05
======== ======= ======= ======= ======= =======
Total return(b) ............................... 1.90% 4.31% 5.03% 0.86% 6.31% 8.47%
RATIOS TO AVERAGE NET ASSETS(c)
Expenses before waiver and payments by
affiliates ................................. 1.37% 1.43% 1.43% 1.44% 1.44% 1.42%
Expenses net of waiver and payments by
affiliates ................................. 1.25%(f) 1.25%(f) 1.25%(f) 1.25%(f) 1.20% 1.08%
Net investment income ......................... 4.26% 4.29% 3.99% 3.48% 3.50% 3.48%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $115,143 $84,457 $46,110 $34,751 $22,202 $15,807
Portfolio turnover rate ....................... 157.62% 313.08% 251.50% 58.81% 100.05% 195.15%
Portfolio turnover rate excluding mortgage
dollar rolls(d) ............................ 46.75% 92.51% 89.19% 51.26% 45.85% 110.73%

(b) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.

(d) See Note 1(i) regarding mortgage dollar rolls.

(e) Amount rounds to less than $0.001 per share.

(f) Benefit of expense reduction rounds to less than 0.01%.

76 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report

Franklin Investors Securities Trust

FINANCIAL HIGHLIGHTS (CONTINUED)

FRANKLIN TOTAL RETURN FUND

SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2008 ----------------------------------------------------------------
CLASS R (UNAUDITED) 2007 2006 2005 2004 2003
- ----------------------------------------------- ---------------- -------- -------- -------- --------- --------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 9.92 $ 9.94 $ 9.91 $ 10.22 $ 10.05 $ 9.72
------- ------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income ...................... 0.212 0.439 0.407 0.389 0.376 0.398
Net realized and unrealized gains
(losses) ................................ (0.028) 0.005 0.093 (0.284) 0.250 0.428
------- ------- ------- ------- ------- -------
Total from investment operations .............. 0.184 0.444 0.500 0.105 0.626 0.826
------- ------- ------- ------- ------- -------
Less distributions from net investment
income ..................................... (0.224) (0.464) (0.470) (0.415) (0.456) (0.496)
------- ------- ------- ------- ------- -------
Redemption fees ............................... --(e) --(e) --(e) --(e) --(e) --
------- ------- ------- ------- ------- -------
Net asset value, end of period ................ $ 9.88 $ 9.92 $ 9.94 $ 9.91 $ 10.22 $ 10.05
======= ======= ======= ======= ======= =======
Total return(b) ............................... 1.98% 4.47% 5.20% 1.01% 6.37% 8.61%
RATIOS TO AVERAGE NET ASSETS(c)
Expenses before waiver and payments by
affiliates ................................. 1.22% 1.28% 1.28% 1.29% 1.29% 1.27%
Expenses net of waiver and payments by
affiliates ................................. 1.10%(f) 1.10%(f) 1.10%(f) 1.10%(f) 1.05% 0.93%
Net investment income ......................... 4.41% 4.44% 4.14% 3.63% 3.65% 3.63%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $73,620 $57,935 $ 30,219 $21,647 $ 9,083 $ 7,302
Portfolio turnover rate ....................... 157.62% 313.08% 251.50% 58.81% 100.05% 195.15%
Portfolio turnover rate excluding mortgage
dollar rolls(d) ............................ 46.75% 92.51% 89.19% 51.26% 45.85% 110.73%

(b) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.

(d) See Note 1(i) regarding mortgage dollar rolls.

(e) Amount rounds to less than $0.001 per share.

(f) Benefit of expense reduction rounds to less than 0.01%.

Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 77

Franklin Investors Securities Trust

FINANCIAL HIGHLIGHTS (CONTINUED)

FRANKLIN TOTAL RETURN FUND

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 9.93 $ 9.96 $ 9.92 $ 10.24 $ 10.07 $ 9.73
-------- -------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income ...................... 0.242 0.497 0.470 0.436 0.426 0.417
Net realized and unrealized gains
(losses) ................................ (0.023) (0.012) 0.090 (0.289) 0.251 0.470
-------- -------- -------- -------- -------- --------
Total from investment operations .............. 0.219 0.485 0.560 0.147 0.677 0.887
-------- -------- -------- -------- -------- --------
Less distributions from net investment
income ..................................... (0.249) (0.515) (0.520) (0.467) (0.507) (0.547)
-------- -------- -------- -------- -------- --------
Redemption fees ............................... --(e) --(e) --(e) --(e) --(e) --
-------- -------- -------- -------- -------- --------
Net asset value, end of period ................ $ 9.90 $ 9.93 $ 9.96 $ 9.92 $ 10.24 $ 10.07
======== ======== ======== ======== ======== ========
Total return(b) ............................... 2.23% 4.99% 5.82% 1.43% 7.00% 9.15%
RATIOS TO AVERAGE NET ASSETS(c)
Expenses before waiver and payments by
affiliates ................................. 0.72% 0.78% 0.78% 0.79% 0.79% 0.77%
Expenses net of waiver and payments by
affiliates ................................. 0.60%(f) 0.60%(f) 0.60%(f) 0.60%(f) 0.55% 0.43%
Net investment income ......................... 4.91% 4.94% 4.64% 4.13% 4.15% 4.13%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $315,184 $280,776 $222,992 $178,792 $146,053 $133,432
Portfolio turnover rate ....................... 157.62% 313.08% 251.50% 58.81% 100.05% 195.15%
Portfolio turnover rate excluding mortgage
dollar rolls(d) ............................ 46.75% 92.51% 89.19% 51.26% 45.85% 110.73%

(b) Total return is not annualized for periods less than one year.

(d) See Note 1(i) regarding mortgage dollar rolls.

(e) Amount rounds to less than $0.001 per share.

(f) Benefit of expense reduction rounds to less than 0.01%.

78 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED)

COUNTRY/
FRANKLIN TOTAL RETURN FUND ORGANIZATION SHARES VALUE
- -------------------------------------------------------------------------- -------------- ---------------------- --------------

LONG TERM INVESTMENTS 117.4%
CONVERTIBLE PREFERRED STOCKS 0.2%
AUTOMOBILE MANUFACTURERS 0.1%
General Motors Corp., 6.25%, cvt. pfd. ......................... United States 43,500 $ 808,665
--------------
SPECIALIZED FINANCE 0.0%(a)
CIT Group Inc., 7.75%, cvt. pfd., Z ............................ United States 57,500 672,750
--------------
THRIFTS & MORTGAGE FINANCE 0.1%
Washington Mutual Inc., 7.75%, cvt. pfd., R .................... United States 1,820 1,565,400
--------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $4,258,392) 3,046,815
--------------
PREFERRED STOCKS 1.3%
OTHER DIVERSIFIED FINANCIAL SERVICES 0.3%
(d) JPMorgan Chase & Co., pfd., junior sub. note, 1, 7.90% ......... United States 4,500 4,598,969
--------------
THRIFTS & MORTGAGE FINANCE 1.0%
Freddie Mac, 8.375%, pfd. ...................................... United States 558,900 14,307,840
--------------
TOTAL PREFERRED STOCKS (COST $18,722,297) ...................... 18,906,809
--------------

PRINCIPAL AMOUNT(b) VALUE
---------------------- --------------

CORPORATE BONDS 32.5%
ADVERTISING 1.4%
The Interpublic Group of Cos. Inc., senior note,
5.40%, 11/15/09 ............................................. United States 9,800,000 9,653,000
7.25%, 8/15/11 .............................................. United States 9,500,000 9,357,500
--------------
19,010,500
--------------
AGRICULTURAL PRODUCTS 0.6%
Bunge Ltd. Finance Corp., senior note,
5.875%, 5/15/13 ............................................. United States 2,000,000 2,007,434
5.10%, 7/15/15 .............................................. United States 680,000 616,968
(c) Cargill Inc., 144A, 6.00%, 11/27/17 ............................ United States 6,000,000 5,988,930
--------------
8,613,332
--------------
ALUMINUM 0.0%(a)
Novelis Inc., senior note, 7.25%, 2/15/15 ...................... Canada 700,000 644,000
--------------
AUTOMOBILE MANUFACTURERS 0.2%
Ford Motor Credit Co. LLC,
7.875%, 6/15/10 ............................................. United States 1,950,000 1,856,515
senior note, 9.875%, 8/10/11 ................................ United States 1,500,000 1,452,062
--------------
3,308,577
--------------
BIOTECHNOLOGY 0.3%
Amgen Inc., senior note, 5.85%, 6/01/17 ........................ United States 4,200,000 4,239,493
--------------
BREWERS 0.2%
(c) Miller Brewing Co., 144A, 5.50%, 8/15/13 ....................... United States 1,000,000 1,037,067
(c) SABMiller PLC, 144A, 6.50%, 7/01/16 ............................ South Africa 2,200,000 2,309,659
--------------
3,346,726
--------------

Semiannual Report | 79

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

COUNTRY/
FRANKLIN TOTAL RETURN FUND ORGANIZATION PRINCIPAL AMOUNT(b) VALUE
- -------------------------------------------------------------------------- -------------- ---------------------- --------------

LONG TERM INVESTMENTS (CONTINUED)
CORPORATE BONDS (CONTINUED)
BROADCASTING & CABLE TV 2.8%
(c) British Sky Broadcasting Group PLC, senior note, 144A,
6.10%, 2/15/18 ................................................. United Kingdom 5,000,000 $ 5,101,240
CCH I LLC, senior secured note, 11.00%, 10/01/15 ............... United States 250,000 195,625
CCH II LLC, senior note, 10.25%, 9/15/10 ....................... United States 625,000 604,687
Clear Channel Communications Inc., senior note, 6.25%,
3/15/11 United States 20,200,000 17,180,807
Comcast Corp.,
5.50%, 3/15/11 .............................................. United States 7,000,000 7,053,375
senior note, 6.30%, 11/15/17 ................................ United States 5,000,000 5,209,150
Intelsat Intermediate, senior note, zero cpn. to 2/01/10,
9.25% thereafter, 2/01/15 .................................. Bermuda 200,000 172,000
Intelsat Subsidiary Holding Co. Ltd., senior note, 8.25%,
1/15/13 .................................................... Bermuda 700,000 709,625
News America Inc., senior deb., 7.25%, 5/18/18 ................. United States 2,000,000 2,203,040
--------------
38,429,549
--------------
CASINOS & GAMING 0.1%
Harrah's Operating Co. Inc., senior note, 6.50%, 6/01/16 ....... United States 500,000 292,500
MGM MIRAGE, senior note,
6.625%, 7/15/15 ............................................. United States 900,000 789,750
7.50%, 6/01/16 .............................................. United States 200,000 182,000
Station Casinos Inc.,
senior note, 7.75%, 8/15/16 ................................. United States 700,000 586,250
senior sub. note, 6.875%, 3/01/16 ........................... United States 100,000 64,750
--------------
1,915,250
--------------
CONSUMER FINANCE 0.9%
American Express Co., senior note, 7.00%, 3/19/18 .............. United States 4,300,000 4,637,034
GMAC LLC, 6.875%,
9/15/11 ..................................................... United States 400,000 333,519
8/28/12 ..................................................... United States 3,050,000 2,422,654
Residential Capital LLC, senior note, 6.50%, 6/01/12 ........... United States 4,400,000 2,266,000
(c) WEA Finance/WCI Finance, senior note, 144A, 5.70%,
10/01/16 .................................................... Australia 3,000,000 2,851,071
--------------
12,510,278
--------------
DATA PROCESSING & OUTSOURCED SERVICES 0.2%
Fiserv Inc., senior note, 6.125%, 11/20/12 ..................... United States 2,500,000 2,543,408
SunGard Data Systems Inc.,
senior note, 9.125%, 8/15/13 ................................ United States 150,000 157,500
senior sub. note, 10.25%, 8/15/15 ........................... United States 650,000 693,875
--------------
3,394,783
--------------
DIVERSIFIED BANKS 1.7%
(c, d) BNP Paribas, 144A, 7.195%, Perpetual ........................... France 3,500,000 3,295,352
(e) Citigroup Capital XXI, pfd., junior sub. bond, FRN, 8.30%,
12/21/77 .................................................... United States 4,000,000 4,097,864
(c, d) Glitnir Banki HF, 144A, 7.451%, Perpetual ...................... Iceland 1,800,000 1,167,725
(c) ICICI Bank Ltd.,
144A, 6.625%, 10/03/12 ...................................... India 2,125,000 2,118,272
(e) sub. note, 144A, FRN, 6.375%, 4/30/22 ................... India 2,000,000 1,788,108

80 | Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
CORPORATE BONDS (CONTINUED)
DIVERSIFIED BANKS (CONTINUED)
(c) Landsbanki Islands HF, 144A, 6.10%, 8/25/11 .................... Iceland 2,450,000 $ 2,182,793
(c) Standard Chartered Bank, 144A, 8.00%, 5/30/31 .................. United Kingdom 1,000,000 1,083,355
UBS AG Stamford, senior note, 5.875%, 12/20/17 ................. United States 4,000,000 4,088,988
(d) Wachovia Capital Trust III, 5.80%, Perpetual ................... United States 4,000,000 3,181,964
--------------
23,004,421
--------------
DIVERSIFIED CAPITAL MARKETS 0.3%
JPMorgan Chase Capital XXII, sub. bond, 6.45%, 2/02/37 ......... United States 4,000,000 3,597,608
--------------
DIVERSIFIED CHEMICALS 0.1%
Huntsman International LLC, senior sub. note, 7.875%,
11/15/14 .................................................... United States 800,000 848,000
(c) Ineos Group Holdings PLC, 144A, 8.50%, 2/15/16 ................. United Kingdom 1,100,000 896,500
--------------
1,744,500
--------------
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES 0.1%
ARAMARK Corp., senior note, 8.50%, 2/01/15 ..................... United States 800,000 838,000
--------------
DIVERSIFIED METALS & MINING 0.1%
Freeport-McMoRan Copper & Gold Inc., senior note, 8.375%,
4/01/17 ..................................................... United States 900,000 996,750
--------------
DRUG RETAIL 0.1%
CVS Caremark Corp., senior note, 5.75%, 6/01/17 ................ United States 1,200,000 1,219,004
--------------
ELECTRIC UTILITIES 0.7%
Consumers Energy Co., first mortgage, H, 4.80%, 2/17/09 ........ United States 1,000,000 1,003,726
DPL Inc., senior note, 6.875%, 9/01/11 ......................... United States 500,000 520,457
(c) E.ON International Finance BV, 144A, 5.80%, 4/30/18 ............ Germany 6,000,000 6,043,410
MidAmerican Energy Holdings Co., senior note, 3.50%, 5/15/08 ... United States 1,000,000 999,828
Northeast Generation Co., senior secured note, B-1, 8.812%,
10/15/26 .................................................... United States 392,344 430,597
--------------
8,998,018
--------------
ELECTRICAL COMPONENTS & EQUIPMENT 0.1%
Hubbell Inc., 6.375%, 5/15/12 .................................. United States 1,000,000 1,099,039
--------------
ENVIRONMENTAL & FACILITIES SERVICES 0.0%(a)
Waste Management Inc., senior note, 6.50%, 11/15/08 ............ United States 500,000 507,570
--------------
FERTILIZERS & AGRICULTURAL CHEMICALS 0.1%
(c) Yara International ASA, 144A, 5.25%, 12/15/14 .................. Norway 1,000,000 968,808
--------------
FOOD RETAIL 0.5%
The Kroger Co., 6.15%, 1/15/20 ................................. United States 2,500,000 2,611,120
(c) Tesco PLC, 144A, 6.15%, 11/15/37 ............................... United Kingdom 4,900,000 4,789,064
--------------
7,400,184
--------------
FOREST PRODUCTS 0.1%
Weyerhaeuser Co., 6.75%, 3/15/12 ............................... United States 1,000,000 1,047,232
--------------

Semiannual Report | 81

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
CORPORATE BONDS (CONTINUED)
GAS UTILITIES 0.0%(a)
(c) Ras Laffan Liquefied Natural Gas Co. Ltd., 144A, 3.437%,
9/15/09 ..................................................... Qatar 235,200 $ 236,332
--------------
GENERAL MERCHANDISE STORES 0.6%
Target Corp.,
6.00%, 1/15/18 .............................................. United States 5,000,000 5,206,430
6.50%, 10/15/37 ............................................. United States 2,800,000 2,834,899
--------------
8,041,329
--------------
HEALTH CARE FACILITIES 0.1%
Tenet Healthcare Corp., senior note, 9.875%, 7/01/14 ........... United States 1,600,000 1,644,000
--------------
HEALTH CARE SERVICES 0.7%
DaVita Inc., senior sub. note, 7.25%, 3/15/15 .................. United States 800,000 806,000
Medco Health Solutions Inc., 7.125%, 3/15/18 ................... United States 4,500,000 4,733,748
Quest Diagnostics Inc., 6.95%, 7/01/37 ......................... United States 4,000,000 4,098,328
--------------
9,638,076
--------------
HOMEBUILDING 1.1%
Centex Corp., senior note, 7.875%, 2/01/11 ..................... United States 10,000,000 9,780,910
KB Home, senior note,
6.25%, 6/15/15 .............................................. United States 100,000 90,500
7.25%, 6/15/18 .............................................. United States 700,000 651,000
Pulte Homes Inc., 4.875%, 7/15/09 .............................. United States 5,000,000 4,850,000
--------------
15,372,410
--------------
HOUSEWARES & SPECIALTIES 0.1%
Jarden Corp., senior sub. note, 7.50%, 5/01/17 ................. United States 1,350,000 1,248,750
--------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS 0.2%
NRG Energy Inc., senior note,
7.25%, 2/01/14 .............................................. United States 600,000 618,000
7.375%, 2/01/16 ............................................. United States 225,000 232,313
7.375%, 1/15/17 ............................................. United States 300,000 309,750
(c) Texas Competitive Electric Holdings Co. LLC, senior note, 144A,
10.25%, 11/01/15 ............................................ United States 1,500,000 1,571,250
--------------
2,731,313
--------------
INDUSTRIAL MACHINERY 0.1%
RBS Global & Rexnord Corp., senior note, 9.50%, 8/01/14 ........ United States 1,250,000 1,256,250
--------------
INSURANCE BROKERS 0.1%
(c) Nationwide Mutual Insurance Co., 144A, 8.25%, 12/01/31 ......... United States 1,200,000 1,237,304
--------------
INTEGRATED OIL & GAS 0.2%
Hess Corp., 7.125%, 3/15/33 .................................... United States 500,000 557,169
(c) LUKOIL International Finance BV, 144A, 6.656%, 6/07/22 ......... Russia 2,000,000 1,775,000
--------------
2,332,169
--------------

