INSTITUTIONAL
FIDUCIARY
TRUST
Semi-Annual Report
December 31, 1995
Franklin Institutional Adjustable U.S. Government Securities Fund
Franklin Institutional Adjustable Rate Securities Fund
Table of Contents
Franklin Institutional
Adjustable U.S. Government Securities Fund Page 4
Seeks a high level of current income,
consistent with lower volatility of principal.
Franklin Institutional
Adjustable Rate Securities Fund Page 6
Seeks a high level of current income,
with lower volatility
of principal than a fund that invests in fixed-rate securities.
For a current prospectus on one or more Franklin or Templeton funds, please
contact a Franklin Templeton Institutional Services Representative, at
1-800/632-2000. A prospectus contains more complete information about a fund,
including fees and expenses. Please be sure to read it carefully before
investing money. To ensure the highest quality of service, telephone calls to
and from our service departments may be monitored, recorded and accessed. These
calls can be determined by the presence of a regular beeping tone.
January 26, 1996
Dear Shareholder,
We are pleased to bring you this semi-annual report for Franklin's Institutional
Fiduciary Trust adjustable rate securities funds, covering the period ended
December 31, 1995.
Franklin's Institutional Fiduciary Trust was developed specifically to meet the
needs of institutional investors. Part of the $135 billion Franklin Templeton
Group, the Trust consists of eight separate and distinct series. This report
pertains to the two adjustable rate securities funds: Franklin Institutional
Adjustable U.S. Government Securities Fund and Franklin Institutional Adjustable
Rate Securities Fund. Each fund is managed to maintain a relatively short
average duration, and the objective for both funds is to seek a high level of
current income, with lower volatility of principal.
In the second half of 1995, the Federal Reserve Board responded twice to fears
of recession by lowering the federal funds rate, and the fixed income markets
reacted favorably. Their improvement benefited the performance of the adjustable
rate securities funds, although no one can predict what lies ahead for
investors. Obviously, many changes can occur in a short time; however, our
portfolio managers maintain a long-term perspective in managing the funds, and
we encourage our shareholders to view their investments in a similar manner.
Thank you for your continued support of Franklin's Institutional Fiduciary
Trust. We look forward to serving your investment needs in the months and years
to come.
Sincerely,
Charles B. Johnson
Chairman of the Board
Franklin's Institutional Fiduciary Trust
Overview of
the Economy
During the first six months of 1995, the U.S. economy experienced sluggish
growth, and the Gross Domestic Product (GDP) rose at an average real rate of
only 2.0%. In response to such slow growth, the Federal Reserve Board lowered
the federal funds rate - the interest rate banks charge each other for overnight
loans - from 6.00% to 5.75% on July 6th. Subsequently, the economy showed signs
of reviving, and GDP for the third quarter grew at a more robust 4.2%.
Following this stronger-than-expected growth, however, the economy appeared to
be losing momentum. The index of leading indicators declined steadily, while
retail, home, and auto sales were weak, inventory levels remained high, and
manufacturing activity slowed. Meanwhile, the Consumer Price Index and Producer
Price Index, two primary indicators of inflation, suggested that there was
little threat from inflation. As a result, on December 19th, the Federal Reserve
Board again cut the federal funds rate by 25 basis points and countered the
widespread perception that it would refrain from lowering rates until a federal
budget compromise was reached.
While the fixed-income markets reacted favorably to falling interest rates over
the six-month period, long-term trends indicate that the fixed-income markets
may continue to rally. For example, a strong dollar should help restrain
inflationary pressures through lower import prices, and monetary rules continue
to show that the federal funds rate may be "restrictive" and could be lowered
further in search of a more "neutral" position. These trends bode well for the
bond market.
Note: On January 31, 1996, the Federal Reserve moved to cut interest rates
following its Federal Open Market Committee meeting. The target federal funds
rate was lowered 25 basis points to 5.25%, and the discount rate - the interest
rate the district Federal Reserve banks charge member banks for short-term
liquidity needs - was also lowered 25 basis points to 5.00%.
Tony Coffey is a portfolio manager for the Franklin Adjustable U.S. Government
Securities Fund, Franklin Adjustable Rate Securities Fund, and the Franklin
Valuemark Adjustable U.S. Government Fund. Mr. Coffey's area of expertise is
mortgage-backed securities. Prior to joining Franklin, Mr. Coffey was an
associate for Analysis Group, Inc., an economic consulting firm.
Mr. Coffey received a Bachelor of Arts degree in applied mathematics and
economics from Harvard University and a Master of Business Administration degree
from the University of California at Los Angeles. He is a Chartered Financial
Analyst (CFA), and is a member of the Security Analysts of San Francisco and the
Association for Investment Management and Research.
T. Anthony Coffey, CFA
Portfolio Manager
Franklin Institutional Adjustable
U.S. Government
Securities Fund
The Franklin Institutional Adjustable U.S. Government Securities Fund seeks a
high level of current income, consistent with lower volatility of principal, by
investing all of its assets in the U.S. Government Adjustable Rate Mortgage
Portfolio (the Mortgage Portfolio), which has an investment objective identical
to the Fund's. The Mortgage Portfolio, in turn, invests primarily in
mortgage-backed securities created from pools of adjustable rate mortgages
issued or guaranteed by the U.S. government, its agencies or instrumentalities.1
Shown to the right is a breakdown of the issuing agencies for securities held in
the Mortgage Portfolio as of December 31, 1995.
The Franklin Institutional Adjustable U.S. Government Securities Fund benefited
from the reversal in interest rates over the six-month period. As the Federal
Reserve Board began to ease in July, rates moved substantially lower. This
development, in turn, caused prices of adjustable rate mortgage securities
(ARMS) to appreciate.
In general, ARMS performed well through most of 1995, although increased
mortgage prepayments somewhat limited their appreciation. Lower interest rates,
especially long-term rates, have created an incentive for homeowners to
refinance from ARMs to fixed-rate mortgages and to lock in the lower rates. In
an effort to reduce the negative impact such prepayments can have on the Fund,
we have maintained an overweighting in seasoned, non-convertible ARMS, which are
less likely to experience high levels of prepayments. We prefer indices that
adjust rapidly, such as the Constant Maturity Treasury (CMT), over those that
tend to lag market movements, such as the Eleventh District Cost of Funds
(COFI).
Entering 1996, we anticipate a continuation of the current, slower growth and
low inflation. This should lead to stable or slightly lower interest rates and
lower volatility, which should be beneficial to ARMS in general. We have
actively positioned the Fund to perform well in such an environment. Our main
concern is to maintain stability of principal along with a yield that is
competitive with short-term alternatives.