82 | Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
CORPORATE BONDS (CONTINUED)
INTEGRATED TELECOMMUNICATION SERVICES 0.9%
AT&T Inc.,
4.95%, 1/15/13 .............................................. United States 5,000,000 $ 5,039,830
(e) FRN, 3.278%, 11/14/08 ................................... United States 1,000,000 999,742
Embarq Corp., senior note, 7.082%, 6/01/16 ..................... United States 2,500,000 2,485,900
(c) Hutchison Whampoa International Ltd., senior note, 144A,
6.25%, 1/24/14 .............................................. Hong Kong 1,000,000 1,039,902
7.45%, 11/24/33 ............................................. Hong Kong 1,000,000 1,095,014
Telecom Italia Capital, senior note,
4.95%, 9/30/14 .............................................. Italy 1,500,000 1,394,895
7.20%, 7/18/36 .............................................. Italy 1,500,000 1,508,814
--------------
13,564,097
--------------
INVESTMENT BANKING & BROKERAGE 1.9%
Bear Stearns Cos. Inc., B, 4.55%, 6/23/10 ...................... United States 1,000,000 991,467
Charles Schwab Corp., senior note, 8.05%, 3/01/10 .............. United States 750,000 797,837
The Goldman Sachs Group Inc.,
5.125%, 1/15/15 ............................................. United States 1,000,000 987,718
sub. note, 6.75%, 10/01/37 .................................. United States 2,700,000 2,657,399
Lazard Group, senior note, 6.85%, 6/15/17 ...................... United States 4,850,000 4,530,487
Lehman Brothers Holdings Inc., senior note, 6.875%, 5/02/18 .... United States 6,000,000 6,151,914
Merrill Lynch & Co. Inc., 6.875%, 4/25/18 ...................... United States 8,100,000 8,186,573
Morgan Stanley, sub. note, 4.75%, 4/01/14 ...................... United States 1,500,000 1,410,069
--------------
25,713,464
--------------
LIFE & HEALTH INSURANCE 0.8%
(e) Lincoln National Corp., junior sub. deb., FRN, 6.05%, 4/20/67 .. United States 3,800,000 3,272,465
(c) Metropolitan Life Global Funding I, senior secured note, 144A,
5.125%, 4/10/13 ............................................. United States 3,500,000 3,505,064
(e) MetLife Inc., junior sub. note, FRN, 6.40%, 12/15/66 ........... United States 4,000,000 3,613,900
--------------
10,391,429
--------------
MANAGED HEALTH CARE 0.5%
Coventry Health Care Inc., senior note, 6.30%, 8/15/14 ......... United States 4,750,000 4,644,422
UnitedHealth Group Inc. 6.50%, 6/15/37 ......................... United States 2,300,000 2,137,546
--------------
6,781,968
--------------
METAL & GLASS CONTAINERS 1.2%
Crown European Holdings SA, senior secured note, 6.25%,
9/01/11 ..................................................... France 10,000,000 EUR 15,379,297
Owens-Brockway Glass Container Inc., senior note, 6.75%,
12/01/14 .................................................... United States 700,000 714,000
--------------
16,093,297
--------------
MORTGAGE REITS 0.1%
iStar Financial Inc., senior note, 6.00%, 12/15/10 ............. United States 1,500,000 1,348,910
--------------

Semiannual Report | 83

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
CORPORATE BONDS (CONTINUED)
MOVIES & ENTERTAINMENT 1.5%
Viacom Inc., senior note,
5.75%, 4/30/11 .............................................. United States 16,000,000 $ 16,193,216
6.25%, 4/30/16 .............................................. United States 2,000,000 2,025,772
6.125%, 10/05/17 ............................................ United States 2,500,000 2,514,222
--------------
20,733,210
--------------
MULTI-LINE INSURANCE 0.2%
(e) Genworth Financial Inc., junior sub. note, FRN, 6.15%, 11/15/66 United States 3,300,000 2,769,994
--------------
MULTI-UTILITIES 0.2%
CenterPoint Energy Inc., senior note,
6.85%, 6/01/15 .............................................. United States 1,000,000 1,046,939
6.125%, 11/01/17 ............................................ United States 1,400,000 1,413,114
--------------
2,460,053
--------------
OIL & GAS EQUIPMENT & SERVICES 0.3%
Compagnie Generale de Geophysique-Veritas, senior note,
7.50%, 5/15/15 .............................................. France 200,000 207,500
7.75%, 5/15/17 .............................................. France 400,000 415,000
Weatherford International Ltd., 7.00%, 3/15/38 ................. United States 3,400,000 3,677,131
--------------
4,299,631
--------------
OIL & GAS EXPLORATION & PRODUCTION 0.9%
Canadian Natural Resources Ltd., 5.90%, 2/01/18 ................ Canada 5,000,000 5,094,385
Chesapeake Energy Corp., senior note,
6.625%, 1/15/16 ............................................. United States 1,100,000 1,105,500
6.25%, 1/15/18 .............................................. United States 450,000 441,000
(c) Gaz Capital SA, 144A, 6.212%, 11/22/16 ......................... Luxembourg 2,800,000 2,653,000
XTO Energy Inc., senior note, 5.90%, 8/01/12 ................... United States 3,600,000 3,735,281
--------------
13,029,166
--------------
OIL & GAS REFINING & MARKETING 0.5%
(c) Petroleum Export Cayman, senior note, 144A, 5.265%, 6/15/11 .... Egypt 721,451 724,418
(c) Petroplus Finance Ltd., senior note, 144A, 6.75%, 5/01/14 ...... Switzerland 1,100,000 1,042,250
Valero Energy Corp., 6.125%, 6/15/17 ........................... United States 4,400,000 4,449,359
--------------
6,216,027
--------------
OIL & GAS STORAGE & TRANSPORTATION 0.1%
The Williams Cos. Inc.,
senior note, 7.625%, 7/15/19 ................................ United States 200,000 217,000
senior note, 7.875%, 9/01/21 ................................ United States 400,000 439,000
senior note, 8.75%, 3/15/32 ................................. United States 400,000 475,000
--------------
1,131,000
--------------
OTHER DIVERSIFIED FINANCIAL SERVICES 4.7%
(d) Bank of America Corp., pfd., sub. bond, M, 8.125%, Perpetual ... United States 10,000,000 10,232,300
(c) Capmark Financial Group Inc., senior note, 144A, 6.30%,
5/10/17 ..................................................... United States 1,200,000 875,006

84 | Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
CORPORATE BONDS (CONTINUED)
OTHER DIVERSIFIED FINANCIAL SERVICES (CONTINUED)
General Electric Capital Corp.,
(e) FRN, 2.918%, 10/21/10 ................................... United States 1,500,000 $ 1,488,476
senior note, 5.00%, 1/08/16 ................................. United States 2,000,000 1,982,692
senior note, A, 8.50%, 4/06/18 .............................. United States 245,000,000 MXN 23,149,069
(c) Kaupthing Bank, 144A, 7.125%, 5/19/16 .......................... Iceland 2,000,000 1,618,500
(e) NiSource Finance Corp., senior note, FRN, 3.663%, 11/23/09 ..... United States 8,310,000 8,066,542
Textron Financial Corp., 5.125%, 11/01/10 ...................... United States 16,750,000 17,149,705
--------------
64,562,290
--------------
PACKAGED FOODS & MEATS 1.2%
General Mills Inc., 6.00%, 2/15/12 ............................. United States 10,000,000 10,441,400
Kellogg Co., 4.25%, 3/06/13 .................................... United States 6,500,000 6,400,628
--------------
16,842,028
--------------
PERSONAL PRODUCTS 0.6%
Avon Products Inc., 5.125%, 1/15/11 ............................ United States 7,900,000 8,019,495
--------------
PHARMACEUTICALS 0.4%
Abbott Laboratories, 6.15%, 11/30/37 ........................... United States 1,600,000 1,670,499
Schering-Plough Corp., senior note, 6.00%, 9/15/17 ............. United States 3,700,000 3,746,165
--------------
5,416,664
--------------
PUBLISHING 0.1%
Dex Media Finance/West, senior sub. note, 9.875%, 8/15/13 ...... United States 100,000 94,500
R.H. Donnelley Corp.,
senior discount note, A-1, 6.875%, 1/15/13 .................. United States 100,000 64,500
senior discount note, A -2,6.875%, 1/15/13 .................. United States 200,000 129,000
senior note, 8.875%, A-3,1/15/16 ............................ United States 800,000 513,000
(c) senior note, 144A, 8.875%, 10/15/17 ..................... United States 100,000 65,000
--------------
866,000
--------------
RAILROADS 0.1%
Union Pacific Corp., 3.625%, 6/01/10 ........................... United States 1,500,000 1,481,943
--------------
REAL ESTATE MANAGEMENT & DEVELOPMENT 0.3%
Colonial Realty LP, 5.50%, 10/01/15 ............................ United States 2,000,000 1,709,192
ERP Operating LP, 5.75%, 6/15/17 ............................... United States 2,000,000 1,881,234
--------------
3,590,426
--------------
REGIONAL BANKS 0.4%
Compass Bank, 6.40%, 10/01/17 .................................. United States 3,700,000 3,591,335
(e) Fifth Third Capital Trust IV, junior sub. note, FRN, 6.50%,
4/15/67 ..................................................... United States 3,000,000 2,113,766
--------------
5,705,101
--------------
SPECIALIZED FINANCE 0.3%
CIT Group Funding Co. of Canada, senior note, 4.65%, 7/01/10 ... United States 2,100,000 1,816,002
CIT Group Inc., senior note, 7.625%, 11/30/12 .................. United States 2,300,000 2,148,239
--------------
3,964,241
--------------

Semiannual Report | 85

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
CORPORATE BONDS (CONTINUED)
SPECIALIZED REITS 0.4%
HCP Inc., senior note, 6.70%, 1/30/18 .......................... United States 5,000,000 $ 4,495,025
Host Hotels & Resorts LP, senior note, 6.875%, 11/01/14 ........ United States 950,000 940,500
Host Marriott LP, senior note, K, 7.125%, 11/01/13 ............. United States 250,000 250,313
--------------
5,685,838
--------------
SPECIALTY CHEMICALS 0.5%
RPM International Inc.,
6.25%, 12/15/13 ............................................. United States 1,000,000 1,040,906
6.50%, 2/15/18 .............................................. United States 5,000,000 4,990,505
(c) RPM U.K. G.P., 144A, 6.70%, 11/01/15 ........................... United States 1,000,000 1,025,262
--------------
7,056,673
--------------
TOBACCO 0.1%
Reynolds American Inc., senior secured note, 7.625%, 6/01/16 ... United States 1,000,000 1,065,137
--------------
WIRELESS TELECOMMUNICATION SERVICES 0.5%
Verizon New York Inc., senior deb.,
A, 6.875%, 4/01/12 .......................................... United States 4,700,000 4,956,578
B, 7.375%, 4/01/32 .......................................... United States 1,000,000 1,067,368
Verizon Virginia Inc., A, 4.625%, 3/15/13 ...................... United States 1,000,000 968,973
--------------
6,992,919
--------------
TOTAL CORPORATE BONDS (COST $452,372,672) ...................... 446,352,556
--------------
CONVERTIBLE BONDS 1.4%
BIOTECHNOLOGY 0.3%
Amgen Inc., cvt., senior note, 0.375%, 2/01/13 ................. United States 2,000,000 1,705,372
Protein Design Labs Inc., cvt., sub. note, 2.75%, 8/16/23 ...... United States 1,900,000 1,740,875
--------------
3,446,247
--------------
COMPUTER & ELECTRONICS RETAIL 0.1%
Best Buy Co. Inc., cvt., sub. deb., 2.25%, 1/15/22 ............. United States 1,800,000 1,973,250
--------------
CONSTRUCTION MATERIALS 0.1%
Headwaters Inc., cvt., senior sub. note, 2.875%, 6/01/16 ....... United States 1,700,000 1,328,125
--------------
DATA PROCESSING & OUTSOURCED SERVICES 0.1%
(c) VeriFone Holdings Inc., cvt., senior note, 144A, 1.375%,
6/15/12 ..................................................... United States 2,100,000 1,540,875
--------------
INVESTMENT BANKING & BROKERAGE 0.2%
Merrill Lynch & Co. Inc., cvt., senior note, zero cpn.,
3/13/32 ..................................................... United States 2,100,000 2,390,682
--------------
MORTGAGE REITS 0.2%
CapitalSource Inc., cvt., senior sub. note, 4.00%, 7/15/34 ..... United States 3,600,000 3,108,960
--------------
SEMICONDUCTORS 0.4%
Intel Corp., cvt., sub. deb., 2.95%, 12/15/35 .................. United States 1,206,000 1,210,691
(c) Microchip Technology Inc., cvt., junior sub. note, 144A, 2.125%,
12/15/37 .................................................... United States 3,000,000 3,601,710
--------------
4,812,401
--------------
TOTAL CONVERTIBLE BONDS (COST $20,121,774) ..................... 18,600,540
--------------

86 | Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
ASSET-BACKED SECURITIES AND COMMERCIAL MORTGAGE-BACKED
SECURITIES 25.6%
CONSUMER FINANCE 8.2%
(e) ACE Securities Corp., 2005-HE7, A2B, FRN, 3.075%, 11/25/35 ..... United States 4,952,135 $ 4,885,179
(e) American Express Credit Account Master Trust, 2002-5, A, FRN,
2.886%, 2/15/12 ............................................. United States 21,300,000 21,155,062
(e) Amortizing Residential Collateral Trust, 2002-BC1, M1, FRN,
3.745%, 1/25/32 ............................................. United States 471,749 419,681
(e) Bank of America Credit Card Trust, 2007-A13, A13, FRN, 2.936%,
4/15/12 ..................................................... United States 25,000,000 24,765,110
(e) Chase Issuance Trust,
2005-A3, A, FRN, 2.736%, 10/17/11 ........................... United States 23,000,000 22,885,697
2007-A9, A9, FRN, 2.746%, 6/16/14 ........................... United States 16,450,000 15,694,498
(e) Ford Credit Auto Owner Trust, 2007-B, A2B, FRN, 3.046%,
6/15/10 ..................................................... United States 18,900,000 18,831,803
Residential Asset Securities Corp.,
2001-KS2, AI5, 7.014%, 6/25/31 .............................. United States 9,088 8,922
2004-KS1, AI4, 4.213%, 4/25/32 .............................. United States 908,937 901,052
(e) 2005-AHL2, A2, FRN, 3.155%, 10/25/35 ........................ United States 2,588,293 2,504,490
Structured Asset Securities Corp.,
(e) 2002-1A, 2A1, FRN, 6.261%, 2/25/32 ...................... United States 69,741 57,938
2004-4XS, 1A4, 4.13%, 2/25/34 ........................... United States 380,359 381,722
--------------
112,491,154
--------------
MORTGAGE REITS 1.2%
(e) Master Asset-Backed Securities Trust, 2006-AB1, A1, FRN,
3.035%, 2/25/36 ............................................. United States 351,569 346,491
(e) Ownit Mortgage Loan Asset-Backed Certificates, 2006-6, A2B,
FRN, 3.005%, 9/25/37 ........................................ United States 18,230,360 16,312,032
--------------
16,658,523
--------------
OTHER DIVERSIFIED FINANCIAL SERVICES 6.6%
(e) Accredited Mortgage Loan Trust, 2005-4, A2B, FRN, 3.045%,
12/25/35 .................................................... United States 2,324,413 2,296,705
(e) AFC Home Equity Loan Trust, 1997-4, 2A2, FRN, 3.535%,
12/22/27 .................................................... United States 225,924 213,479
(e) Asset-Backed Funding Certificates, 2005-HE2, A2C, FRN, 3.195%,
6/25/35 ..................................................... United States 1,199,249 1,194,243
(e) Asset-Backed Securities Corp. Home Equity Loan Trust, 2005-HE4,
A1, FRN, 3.055%, 5/25/35 .................................... United States 383,241 381,844
(e) Bear Stearns Commercial Mortgage Securities Inc., 2005-PW10, A4,
FRN, 5.405%, 12/11/40 ....................................... United States 4,000,000 4,009,293
(e) Chase Funding Mortgage Loan Asset-Backed Certificates, 2004-2,
2A2, FRN, 3.145%, 2/25/35 ................................... United States 2,632,765 2,545,339
(e) First Franklin Mortgage Loan Asset-Backed Certificates,
2004-FF11, 1A2, FRN, 3.245%, 1/25/35 ........................ United States 760,092 663,374
JPMorgan Chase Commercial Mortgage Securities Corp.,
(e) 2004-CB9, A4, FRN, 5.373%, 6/12/41 ...................... United States 11,324,540 11,536,166
2004-LN2, A2, 5.115%, 7/15/41 ........................... United States 697,106 692,720
(e) 2005-LDP5, A4, FRN, 5.179%, 12/15/44 .................... United States 32,000,000 31,855,354

Semiannual Report | 87

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
ASSET-BACKED SECURITIES AND COMMERCIAL MORTGAGE-BACKED
SECURITIES (CONTINUED)
OTHER DIVERSIFIED FINANCIAL SERVICES (CONTINUED)
(c) Keystone Owner Trust, 1997-P3, M2, 144A, 7.98%, 12/25/24 ....... United States 53,549 $ 53,154
(c) Legacy Benefits Insurance Settlements LLC, 2004-1, A, 144A,
5.35%, 2/10/39 .............................................. United States 2,171,214 2,035,598
(e) MBNA Credit Card Master Note Trust,
2003-A9, A9, FRN, 2.846%, 2/15/11 ........................... United States 5,360,000 5,354,350
2005-A4, A4, FRN, 2.756%, 11/15/12 .......................... United States 1,850,000 1,813,496
(e) Morgan Stanley ABS Capital I,
2006-NC3, A2B, FRN, 3.015%, 3/25/36 ......................... United States 9,146,931 8,936,209
2006-NC4, A2A, FRN, 2.925%, 6/25/36 ......................... United States 1,281,068 1,273,096
2006-WMC, 2A, FRN, 2.935%, 7/25/36 .......................... United States 1,192,907 1,177,103
(e) Morgan Stanley Capital I, 2004-IQ7, A4, FRN, 5.406%, 6/15/38 ... United States 6,900,000 6,969,482
(e) Permanent Financing PLC, 8, 2A, FRN, 3.060%, 6/10/14 ........... United Kingdom 1,000,000 999,820
(e) Securitized Asset-Backed Receivables LLC Trust, 2006-FR2, A2,
FRN, 3.045%, 3/25/36 ........................................ United States 7,200,000 6,844,185
--------------
90,845,010
--------------
THRIFTS & MORTGAGE FINANCE 9.6%
Citigroup/Deutsche Bank Commercial Mortgage Trust,
(e) 2005-CD1, A4, FRN, 5.225%, 7/15/44 ...................... United States 15,350,000 15,295,985
(e) 2005-CD1, E, FRN, 5.40%, 7/15/44 ........................ United States 4,500,000 3,690,569
(e) 2006-CD3, A5, FRN, 5.617%, 10/15/48 ..................... United States 13,500,000 13,426,966
2007-CD4, B, 5.447%, 12/11/49 ........................... United States 4,100,000 3,000,426
2007-CD4, C, 5.476%, 12/11/49 ........................... United States 14,200,000 10,089,035
Countrywide Asset-Backed Certificates,
2004-7, AF4, 4.774%, 8/25/32 ............................ United States 284,936 279,169
(e) 2004-9, AF4, FRN, 4.649%, 10/25/32 ...................... United States 633,290 632,723
FHLMC,
2643, OG, 5.00%, 7/15/32 ................................ United States 3,182,750 3,024,756
(e) 2942, TF, FRN, 5.67%, 3/15/35 ........................... United States 4,100,448 4,058,934
FNMA,
(e) 2005-122, FN, FRN, 3.245%, 1/25/36 ...................... United States 4,872,464 4,610,926
G93-33, K, 7.00%, 9/25/23 ............................... United States 1,153,405 1,217,458
GE Capital Commercial Mortgage Corp., 2003-C1, A4, 4.819%,
1/10/38 ..................................................... United States 1,578,354 1,575,045
Greenwich Capital Commercial Funding Corp.,
2004-GG1, A7, 5.317%, 6/10/36 ........................... United States 11,680,000 11,879,459
2005-GG5, A5, 5.224%, 4/10/37 ........................... United States 9,250,000 9,179,012
(e) 2006-GG7, A4, FRN, 5.913%, 7/10/38 ...................... United States 21,200,000 21,632,603
2007-GG9, C, 5.554%, 3/10/39 ............................ United States 6,438,000 4,612,775
(e) GS Mortgage Securities Corp. II,
2006-GG6, A4, FRN, 5.553%, 4/10/38 ...................... United States 7,300,000 7,271,458
(c) 2007-E0P, A1, 144A, FRN, 2.831%, 3/06/20 ................ United States 2,285,034 2,126,510
(e) HSI Asset Securitization Corp. Trust, 2006-OPT4, 2A2, FRN,
3.005%, 3/25/36 ............................................. United States 5,016,054 4,954,107

88 | Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
ASSET-BACKED SECURITIES AND COMMERCIAL MORTGAGE-BACKED
SECURITIES (CONTINUED)
THRIFTS & MORTGAGE FINANCE (CONTINUED)
LB-UBS Commercial Mortgage Trust, 2005-C5, A4, 4.954%,
9/15/30 ..................................................... United States 10,545,000 $ 10,325,308
--------------
132,883,224
--------------
TOTAL ASSET-BACKED SECURITIES AND COMMERCIAL MORTGAGE- BACKED
SECURITIES (COST $363,743,652) .............................. 352,877,911
--------------
MORTGAGE-BACKED SECURITIES 41.0%
(e) FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) ADJUSTABLE RATE 0.7%
FHLMC, 5.22%, 11/01/27 ......................................... United States 6,736,284 6,888,556
FHLMC, 5.97%, 10/01/36 ......................................... United States 148,032 151,523
FHLMC, 6.359%, 4/01/32 ......................................... United States 990,763 999,515
FHLMC, 6.569%, 4/01/30 ......................................... United States 525,576 532,051
FHLMC, 7.135%, 9/01/32 ......................................... United States 546,695 550,194
FHLMC, 7.275%, 3/01/25 ......................................... United States 144,552 150,058
--------------
9,271,897
--------------
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) FIXED RATE 20.4%
FHLMC Gold 15 Year, 5.00%, 10/01/17 - 9/01/18 .................. United States 724,607 733,074
(f) FHLMC Gold 15 Year, 5.50%, 5/01/20 ............................. United States 25,000,000 25,449,225
FHLMC Gold 15 Year, 5.50%, 11/01/22 ............................ United States 4,404,000 4,487,662
FHLMC Gold 15 Year, 6.00%, 2/01/17 - 9/01/22 ................... United States 8,891,354 9,166,741
FHLMC Gold 30 Year, 5.00%, 8/01/33 - 5/01/34 ................... United States 2,691,869 2,654,681
(f) FHLMC Gold 30 Year, 5.00%, 5/15/37 ............................. United States 74,300,000 73,011,341
(g) FHLMC Gold 30 Year, 5.50%, 1/01/35 - 12/01/37 .................. United States 20,881,010 21,038,743
FHLMC Gold 30 Year, 5.50%, 11/01/37 ............................ United States 25,294,951 25,485,345
(f) FHLMC Gold 30 Year, 6.00%, 5/01/31 ............................. United States 71,500,000 73,142,284
FHLMC Gold 30 Year, 6.00%, 5/01/33 - 8/01/34 ................... United States 3,004,974 3,087,373
FHLMC Gold 30 Year, 6.50%, 4/01/28 - 1/01/35 ................... United States 967,560 1,008,030
(f) FHLMC Gold 30 Year, 6.50%, 5/15/36 ............................. United States 39,000,000 40,395,459
FHLMC Gold 30 Year, 7.00%, 1/01/28 - 1/01/31 ................... United States 610,356 649,275
FHLMC Gold 30 Year, 7.50%, 3/01/32 ............................. United States 84,116 90,727
FHLMC Gold 30 Year, 8.50%, 8/01/30 ............................. United States 9,834 10,910
FHLMC Gold 30 Year, 9.00%, 1/01/22 ............................. United States 128,822 138,014
FHLMC Gold 30 Year, 10.00%, 10/01/30 ........................... United States 280,758 330,968
FHLMC PC 30 Year, 8.50%, 5/01/12 ............................... United States 1,350 1,364
--------------
280,881,216
--------------
(e) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE
RATE 2.2%
FNMA, 3.244%, 1/01/17 .......................................... United States 639,501 637,606
FNMA, 4.366%, 2/01/34 .......................................... United States 2,743,463 2,746,980
FNMA, 4.60%, 12/01/34 .......................................... United States 1,431,450 1,439,021
FNMA, 4.93%, 4/01/35 ........................................... United States 5,874,646 5,913,203
FNMA, 5.22%, 8/01/33 - 9/01/34 ................................. United States 14,094,705 14,136,563
FNMA, 5.615%, 12/01/27 ......................................... United States 485,942 487,437
FNMA, 5.627%, 3/01/33 .......................................... United States 555,749 555,756

Semiannual Report | 89

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
MORTGAGE-BACKED SECURITIES (CONTINUED)
(e) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE
(CONTINUED)
FNMA, 5.633%, 6/01/33 .......................................... United States 460,193 $ 460,202
FNMA, 5.961%, 10/01/32 ......................................... United States 1,139,896 1,158,285
FNMA, 5.985%, 9/01/19 .......................................... United States 12,536 12,778
FNMA, 5.992%, 12/01/34 ......................................... United States 946,277 963,364
FNMA, 6.243%, 12/01/24 ......................................... United States 58,475 60,805
FNMA, 6.316%, 5/01/25 .......................................... United States 159,370 160,291
FNMA, 6.467%, 11/01/31 ......................................... United States 435,974 442,455
FNMA, 6.479%, 12/01/22 ......................................... United States 215,781 217,913
FNMA, 6.581%, 6/01/17 .......................................... United States 87,737 88,316
FNMA, 6.75%, 6/01/15 ........................................... United States 100,689 101,653
FNMA, 7.231%, 6/01/32 .......................................... United States 162,894 166,451
--------------
29,749,079
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) FIXED RATE 17.6%
FNMA 15 Year, 4.50%, 3/01/19 - 6/01/19 ......................... United States 1,707,226 1,696,322
FNMA 15 Year, 5.00%, 6/01/18 - 7/01/18 ......................... United States 1,568,967 1,586,857
FNMA 15 Year, 5.50%, 1/01/14 - 2/01/18 ......................... United States 892,188 914,038
FNMA 15 Year, 6.00%, 8/01/16 - 9/01/22 ......................... United States 2,807,581 2,895,151
FNMA 15 Year, 6.50%, 4/01/16 - 9/01/16 ......................... United States 45,238 47,081
FNMA 30 Year, 5.00%, 8/01/36 - 2/01/37 ......................... United States 20,923,852 20,579,250
(f) FNMA 30 Year, 5.00%, 5/15/37 ................................... United States 28,575,000 28,070,480
(g) FNMA 30 Year, 5.50%, 6/01/33 - 8/01/37 ......................... United States 73,080,606 73,608,032
FNMA 30 Year, 6.00%, 9/01/32 - 11/01/35 ........................ United States 6,627,520 6,799,710
(f) FNMA 30 Year, 6.00%, 5/15/38 ................................... United States 76,750,000 78,464,902
FNMA 30 Year, 6.50%, 5/01/28 - 8/01/32 ......................... United States 2,150,312 2,242,070
(f) FNMA 30 Year, 6.50%, 5/15/37 ................................... United States 23,850,000 24,681,029
FNMA 30 Year, 7.50%, 1/01/30 ................................... United States 74,760 80,724
FNMA 30 Year, 8.50%, 5/01/32 ................................... United States 237,362 261,488
FNMA 30 Year, 9.00%, 11/01/26 - 5/01/27 ........................ United States 813,067 898,774
--------------
242,825,908
--------------
(e) GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) ADJUSTABLE
RATE 0.0%(a)
GNMA, 5.125%, 10/20/26 ......................................... United States 103,794 104,327
GNMA, 5.375%, 1/20/23 .......................................... United States 49,245 50,146
--------------
154,473
--------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) FIXED RATE 0.1%
GNMA I SF 15 Year, 7.00%, 2/15/09 .............................. United States 8,437 8,662
GNMA I SF 30 Year, 6.50%, 10/15/31 - 4/15/32 ................... United States 134,990 141,051
GNMA I SF 30 Year, 7.00%, 10/15/27 - 4/15/28 ................... United States 60,883 65,295
GNMA I SF 30 Year, 7.50%, 2/15/17 - 5/15/26 .................... United States 421,096 452,953
GNMA I SF 30 Year, 8.00%, 8/15/16 - 7/15/17 .................... United States 204,334 221,850
GNMA I SF 30 Year, 9.00%, 9/15/25 - 8/15/30 .................... United States 8,826 9,710
GNMA II SF 30 Year, 6.00%, 5/20/31 ............................. United States 43,068 44,413
GNMA II SF 30 Year, 6.50%, 3/20/28 - 4/20/31 ................... United States 32,063 33,481

90 | Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
MORTGAGE-BACKED SECURITIES (CONTINUED)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) FIXED RATE
(CONTINUED)
GNMA II SF 30 Year, 7.50%, 8/20/30 - 1/20/33 ................... United States 230,489 $ 246,826
GNMA II SF 30 Year, 8.00%, 1/20/27 - 7/20/27 ................... United States 238,571 260,280
--------------
1,484,521
--------------
TOTAL MORTGAGE-BACKED SECURITIES (COST $560,611,418) ........... 564,367,094
--------------
FOREIGN GOVERNMENT AND AGENCY SECURITIES 8.5%
European Investment Bank,
4.50%, 5/15/13 .............................................. Supranational(h) 2,700,000 NOK 514,435
(e) senior note, FRN, 0.751%, 9/21/11 ....................... Supranational(h) 550,000,000 JPY 5,288,375
(e, i) Government of Argentina, senior bond, FRN, 3.092%, 8/03/12 ..... Argentina 2,225,000 1,183,765
(j) Government of Ghana, Reg S, 8.50%, 10/04/17 .................... Ghana 300,000 313,575
Government of Indonesia,
14.25%, 6/15/13 ............................................. Indonesia 7,995,000,000 IDR 923,709
11.50%, 9/15/19 ............................................. Indonesia 12,200,000,000 IDR 1,207,277
12.80%, 6/15/21 ............................................. Indonesia 9,705,000,000 IDR 1,030,013
12.90%, 6/15/22 ............................................. Indonesia 21,000,000,000 IDR 2,228,824
11.00%, 9/15/25 ............................................. Indonesia 21,230,000,000 IDR 1,985,565
(j) Government of Iraq, Reg S, 5.80%, 1/15/28 ...................... Iraq 3,200,000 2,199,552
Government of Malaysia,
6.45%, 7/01/08 .............................................. Malaysia 4,300,000 MYR 1,368,173
4.305%, 2/27/09 ............................................. Malaysia 20,200,000 MYR 6,444,855
7.00%, 3/15/09 .............................................. Malaysia 2,210,000 MYR 721,487
3.756%, 4/28/11 ............................................. Malaysia 4,965,000 MYR 1,585,634
3.833%, 9/28/11 ............................................. Malaysia 3,035,000 MYR 971,840
3.814%, 2/15/17 ............................................. Malaysia 4,470,000 MYR 1,410,463
4.24%, 2/07/18 .............................................. Malaysia 20,750,000 MYR 6,744,473
Government of Mexico, 10.00%, 12/05/24 ......................... Mexico 400,000 (k)MXN 4,532,857
Government of Norway,
5.50%, 5/15/09 .............................................. Norway 20,000,000 NOK 3,936,116
6.00%, 5/16/11 .............................................. Norway 6,200,000 NOK 1,260,769
6.50%, 5/15/13 .............................................. Norway 35,500,000 NOK 7,566,986
Government of Peru,
7.84%, 8/12/20 .............................................. Peru 1,100,000 PEN 431,298
7, 8.60%, 8/12/17 ........................................... Peru 3,200,000 PEN 1,305,666
Government of Poland, 6.00%, 5/24/09 ........................... Poland 22,350,000 PLN 10,085,846
Government of Singapore,
5.625%, 7/01/08 ............................................. Singapore 1,830,000 SGD 1,359,913
4.375%, 1/15/09 ............................................. Singapore 2,900,000 SGD 2,189,066
2.375%, 10/01/09 ............................................ Singapore 170,000 SGD 127,733
Government of Sweden,
6.50%, 5/05/08 .............................................. Sweden 50,375,000 SEK 8,414,134
5.00%, 1/28/09 .............................................. Sweden 57,300,000 SEK 9,625,753
5.50%, 10/08/12 ............................................. Sweden 2,880,000 SEK 509,572
(e) Government of Vietnam, FRN, 3.625%, 3/12/16 .................... Vietnam 187,826 186,372
(e) KfW Bankengruppe, FRN, 0.658%, 8/08/11 ......................... Germany 705,000,000 JPY 6,774,506