U.S. Government Adjustable
Rate Mortgage Portfolio
Composition by Issuing Agency
December 31, 1995
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
1. Individual securities held by the Mortgage Portfolio, but not shares of the
Franklin Institutional Adjustable U.S. Government Securities Fund, are
guaranteed by the U.S. government, its agencies or instrumentalities, as to
timely payment of principal and interest.
Performance Summary
The Franklin Institutional Adjustable U.S. Government Securities Fund's share
price, as measured by net asset value, rose from $9.25 on June 30, 1995, to
$9.31 on December 31, 1995.
The Fund continued to pursue its investment objective of providing high current
income to its shareholders. For the six-month period ended December 31, 1995,
the Fund paid monthly income distributions totaling 29.8 cents ($0.298) per
share. Of course, dividends will vary based on the earnings of the Fund's
underlying portfolio, and past distributions are not necessarily predictive of
future trends.
At the end of the reporting period, the Fund's distribution rate was 6.58%,
based on an annualization of the dividends distributed over the last 30 days of
the period ($0.050377 per share) and the net asset value of $9.31 on December
31, 1995. The Fund provided a cumulative total return of +3.92% for the
six-month period. Cumulative total return reflects the change in value of an
investment, assuming reinvestment of dividends and capital gains, if any. Past
performance is not indicative of future results.
Performance Figures3
Periods ended December 31, 1995
Since Inception
1-Year (12/2/91)
Cumulative
Total Return:3 9.66% 15.07%
Average Annual
Total Return:4 9.66% 3.50%
30-Day Standardized Yield:5 6.16%
Distribution Rate:6 6.58%
2. Franklin Advisers, Inc., the Fund's administrator and the manager of the
Fund's underlying portfolio, has agreed in advance to waive a portion of its
management fees and make payment of certain other expenses, which reduces
expenses and increases the distribution rate, yield and total return to
shareholders. Without these reductions, the Fund's distribution rate and total
return would have been lower, and the yield would have been 5.71%. The fee
waiver may be discontinued at any time, upon notice to the Fund's Board of
Trustees.
3. Cumulative total return reflects the change in value of an investment over
the periods indicated, assuming reinvestment of dividends and capital gains.
4. Average annual total return represent the average annual change in value of
an investment over the periods indicated, assuming reinvestment of dividends and
capital gains.
5. Yield, calculated as required by the SEC, is based on earnings of the Fund's
underlying portfolio during the 30 days ended on the date shown.
6. Based on an annualization of the Fund's dividends for the 30-day period
($0.050377 per share) and the net asset value of $9.31 per share on December 31,
1995. Investment return and principal value fluctuate, so that your shares, when
redeemed, may be worth more or less than their original cost. Past performance
is not indicative of future results.
Franklin Institutional
Adjustable Rate
Securities Fund
The Franklin Institutional Adjustable Rate Securities Fund seeks a high level of
current income, with lower volatility of principal than a fund that invests in
fixed-rate securities. The Fund seeks to achieve its objective by investing all
of its assets in the Adjustable Rate Securities Portfolio, which in turn invests
in adjustable rate securities, including adjustable rate mortgage securities
(ARMS) issued or guaranteed by private institutions or by U.S. government
agencies.7# Investment in these securities has earned the fund a credit rating
of Aa from Moody's Investors Service.8 Shown to the right is a list of the top
five issuers for the securities held in the Adjustable Rate Securities Portfolio
as of December 31, 1995.
Over the six-month period, the reversal of interest rates benefited the Franklin
Institutional Adjustable Rate Securities Fund's performance. The restrictive
policy and tightening actions to which the Federal Reserve had adhered through
1994 and early 1995 were designed to contain potential inflationary pressures.
The accompanying rise in short-term rates led to sharp declines in ARM prices as
coupon adjustments, limited by periodic caps, were unable to keep pace. As the
effect of these tightenings took hold, however, economic growth slowed to
non-inflationary levels. As a result, the Federal Reserve Board eased policy by
cutting the federal funds rate in July and again in December of 1995. Interest
rates responded by moving substantially lower, causing ARMS prices to appreciate
as the securities adjusted to earlier rate hikes.
Although increased mortgage prepayments somewhat limited their appreciation,
ARMS performed well through most of 1995. Lower interest rates, especially
long-term rates, have created an incentive for homeowners to refinance from ARMS
to fixed-rate mortgages and to lock in the lower rates. Striving to reduce the
negative impact prepayments can have on the fund, we have maintained an
overweighting in seasoned, non-convertible ARMS, which are less likely to
experience high levels of prepayments. We prefer indices that adjust rapidly,
such as the Constant Maturity Treasury (CMT), over those that tend to lag market
movements, such as the Eleventh District Cost of Funds (COFI).
Going forward, we expect continued slow economic growth and low inflation. These
conditions should result in stable or slightly lower interest rates and lower
volatility, which, in turn, should be beneficial to ARM securities in general.
We have actively positioned the Fund to perform well under such conditions. Our
main concern is to maintain stability of principal along with a yield that is
competitive with short-term alternatives.
Adjustable Rate Securities Portfolio
Top Five Issuers on December 31, 1995
Percent of
Issuer Total Net Assets
1. Prudential Home 25.8%
2. Resolution Trust Corp. 22.0%
3. Salomon 10.5%
4. Residential Finance Corp. 10.0%
5. Homeowners 5.3%
7. Individual securities held by the Adjustable Rate Securities Portfolio, but
not shares of the Franklin Institutional Adjustable Rate Securities Fund, are
guaranteed by private institutions, the U.S. government, its agencies or
instrumentalities, as to timely payment of principal and interest.
8. The "Aa" rating reflects Moody's assessment of the investment quality of
shares in the fund, which factors in the fund's investment objectives and
policies, and the creditworthiness of the fund's investments and management.
Funds rated Aa are judged to be of an investment quality similar to Aa-rated
fixed-income obligations, which indicates the next best level of quality after
Aaa. The rating does not consider the prospective performance of a fund with
respect to appreciation, the volatility of net asset value, or yield, and it
does not reflect approval by Moody's. The rating is subject to change.
Performance Summary
The Franklin Institutional Adjustable Rate Securities Fund's share price, as
measured by net asset value, rose from $9.78 on June 30, 1995, to $9.86 on
December 31, 1995.
The Fund continued to pursue its investment objective of providing a high level
of current income by investing in an underlying portfolio of adjustable-rate
securities. For the six months ended December 31, 1995, the fund paid monthly
income distributions totaling 30.0 cents ($0.300) per share. Of course,
dividends will vary based on the earnings of the underlying portfolio, and past
distributions are not necessarily predictive of future trends.
At the end of the reporting period, the Fund's distribution rate was 6.32% based
on an annualization of the dividend distributed over the last 30 days of the
period ($0.051199 per share) and the net asset value of $9.86 per share on
December 31, 1995. Of course, distributions will vary, depending on the earnings
of the underlying portfolio, and past performance cannot guarantee future
results.