Semiannual Report | 91

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
FOREIGN GOVERNMENT AND AGENCY SECURITIES (CONTINUED)
Korea Treasury Bond,
5.25%, 9/10/12 .............................................. South Korea 1,800,000,000 KRW $ 1,816,652
5.50%, 9/10/17 .............................................. South Korea 5,190,000,000 KRW 5,322,392
5.25%, 3/10/27 .............................................. South Korea 2,001,000,000 KRW 2,021,489
Nota Do Tesouro Nacional, 9.762%,
1/01/14 ..................................................... Brazil 1,900(l) BRL 987,330
1/01/17 ..................................................... Brazil 21,975(l) BRL 10,954,557
(c) Peru Enhanced Pass-Through Finance Ltd., senior secured bond,
A-1, 144A, zero cpn., 5/31/18 ............................... Peru 1,350,000 921,375
--------------
TOTAL FOREIGN GOVERNMENT AND AGENCY SECURITIES
(COST $107,604,321) ......................................... 116,452,397
--------------
(e, m) SENIOR FLOATING RATE INTERESTS 5.7%
APPAREL, ACCESSORIES & LUXURY GOODS 0.1%
Warnaco Inc., Term Loan, 4.079% - 6.62%, 1/31/13 ............... United States 967,358 909,316
The William Carter Co., Term Loan B, 4.384% - 4.399%,
7/14/12 ..................................................... United States 674,655 644,296
--------------
1,553,612
--------------
ASSET MANAGEMENT & CUSTODY BANKS 0.2%
Nuveen Investments Inc., Term Loan B, 5.863% - 5.886%,
11/13/14 .................................................... United States 2,200,000 2,101,343
--------------
AUTO PARTS & EQUIPMENT 0.1%
Allison Transmission, Term Loan B, 5.48% - 5.74%, 8/07/14 ...... United States 1,492,500 1,402,817
--------------
BROADCASTING & CABLE TV 0.7%
Citadel Broadcasting Corp., Term Loan B, 4.305% - 4.495%,
6/12/14 ..................................................... United States 900,000 776,250
CSC Holdings Inc. (Cablevision), Incremental Term Loan, 4.477%,
3/29/13 ..................................................... United States 1,329,109 1,283,421
Entravision Communications Corp., Term Loan B, 4.20%,
3/29/13 ..................................................... United States 572,589 511,036
MCC Iowa,
Term Loan D-1, 4.46% - 4.65%, 1/31/15 ....................... United States 928,320 847,092
Term Loan D-2 (Delayed Draw), 4.46% - 4.65%, 1/31/15 ........ United States 87,394 79,747
Univision Communications Inc., Initial Term Loan, 6.25%,
9/29/14 ..................................................... United States 1,900,000 1,604,907
(f) UPC Financing Partnership, Term Loan N, 4.459%, 12/31/14 ....... Netherlands 4,230,000 3,988,099
--------------
9,090,552
--------------
BUILDING PRODUCTS 0.1%
NCI Building Systems Inc., Term Loan B, 4.30% - 4.40%,
6/18/10 ..................................................... United States 909,662 875,550
--------------
CASINOS & GAMING 0.2%
Penn National Gaming Inc., Term Loan B, 6.00%, 10/03/12 ........ United States 500,000 484,722
VML U.S. Finance LLC (Venetian Macau),
Delay Draw, 4.95%, 5/25/12 .................................. Macau 949,541 907,465
New Project Term Loans, 4.95%, 5/25/13 ...................... Macau 182,721 174,624
Term Loan B, 4.95%, 5/24/13 ................................. Macau 1,767,738 1,689,406
--------------
3,256,217
--------------

92 | Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
(e, m) SENIOR FLOATING RATE INTERESTS (CONTINUED)
COAL & CONSUMABLE FUELS 0.1%
Alpha Natural Resources LLC, Term Loan B, 4.421%, 10/26/12 ..... United States 932,500 $ 911,519
--------------
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS 0.1%
(f) Oshkosh Truck Corp., Term Loan B, 4.76%, 12/06/13 .............. United States 1,000,000 960,278
--------------
DATA PROCESSING & OUTSOURCED SERVICES 0.5%
Affiliated Computer Services Inc., Term Loan B, 4.886%,
3/20/13 ..................................................... United States 977,500 944,738
(f) First Data Corp., Term Loan B-2, 5.349% - 5.446%, 9/24/14 ...... United States 3,590,996 3,383,494
SunGard Data Systems Inc., New U.S. Term Loan, 4.878%,
2/28/14 ..................................................... United States 2,447,854 2,324,626
--------------
6,652,858
--------------
DIVERSIFIED CHEMICALS 0.2%
Celanese U.S. Holdings LLC, Dollar Term Loan, 4.188%, 4/02/14 .. United States 1,388,992 1,344,718
Huntsman International LLC, Term Loan B, 4.636%, 4/19/14 ....... United States 693,786 673,297
Ineos U.S. Finance LLC,
Term Loan B2, 6.25%, 12/16/13 ............................... United States 245,000 229,152
Term Loan C2, 6.75%, 12/23/14 ............................... United States 245,000 229,152
--------------
2,476,319
--------------
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES 0.5%
Affinion Group Inc., Term Loan B, 5.395% - 5.57%, 10/17/12 ..... United States 500,000 472,500
ARAMARK Corp.,
Synthetic L/C, 5.198%, 1/26/14 .............................. United States 50,120 48,134
Term Loan B, 4.571%, 1/26/14 ................................ United States 788,925 757,664
(f) Nielsen Finance LLC (VNU Inc.), Dollar Term Loan, 5.346%,
8/09/13 ..................................................... United States 2,714,830 2,574,563
West Corp., Term Loan B-2, 5.238% - 5.465%, 10/24/13 ........... United States 3,200,000 2,933,111
--------------
6,785,972
--------------
EDUCATION SERVICES 0.2%
(f) Education Management LLC, Term Loan C, 4.50%, 6/01/13 .......... United States 2,620,957 2,344,118
Laureate Education Inc., Closing Date Term Loan, 5.966%,
8/17/14 ..................................................... United States 760,632 704,345
--------------
3,048,463
--------------
ELECTRICAL COMPONENTS & EQUIPMENT 0.0%(a)
EnerSys Capital Inc., New 2007 Term Loans, 4.349% - 4.878%,
3/17/11 ..................................................... United States 498,737 468,190
--------------
ELECTRONIC EQUIPMENT MANUFACTURERS 0.0%(a)
Sensus Metering Systems Inc.,
Term Loan B1, 4.818% - 6.901%, 12/17/10 ..................... United States 176,087 158,478
Term Loan B2, 6.718% - 6.901%, 12/17/10 ..................... Luxembourg 12,147 10,932
--------------
169,410
--------------

Semiannual Report | 93

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
(e, m) SENIOR FLOATING RATE INTERESTS (CONTINUED)
ENVIRONMENTAL & FACILITIES SERVICES 0.1%
Allied Waste North America Inc.,
Credit Link, 5.50%, 3/28/14 ................................. United States 274,016 $ 265,173
Term Loan B, 4.08% - 4.59%, 3/28/14 ......................... United States 455,758 441,049
--------------
706,222
--------------
HEALTH CARE FACILITIES 0.5%
(f) Community Health Systems Inc., Term Loan, 5.335%, 7/25/14 ...... United States 2,001,340 1,920,132
HCA Inc.,
Term Loan A-1, 4.196%, 11/16/12 ............................. United States 2,890,403 2,734,442
Term Loan B-1, 4.946%, 11/18/13 ............................. United States 1,216,719 1,157,462
Health Management Associates Inc., Term Loan B, 4.446%,
2/28/14 ..................................................... United States 367,105 339,704
Iasis Healthcare LLC,
Delayed Draw Term Loan, 4.863%, 3/14/14 ..................... United States 238,891 228,937
Initial Term Loan, 4.881%, 3/14/14 .......................... United States 692,162 663,321
Synthetic L/C, 2.609%, 3/14/14 .............................. United States 63,704 61,050
--------------
7,105,048
--------------
HEALTH CARE SERVICES 0.1%
DaVita Inc., Term Loan B-1, 4.20% - 4.60%, 10/05/12 ............ United States 815,000 781,937
Fresenius Medical Care Holdings Inc., Term Loan B, 3.954% -
6.205%, 3/31/13 ............................................. United States 1,101,786 1,067,527
--------------
1,849,464
--------------
HOUSEHOLD PRODUCTS 0.0%(a)
Central Garden & Pet Co., Term Loan B, 4.30% - 4.37%, 9/30/12 .. United States 709,780 624,016
--------------
HOUSEWARES & SPECIALTIES 0.2%
Jarden Corp.,
Term Loan B1, 4.446%, 1/24/12 ............................... United States 723,493 689,781
Term Loan B2, 4.446%, 1/24/12 ............................... United States 878,504 837,568
Jostens IH Corp. (Visant Holding Corp.), Term Loan C, 6.718%,
12/21/11 .................................................... United States 812,195 782,414
--------------
2,309,763
--------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS 0.3%
Dynegy Holdings Inc.,
Term L/C Facility, 4.363%, 4/02/13 .......................... United States 923,913 872,328
Term Loan B, 4.363%, 4/02/13 ................................ United States 75,707 71,480
(f) NRG Energy Inc.,
Credit Link, 6.48%, 2/01/13 ................................. United States 364,438 350,453
Term Loan, 6.58%, 2/01/13 ................................... United States 761,155 731,946
Texas Competitive Electric Holdings Co. LLC,
Term Loan B-2, 6.478% - 6.596%, 10/10/14 .................... United States 1,500,000 1,439,062
Term Loan B-3, 6.478% - 6.596%, 10/10/14 .................... United States 1,496,241 1,434,428
--------------
4,899,697
--------------

94 | Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
(e, m) SENIOR FLOATING RATE INTERESTS (CONTINUED)
INDUSTRIAL CONGLOMERATES 0.0%(a)
GPS CCMP Merger Corp. (Generac), Term Loan B, 5.184%,
11/12/13 .................................................... United States 530,719 $ 430,413
TriMas Co. LLC,
Term Loan B, 5.146% - 5.157%, 8/02/13 ....................... United States 205,479 190,068
Tranche B-1 L/C, 7.086%, 8/02/13 ............................ United States 48,141 44,530
--------------
665,011
--------------
INTEGRATED TELECOMMUNICATION SERVICES 0.0%(a)
(f) Wind Telecomunicazioni SpA,
Term Loan B-2, 6.875%, 9/30/13 .............................. Italy 250,000 243,835
Term Loan C-2, 7.375%, 9/30/14 .............................. Italy 250,000 245,903
--------------
489,738
--------------
INVESTMENT BANKING & BROKERAGE 0.1%
TD Ameritrade Holding Corp., Term Loan B, 4.37%, 12/31/12 ...... United States 983,088 962,110
--------------
LIFE & HEALTH INSURANCE 0.1%
Conseco Inc., Term Loan, 4.863%, 10/10/13 ...................... United States 1,389,439 1,065,237
--------------
MOVIES & ENTERTAINMENT 0.2%
Cinemark USA Inc., Term Loan, 4.46% - 4.82%, 10/05/13 .......... United States 885,284 846,206
(f) Regal Cinemas Corp., Term Loan, 4.196%, 10/27/13 ............... United States 1,586,216 1,509,879
--------------
2,356,085
--------------
OFFICE SERVICES & SUPPLIES 0.0%(a)
Acco Brands Corp., Term Loan B, 4.292% - 4.82%, 8/17/12 ........ United States 622,785 596,316
--------------
PACKAGED FOODS & MEATS 0.0%(a)
Dean Foods Co., Term Loan B, 4.45% - 4.62%, 4/02/14 ............ United States 495,000 473,206
--------------
PAPER PRODUCTS 0.2%
Domtar Corp., Term Loan, 4.175%, 3/07/14 ....................... United States 872,360 839,568
Georgia-Pacific Corp.,
Additional Term Loan, 4.446% - 4.74%, 12/20/12 .............. United States 493,750 474,386
(f) Term Loan B, 4.446% - 4.835%, 12/20/12 .................. United States 1,332,974 1,280,697
--------------
2,594,651
--------------
PUBLISHING 0.1%
Idearc Inc., Term Loan B, 4.70% - 4.86%, 11/17/14 .............. United States 987,500 817,156
Tribune Co., Term Loan B, 5.542%, 5/16/14 ...................... United States 1,191,000 885,807
--------------
1,702,963
--------------
RESTAURANTS 0.1%
OSI Restaurant Partners LLC (Outback),
Pre-Funded Revolving Credit, 2.67%, 6/14/13 ................. United States 106,383 92,863
Term Loan B, 5.00%, 6/14/14 ................................. United States 1,336,941 1,167,039
--------------
1,259,902
--------------
RETAIL REITS 0.1%
Capital Automotive, Term Loan B, 4.46%, 12/15/10 ............... United States 940,723 912,355
--------------

Semiannual Report | 95

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
(e, m) SENIOR FLOATING RATE INTERESTS (CONTINUED)
SEMICONDUCTORS 0.0%(a)
Fairchild Semiconductor Corp., Initial Term Loan, 4.196%,
6/26/13 ..................................................... United States 498,731 $ 472,548
--------------
SPECIALTY CHEMICALS 0.2%
Hexion Specialty Chemicals BV, Term Loan C-5, 5.00%, 5/03/13 ... Netherlands 992,500 938,223
Nalco Co., Term Loan B, 4.477% - 6.48%, 11/04/10 ............... United States 204,891 202,266
Oxbow Carbon LLC,
Delayed Draw Term Loan, 4.863%, 5/08/14 ..................... United States 96,141 87,208
Term Loan B, 4.718% - 5.75%, 5/08/14 ........................ United States 1,073,904 974,120
Rockwood Specialties Group Inc., Term Loan E, 4.399%, 7/30/12 .. United States 1,000,000 954,028
--------------
3,155,845
--------------
TIRES & RUBBER 0.1%
United Components Inc., Term Loan D, 4.72% - 5.10%, 6/29/12 .... United States 844,444 793,254
--------------
WIRELESS TELECOMMUNICATION SERVICES 0.3%
Alltel Communications Inc.,
(f) Term Loan B-1, 6.75%, 6/30/15 ........................... United States 200,000 183,583
Term Loan B-3, 5.466%, 5/18/15 .............................. United States 4,052,954 3,732,471
--------------
3,916,054
--------------
TOTAL SENIOR FLOATING RATE INTERESTS (COST $80,287,487) 78,662,585
--------------
CREDIT - LINKED STRUCTURED NOTE (COST $1,201,748) 0.1%
DIVERSIFIED BANKS 0.1%
(c, e, n) Credit Suisse First Boston International, 144A, FRN, 4.842%,
3/20/09 ..................................................... United States 1,200,000 1,209,000
--------------
MUNICIPAL BONDS 1.1%
California State GO,
Refunding, 5.00%, 4/01/38 ................................... United States 10,000,000 9,953,400
Various Purpose, Refunding, 5.25%, 3/01/38 .................. United States 4,700,000 4,815,667
--------------
TOTAL MUNICIPAL BONDS (COST $14,680,952) ....................... 14,769,067
--------------
TOTAL LONG TERM INVESTMENTS (COST $1,623,604,713) .............. 1,615,244,774
--------------
SHORT TERM INVESTMENTS 8.1%
FOREIGN GOVERNMENT AND AGENCY SECURITIES 0.5%
(o) Egypt Treasury Bills, 7/01/08 - 1/13/09 ........................ Egypt 13,650,000 EGP 2,466,633
Government of Malaysia, 3.562%, 7/15/08 ........................ Malaysia 620,000 MYR 196,349
(o) Malaysia Treasury Bill, 9/23/08 ................................ Malaysia 12,560,000 MYR 3,925,179
(o) Norway Treasury Bills, 6/18/08 - 9/17/08 ....................... Norway 500,000 NOK 96,539
--------------
TOTAL FOREIGN GOVERNMENT AND AGENCY SECURITIES
(COST $6,259,476) ........................................... 6,684,700
--------------
U.S. GOVERNMENT AND AGENCY SECURITY (COST $3,993,048) 0.3%
(g, o) U.S. Treasury Bill, 5/29/08 .................................... United States 4,000,000 3,996,380
--------------
TOTAL INVESTMENTS BEFORE MONEY MARKET FUND
(COST $1,633,857,237) ....................................... 1,625,925,854
--------------

96 | Semiannual Report

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED) (CONTINUED)

COUNTRY/
FRANKLIN TOTAL RETURN FUND ORGANIZATION SHARES VALUE
- -------------------------------------------------------------------------- ---------------- --------------------- --------------

SHORT TERM INVESTMENTS (CONTINUED)
MONEY MARKET FUND (COST $100,359,314) 7.3%
(p) Franklin Institutional Fiduciary Trust Money Market Portfolio,
2.29% ....................................................... United States 100,359,314 $ 100,359,314
--------------
TOTAL INVESTMENTS (COST $1,734,216,551) 125.5% ................. 1,726,285,168
NET UNREALIZED LOSS ON CREDIT DEFAULT SWAPS (0.3)% ............. (3,480,060)
NET UNREALIZED GAIN ON FORWARD EXCHANGE CONTRACTS 0.1% ......... 1,008,516
OTHER ASSETS, LESS LIABILITIES (25.3)% ......................... (347,990,974)
--------------
NET ASSETS 100.0% $1,375,822,650
==============

See Currency and Selected Portfolio Abbreviations on page 98.

(a) Rounds to less than 0.1% of net assets.

(b) The principal amount is stated in U.S. dollars unless otherwise indicated.

(d) Perpetual bond with no stated maturity date.

(e) The coupon rate shown represents the rate at period end.

(f) A portion or all of the security purchased on a delayed delivery or TBA
basis. See Note 1(d).

(g) Security or a portion of the security has been segregated as collateral for
open swap agreements and open future agreements. At April 30, 2008, the
value of securities amounted to $9,811,620.

(h) A supranational organization is an entity formed by two or more central
governments through international treaties.

(i) The principal amount is stated in original face, and scheduled paydowns are
reflected in the market price on ex-date.

(j) Security was purchased pursuant to Regulation S under the Securities Act of
1933, which exempts from registration securities offered and sold outside
of the United States. Such a security cannot be sold in the United States
without either an effective registration statement filed pursuant to the
Securities Act of 1933, or pursuant to an exemption from registration.
These securities have been deemed liquid under guidelines approved by the
Trust's Board of Trustees. At April 30, 2008, the aggregate value of these
securities was $2,513,127, representing 0.18% of net assets.