The Fund posted a cumulative total return of +3.94% for the six-month period
ended December 31, 1995. Cumulative total return reflects the change in value of
an investment, assuming reinvestment of dividends and capital gains, if any.
Past performance is not indicative of future results.
Performance Figures9
Periods ended December 31, 1995
Since
Inception
1-Year (1/3/92)
Cumulative
Total Return:10 8.91% 22.21%
Average Annual
Total Returns:11 8.91% 5.15%
30-Day Standardized Yield:12 6.31%
Distribution Rate:13 6.32%
9. Franklin Advisers, Inc., the Fund's administrator and the manager of the
Fund's underlying portfolio, has agreed in advance to waive a portion of its
management fees and make payment of certain other expenses, which reduces
expenses and increases the distribution rate, yield and total return to
shareholders. Without these reductions, the Fund's distribution rate and total
return would have been lower, and the yield would have been 5.84%. The fee
waiver may be discontinued at any time, upon notice to the Fund's Board of
Trustees.
10. Cumulative total return reflects the change in value of an investment over
the periods indicated, assuming reinvestment of dividends and capital gains.
11. Average annual total return reflects the average annual change in value of
an investment over the periods indicated, assuming reinvestment of dividends and
capital gains.
12. Yield, calculated as required by the SEC, is based on earnings of the Fund's
underlying portfolio during the 30 days ended on the date shown.
13. Based on an annualization of the Fund's dividends for the 30-day period
($0.051199 per share) and the net asset value of $9.86 per share on December 31,
1995. Investment return and principal value fluctuate, so that your shares, when
redeemed, may be worth more or less than their original cost. Past performance
is not indicative of future results.
<TABLE>
<CAPTION>
INSTITUTIONAL FIDUCIARY TRUST
Statement of Investments in Securities and Net Assets, December 31, 1995 (unaudited)
Value
Shares Franklin Institutional Adjustable U.S. Government Securities Fund (Note 1)
Mutual Funds100.0%
<S> <C> <C>
1,347,661 U.S. Government Adjustable Rate Mortgage Portfolio (Note 1) ....................................... $12,600,628
---------------
Total Investments (Cost $13,151,972) 100.0% ................................................ 12,600,628
Liabilities in Excess of Other Assets, Net .................................................. (5,135)
---------------
Net Assets 100.0% ........................................................................... $12,595,493
===============
At December 31, 1995, the net unrealized depreciation based on the cost of investments
for income tax purposes of $13,517,332 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost .................................................................... $--
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value ..................................................................... (916,704)
---------------
Net unrealized depreciation ..................................................................... $ (916,704)
===============
The accompanying notes are an integral part of these financial statements.
INSTITUTIONAL FIDUCIARY TRUST
Statement of Investments in Securities and Net Assets, December 31, 1995 (unaudited)
Value
Shares Franklin Institutional Adjustable Rate Securities Fund (Note 1)
Mutual Funds 100.0%
<S> <C> <C>
887,803 Adjustable Rate Securities Portfolio (Note 1) ......................................................... $8,753,741
---------------
Total Investments (Cost $8,878,375) 100.0% ..................................................... 8,753,741
Liabilities in Excess of Other Assets, Net ...................................................... (3,496)
---------------
Net Assets 100.0% ............................................................................... $8,750,245
===============
At December 31, 1995, the net unrealized depreciation based on the cost of investments
for income tax purposes of $8,887,584 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost ........................................................................ $--
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value ........................................................................ (133,843)
---------------
Net unrealized depreciation ......................................................................... $ (133,843)
===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
INSTITUTIONAL FIDUCIARY TRUST
Financial Statements
Statements of Assets and Liabilities
December 31, 1995 (unaudited)
Franklin
Institutional Franklin
Adjustable U.S.Institutional
Government Adjustable Rate
Securities FundSecurities Fund
---------- ----------
Assets:
Investments:
At identified cost $13,151,972 $ 8,878,375
---------- ----------
At value 12,600,628 8,753,741
Cash 595 419
---------- ----------
Total assets 12,601,223 8,754,160
---------- ----------
Liabilities:
Payables:
Administration fees 4,124 408
Shareholder servicing costs 357 339
Accrued expenses and other
liabilities 1,249 3,168
---------- ----------
Total liabilities 5,730 3,915
---------- ----------
Net assets, at value $12,595,493 $ 8,750,245
========== ==========
Net assets consist of:
Undistributed net investment
income $ 27,457 $--
Net unrealized depreciation on
investments (551,344) (124,634)
Net realized loss from
investments (30,102,382) (1,921,444)
Capital shares 43,221,762 10,796,323
---------- ----------
Net assets, at value $12,595,493 $ 8,750,245
========== ==========
Shares outstanding 1,353,222 887,485
========== ==========
Net asset value per share $9.31 $9.86
========== ==========
Statements of Operations
for the six months ended December 31, 1995 (unaudited)
Franklin
Institutional Franklin
Adjustable U.S. Institutional
GovernmentAdjustable Rate
Securities FundSecurities Fund
---------- ----------
Investment income:
Dividends $ 530,065 $295,135
---------- ----------
Expenses:
Administration fees (Note 5) 4,551 2,369
Shareholder servicing costs
(Note 5) 591 381
Professional fees 2,338 1,734
Registration fees 1,930 1,040
Reports to shareholders 1,663 1,274
Directors' fees and expenses 837 446
Rating service fees 750 750
Other expenses 623 416
---------- ----------
Total expenses 13,283 8,410
---------- ----------
Net investment income 516,782 286,725
---------- ----------
Realized and unrealized gain (loss)
on investments:
Net realized loss (1,328,386) (27,639)
Net unrealized appreciation 1,458,047 106,481
---------- ----------
Net realized and unrealized gain
on investments 129,661 78,842
---------- ----------
Net increase in net assets
resulting from operations $ 646,443 $365,567
========== ==========
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
INSTITUTIONAL FIDUCIARY TRUST
Financial Statements (cont.)