(k) Principal amount is stated in 100 Mexican Peso Units.

(l) Principal amount is stated in 1,000 Brazilian Real Units.

(m) See Note 1(j) regarding senior floating rate interests.

(n) See Note 1(h) regarding credit linked notes.

(o) The security is traded on a discount basis with no stated coupon rate.

(p) See Note 7 regarding investments in the Franklin Institutional Fiduciary
Trust Money Market Portfolio. The rate shown is the annualized seven-day
yield at period end.

Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 97

Franklin Investors Securities Trust

STATEMENT OF INVESTMENTS, APRIL 30, 2008 (UNAUDITED)

CURRENCY ABBREVIATIONS

BRL - Brazilian Real
EGP - Egyptian Pound
EUR - Euro
IDR - Indonesian Rupiah
JPY - Japanese Yen
KRW - South Korean Won
MXN - Mexican Peso
MYR - Malaysian Ringgit
NOK - Norwegian Krone
PEN - Peruvian Nuevo Sol
PLN - Polish Zloty
SEK - Swedish Krona
SGD - Singapore Dollar

SELECTED PORTFOLIO ABBREVIATIONS

DIP - Debtor-In-Possession
FHLB - Federal Home Loan Bank
FHLMC - Federal Home Loan Mortgage Corp.
FNMA - Federal National Mortgage Association
FRN - Floating Rate Note
GNMA - Government National Mortgage Association
GO - General Obligation
L/C - Letter of Credit
PC - Participation Certificate
REIT - Real Estate Investment Trust
SF - Single Family

98 | The accompanying notes are an integral part of these financial
statements. | Semiannual Report

Franklin Investors Securities Trust

FINANCIAL STATEMENTS

STATEMENTS OF ASSETS AND LIABILITIES
April 30, 2008 (unaudited)

FRANKLIN
ADJUSTABLE
U.S. FRANKLIN FRANKLIN
GOVERNMENT FLOATING RATE LOW DURATION FRANKLIN
SECURITIES DAILY ACCESS TOTAL RETURN TOTAL RETURN
FUND FUND FUND FUND
------------ -------------- -------------- --------------

Assets:
Investments in securities:
Cost - Unaffiliated issuers ................. $387,821,229 $1,364,348,747 $ 24,232,182 $1,633,857,237
Cost - Sweep Money Fund (Note 7) ............ 22,053,759 172,416,297 402,336 100,359,314
Cost - Repurchase agreements ................ 36,028,966 -- -- --
------------ -------------- -------------- --------------
Total cost of investments ................... $445,903,954 $1,536,765,044 $ 24,634,518 $1,734,216,551
------------ -------------- -------------- --------------
Value - Unaffiliated issuers ................ $386,302,846 $1,280,943,312 $ 24,598,114 $1,625,925,854
Value - Sweep Money Fund (Note 7) ........... 22,053,759 172,416,297 402,336 100,359,314
Value - Repurchase agreements ............... 36,028,966 -- -- --
------------ -------------- -------------- --------------
Total value of investments .................. 444,385,571 1,453,359,609 25,000,450 1,726,285,168
Cash ........................................... -- 2,317,968 9,594 510,024
Cash on deposit from brokers for swap
agreements .................................. -- -- -- 1,180,892
Foreign currency, at value (cost $ -, $ -,
$4,906, $47,206) ............................ -- -- 5,209 48,720
Receivables:
Investment securities sold .................. 2,148,529 13,331,739 865 349,556
Capital shares sold ......................... 1,522,258 7,233,192 63,289 5,243,547
Interest .................................... 2,127,079 4,657,212 246,767 12,034,269
Variation margin ............................ -- -- -- 197,187
Swap premiums paid ............................. -- -- 2,336 89,228
Unrealized gain on forward exchange contracts
(Note 9) .................................... -- -- 27,607 2,040,666
Unrealized gain on swap agreements (Note 8) .... -- -- 31,313 1,957,085
------------ -------------- -------------- --------------
Total assets ............................. 450,183,437 1,480,899,720 25,387,430 1,749,936,342
------------ -------------- -------------- --------------
Liabilities:
Payables:
Investment securities purchased ............. 6,491,878 34,842,272 -- 358,281,287
Capital shares redeemed ..................... 1,495,230 4,143,130 54,359 2,510,654
Affiliates .................................. 289,350 1,056,457 4,642 833,603
Accrued swap premium ........................ -- -- 6,279 410,590
Distributions to shareholders ............... 363,247 1,449,977 25,220 1,293,026
Professional fees ........................... 14,325 13,139 13,345 16,102
Swap premiums received ......................... -- -- 38,224 2,986,636
Payable to brokers for swap agreements ......... -- -- -- 1,180,892
Unrealized loss on forward exchange contracts
(Note 9) .................................... -- -- 11,280 1,032,150
Unrealized loss on swap agreements (Note 8) .... -- -- 101,214 5,437,145
Unrealized loss on unfunded loan commitments
(Note 11) ................................... -- 704,193 -- 5,071
Accrued expenses and other liabilities ......... 22,616 379,810 2,734 126,536
------------ -------------- -------------- --------------
Total liabilities ........................ 8,676,646 42,588,978 257,297 374,113,692
------------ -------------- -------------- --------------
Net assets, at value .................. $441,506,791 $1,438,310,742 $ 25,130,133 $1,375,822,650
============ ============== ============== ==============

Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 99

Franklin Investors Securities Trust

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
April 30, 2008

Net assets consist of:
Paid-in capital ................................ $459,479,826 $1,953,425,034 $ 24,953,751 $1,381,231,021
Undistributed net investment income
(distributions in excess of net investment
income) ..................................... (880,558) 55,609 (29,270) 1,248,518
Net unrealized appreciation (depreciation) ..... (1,518,383) (84,109,628) 313,347 (10,791,532)
Accumulated net realized gain (loss) ........... (15,574,094) (431,060,273) (107,695) 4,134,643
------------ -------------- -------------- --------------
Net assets, at value ........................ $441,506,791 $1,438,310,742 $ 25,130,133 $1,375,822,650
============ ============== ============== ==============
CLASS A:
Net assets, at value ........................... $386,035,947 $1,049,337,177 $ 25,130,133 $ 849,368,373
------------ -------------- -------------- --------------
Shares outstanding ............................. 43,439,370 111,903,976 2,515,075 85,949,360
------------ -------------- -------------- --------------
Net asset value per share(a) ................... $ 8.89 $ 9.38 $ 9.99 $ 9.88
------------ -------------- -------------- --------------
Maximum offering price per share (net asset
value per share / 97.75%, 97.75%, 97.75% and
95.75%, respectively) ....................... $ 9.09 $ 9.60 $ 10.22 $ 10.32
------------ -------------- -------------- --------------
CLASS B:
Net assets, at value ........................... -- $ 26,926,669 -- $ 22,507,820
------------ -------------- -------------- --------------
Shares outstanding ............................. -- 2,873,646 -- 2,278,076
------------ -------------- -------------- --------------
Net asset value and maximum offering price per
share(a) .................................... -- $ 9.37 -- $ 9.88
------------ -------------- -------------- --------------
CLASS C:
Net assets, at value ........................... $ 55,470,844 $ 271,123,646 -- $ 115,142,802
------------ -------------- -------------- --------------
Shares outstanding ............................. 6,245,851 28,903,434 -- 11,657,257
------------ -------------- -------------- --------------
Net asset value and maximum offering price per
share(a) .................................... $ 8.88 $ 9.38 -- $ 9.88
------------ -------------- -------------- --------------
CLASS R:
Net assets, at value ........................... -- -- -- $ 73,619,980
------------ -------------- -------------- --------------
Shares outstanding ............................. -- -- -- 7,450,164
------------ -------------- -------------- --------------
Net asset value and maximum offering price per
share(a) .................................... -- -- -- $ 9.88
------------ -------------- -------------- --------------
ADVISOR CLASS:
Net assets, at value ........................... -- $ 90,923,250 -- $ 315,183,675
------------ -------------- -------------- --------------
Shares outstanding ............................. -- 9,697,307 -- 31,850,336
------------ -------------- -------------- --------------
Net asset value and maximum offering price per
share(a) .................................... -- $ 9.38 -- $ 9.90
------------ -------------- -------------- --------------

(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable, and redemption fees retained by the Fund.

100 | The accompanying notes are an integral part of these financial
statements. | Semiannual Report

Franklin Investors Securities Trust

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF OPERATIONS
for the period ended April 30, 2008

Investment income:
Dividends:
Unaffiliated issuers ........................ $ -- $ -- $ 3,718 $ 569,961
Sweep Money Fund (Note 7) ................... 344,146 2,952,827 24,411 2,022,981
Interest ....................................... 9,695,223 51,042,372 429,993 31,789,702
------------ -------------- -------------- --------------
Total investment income .................. 10,039,369 53,995,199 458,122 34,382,644
------------ -------------- -------------- --------------
Expenses:
Management fees (Note 3a) ...................... 752,368 2,572,906 40,494 2,006,227
Administrative fees (Note 3b) .................. 196,468 1,593,845 20,294 1,246,406
Service fee (Note 12) .......................... -- 24,796 -- --
Distribution fees: (Note 3c)
Class A ..................................... 437,175 1,447,355 25,442 960,260
Class B ..................................... -- 159,902 -- 68,901
Class C ..................................... 142,274 1,008,515 -- 331,007
Class R ..................................... -- -- -- 167,148
Transfer agent fees (Note 3e) .................. 227,599 954,655 5,592 945,560
Custodian fees (Note 4) ........................ 3,030 14,982 2,379 78,964
Reports to shareholders ........................ 27,936 148,002 676 57,374
Registration and filing fees ................... 85,839 76,473 21,982 91,656
Professional fees .............................. 14,076 52,365 14,085 23,016
Trustees' fees and expenses .................... 6,159 29,994 254 16,178
Other .......................................... 6,226 35,266 4,755 32,231
------------ -------------- -------------- --------------
Total expenses ........................... 1,899,150 8,119,056 135,953 6,024,928
Expense reductions (Note 4) .............. (5) (13,001) (122) (4,434)
Expenses waived/paid by affiliates
(Note 3f) ............................. -- -- (44,310) (753,915)
------------ -------------- -------------- --------------
Net expenses .......................... 1,899,145 8,106,055 91,521 5,266,579
------------ -------------- -------------- --------------
Net investment income .............. 8,140,224 45,889,144 366,601 29,116,065
------------ -------------- -------------- --------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments .............................. 5,333 (38,218,547) (30,457) 7,668,467
Foreign currency transactions ............ -- -- 54,732 4,571,132
Financial futures contracts .............. -- -- -- 3,141,578
Swap agreements .......................... -- -- 32,772 (523,390)
------------ -------------- -------------- --------------
Net realized gain (loss) ........... 5,333 (38,218,547) 57,047 14,857,787
------------ -------------- -------------- --------------
Net change in unrealized appreciation
(depreciation) on:
Investments ................................. 1,260,302 (43,853,458) 128,830 (16,278,202)
Translation of assets and liabilities
denominated in foreign currencies ........ -- -- (1,969) (1,969,022)
------------ -------------- -------------- --------------
Net change in unrealized
appreciation (depreciation) ..... 1,260,302 (43,853,458) 126,861 (18,247,224)
------------ -------------- -------------- --------------
Net realized and unrealized gain (loss) ........ 1,265,635 (82,072,005) 183,908 (3,389,437)
------------ -------------- -------------- --------------
Net increase (decrease) in net assets resulting
from operations ............................. $ 9,405,859 $ (36,182,861) $ 550,509 $ 25,726,628
============ ============== ============== ==============

Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 101

Franklin Investors Securities Trust

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF CHANGES IN NET ASSETS

FRANKLIN ADJUSTABLE U.S. FRANKLIN FLOATING RATE
GOVERNMENT SECURITIES FUND DAILY ACCESS FUND
----------------------------- -------------------------------
SIX
MONTHS ENDED SIX
APRIL 30, YEAR ENDED MONTHS ENDED YEAR ENDED
2008 OCTOBER 31, APRIL 30, 2008 OCTOBER 31,
(UNAUDITED) 2007 (UNAUDITED) 2007
------------ -------------- -------------- --------------

Increase (decrease) in net assets:
Operations:
Net investment income ....................... $ 8,140,224 $ 15,754,025 $ 45,889,144 $ 137,196,885
Net realized gain (loss) from investments ... 5,333 107,794 (38,218,547) (17,709,569)
Net change in unrealized appreciation
(depreciation) on investments ............ 1,260,302 2,180,737 (43,853,458) (42,132,065)
------------ -------------- -------------- --------------
Net increase (decrease) in net assets
resulting from operations ............. 9,405,859 18,042,556 (36,182,861) 77,355,251
------------ -------------- -------------- --------------
Distributions to shareholders from:
Net investment income:
Class A .................................. (8,098,294) (16,788,834) (33,770,331) (105,199,853)
Class B .................................. -- -- (834,151) (3,131,867)
Class C .................................. (921,330) (1,568,974) (8,571,425) (24,353,482)
Advisor Class ............................ -- -- (2,655,659) (4,768,357)
------------ -------------- -------------- --------------
Total distributions to shareholders ............ (9,019,624) (18,357,808) (45,831,566) (137,453,559)
------------ -------------- -------------- --------------
Capital share transactions: (Note 2)
Class A .................................. 52,221,901 (38,995,215) (267,191,718) (322,747,971)
Class B .................................. -- -- (10,848,774) (19,987,582)
Class C .................................. 18,779,082 745,399 (94,945,713) 14,082,357
Advisor Class ............................ -- -- 9,562,806 (5,821,192)
------------ -------------- -------------- --------------
Total capital share transactions ............... 71,000,983 (38,249,816) (363,423,399) (334,474,388)
------------ -------------- -------------- --------------
Redemption fees ................................ 11,319 3,212 3,045 49,115
------------ -------------- -------------- --------------
Net increase (decrease) in net assets .... 71,398,537 (38,561,856) (445,434,781) (394,523,581)
Net assets:
Beginning of period ............................ 370,108,254 408,670,110 1,883,745,523 2,278,269,104
------------ -------------- -------------- --------------
End of period .................................. $441,506,791 $ 370,108,254 $1,438,310,742 $1,883,745,523
------------ -------------- -------------- --------------
Undistributed net investment income (distributions
in excess of net investment income) included in
net assets:
End of period ............................... $ (880,558) $ (1,158) $ 55,609 $ (1,969)
============ ============== ============== ==============

102 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report

Franklin Investors Securities Trust

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)

FRANKLIN LOW DURATION FRANKLIN
TOTAL RETURN FUND TOTAL RETURN FUND
----------------------------- -------------------------------
SIX
MONTHS ENDED SIX
APRIL 30, YEAR ENDED MONTHS ENDED YEAR ENDED
2008 OCTOBER 31, APRIL 30, 2008 OCTOBER 31,
(UNAUDITED) 2007 (UNAUDITED) 2007
------------ -------------- -------------- --------------

Increase (decrease) in net assets:
Operations:
Net investment income ....................... $ 366,601 $ 533,425 $ 29,116,065 $ 41,784,488
Net realized gain (loss) from investments,
financial futures contracts, swap
agreements and foreign currency
transactions ............................. 57,047 41,616 14,857,787 998,868
Net change in unrealized appreciation
(depreciation) on investments and
translation of assets and liabilities
denominated in foreign currencies ....... 126,861 149,881 (18,247,224) 399,109
------------ -------------- -------------- --------------
Net increase (decrease) in net assets
resulting from operations .......... 550,509 724,922 25,726,628 43,182,465
------------ -------------- -------------- --------------
Distributions to shareholders from:
Net investment income:
Class A .................................. (403,368) (563,718) (18,388,450) (25,471,366)
Class B .................................. -- -- (468,392) (938,074)
Class C .................................. -- -- (2,234,861) (2,817,538)
Class R .................................. -- -- (1,519,144) (1,971,779)
Advisor Class ............................ -- -- (7,364,864) (12,728,081)
------------ -------------- -------------- --------------
Total distributions to shareholders ............ (403,368) (563,718) (29,975,711) (43,926,838)
------------ -------------- -------------- --------------
Capital share transactions: (Note 2)
Class A .................................. 8,237,993 4,855,283 168,381,008 277,578,606
Class B .................................. -- -- 2,163,660 (551,588)
Class C .................................. -- -- 31,084,401 38,343,835
Class R .................................. -- -- 15,912,306 27,774,892
Advisor Class ............................ -- -- 35,197,849 58,316,715
------------ -------------- -------------- --------------
Total capital share transactions ............... 8,237,993 4,855,283 252,739,224 401,462,460
------------ -------------- -------------- --------------
Redemption fees ................................ 930 5,526 7,793 16,469
------------ -------------- -------------- --------------
Net increase (decrease) in net
assets ............................. 8,386,064 5,022,013 248,497,934 400,734,556
Net assets:
Beginning of period ............................ 16,744,069 11,722,056 1,127,324,716 726,590,160
------------ -------------- -------------- --------------
End of period .................................. $ 25,130,133 $ 16,744,069 $1,375,822,650 $1,127,324,716
------------ -------------- -------------- --------------
Undistributed net investment income (distributions
in excess of net investment income) included in
net assets:
End of period ............................... $ (29,270) $ 7,497 $ 1,248,518 $ 2,108,164
============ ============== ============== ==============

Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 103

Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

CLASS A CLASS A & CLASS C
- ----------------------------------------- ---------------------------------------------------

Franklin Low Duration Total Return Fund Franklin Adjustable U.S. Government Securities Fund

CLASS A, CLASS B, CLASS C & ADVISOR CLASS CLASS A, CLASS B, CLASS C, CLASS R & ADVISOR CLASS
- ----------------------------------------- ---------------------------------------------------

Franklin Floating Rate Daily Access Fund Franklin Total Return Fund

The following summarizes the Funds' significant accounting policies.