Statements of Changes in Net Assets
for the six months ended December 31, 1995 (unaudited)
and for the year ended June 30, 1995
Franklin
Franklin Institutional Adjustable Institutional Adjustable
U.S. Government Securities Fund Rate Securities Fund
--------------------- --------------------
Six months Year Six months Year
ended ended ended ended
12/31/95 06/30/95 12/31/95 06/30/95
---------- ---------- --------- ----------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C>
Net investment income................................................. $ 516,782 $ 2,192,180 $ 286,725 $ 872,592
Net realized loss from investments.................................... (1,328,386) (2,295,273) (27,639) (772,268)
Net unrealized appreciation on investments............................ 1,458,047 1,324,517 106,481 646,566
---------- ---------- --------- ----------
Net increase in net assets resulting from operations.............. 646,443 1,221,424 365,567 746,890
Distributions to shareholders from net investment income.............. (531,757) (2,210,136) (286,725) (872,592)
Increase (decrease) in net assets from capital share transactions(Note 3)(12,539,140) (25,729,342) 75,351 (22,476,738)
---------- ---------- --------- ----------
Net increase (decrease) in net assets............................. (12,424,454) (26,718,054) 154,193 (22,602,440)
Net assets:
Beginning of period.................................................... 25,019,947 51,738,001 8,596,052 31,198,492
---------- ---------- --------- ----------
End of period.......................................................... $12,595,493 $25,019,947 $8,750,245 $ 8,596,052
========== ========== ========= ==========
Undistributed net investment income included in net assets:
Beginning of period.................................................... $ 42,432 $ 60,388 $-- $--
========== ========== ========= ==========
End of period.......................................................... $ 27,457 $ 42,432 $-- $--
========== ========== ========= ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
INSTITUTIONAL FIDUCIARY TRUST
Notes to Financial Statements (unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Institutional Fiduciary Trust (the Trust) is a diversified, open-end management
investment company (mutual fund), registered under the Investment Company Act of
1940, as amended. The Trust currently consists of eight separate and distinct
Funds. These financial statements pertain to Franklin Institutional Adjustable
U.S. Government Securities Fund (the Adjustable U.S. Government Fund) and
Franklin Institutional Adjustable Rate Securities Fund (the Adjustable Rate
Securities Fund). Each of the Funds issues a separate series of the Trust's
shares and maintains a totally separate and distinct investment portfolio.
The Adjustable U.S. Government Fund and the Adjustable Rate Securities Fund (the
Funds) invest substantially all of their assets in the U.S. Government
Adjustable Rate Mortgage Portfolio (the Mortgage Portfolio) and the Adjustable
Rate Securities Portfolio (the Securities Portfolio), respectively. Both are
no-load, open-end, diversified management investment companies having the same
investment objective as the Adjustable U.S. Government Fund and the Adjustable
Rate Securities Fund. The unaudited financial statements of the Mortgage
Portfolio and the Securities Portfolio, including the Statements of Investments
in Securities and Net Assets, are included elsewhere in this report and should
be read in conjunction with the financial statements of the Adjustable U.S.
Government Fund and the Adjustable Rate Securities Fund.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
a. Security Valuation
The Adjustable U.S. Government Fund and the Adjustable Rate Securities Fund hold
Portfolio shares that are valued at their proportionate interest in the net
assets of the Mortgage Portfolio and the Securities Portfolio (Portfolios),
respectively. At December 31, 1995, the Adjustable U.S. Government Fund owns
approximately 2% of the Mortgage Portfolio and the Adjustable Rate Securities
Fund owns 36% of the Securities Portfolio. The Portfolios' shares held by the
Funds are valued at the net asset value of the Portfolios.
b. Income Taxes:
The Funds intend to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make the
requisite distributions to shareholders which will be sufficient to relieve the
Funds from income and excise taxes. Each Fund is treated as a separate entity in
the determination of compliance with the Internal Revenue Code.
c. Security Transactions:
Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Realized gains and losses on security transactions are
determined on the basis of specific identification.
d. Investment Income, Expenses and Distributions:
Net investment income includes income, calculated on an accrual basis,
amortization of original issue and market discount or premium, if any, and
estimated expenses which are accrued daily. The total available for
distributions is computed daily.
Distributions are normally declared each day the New York Stock Exchange is open
for business, equal to the total available for distributions (as defined above),
and are payable to shareholders of record as of the close of business the
preceding day. Such distributions are automatically reinvested monthly in
additional shares of these Funds at net asset value.
e. Expense Allocation:
Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of net assets of each Fund to the combined net assets. In all other
respects, expenses are charged to each Fund as incurred on a specific
identification basis.
2. CAPITAL LOSS CARRYOVERS
At June 30, 1995, for tax purposes, the Funds had accumulated capital loss
carryovers as follows:
Adjustable U.S. Adjustable Rate
Government Fund Securities Fund
------------ ----------
Capital loss carryovers
expiring in: 2001.................... $ 6,444,126 $ 1,762
2002.................... 20,034,597 1,111,813
2003.................... 2,287,422 771,534
------------ ----------
$28,766,145 $1,885,109
============ ==========
For tax purposes, the aggregate cost of securities and unrealized depreciation
are higher than for financial reporting purposes at December 31, 1995 by
$365,360 in the Adjustable U.S. Government Fund and by $9,209 in the Adjustable
Rate Securities Fund.
3. TRUST SHARES
At December 31, 1995, there was an unlimited number of no par value shares of
beneficial interest authorized. Transactions in the Funds' shares for the six
months ended December 31, 1995 and the year ended June 30, 1995 were as follows:
<TABLE>
<CAPTION>
Adjustable U.S. Government Adjustable Rate
Securities Fund Securities Fund
------------------- -------------------
Shares Amount Shares Amount
-------- ---------- -------- ----------
Six months ended December 31, 1995
<S> <C> <C> <C> <C>
Shares sold............................................................... 16,625 $ 154,561 226,777 $ 2,218,582
Shares issued in reinvestment of distributions............................ 8,186 76,036 2,244 22,028
Shares redeemed........................................................... (1,375,892) (12,772,605) (220,521) (2,165,259)
Changes from exercise of exchange privilege:
Shares sold.............................................................. 2,965 27,481 -- --
Shares redeemed.......................................................... (2,644) (24,613) -- --
-------- ---------- -------- ----------
Net increase (decrease)................................................... (1,350,760) $(12,539,140) 8,500 $ 75,351
======== ========== ======== ==========
Year ended June 30, 1995
Shares sold............................................................... 407,666 $ 3,785,853 201,682 $ 1,956,062
Shares issued in reinvestment of distributions............................ 44,733 412,014 12,800 124,420
Shares redeemed........................................................... (3,131,959) (28,795,399) (2,501,030) (24,288,084)
Changes from exercise of exchange privilege:
Shares redeemed.......................................................... (123,323) (1,131,810) (27,803) (269,136)
-------- ---------- -------- ----------
Net decrease.............................................................. (2,802,883) $(25,729,342) (2,314,351) $(22,476,738)
======== ========== ======== ==========
4. PURCHASES AND SALES OF SECURITIES
Aggregate purchases and sales of securities (excluding purchases and sales of
short-term securities) for the six months ended December 31, 1995 were as
follows:
Adjustable U.S. Government Adjustable Rate
Securities Fund Securities Fund
----------------- -------------
<S> <C> <C>
Purchases............................................................................ $14,662,084 $2,550,989
================= =============
Sales................................................................................ $27,214,402 $2,473,345
================= =============
</TABLE>
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Under the terms of the administration agreement with the Adjustable U.S.
Government Fund and the Adjustable Rate Securities Fund, Franklin Advisers, Inc.