A. SECURITY VALUATION

Senior secured corporate loans with floating or variable interest rates
generally trade in the over-the-counter market rather than on a securities
exchange. The Trust may utilize independent pricing services, quotations from
loan dealers and other financial institutions, and information with respect to
bond and note transactions, to assist in determining a current market value for
each security. The Trust's pricing services use independent market quotations
from loan dealers or financial institutions and may incorporate valuation
methodologies that consider multiple bond characteristics such as dealer quotes,
issuer type, coupon, maturity, weighted average maturity, interest rate spreads
and yield curves, cash flow and credit risk/quality analysis, to determine
current value.

104 | Semiannual Report

Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

A. SECURITY VALUATION (CONTINUED)

The Trust has procedures to determine the fair value of individual securities
and other assets for which market prices are not readily available or which may
not be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the availability (including the reliability) of the value of a portfolio
security held by the fund. If such an event occurs, the securities may be valued
using fair value procedures, which may include the use of independent pricing
services. All security valuation procedures are approved by the Trust's Board of
Trustees.

B. FOREIGN CURRENCY TRANSLATION

Semiannual Report | 105

Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

C. JOINT REPURCHASE AGREEMENT

The Funds may enter into a joint repurchase agreement whereby their uninvested
cash balance is deposited into a joint cash account with other funds managed by
the investment manager or an affiliate of the investment manager and is used to
invest in one or more repurchase agreements. The value and face amount of the
joint repurchase agreement are allocated to the funds based on their pro-rata
interest. A repurchase agreement is accounted for as a loan by the fund to the
seller, collateralized by securities which are delivered to the fund's
custodian. The market value, including accrued interest, of the initial
collateralization is required to be at least 102% of the dollar amount invested
by the funds, with the value of the underlying securities marked to market daily
to maintain coverage of at least 100%. The joint repurchase agreement held by
the Franklin Adjustable U.S. Government Securities Fund at period end had been
entered into on April 30, 2008. The joint repurchase agreement is valued at
cost.

D. SECURITIES PURCHASED ON A DELAYED DELIVERY OR TBA BASIS

The Funds may purchase securities on a delayed delivery or to-be-announced (TBA)
basis, with payment and delivery scheduled for a future date. These transactions
are subject to market fluctuations and are subject to the risk that the value at
delivery may be more or less than the trade date purchase price. Although the
Funds will generally purchase these securities with the intention of holding the
securities, they may sell the securities before the settlement date. Sufficient
assets have been segregated for these securities.

E. FUTURES CONTRACTS

The Franklin Total Return Fund may purchase financial futures contracts to gain
exposure to market changes. A financial futures contract is an agreement between
two parties to buy or sell a security for a set price on a future date. Required
initial margin deposits of cash or securities are maintained by the fund's
custodian in segregated accounts as disclosed in the Statement of Investments.
Subsequent payments, known as variation margin, are made or received by the fund
depending on the fluctuations in the value of the underlying securities. Such
variation margin is accounted for as unrealized gains or losses until the
contract is closed, at which time the gains or losses are reclassified to
realized. Realized and unrealized gains and losses on these contracts are
included in the Statement of Operations.

The risks of these contracts include the possibility there may be an illiquid
secondary market and/or a change in the value of the contract may not correlate
with the changes in the value of the underlying securities.

106 | Semiannual Report

Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

F. FOREIGN CURRENCY CONTRACTS

When the funds purchase or sell foreign securities they may enter into foreign
exchange contracts to minimize foreign exchange risk from the trade date to the
settlement date of the transactions. A foreign exchange contract is an agreement
between two parties to exchange different currencies at an agreed upon exchange
rate at a future date. Realized and unrealized gains and losses on these
contracts are included in the Statements of Operations.

The Franklin Low Duration Total Return Fund and Franklin Total Return Fund may
also enter into forward exchange contracts to hedge against fluctuations in
foreign exchange rates or to gain exposure to certain foreign currencies. These
contracts are valued daily by the fund and the unrealized gains or losses on the
contracts, as measured by the difference between the contractual forward foreign
exchange rates and the forward rates at the reporting date, are included in the
Statements of Assets and Liabilities. Realized and unrealized gains and losses
on these contracts are included in the Statements of Operations.

G. CREDIT DEFAULT SWAPS

The Franklin Low Duration Total Return Fund and Franklin Total Return Fund may
purchase or sell credit default swap contracts to manage or gain exposure to
credit risk. Credit default swaps are agreements between two parties whereby the
buyer receives credit protection and the seller guarantees the credit worthiness
of a referenced debt obligation. The buyer pays the seller a periodic stream of
payments over the term of the contract provided that no event of default has
occurred. Such periodic payments are accrued daily and recorded as realized gain
or loss upon receipt or payment thereof in the Statements of Operations. In
return, the buyer would be entitled to receive the par (or other agreed-upon)
value of a referenced debt obligation from the counterparty to the contract in
the event of a default by a third party, such as a U.S. or foreign issuer, on
the debt obligation.

Credit default swaps are marked to market daily based upon quotations from the
market makers and the change in value, if any, is recorded as an unrealized gain
or loss in the Statements of Operations. Any payment received or paid to
initiate a contract is recorded as a liability or asset in the Statements of
Assets and Liabilities and amortized over the life of the contract as a realized
gain or loss. When the swap contract is terminated early, the fund records a
realized gain or loss for any payments received or paid.

Semiannual Report | 107

Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

G. CREDIT DEFAULT SWAPS (CONTINUED)

The risks of credit default swaps include unfavorable changes in interest rates,
an illiquid secondary market and the possible inability of the counterparty to
fulfill its obligations under the agreement, which may be in excess of the
amount reflected in the Statements of Assets and Liabilities. Cash and/or
securities are maintained by the fund's custodian in segregated accounts as
disclosed in the Statements of Investments.

H. CREDIT LINKED NOTES

The Franklin Total Return Fund may purchase credit linked notes. Credit linked
notes are intended to replicate the economic effects that would apply had the
fund directly purchased the underlying reference asset or basket of assets. The
risks of credit linked notes include the potential default of the underlying
reference asset, the potential inability of the fund to dispose of the credit
linked note in the normal course of business, and the possible inability of the
counterparties to fulfill their obligations under the contracts.

I. MORTGAGE DOLLAR ROLLS

The Funds may enter into mortgage dollar rolls, typically on a TBA basis.
Mortgage dollar rolls are agreements between the fund and a financial
institution to simultaneously sell and repurchase mortgage-backed securities at
a future date. Gains or losses are realized on the initial sale, and the
difference between the repurchase price and the sale price is recorded as an
unrealized gain or loss to the fund upon entering into the mortgage dollar roll.
In addition, the fund may earn interest on the cash proceeds that are received
from the initial sale. During the period between the sale and repurchase, the
fund is not entitled to principal and interest paid on the mortgage backed
securities. The risks of mortgage dollar roll transactions include the potential
inability of the counterparty to fulfill its obligations.

J. SENIOR FLOATING RATE INTERESTS

Senior secured corporate loans pay interest at rates which are periodically
reset by reference to a base lending rate plus a spread. These base lending
rates are generally the prime rate offered by a designated U.S. bank or the
London InterBank Offered Rate (LIBOR). Senior secured corporate loans often
require prepayment of principal from excess cash flows or at the discretion of
the borrower. As a result, actual maturity may be substantially less than the
stated maturity.

Senior secured corporate loans in which the Franklin Floating Rate Daily Access
Fund and Franklin Total Return Fund invest are generally readily marketable, but
may be subject to some restrictions on resale.

108 | Semiannual Report

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NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

K. INCOME TAXES

L. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Amortization of
premium and accretion of discount on debt securities are included in interest
income. Facility fees are recognized as income over the expected term of the
loan. Dividend income is recorded on the ex-dividend date. Dividends from net
investment income are normally declared daily and distributed monthly to
shareholders. Distributions from realized gains and other distributions, if any,
are recorded on the ex-dividend date. Distributions to shareholders are
determined according to income tax regulations (tax basis). Distributable
earnings determined on a tax basis may differ from earnings recorded in
accordance with accounting principles generally accepted in the United States of
America. These differences may be permanent or temporary. Permanent differences
are reclassified among capital accounts to reflect their tax character. These
reclassifications have no impact on net assets or the results of operations.
Temporary differences are not reclassified, as they may reverse in subsequent
periods.

Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of net assets of each fund to the combined net assets of the Trust. Fund
specific expenses are charged directly to the fund that incurred the expense.

Net investment income, other than class specific expenses, is allocated daily to
each class of shares based upon the relative value of the settled shares of each
class. Realized and unrealized gains and losses are allocated daily to each
class of shares based upon the relative proportion of net assets of each class.
Differences in per share distributions, by class, are generally due to
differences in class specific expenses.

M. ACCOUNTING ESTIMATES

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Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

N. REDEMPTION FEES

A short term trading redemption fee will be imposed, with some exceptions, on
any fund shares that are redeemed or exchanged within seven calendar days
following their purchase date. The redemption fee is 2% of the amount redeemed.
Such fees are retained by the Funds and accounted for as an addition to paid-in
capital.

O. GUARANTEES AND INDEMNIFICATIONS

Under the Trust's organizational documents, its officers and trustees are
indemnified by the Trust against certain liabilities arising out of the
performance of their duties to the Trust. Additionally, in the normal course of
business, the Trust, on behalf of the Funds, enters into contracts with service
providers that contain general indemnification clauses. The Trust's maximum
exposure under these arrangements is unknown as this would involve future claims
that may be made against the Trust that have not yet occurred. Currently, the
Trust expects the risk of loss to be remote.

2. SHARES OF BENEFICIAL INTEREST

At April 30, 2008, there were an unlimited number of shares authorized (without
par value). Transactions in the Funds' shares were as follows:

FRANKLIN ADJUSTABLE
U.S. GOVERNMENT FRANKLIN FLOATING RATE
SECURITIES FUND DAILY ACCESS FUND
----------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ -------------- -------------- --------------

CLASS A SHARES:
Six Months ended April 30, 2008
Shares sold .................................... 11,636,510 $ 103,629,601 10,033,381 $ 94,508,681
Shares issued in reinvestment of
distributions ............................... 678,252 6,037,497 2,476,621 23,266,210
Shares redeemed ................................ (6,453,268) (57,445,197) (40,891,030) (384,966,609)
----------- ------------- ----------- -------------
Net increase (decrease) ........................ 5,861,494 $ 52,221,901 (28,381,028) $(267,191,718)
=========== ============= =========== =============
Year ended October 31, 2007
Shares sold .................................... 11,740,657 $ 104,080,368 45,449,542 $ 455,318,857
Shares issued in reinvestment of
distributions ............................... 1,374,465 12,197,091 7,259,151 72,450,526
Shares redeemed ................................ (17,494,601) (155,272,674) (85,552,332) (850,517,354)
----------- ------------- ----------- -------------
Net increase (decrease) ........................ (4,379,479) $ (38,995,215) (32,843,639) $(322,747,971)
=========== ============= =========== =============

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NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

2. SHARES OF BENEFICIAL INTEREST (CONTINUED)

CLASS B SHARES:
Six Months ended April 30, 2008
Shares sold .................................... 116,603 $ 1,111,805
Shares issued in reinvestment of
distributions ............................... 64,750 608,139
Shares redeemed ................................ (1,342,945) (12,568,718)
---------- ------------
Net increase (decrease) ........................ (1,161,592) $(10,848,774)
========== ============
Year ended October 31, 2007
Shares sold .................................... 671,070 $ 6,725,075
Shares issued in reinvestment of
distributions ............................... 216,354 2,159,084
Shares redeemed ................................ (2,914,223) (28,871,741)
---------- ------------
Net increase (decrease) ........................ (2,026,799) $(19,987,582)
---------- ------------
CLASS C SHARES:
Six Months ended April 30, 2008
Shares sold .................................... 3,100,124 $ 27,592,112 3,011,115 $ 28,332,651
Shares issued in reinvestment of
distributions ............................... 80,294 714,232 648,671 6,101,558
Shares redeemed ................................ (1,071,202) (9,527,262) (13,784,241) (129,379,922)
---------- ------------ ----------- -------------
Net increase (decrease) ........................ 2,109,216 $ 18,779,082 (10,124,455) $ (94,945,713)
========== ============ =========== =============
Year ended October 31, 2007
Shares sold .................................... 1,542,997 $ 13,673,247 18,843,591 $ 189,046,271
Shares issued in reinvestment of
distributions ............................... 134,527 1,193,107 1,755,971 17,522,348
Shares redeemed ................................ (1,592,092) (14,120,955) (19,373,184) (192,486,262)
---------- ------------ ----------- -------------
Net increase (decrease) ........................ 85,432 $ 745,399 1,226,378 $ 14,082,357
========== ============ =========== =============
ADVISOR CLASS SHARES:
Six Months ended April 30, 2008
Shares sold .................................... 3,540,959 $ 33,718,016
Shares issued in reinvestment of
distributions ............................... 244,680 2,294,042
Shares redeemed ................................ (2,798,274) (26,449,252)
---------- -------------
Net increase (decrease) ........................ 987,365 $ 9,562,806
---------- -------------
Year ended October 31, 2007
Shares sold .................................... 9,108,020 $ 91,476,645
Shares issued in reinvestment of
distributions ............................... 341,688 3,395,371
Shares redeemed ................................ (10,087,319) (100,693,208)
----------- -------------
Net increase (decrease) ........................ (637,611) $ (5,821,192)
----------- -------------

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Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

2. SHARES OF BENEFICIAL INTEREST (CONTINUED)

FRANKLIN LOW DURATION
TOTAL RETURN FUND FRANKLIN TOTAL RETURN FUND
----------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ -------------- -------------- --------------

CLASS A SHARES:
Six Months ended April 30, 2008
Shares sold .................................... 1,294,869 $12,958,199 25,230,258 $ 249,347,210
Shares issued in reinvestment of
distributions ............................... 24,495 245,050 1,383,577 13,696,265
Shares redeemed ................................ (496,715) (4,965,256) (9,599,779) (94,662,467)
--------- ----------- ---------- -------------
Net increase (decrease) ........................ 822,649 $ 8,237,993 17,014,056 $ 168,381,008
========= =========== ========== =============
Year ended October 31, 2007
Shares sold .................................... 1,019,652 $10,002,143 38,001,519 $ 375,757,973
Shares issued in reinvestment of
distributions ............................... 30,631 300,867 1,817,051 17,989,816
Shares redeemed ................................ (555,629) (5,447,727) (11,730,342) (116,169,183)
--------- ----------- ---------- -------------
Net increase (decrease) ........................ 494,654 $ 4,855,283 28,088,228 $ 277,578,606
========= =========== ========== =============
CLASS B SHARES:
Six Months ended April 30, 2008
Shares sold .................................... 533,904 $ 5,271,497
Shares issued in reinvestment of
distributions ............................... 35,924 355,656
Shares redeemed ................................ (351,077) (3,463,493)
---------- -------------
Net increase (decrease) ........................ 218,751 $ 2,163,660
========== =============
Year ended October 31, 2007
Shares sold .................................... 500,987 $ 4,950,179
Shares issued in reinvestment of
distributions ............................... 71,528 708,571
Shares redeemed ................................ (627,851) (6,210,338)
---------- -------------
Net increase (decrease) ........................ (55,336) $ (551,588)
========== =============
CLASS C SHARES:
Six Months ended April 30, 2008
Shares sold .................................... 4,391,856 $ 43,411,161
Shares issued in reinvestment of
distributions ............................... 162,574 1,608,778
Shares redeemed ................................ (1,416,481) (13,935,538)
---------- -------------
Net increase (decrease) ........................ 3,137,949 $ 31,084,401
========== =============
Year ended October 31, 2007
Shares sold .................................... 5,398,553 $ 53,386,701
Shares issued in reinvestment of
distributions ............................... 208,906 2,067,241
Shares redeemed ................................ (1,726,775) (17,110,107)
---------- -------------
Net increase (decrease) ........................ 3,880,684 $ 38,343,835
========== =============

112 | Semiannual Report

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NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

2. SHARES OF BENEFICIAL INTEREST (CONTINUED)

FRANKLIN TOTAL RETURN FUND
-------------------------------
SHARES AMOUNT
-------------- --------------

CLASS R SHARES:
Six Months ended April 30, 2008
Shares sold .................................................................... 2,871,743 $ 28,356,090
Shares issued in reinvestment of
distributions ............................................................... 128,680 1,273,846
Shares redeemed ................................................................ (1,391,548) (13,717,630)
---------- ------------
Net increase (decrease) ........................................................ 1,608,875 $ 15,912,306
========== ============
Year ended October 31, 2007
Shares sold .................................................................... 3,862,765 $ 38,274,993
Shares issued in reinvestment of
distributions ............................................................... 173,026 1,712,580
Shares redeemed ................................................................ (1,233,340) (12,212,681)
---------- ------------
Net increase (decrease) ........................................................ 2,802,451 $ 27,774,892
========== ============
ADVISOR CLASS SHARES:
Six Months ended April 30, 2008
Shares sold .................................................................... 4,109,144 $ 40,416,840
Shares issued in reinvestment of
distributions ............................................................... 497,839 4,937,143
Shares redeemed ................................................................ (1,026,076) (10,156,134)
---------- ------------
Net increase (decrease) ........................................................ 3,580,907 $ 35,197,849
========== ============
Year ended October 31, 2007
Shares sold .................................................................... 6,859,193 $ 68,063,219
Shares issued in reinvestment of
distributions ............................................................... 792,896 7,862,513
Shares redeemed ................................................................ (1,773,903) (17,609,017)
---------- ------------
Net increase (decrease) ........................................................ 5,878,186 $ 58,316,715
========== ============

3. TRANSACTIONS WITH AFFILIATES

SUBSIDIARY AFFILIATION
- ---------- -----------

Franklin Advisers, Inc. (Advisers) Investment manager
Franklin Advisers, Inc. (Advisers) Administrative manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent

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Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. TRANSACTIONS WITH AFFILIATES (CONTINUED)

A. MANAGEMENT FEES

The Franklin Adjustable U.S. Government Securities Fund pays an investment
management fee to Advisers based on the average daily net assets of the fund as
follows:

ANNUALIZED FEE RATE NET ASSETS
- ------------------- ----------

0.400% Up to and including $5 billion
0.350% Over $5 billion, up to and including $10 billion
0.330% Over $10 billion, up to and including $15 billion
0.300% In excess of $15 billion

The Franklin Floating Rate Daily Access Fund pays an investment management fee
to Advisers based on the average daily net assets of the fund as follows:

ANNUALIZED FEE RATE NET ASSETS
- ------------------- ----------

0.450% Up to and including $500 million
0.350% Over $500 million, up to and including $1 billion
0.300% Over $1 billion, up to and including $1.5 billion
0.250% Over $1.5 billion, up to and including $6.5 billion
0.225% Over $6.5 billion, up to and including $11.5 billion
0.200% Over $11.5 billion, up to and including $16.5 billion
0.190% Over $16.5 billion, up to and including $19 billion
0.180% Over $19 billion, up to and including $21.5 billion
0.170% In excess of $21.5 billion

The Franklin Low Duration Total Return Fund and Franklin Total Return Fund pay
an investment management fee to Advisers based on the average daily net assets
of the funds as follows:

ANNUALIZED FEE RATE NET ASSETS
- ------------------- ----------

B. ADMINISTRATIVE FEES

The Franklin Floating Rate Daily Access Fund, Franklin Low Duration Total Return
Fund and Franklin Total Return Fund pay an administrative fee to FT Services of
0.20% per year of the average daily net assets of each of the funds.