(Advisers) provides various administrative, statistical and other services, and
receives fees computed monthly based on each Fund's average daily net assets at
an annualized rate of 0.05 of 1%. The terms of the administration agreement
provide that aggregate annual expenses of each Fund be limited to the extent
necessary to comply with the limitations set forth in the laws, regulations and
administrative interpretations of the states in which each Fund's shares are
registered. For the period ended December 31, 1995, each Fund's expenses did not
exceed these limitations.
Under the terms of a shareholder services agreement with Franklin/Templeton
Investor Services, Inc. (Investor Services), the Funds pay costs on a per
shareholder account basis. Such costs incurred for the period ended December
31,1995 were $591 and $381, of which $304 and $52 were paid to Investor
Services, respectively.
Certain officers and trustees of the Trust are also officers and/or directors of
Advisers and Investor Services, which are wholly-owned subsidiaries of Franklin
Resources, Inc., and of the Mortgage Portfolio, and the Securities Portfolio.
6. FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Selected data for a share of beneficial interest outstanding throughout the period by Fund are as follows:
Per Share Operating Performance Ratios/Supplemental Data
----------------------------------------------------- ---------------------------------
Net Asset Net Realized Distributions Net Asset Ratio of Ratio of
Period Value at Net & Unrealized Total From From Net Value at Net Assets at Expenses Net Income Portfolio
Ended BeginningInvestment Gain (Loss) Investment Investment End Total End of Period to Average to Average Turnover
June 30 of Period Income on SecuritiesOperations Income of Period Return++ (in 000's) Net Assets3,5Net Assets Rate
Franklin Institutional Adjustable U.S. Government Securities Fund:
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19921 $10.00 .373 (.010) .363 (.373) $9.99 3.70% $1,265,392 .35%+ 6.24%+ 62.79%
1993 9.99 .480 (.130) .350 (.480) 9.86 4.01 861,311 .35 4.89 66.55
1994 9.86 .360 (.467) (.107) (.353) 9.40 (1.11) 51,738 .07 3.49 29.47
1995 9.40 .551 (.155) .396 (.546) 9.25 4.41 25,020 .23 5.81 14.86
19954 9.25 .268 .090 .358 (.298) 9.31 3.92 12,595 .40+ 5.72+ 81.18
Franklin Institutional Adjustable Rate Securities Fund:
19922 10.00 .239 .040 .279 (.239) 10.04 2.82 -- -- 7.13+ --
1993 10.04 .559 -- .559 (.559) 10.04 5.72 44,734 -- 5.56 74.77
1994 10.04 .437 (.270) .167 (.437) 9.77 1.65 31,198 .25 4.32 197.22
1995 9.77 .589 .010 .599 (.589) 9.78 6.35 8,596 .31 5.84 12.44
19954 9.78 .300 .080 .380 (.300) 9.86 3.94 8,750 .43+ 6.11+ 26.52
+Annualized.
++Total return measures the change in value of an investment over the years indicated. It is not annualized. It assumes
reinvestment of dividends and capital gains, if any, at net asset value.
1For the period November 1, 1991 (effective date of registration) to June 30, 1992.
2For the period January 3, 1992 (effective date of registration) to June 30, 1992.
3Includes the Funds' share of the Portfolios' allocated expenses.
4For the six months ended December 31, 1995.
5Advisers agreed in advance to waive a portion of its management fees and made payments of other expenses incurred by the
Portfolios during the periods indicated, and a portion of its administrative fees except for the six months ended
December 31, 1995. Had such action not been taken, the Funds' ratios of expenses to average net assets would have been as
follows:
</TABLE>
Ratio of expenses
to average
net assets3
-----------
Franklin Institutional Adjustable
U.S. Government Securities Fund:
1992.................................. .49+
1993.................................. .46
1994.................................. .45
1995.................................. .54
19954................................. .57+
Franklin Institutional Adjustable
Rate Securities Fund:
1992.................................. .69+
1993.................................. .60
1994.................................. .50
1995.................................. .59
19954................................. .67+
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Statement of Investments in Securities and Net Assets, December 31,1995
(unaudited)
<TABLE>
<CAPTION>
Face Value
Amount U.S. Government Adjustable Rate Mortgage Portfolio (Note 1)
Adjustable Rate Mortgage Securities 97.2%
Federal Home Loan Mortgage Corp. (FHLMC) 23.8%
<S> <C> <C>
$ 6,292,688 FHLMC, Cap 11.253%, Margin 1.75% + CMT, Resets Annually, 7.125%, 11/01/16 ................... $ 6,467,779
2,544,742 FHLMC, Cap 11.939%, Margin 2.127% + CMT, Resets Annually, 7.810%, 07/01/20 .................. 2,613,806
1,130,187 FHLMC, Cap 12.176%, Margin 2.015% + CMT, Resets Annually, 7.346%, 04/01/20 .................. 1,153,796
4,236,999 FHLMC, Cap 12.177%, Margin 2.265% + CMT, Resets Annually, 7.480%, 07/01/20 .................. 4,365,210
905,233 FHLMC, Cap 12.68%, Margin 2.195% + CMT, Resets Annually, 7.924%, 02/01/19 ................... 928,950
2,706,950 FHLMC, Cap 12.723%, Margin 2.189% + CMT, Resets Annually, 7.962%, 04/01/19 .................. 2,804,102