114 | Semiannual Report

Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. TRANSACTIONS WITH AFFILIATES (CONTINUED)

B. ADMINISTRATIVE FEES (CONTINUED)

The Franklin Adjustable U.S. Government Securities Fund pays an administrative
fee to Advisers based on the fund's average daily net assets as follows:

ANNUALIZED FEE RATE NET ASSETS
- ------------------- ----------

0.100% Up to and including $5 billion
0.090% Over $5 billion, up to and including $10 billion
0.080% In excess of $10 billion

C. DISTRIBUTION FEES

The Trust's Board of Trustees has adopted distribution plans for each share
class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under
the 1940 Act. Under the funds' Class A reimbursement distribution plans, the
funds reimburse Distributors for costs incurred in connection with the
servicing, sale and distribution of each fund's shares up to the maximum annual
plan rate for each class. Under the Class A reimbursement distribution plans,
costs exceeding the maximum for the current plan year cannot be reimbursed in
subsequent periods.

In addition, under the Funds' compensation distribution plans, the Funds pay
Distributors for costs incurred in connection with the servicing, sale and
distribution of each fund's shares up to the maximum annual plan rate for each
class.

The maximum annual plan rates, based on the average daily net assets, for each
class, are as follows:

FRANKLIN FRANKLIN FRANKLIN
ADJUSTABLE FLOATING LOW DURATION FRANKLIN
U.S. GOVERNMENT RATE DAILY TOTAL RETURN TOTAL RETURN
SECURITIES FUND ACCESS FUND FUND FUND
--------------- -------------- ------------ --------------

Reimbursement Plans:
Class A ................................................ 0.25% -- -- 0.25%
Compensation Plans:
Class A ................................................ -- 0.25% 0.25% --
Class B ................................................ -- 1.00% -- 0.65%
Class C ................................................ 0.65% 0.65% -- 0.65%
Class R ................................................ -- -- -- 0.50%

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Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. TRANSACTIONS WITH AFFILIATES (CONTINUED)

D. SALES CHARGES/UNDERWRITING AGREEMENTS

Distributors has advised the Funds of the following commission transactions
related to the sales and redemptions of the Funds' shares for the period:

Sales charges retained net of commissions
paid to unaffiliated broker/dealers .................... $22,255 $ 22,705 $8,105 $409,093
Contingent deferred sales charges
retained ............................................... $11,703 $193,518 $1,998 $ 36,738

E. TRANSFER AGENT FEES

For the period ended April 30, 2008, the Funds paid transfer agent fees as noted
in the Statements of Operations of which the following amounts were retained by
Investor Services:

Transfer agent fees ....................................... $149,332 $508,934 $4,980 $581,299

F. WAIVER AND EXPENSE REIMBURSEMENTS

Advisers and FT Services have agreed in advance to waive all or a portion of
their respective fees and to assume payment of other expenses through February
28, 2009 for Franklin Low Duration Total Return Fund and Franklin Total Return
Fund. Total expenses waived or paid are not subject to reimbursement by the fund
subsequent to the fund's fiscal year end. After February 28, 2009, Advisers and
FT Services may discontinue this waiver at any time upon notice to the fund's
Board of Trustees.

G. OTHER AFFILIATED TRANSACTIONS

At April 30, 2008, Advisers or the investment companies managed by Advisers
owned 19.88% and 17.33%, respectively, of Franklin Low Duration Total Return
Fund's and Franklin Total Return Fund's outstanding shares.

4. EXPENSE OFFSET ARRANGEMENT

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Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

5. INCOME TAXES

For tax purposes, capital losses may be carried over to offset future capital
gains, if any. At October 31, 2007, the capital loss carryforwards were as
follows:

Capital loss carryforwards expiring in:
2008 ................................................... $ 3,438,157 $ -- $ -- $ --
2009 ................................................... 1,279,054 -- -- 1,361,562
2010 ................................................... -- 192,099,191 -- 550,214
2011 ................................................... 585,362 108,452,146 -- --
2012 ................................................... 1,039,516 74,147,691 -- --
2013 ................................................... 2,782,773 -- 38,924 466,273
2014 ................................................... 3,962,538 -- 108,726 5,783,491
2015 ................................................... 2,492,027 17,905,138 18,876 1,256,404
----------- ------------ -------- -----------
$15,579,427 $392,604,166 $166,526 $ 9,417,944
=========== ============ ======== ===========

At April 30, 2008, the cost of investments and net unrealized appreciation
(depreciation) for income tax purposes were as follows:

Cost of investments ....................................... $445,903,954 $1,537,003,852 $24,718,989 $1,736,531,523
============ ============== =========== ==============
Unrealized appreciation ................................... $ 1,484,936 $ 1,686,595 $ 479,572 $ 26,701,830
Unrealized depreciation ................................... (3,003,319) (85,330,838) (198,111) (36,948,185)
------------ -------------- ----------- --------------
Net unrealized appreciation (depreciation) ................ $ (1,518,383) $ (83,644,243) $ 281,461 $ (10,246,355)
============ ============== =========== ==============

Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of defaulted securities, foreign currency
transactions, mortgage dollar rolls, paydown losses, credit default swaps, bond
discounts and premiums and inflation related adjustments on foreign securities.

Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales, foreign currency
transactions, mortgage dollar rolls, financial futures transactions, paydown
losses, credit default swaps, bond discounts and premiums and inflation related
adjustments on foreign securities.

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Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the
period ended April 30, 2008, were as follows:

Purchases ....................................................... $117,514,837 $165,082,628 $15,462,681 $2,415,833,669
Sales ........................................................... $ 45,820,029 $485,815,417 $ 6,657,999 $2,217,799,283

7. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO

8. CREDIT DEFAULT SWAPS

At April 30, 2008, the Franklin Low Duration Total Return Fund and Franklin
Total Return Fund had the following credit default swap contracts outstanding:

PERIODIC
NOTIONAL PAYMENT EXPIRATION UNREALIZED UNREALIZED
AMOUNT(a) RATE DATE GAIN LOSS
----------- -------- ---------- ---------- ----------

FRANKLIN LOW DURATION TOTAL RETURN FUND
CONTRACTS TO BUY PROTECTION
REFERENCED DEBT OBLIGATION (SWAP COUNTERPARTY)
Aetna Inc. (Merrill Lynch) ...................................... $100,000 0.62% 3/20/13 $ -- $ (278)
Avon Products Inc. (Lehman) ..................................... 100,000 0.20% 3/20/11 107 --
CIGNA Corp. (Merrill Lynch) ..................................... 100,000 0.70% 3/20/13 -- (616)
Clear Channel Communications Inc. s (Lehman) .................... 225,000 6.62% 3/20/11 4,667 --
Comcast Corp. (Merrill Lynch) ................................... 100,000 0.33% 3/20/11 1,038 --
Cox Communications Inc. (JPMorgan Chase) ........................ 200,000 0.98% 6/20/13 -- (2,785)
Interpublic Group of Cos. Inc. (Citigroup) ...................... 200,000 4.89% 12/20/09 -- (6,592)
Interpublic Group of Cos. Inc. (Citigroup) ...................... 500,000 5.15% 9/20/11 -- (23,184)
Textron Financial Corp. (Merrill Lynch) ......................... 250,000 0.27% 12/20/10 525 --
Viacom Inc. (Merrill Lynch) ..................................... 100,000 0.45% 6/20/11 946 --

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Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

8. CREDIT DEFAULT SWAPS (CONTINUED)

PERIODIC
NOTIONAL PAYMENT EXPIRATION UNREALIZED UNREALIZED
AMOUNT(a) RATE DATE GAIN LOSS
----------- -------- ---------- ---------- ----------

FRANKLIN LOW DURATION TOTAL RETURN FUND (CONTINUED)
CONTRACTS TO SELL PROTECTION
REFERENCED DEBT OBLIGATION (SWAP COUNTERPARTY)
CMBX.NA.BBB.2
(JPMorgan Chase) ............................................. $ 200,000 0.60% 3/15/49 $ -- $ (65,860)
LCDX.NA.10 (JPMorgan Chase) ..................................... 1,000,000 3.25% 6/20/13 20,966 --
Time Warner Cable Inc. (JPMorgan Chase) ......................... 200,000 1.83% 6/20/13 3,064 --
UnitedHealth Group Inc. (Merrill Lynch) ......................... 200,000 0.88% 3/20/13 -- (1,899)
-------- ---------
Unrealized gain (loss) on credit default swaps .................. 31,313 (101,214)
-------- ---------
Net unrealized gain (loss) on credit default swaps ........... $ (69,901)
=========
FRANKLIN TOTAL RETURN FUND
CONTRACTS TO BUY PROTECTION
REFERENCED DEBT OBLIGATION (SWAP COUNTERPARTY)
Aetna Inc. (JPMorgan Chase) ..................................... $ 2,850,000 0.58% 3/20/13 $ -- $ (2,844)
Aetna Inc. (Merrill Lynch) ...................................... 5,000,000 0.62% 3/20/13 -- (13,918)
Avon Products Inc. (Lehman) ..................................... 7,900,000 0.20% 3/20/11 8,432 --
Capital One Financial Corp. (Goldman Sachs) ..................... 8,400,000 1.95% 3/20/18 -- (347,352)
Centex Corp. (Merrill Lynch) .................................... 10,000,000 4.30% 3/20/11 -- (72,772)
CenturyTel Inc. (Credit Suisse) ................................. 6,600,000 0.375% 9/20/12 117,868 --
CIGNA Corp. (Merrill Lynch) ..................................... 5,000,000 0.70% 3/20/13 -- (30,771)
Clear Channel Communications Inc. (Citigroup) ................... 5,000,000 6.33% 3/20/11 138,966 --
Clear Channel Communications Inc. (Lehman) ...................... 5,000,000 4.35% 3/20/11 379,864 --
Clear Channel Communications Inc. (Lehman) ...................... 10,200,000 6.62% 3/20/11 211,570 --
Comcast Corp. (Merrill Lynch) ................................... 7,000,000 0.33% 3/20/11 72,676 --
Cox Communications Inc. (Goldman Sachs) ......................... 10,000,000 0.98% 6/20/13 -- (139,254)
Crown European Holdings SA (Citigroup) .......................... 10,000,000 EUR 2.00% 9/20/11 257,660 --
General Mills Inc. (Merrill Lynch) .............................. 10,000,000 0.34% 3/20/12 -- (26,354)
Interpublic Group of Cos. Inc. (Citigroup) ...................... 9,800,000 4.89% 12/20/09 -- (323,017)
Interpublic Group of Cos. Inc. (Citigroup) ...................... 9,500,000 5.15% 9/20/11 -- (440,500)
iStar Financial Inc. (Credit Suisse) ............................ 3,600,000 2.92% 3/20/18 132,499 --
NiSource Finance Corp. (Citigroup) .............................. 8,110,000 1.50% 11/23/09 -- (106,337)
Pulte Homes Inc. (Citigroup) .................................... 5,000,000 5.70% 9/20/09 -- (189,953)
Textron Financial Corp. (Merrill Lynch) ......................... 16,750,000 0.27% 12/20/10 35,146 --
Viacom Inc. (Merrill Lynch) ..................................... 10,000,000 0.35% 6/20/11 124,421 --
Viacom Inc. (Merrill Lynch) ..................................... 6,000,000 0.45% 6/20/11 56,787 --

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Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

8. CREDIT DEFAULT SWAPS (CONTINUED)

PERIODIC
NOTIONAL PAYMENT EXPIRATION UNREALIZED UNREALIZED
AMOUNT(a) RATE DATE GAIN LOSS
----------- -------- ---------- ---------- ----------

FRANKLIN TOTAL RETURN FUND (CONTINUED)
CONTRACTS TO SELL PROTECTION
REFERENCED DEBT OBLIGATION (SWAP COUNTERPARTY)
Capital One Financial Corp. (Goldman Sachs) ..................... $14,030,000 2.60% 3/20/13 $ 267,991 $ --
CMBX.NA.BBB.2 (Citigroup) ....................................... 5,000,000 0.60% 3/15/49 -- (610,291)
CMBX.NA.BBB.2 (Goldman Sachs) ................................... 2,000,000 0.60% 3/15/49 -- (378,093)
CMBX.NA.BBB.2 (JPMorgan Chase) .................................. 10,000,000 0.60% 3/15/49 -- (2,452,577)
iStar Financial Inc. (Credit Suisse) ............................ 5,900,000 4.00% 3/20/13 -- (177,377)
Time Warner Cable Inc. (Goldman Sachs) .......................... 10,000,000 1.83% 6/20/13 153,205 --
UnitedHealth Group Inc. (JPMorgan Chase) ........................ 2,850,000 0.85% 3/20/13 -- (30,796)
UnitedHealth Group Inc. (Merrill Lynch) ......................... 10,000,000 0.88% 3/20/13 -- (94,939)
---------- -----------
Unrealized gain (loss) on credit default swaps .................. 1,957,085 (5,437,145)
---------- -----------
Net unrealized gain (loss) on credit default swaps .............. $(3,480,060)
===========

(a) In U.S. dollars unless otherwise indicated.

CURRENCY ABBREVIATION

EUR - Euro

9. FINANCIAL FUTURES AND FORWARD EXCHANGE CONTRACTS

At April 30, 2008, the Franklin Total Return Fund had the following financial
futures contracts outstanding:

NUMBER OF DELIVERY CONTRACT UNREALIZED
CONTRACTS DATES FACE VALUE GAIN (LOSS)
--------- -------- ----------- -----------

CONTRACTS TO BUY
U.S. Treasury 30 Year Bond ...................................... 107 6/19/08 $10,700,000 $ 99,209
U.S. Treasury 2 Year Note ....................................... 150 6/30/08 30,000,000 (126,937)
U.S. Treasury 5 Year Note ....................................... 160 6/30/08 16,000,000 (510,400)

At April 30, 2008, the Franklin Low Duration Total Return Fund and Franklin
Total Return Fund had the following forward exchange contracts outstanding:

CONTRACT SETTLEMENT UNREALIZED UNREALIZED
AMOUNT(a) DATE GAIN LOSS
------------- ---------- ---------- -----------

FRANKLIN LOW DURATION TOTAL RETURN FUND
CONTRACTS TO BUY
2,956,500 Japanese Yen .................................... 25,000 6/23/08 $ 3,514 $ --
5,307,773 Japanese Yen .................................... 45,000 6/30/08 6,210 --
2,771,450 Japanese Yen .................................... 25,000 9/26/08 1,861 --
92,387 Swiss Franc ..................................... 85,000 11/28/08 4,216 --

120 | Semiannual Report

Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

9. FINANCIAL FUTURES AND FORWARD EXCHANGE CONTRACTS (CONTINUED)

CONTRACT SETTLEMENT UNREALIZED UNREALIZED
AMOUNT(a) DATE GAIN LOSS
------------- ---------- ---------- -----------

FRANKLIN LOW DURATION TOTAL RETURN FUND (CONTINUED)
CONTRACTS TO BUY (CONTINUED)
3,953,250 Japanese Yen .................................... 37,884 1/22/09 $ 656 $ --
5,777,000 Japanese Yen .................................... 57,753 4/14/09 -- (1,176)
Contracts to Sell
50,000,000 South Korean Won ................................ 60,950 CHF 12/18/08 9,015 --
100,000 Euro ............................................ 15,588,600 JPY 2/27/09 -- (1,702)
100,000 Euro ............................................ 149,115 2/27/09 -- (4,860)
165,000 Euro ............................................ 25,532,100 JPY 4/17/09 -- (3,542)
165,000 Euro ............................................ 255,767 4/17/09 2,135 --
---------- -----------
Unrealized gain (loss) on forward exchange contracts ......... 27,607 (11,280)
========== ===========
Net unrealized gain (loss) on forward exchange contracts .. $ 16,327
==========

FRANKLIN TOTAL RETURN FUND
CONTRACTS TO BUY
215,824,500 Japanese Yen .................................... 1,825,000 6/23/08 $ 256,495 $ --
542,572,300 Japanese Yen .................................... 4,600,000 6/30/08 634,821 --
84,853,800 Japanese Yen .................................... 765,000 9/26/08 57,425 --
6,298,586 Swiss Franc ..................................... 5,795,000 11/28/08 287,454 --
218,558,250 Japanese Yen .................................... 2,094,433 1/22/09 36,240 --
265,742,000 Japanese Yen .................................... 2,656,623 4/14/09 -- (54,091)
Contracts to Sell
50,419,174 Mexican Peso .................................... 191,340,764 INR 5/15/08 -- (73,542)
3,300,000,000 South Korean Won ................................ 4,022,722 CHF 12/18/08 594,958 --
8,400,000 Euro ............................................ 1,309,442,400 JPY 2/27/09 -- (142,985)
8,400,000 Euro ............................................ 12,525,660 2/27/09 -- (408,266)
9,727,500 Euro ............................................ 14,931,226 4/06/09 -- (27,137)
243,647,600 Mexican Peso .................................... 22,069,529 4/07/09 -- (140,725)
8,638,000 Euro ............................................ 1,336,644,120 JPY 4/17/09 -- (185,404)
8,638,000 Euro ............................................ 13,389,764 4/17/09 111,794 --
5,201,175,000 South Korean Won ................................ 5,250,000 4/27/09 61,479 --
---------- -----------
Unrealized gain (loss) on forward exchange contracts ......... 2,040,666 (1,032,150)
========== ===========
Net unrealized gain (loss) on forward exchange contracts .. $1,008,516
==========

(a) In U.S. dollars unless otherwise indicated.