5,568,443 FHLMC, Cap 12.744%, Margin 2.00% + CMT, Resets Annually, 7.930%, 07/01/18 ................... 5,728,312
954,478 FHLMC, Cap 12.80%, Margin 2.05% + CMT, Resets Annually, 7.754%, 11/01/18 .................... 974,417
8,511,210 FHLMC, Cap 12.806%, Margin 2.23% + CMT, Resets Annually, 7.853%, 04/01/18 ................... 8,819,399
7,028,933 FHLMC, Cap 13.006%, Margin 2.00% + CMT, Resets Annually, 7.668%, 9/01/19 .................... 7,244,875
4,028,128 FHLMC, Cap 13.156%, Margin 1.915% + CMT, Resets Annually, 7.407%, 12/01/16 .................. 4,142,795
2,284,162 FHLMC, Cap 13.16%, Margin 2.115% + CMT, Resets Annually, 7.859%, 07/01/19 ................... 2,358,678
3,740,574 FHLMC, Cap 13.246%, Margin 2.175% + CMT, Resets Annually, 7.875%, 10/01/18 .................. 3,864,292
1,631,679 FHLMC, Cap 13.269%, Margin 2.249% + CMT, Resets Annually, 7.919%, 05/01/19 .................. 1,692,802
633,722 FHLMC, Cap 13.286%, Margin 2.164% + CMT, Resets Annually, 7.781%, 10/01/19 .................. 649,140
2,738,751 FHLMC, Cap 13.292%, Margin 2.115% + CMT, Resets Annually, 7.684%, 03/01/19 .................. 2,823,285
865,657 FHLMC, Cap 13.302%, Margin 2.04% + CMT, Resets Annually, 7.516%, 04/01/18 ................... 891,341
1,898,361 FHLMC, Cap 13.306%, Margin 2.057% + CMT, Resets Annually, 7.667%, 12/01/18 .................. 1,957,047
2,837,013 FHLMC, Cap 13.36%, Margin 2.242% + CMT, Resets Annually, 8.154%, 07/01/20 ................... 2,945,926
5,445,843 FHLMC, Cap 13.364%, Margin 2.225% + CMT, Resets Annually, 7.970%, 07/01/19 .................. 5,635,297
5,769,335 FHLMC, Cap 13.366%, Margin 2.102% + CMT, Resets Annually, 7.612%, 03/01/18 .................. 5,945,195
11,038,048 FHLMC, Cap 13.37%, Margin 2.04% + CMT, Resets Annually, 7.696%, 04/01/19 .................... 11,361,794
8,794,333 FHLMC, Cap 13.65%, Margin 2.249% + CMT, Resets Annually, 8.102%, 07/01/20 ................... 9,137,399
731,431 FHLMC, Cap 13.77%, Margin 2.057% + CMT, Resets Annually, 7.681%, 02/01/19 ................... 739,849
4,677,169 FHLMC, Cap 13.793%, Margin 2.214% + CMT, Resets Annually, 8.099%, 11/01/19 .................. 4,852,375
10,119,569 FHLMC, Cap 13.879%, Margin 2.089% + CMT, Resets Annually, 7.822%, 04/01/18 .................. 10,435,400
2,952,955 FHLMC, Cap 14.307%, Margin 1.957% + 3CMT, Resets Every 3 Years, 8.595%, 12/01/21 ............ 3,065,404
1,714,615 FHLMC, Cap 14.451%, Margin 2.00% + CMT, Resets Annually, 7.669%, 12/01/18 ................... 1,763,841
4,235,746 FHLMC, Cap 14.90%, Margin 2.546% + CMT, Resets Annually, 8.228%, 02/01/19 ................... 4,452,616
---------------
Total Federal Home Loan Mortgage Corp. (Cost $119,699,956) ............................ 119,815,122
---------------
Federal National Mortgage Association (FNMA) 61.6%
3,244,973 FNMA, Cap 12.605%, Margin 2.536% + 6 Month DR, Resets Semi-Annually, 7.711%, 11/01/18 ....... 3,368,541
18,457,490 FNMA, Cap 12.637%, Margin 2.00% + NCI, Resets Annually, 6.923%, 11/01/17 .................... 18,675,656
5,736,027 FNMA, Cap 12.64%, Margin 2.00% + CMT, Resets Annually, 7.749%, 03/01/19 ..................... 5,925,832
14,296,180 FNMA, Cap 12.66%, Margin 1.75% + 6 Month DR, Resets Annually, 7.249%, 01/01/19 .............. 14,563,518
4,538,193 FNMA, Cap 12.662%, Margin 1.25% + COFI, Resets Monthly, 6.901%, 01/01/19 .................... 4,580,489
11,645,913 FNMA, Cap 12.705%, Margin 1.25% + COFI, Resets Monthly, 6.383%, 09/01/18 .................... 11,681,665
4,820,475 FNMA, Cap 12.787%, Margin 1.25% + COFI, Resets Monthly, 7.486%, 01/01/19 .................... 4,906,086
5,254,387 FNMA, Cap 12.788%, Margin 2.11% + CMT, Resets Annually, 7.976%, 11/01/20 .................... 5,451,215
7,587,888 FNMA, Cap 12.804%, Margin 1.75% + CMT, Resets Annually, 7.443%, 05/01/19 .................... 7,846,409
3,826,355 FNMA, Cap 12.84%, Margin 2.762% + 6 Month DR, Resets Semi-Annually, 7.989%, 06/01/17 ........ 3,998,388
7,253,435 FNMA, Cap 12.85%, Margin 2.078% + 5CMT, Resets Every 5 Years, 7.986%, 10/01/17 .............. 7,479,813
8,727,029 FNMA, Cap 12.89%, Margin 2.125% + 6 Month DR, Resets Semi-Annually, 7.205%, 07/01/17 ........ 8,882,108
2,466,891 FNMA, Cap 12.911%, Margin 2.00% + 6 Month DR, Resets Semi-Annually, 7.350%, 02/01/18 ........ 2,492,991
10,530,423 FNMA, Cap 12.938%, Margin 1.25% + COFI, Resets Monthly, 6.383%, 02/01/19 .................... 10,562,750
4,731,609 FNMA, Cap 12.993%, Margin 2.092% + CMT, Resets Annually, 7.893%, 12/01/19 ................... 4,903,928
6,789,568 FNMA, Cap 13.005%, Margin 1.97% + 3CMT, Resets Every 3 Years, 8.119%, 11/01/17 .............. 7,041,732
6,763,690 FNMA, Cap 13.01%, Margin 2.10% + CMT, Resets Monthly, 7.687%, 06/01/19 ...................... 6,993,481
11,074,247 FNMA, Cap 13.03%, Margin 1.25% + COFI, Resets Monthly, 6.879%, 02/01/20 ..................... 11,160,182
7,049,103 FNMA, Cap 13.03%, Margin 1.75% + 6 Month TB, Resets Semi-Annually, 7.599%, 12/01/20 ......... 7,183,105
7,216,647 FNMA, Cap 13.063%, Margin 2.175% + CMT, Resets Annually, 7.745%, 04/01/19 ................... 7,500,549
Federal National Mortgage Association (FNMA) (cont.)