CURRENCY ABBREVIATIONS

CHF - Swiss Franc
INR - Indian Rupee
JPY - Japanese Yen

Semiannual Report | 121

Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

10. CREDIT RISK AND DEFAULTED SECURITIES

The Franklin Floating Rate Daily Access Fund has 78.68% of its portfolio
invested in senior secured floating rate notes, or other securities rated below
investment grade. These securities may be more sensitive to economic conditions
causing greater price volatility and are potentially subject to a greater risk
of loss due to default than higher rated securities.

The Franklin Floating Rate Daily Access Fund held defaulted securities and/or
other securities for which the income has been deemed uncollectible. At April
30, 2008, the value of these securities was $1,291,961, representing 0.09%, of
the fund's net assets. The fund discontinues accruing income on securities for
which income has been deemed uncollectible and provides an estimate for losses
on interest receivable. These securities have been identified on the
accompanying Statement of Investments.

11. UNFUNDED LOAN COMMITMENTS

The Franklin Floating Rate Daily Access Fund and Franklin Total Return Fund may
enter into certain credit agreements, all or a portion of which may be unfunded.
The funds are obligated to fund these loan commitments at the borrowers'
discretion. Funded portions of credit agreements are presented on the Statements
of Investments.

At April 30, 2008, unfunded commitments were as follows:

UNFUNDED
BORROWER COMMITMENT
- -------- ----------

FRANKLIN FLOATING RATE DAILY ACCESS FUND
Bausch & Lomb Inc., Delayed Draw Term Loan ............. $ 600,000
Community Health Systems Inc., Delayed Draw Term Loan .. 1,095,261
Conseco Inc., Revolver ................................. 4,000,000
Las Vegas Sands LLC, Delayed Draw Term Loan ............ 1,625,272
Laureate Education Inc., Delayed Draw Term Loan ........ 393,084
Pantry Inc., Delayed Draw Term Loan .................... 529,763
Sealy Mattress Co., Revolver ........................... 787,500
United Surgical Partners International Inc.,
Delayed Draw Term Loan .............................. 71,425
----------
$9,102,305
==========
FRANKLIN TOTAL RETURN FUND
Community Health Systems Inc., Delayed Draw Term Loan .. $ 97,945
Laureate Education Inc., Delayed Draw Term Loan ........ 104,872
----------
$ 202,817
==========

Unfunded loan commitments and funded portions of credit agreements are marked to
market daily and any unrealized gain or loss is included in the Statements of
Assets and Liabilities and Statements of Operations.

122 | Semiannual Report

Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

12. CREDIT FACILITY

The Franklin Floating Rate Daily Access Fund participates in a $200 million
senior secured joint advised line of credit to fund shareholder redemptions,
which ends on August 26, 2008. Interest on outstanding draws is charged at the
Federal Funds Rate plus 0.60%. Credit available to the fund is limited to $100
million. Fees for the credit line are charged over the term of the line. The
fund must segregate securities at a ratio of 5:1 to the extent there are any
advances outstanding on the line of credit. During the period ended April 30,
2008, the fund did not utilize the line.

13. FUND LITIGATION

On July 6, 2003, Adelphia Communications Corp. ("Adelphia") and related parties,
along with its Official Committee of Unsecured Creditors, (collectively
"Plaintiffs") filed an adversary proceeding in the then-pending Adelphia
bankruptcy case in the U.S. Bankruptcy Court for the Southern District of New
York against more than 400 banks, financial services companies, insurance
companies, investment banks, mutual funds and other parties that had arranged
for the sale of, or purchased the bank debt of, Adelphia or its related parties.
Named defendants included Franklin Floating Rate Daily Access Fund (individually
and as successor to the Franklin Floating Rate Trust's interests in the credit
facilities at issue), Franklin Floating Rate Trust, and Franklin Floating Rate
Master Series (collectively the "Franklin Defendants"), and Franklin CLOs I -
III, among other defendants. In addition, Advisers was originally named as a
defendant, but later dismissed from the lawsuit. The complaint alleged that the
purchasers of this bank debt knew, or should have known, that the loan proceeds
would not benefit Adelphia, but instead would be used to enrich Adelphia
insiders and sought avoidance of the loans and recovery of fraudulent transfers
(the "Complaint"). The agent bank and investment bank defendants moved to
dismiss the Complaint, which the Bankruptcy Court granted in part and denied in
part, with leave to amend the Complaint. The reference to the bankruptcy was
withdrawn and the matter is now before the United States District Court for the
Southern District of New York.

On October 22, 2007, Plaintiffs filed an amended complaint, largely duplicating
the allegations in the original Complaint, and adding hundreds of additional
syndicate lender defendants (the "Amended Complaint"). The Franklin Defendants,
among others, moved to dismiss the Amended Complaint on December 20, 2007. On
June 17, 2008, the court granted the Franklin Defendants' motions and dismissed
the claims against them.

Semiannual Report | 123

Franklin Investors Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

14. NEW ACCOUNTING PRONOUNCEMENTS

The Funds adopted Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an
Interpretation of FASB Statement No. 109" (FIN 48), on April 30, 2008. FIN 48
clarifies the accounting for uncertainty in tax positions taken or expected to
be taken in a tax return. FIN 48 provides guidance on the measurement,
recognition, classification and disclosure of tax positions, along with
accounting for the related interest and penalties. The Funds have reviewed the
tax positions for each of the three open tax years as of October 31, 2007 and
have determined that the implementation of FIN 48 did not have a material impact
on the Funds' financial statements.

124 | Semiannual Report

Franklin Investors Securities Trust

SHAREHOLDER INFORMATION

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT

In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel. While the investment
management agreements for all Funds were considered at the same Board meeting,
the Board dealt with each Fund separately. In approving continuance of the
investment management agreement for each Fund, the Board, including a majority
of independent Trustees, determined that the existing management fee structure
was fair and reasonable and that continuance of the investment management
agreement was in the best interests of each Fund and its shareholders. While
attention was given to all information furnished, the following discusses some
primary factors relevant to the Board's decision.

Semiannual Report | 125

Franklin Investors Securities Trust

SHAREHOLDER INFORMATION (CONTINUED)

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)

of net asset value calculations. The Board also noted the extent of benefits
provided Fund shareholders from being part of the Franklin Templeton family of
funds, including the right to exchange investments between the same class of
funds without a sales charge, the ability to reinvest Fund dividends into other
funds and the right to combine holdings in other funds to obtain a reduced sales
charge. Favorable consideration was given to management's continuous efforts and
expenditures in establishing back-up systems and recovery procedures to function
in the event of a natural disaster, it being noted by the Board that such
systems and procedures had functioned smoothly during the Florida hurricanes and
blackouts experienced in recent years. Consideration was also given to the
experience of each Fund's portfolio management team, the number of accounts
managed and general method of compensation. In this latter respect, the Board
noted that a primary factor in management's determination of a portfolio
manager's bonus compensation was the relative investment performance of the
funds he or she managed and that a portion of such bonus was required to be
invested in a predesignated list of funds within such person's fund management
area so as to be aligned with the interests of Fund shareholders. The Board also
took into account the quality of transfer agent and shareholder services
provided Fund shareholders by an affiliate of the Manager, noting continuing
expenditures by management to increase and improve the scope of such services,
periodic favorable reports on such service conducted by third parties, the high
industry ranking given the Franklin Templeton website, and the firsthand
experience of individual Board members who deal with the shareholder services
department in their capacities as shareholders in one or more of the various
Franklin Templeton funds.

FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND -- The Fund's investment
performance was shown in comparison with a performance universe consisting of
all retail and institutional adjustable rate mortgage funds as selected by
Lipper. The Lipper report showed that the Fund's income return during 2007 and
for the previous three- and five-year periods on an annualized basis was in the
highest quintile of its performance universe and was in the second-highest
quintile of such universe for the previous 10-year period. The Lipper report
also showed that the Fund's total return during 2007 was in the highest quintile
of its performance universe and during each of the previous three-, five- and
10-year periods on an annualized basis was above the median of its performance
universe. The Board found such performance satisfactory.

126 | Semiannual Report

Franklin Investors Securities Trust

SHAREHOLDER INFORMATION (CONTINUED)

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)

FRANKLIN FLOATING RATE DAILY ACCESS FUND -- The Fund's investment performance
was shown in comparison with a performance universe consisting of all retail and
institutional loan participation funds as selected by Lipper. This Fund has been
in existence for less than 10 full years and the Lipper report showed its income
return during 2007 to be in the middle quintile of its performance universe and
on an annualized basis during the previous three- and five-year periods to be in
the second-highest and middle quintiles of its performance universe,
respectively. The Lipper report showed the Fund's total return during 2007 to be
in the second-highest quintile of its performance universe and on an annualized
basis for the previous three- and five-year periods to be in the middle and
second-lowest quintiles of such universe, respectively. The Board found such
performance to be acceptable.

FRANKLIN LOW DURATION TOTAL RETURN FUND -- This Fund has only been in operation
for three full calendar years and its investment performance was shown in
comparison to a performance universe consisting of all retail and institutional
short investment-grade debt funds as selected by Lipper. The Lipper report
showed the Fund's total return during 2007 was in the highest quintile of such
universe and was in the highest and next-to-highest quintile of such universe on
an annualized basis during the previous two- and three-year periods,
respectively. The Board was satisfied with such performance.

FRANKLIN TOTAL RETURN FUND -- The Fund's investment performance was shown in
comparison to a performance universe consisting of all retail and institutional
intermediate investment-grade debt funds as selected by Lipper. This Fund has
been in existence less than 10 years and the Lipper report showed the Fund's
total return during 2007 to be in the second-lowest quintile of its performance
universe and in the previous three- and five-year periods on an annualized basis
to be in the middle and highest quintiles of such universe, respectively. The
Board found such performance to be acceptable, noting that the Fund's 2007 total
return had exceeded the 2007 performance universe average as shown in the Lipper
report.

Semiannual Report | 127

Franklin Investors Securities Trust

SHAREHOLDER INFORMATION (CONTINUED)

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)

contractual investment management fee rate and total expense rates for each of
Franklin Adjustable U.S. Government Securities Fund and Franklin Floating Rate
Daily Access Fund were in either the least expensive or second least expensive
quintiles of their respective Lipper expense groups. The contractual investment
management fee rate for Franklin Total Return Fund was above the median of its
Lipper expense group, but its total expenses were below the median of such
expense group. The Board was satisfied with the investment management fee and
total expense rates of these Funds. The contractual investment management fee
rate for Franklin Low Duration Total Return Fund was within 13 basis points of
the median of its Lipper expense group, and its total expenses were within five
basis points of the median of its Lipper expense group. The Board found the
management fees and total expenses of the Fund to be acceptable in comparison to
its Lipper expense group as shown in the Lipper report, noting this was among
the smallest Funds within Franklin Investors Securities Trust and that expenses
of Franklin Low Duration Total Return Fund were subsidized through management
fee waivers and reimbursements.

128 | Semiannual Report

Franklin Investors Securities Trust

SHAREHOLDER INFORMATION (CONTINUED)

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)

in a joint venture entity that financed up-front commissions paid to
brokers/dealers who sold fund Class B shares prior to February 2005, when the
offering of such shares was discontinued, as well as potential benefits
resulting from allocation of fund brokerage and the use of "soft" commission
dollars to pay for research. Based upon its consideration of all these factors,
the Board determined that the level of profits realized by the Manager and its
affiliates from providing services to each Fund was not excessive in view of the
nature, quality and extent of services provided.

ECONOMIES OF SCALE. The Board also considered whether economies of scale are
realized by the Manager as the Funds grow larger and the extent to which this is
reflected in the level of management fees charged. While recognizing that any
precise determination is inherently subjective, the Board noted that based upon
the Fund profitability analysis, it appears that as some funds get larger, at
some point economies of scale do result in the Manager realizing a larger profit
margin on management services provided such a fund. The Board also noted that
economies of scale are shared with each Fund and its shareholders through
management fee breakpoints so that as a Fund grows in size, its effective
management fee rate declines. The management fee structure including a separate
administrative fee for each of Franklin Floating Rate Daily Access Fund and
Franklin Total Return Fund provides for breakpoints in stages going to the $21.5
billion asset level, which far exceeded the sizes of these Funds, which at
year-end were approximately $1.7 billion and $1.2 billion, respectively. The
Board believed that to the extent economies of scale may be realized by the
Manager of these Funds and its affiliates, this schedule of fees provided a
sharing of benefits with each of these Funds and their shareholders. The fee
structure, including a separate administrative fee, for Franklin Adjustable U.S.
Government Securities Fund provides a management fee of 0.50% on the first $5
billion of assets, with breakpoints continuing at stages thereafter. In
discussing such fee, management expressed the view that this initial rate
anticipated economies of scale. In support of this position, management pointed
to the favorable management fee and expense comparison of this Fund, which had
assets of approximately $366 million at year-end, with those of its Lipper
expense group. The Board believed that to the extent economies of scale may be
realized by the Manager and its affiliates, there was a sharing of benefits with
this Fund and its shareholders. The Board did not believe the small size of
Franklin Low Duration Total Return Fund, whose expenses were subsidized by
management, afforded any economies of scale.

Semiannual Report | 129

Franklin Investors Securities Trust

SHAREHOLDER INFORMATION (CONTINUED)

PROXY VOTING POLICIES AND PROCEDURES

QUARTERLY STATEMENT OF INVESTMENTS

130 | Semiannual Report

This page intentionally left blank.

(FRANKLIN TEMPLETON INVESTMENTS LOGO) One Franklin Parkway
FRANKLIN TEMPLETON INVESTMENTS San Mateo, CA 94403-1906

WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?

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SEMIANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN INVESTORS
SECURITIES TRUST

INVESTMENT MANAGER
Franklin Advisers, Inc.

DISTRIBUTOR

Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com

SHAREHOLDER SERVICES
1-800/632-2301

ITEM 2. CODE OF ETHICS.

(a) The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.

(d) N/A

(f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a copy
of its code of ethics that applies to its principal executive officers and
principal financial and accounting officer.

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

(a)(1) The Registrant has an audit committee financial expert serving on its
audit committee.

(2) The audit committee financial expert is John B. Wilson and he is
"independent" as defined under the relevant Securities and Exchange Commission
Rules and Releases.

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. N/A

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A

ITEM 6. SCHEDULE OF INVESTMENTS. N/A

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A

ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT
COMPANIES. N/A

ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFILIATED PURCHASERS. N/A

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have
been no changes to the procedures by which shareholders may recommend nominees
to the Registrant's Board of Trustees that would require disclosure herein.

ITEM 11. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.

Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.

(b) Changes in Internal Controls. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.

ITEM 12. EXHIBITS.

(a)(1) Code of Ethics

(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Galen G. Vetter, Chief Executive Officer - Finance and Administration, and
Laura F. Fergerson, Chief Financial Officer and Chief Accounting Officer

(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Galen G. Vetter, Chief Executive Officer - Finance and Administration, and Laura
F. Fergerson, Chief Financial Officer and Chief Accounting Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

FRANKLIN INVESTORS SECURITIES TRUST

By /S/GALEN G. VETTER
------------------
Galen G. Vetter
Chief Executive Officer - Finance and Administration
Date June 26, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

By /S/GALEN G. VETTER
------------------
Galen G. Vetter
Chief Executive Officer - Finance and Administration
Date June 26, 2008

By /LAURA F. FERGERSON
-------------------
Laura F. Fergerson
Chief Financial Officer and Chief Accounting Officer
Date June 26, 2008