$ 7,600,449 FNMA, Cap 13.099%, Margin 1.75% + 6 Month TB, Resets Semi-Annually, 7.574%, 07/01/20 ........ $ 7,747,366
5,481,152 FNMA, Cap 13.147%, Margin 1.895% + CMT, Resets Annually, 7.733%, 04/01/19 ................... 5,666,021
3,814,836 FNMA, Cap 13.202%, Margin 2.478% + 6 Month DR, Resets Semi-Annually, 7.887%, 11/01/26 ....... 3,929,128
3,898,836 FNMA, Cap 13.249%, Margin 2.00% + CMT, Resets Annually, 7.874%, 06/01/19 .................... 4,026,601
9,239,567 FNMA, Cap 13.281%, Margin 2.00% + CMT, Resets Annually, 7.638%, 10/01/19 .................... 9,555,748
8,467,343 FNMA, Cap 13.32%, Margin 1.25% + COFI, Resets Monthly, 7.425%, 04/01/03 ..................... 8,533,049
15,357,063 FNMA, Cap 13.452%, Margin 2.148% + CMT, Resets Annually, 7.940%, 09/01/22 ................... 15,941,860
14,753,252 FNMA, Cap 13.644%, Margin 2.011% + CMT, Resets Annually, 7.792%, 01/01/18 ................... 15,256,577
7,535,910 FNMA, Cap 13.662%, Margin 2.177% + CMT, Resets Annually, 7.979%, 03/01/21 ................... 7,828,911
10,166,388 FNMA, Cap 13.791%, Margin 2.143% + CMT, Resets Annually, 8.057%, 12/01/20 ................... 10,566,332
4,630,623 FNMA, Cap 13.797%, Margin 2.20% + CMT, Resets Annually, 7.802%, 03/01/19 .................... 4,812,791
6,003,530 FNMA, Cap 13.80%, Margin 0.94% + 6 Month DR, Resets Semi-Annually, 6.893%, 07/01/24 ......... 5,965,767
5,204,911 FNMA, Cap 13.887%, Margin 2.25% + CMT, Resets Annually, 7.762%, 02/01/19 .................... 5,419,404
3,917,505 FNMA, Cap 13.896%, Margin 2.25% + CMT, Resets Annually, 7.774%, 12/01/18 .................... 4,049,655
7,933,082 FNMA, Cap 14.069%, Margin 2.089% + CMT, Resets Annually, 7.633%, 01/01/19 ................... 8,204,554
2,289,613 FNMA, Cap 14.142%, Margin 2.118% + CMT, Resets Annually, 7.742%, 03/01/21 ................... 2,373,206
14,357,534 FNMA, Cap 14.354%, Margin 2.07% + 5CMT, Resets Every 5 Years, 8.052%, 05/01/21 .............. 14,836,930
3,824,303 FNMA, Cap 14.42%, Margin 2.099% + CMT, Resets Annually, 7.915%, 03/01/20 .................... 3,965,189
10,538,537 FNMA, Cap 14.887%, Margin 1.72% + CMT, Resets Annually, 7.634%, 01/01/16 .................... 10,755,420
4,051,526 FNMA, Cap 14.952%, Margin 2.523% + CMT, Resets Annually, 8.942%, 05/01/19 ................... 4,213,384
2,090,369 FNMA, Cap 15.381%, Margin 2.168% + CMT, Resets Annually, 8.056%, 02/01/20 ................... 2,171,742
---------------
Total Federal National Mortgage Association (Cost $312,118,802) ....................... 311,018,073
---------------
Government National Mortgage Association (GNMA) 11.8%
8,996,493 GNMA, Cap 10.00%, Margin 1.50% + CMT, Resets Annually, 6.00%, 01/20/24 ...................... 9,093,205
9,800,000 GNMA, Cap 11.00%, Margin 1.50% + CMT, Resets Annually, 6.00%, 12/20/25 ...................... 9,910,250
5,597,071 GNMA, Cap 11.00%, Margin 1.50% + CMT, Resets Annually, 7.00%, 08/20/24 ...................... 5,741,923
8,129,048 GNMA, Cap 11.00%, Margin 2.50% + CMT, Resets Annually, 6.00%, 07/20/25 ...................... 8,247,976
2,757,431 GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 6.50%, 07/20/25 ...................... 2,808,223
7,056,987 GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 6.50%, 09/01/25 ...................... 7,186,976
9,657,898 GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 7.250%, 07/20/23 ..................... 9,916,922
6,597,561 GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 7.250%, 08/20/23 ..................... 6,774,507
---------------
Total Government National Mortgage Association (Cost $59,873,384) ..................... 59,679,982
---------------
Total Long Term Investments (Cost $491,692,142) ....................................... 490,513,177
---------------
bReceivables from Repurchase Agreements 2.8%
13,663,864 Joint Repurchase Agreement, 5.745%, 01/02/96, (Maturity Value $14,230,603) (Cost $14,221,525)
Bear Stearns & Co., Inc., (Maturity Value $2,165,898)
Collateral: U.S. Treasury Notes, 5.75% - 8.875%, 02/29/96 - 08/31/00
Daiwa Securities America, Inc., (Maturity Value $1,235,215)
Collateral: U.S. Treasury Bills, 08/22/96
U.S. Treasury Notes, 5.125% - 6.25%, 08/31/96 - 06/30/98
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $2,165,898)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 03/31/97 - 11/30/99
Fuji Securities, Inc., (Maturity Value $2,165,898)
Collateral: U.S. Treasury Notes, 7.50%, 12/31/96 - 10/31/99
Lehman Brothers, Inc., (Maturity Value $2,165,898)
Collateral: U.S. Treasury Notes, 5.75% - 8.75%, 09/30/97 - 09/30/00
SBC Capital Markets, Inc., (Maturity Value $2,165,898)
Collateral: U.S. Treasury Notes, 7.50%, 10/31/99
UBS Securities, Inc., (Maturity Value $2,165,898)
Collateral: U.S. Treasury Notes, 6.75% - 7.75%, 04/30/97 - 01/31/00 ........................ $ 14,221,525
---------------
Total Investments (Cost $505,913,667) 100.0% ..................................... 504,734,702
Liabilities in Excess of Other Assets, Net ........................................ (45,546)
---------------
Net Assets 100.0% ................................................................ $504,689,156
===============
At December 31, 1995, the net unrealized depreciation based on the cost of investment
for income tax purposes of $505,913,667 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost .............................................................. $ 2,074,638
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value .............................................................. (3,253,603)
---------------
Net unrealized depreciation ............................................................... $ (1,178,965)
===============
3CMT - 3 Year Constant Maturity Treasury Index
5CMT - 5 Year Constant Maturity Treasury Index
CMT - 1 Year Constant Maturity Treasury Index
COFI - Eleventh District Cost of Funds Index
DR - Discount Rate
NCI - National Median Cost of Funds Index
TB - Treasury Bill Rate
bFace amount for repurchase agreements is for the underlying collateral. See Note 1(f) regarding joint repurchase
agreement.
The accompanying notes are an integral part of these financial statements.
</TABLE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31,1995 (unaudited)
Face Value
Amount Adjustable Rate Securities Portfolio (Note 1)
Adjustable Rate Mortgage Securities 90.4%
<S> <C> <C>
$ 875,270 FNMA, Cap 12.65%, Margin 1.75% + NCI, Resets Monthly, 6.625%, 10/01/28 ......................... $ 878,780
765,131 GNMA, Cap 11.00%, Margin 1.50% + CMT, Resets Annually, 6.50%, 02/20/17.......................... 780,395
1,255,083 Homeowners Federal Savings, Cap 13.00%, Margin 1.75% + CMT, Resets Annually, 7.491%, 01/25/18 .. 1,278,616
1,783,225 PHMS, Cap 10.88%, Margin 2.50% + CMT, Resets Annually, 8.152%, 01/25/23 ........................ 1,818,889
1,942,985 PHMS, Cap 11.67%, Margin 2.67% + CMT, Resets Annually, 8.739%, 07/25/22 ........................ 1,980,023
1,170,087 PHMS, Cap 12.02%, Margin 2.55% + CMT, Resets Annually, 8.105%, 03/25/22 ........................ 1,187,638
1,197,657 PHMS, Cap 12.625%, Margin -.125% + CMT, Resets Annually, 8.625%, 08/25/20 ...................... 1,291,224
2,394,748 RFC, Cap 11.46%, Margin 2.25% + CMT, Resets Annually, 7.982%, 11/25/22 ......................... 2,435,159
1,595,079 RTC, Cap 12.66%, Margin 1.75% + 6 Month TB, Resets Semi-Annually, 7.372%, 04/26/21 ............. 1,562,430
2,270,649 RTC, Cap 14.69%, Margin 1.55% + 3CMT, Resets Every 3 Years, 7.55%, 06/25/22 .................... 2,264,972
1,563,192 RTC, Cap 16.48%, Margin NACR - 0.15%, Resets Annually, 7.588%, 07/25/20 ........................ 1,532,173
1,300,494 Ryland Mortgage Securities Corp., Cap 11.00%, Margin 1.00% + COFI, Resets Monthly, 6.116%, 04/25/21 1,300,291
2,557,543 Salomon Brothers Mortgage Securities, Cap 14.00%, Margin 0.96% + NACR, Resets Annually, 8.239%,
10/25/16 ...................................................................................... 2,558,742
1,112,884 Saxon Mortgage Securities Corporation, Cap 10.78%, Margin 2.78% + 6 Month LIBOR, Resets
Semi-Annually, 7.795%, 05/25/24 ............................................................... 1,142,793
---------------
Total Adjustable Rate Mortgage Securities (Cost $22,451,332) ............................. 22,012,125
---------------
Fixed Rate Mortgage Securities 5.3%
1,314,244 Countrywide Mortgage-Backed Securities, Inc., Series 1994-I, Class A8, 6.25%, 07/25/09
(Cost $1,278,102).............................................................................. 1,294,951
---------------
Other Adjustable Rate Securities 5.4%
1,300,000 Advanta Credit Card Master Trust, Margin 0.16% + 1 Month LIBOR, Resets Monthly, 6.098%, 09/01/00
(Cost $1,301,523) ............................................................................. 1,301,859
---------------
Short Term Investments
U.S Government Securities 4.1%
1,000,000 U.S. Treasury Notes, 6.25%, 08/31/96 (Cost $1,005,938) ......................................... 1,006,562
---------------
Total Investments before Repurchase Agreements (Cost $26,036,895) ........................ 25,615,497
---------------
bReceivables from Repurchase Agreements 1.7%
395,752 Joint Repurchase Agreement, 5.745%, 01/02/96, (Maturity Value $412,036) (Cost $411,773)
Bear Stearns & Co., Inc., (Maturity Value $62,712)
Collateral: U.S. Treasury Notes, 5.75% - 8.875%, 02/29/96 - 08/31/00
Daiwa Securities America, Inc., (Maturity Value $35,764)
Collateral: U.S. Treasury Bills, 08/22/96
U.S. Treasury Notes, 5.125% - 6.25%, 08/31/96 - 06/30/98
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $62,712)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 03/31/97 - 11/30/99
Fuji Securities, Inc., (Maturity Value $62,712)
Collateral: U.S. Treasury Notes, 7.50%, 12/31/96 - 10/31/99
Lehman Brothers, Inc., (Maturity Value $62,712)
Collateral: U.S. Treasury Notes, 5.75% - 8.75%, 09/30/97 - 09/30/00
SBC Capital Markets, Inc., (Maturity Value $62,712)
Collateral: U.S. Treasury Notes, 7.50%, 10/31/99
UBS Securities, Inc., (Maturity Value $62,712)
Collateral: U.S. Treasury Notes, 6.75% - 7.75%, 04/30/97 - 01/31/00 ........................... 411,773
---------------
Total Investments (Cost $26,448,668) 106.9% ......................................... 26,027,270
Liabilities in Excess of Other Assets, Net (6.9)% ................................... (1,681,654)
---------------
Net Assets 100.0% ................................................................... $24,345,616
===============
At December 31, 1995, the net unrealized depreciation based on the cost of investments
for income tax purposes of $26,448,668 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost ................................................................. $ 50,877
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value ................................................................. (472,275)
---------------
Net unrealized depreciation .................................................................. $ (421,398)
===============
PORTFOLIO ABBREVIATIONS:
3CMT - 3 Year Constant Maturity Treasury Index
CMT - 1 Year Constant Maturity Treasury Index
COFI - 11th District Cost of Funds Index
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
LIBOR - London Interbank Offered Rate
NACR - National Average Contract Rate
NCI - National Cost of Funds Index
PHMS - Prudential Home Mortgage Securities
RFC - Residential Finance Corp.
RTC - Resolution Trust Corp.
TB - Treasury Bill Rate
bFace amount for repurchase agreements is for the underlying collateral. See Note 1(f) regarding joint repurchase
agreement.
The accompanying notes are an integral part of these financial statements.
</TABLE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Financial Statements
Statements of Assets and Liabilities
December 31, 1995 (unaudited)
U.S. Government
Adjustable Adjustable
Rate Mortgage Rate Securities
Portfolio Portfolio
----------- ---------
Assets:
Investments in securities:
At identified cost $491,692,142 $26,036,895
=========== =========
At value 490,513,177 25,615,497
Receivables from repurchase
agreements, at value and cost 14,221,525 411,773
Receivables:
Interest 3,757,529 194,040
Investment securities sold 2,130,956 9,809
Unamortized organization costs
(Note 2) -- 2,379
----------- ---------
Total assets 510,623,187 26,233,498
----------- ---------
Liabilities:
Payables:
Capital shares repurchased 5,793,991 1,881,151
Distributions payable to
shareholders 1,154 --
Management fees 88,284 2,773
Professional fees 23,423 1,333
Accrued expenses and other
liabilities 27,179 2,625
----------- ---------
Total liabilities 5,934,031 1,887,882
----------- ---------
Net assets, at value $504,689,156 $24,345,616
=========== =========
Net assets consist of:
Net unrealized depreciation on
investments $ (1,178,965) $ (421,398)
Net realized loss from
investments (137,480,469) (2,692,167)
Capital shares 539,522 24,697
Additional paid-in capital 642,809,068 27,434,484
----------- ---------
Net assets, at value $504,689,156 $24,345,616
=========== =========
Shares outstanding 53,952,221 2,469,679
=========== =========
Net asset value per share $9.35 $9.86
=========== =========
Statements of Operations
for the two months ended December 31, 1995 (unaudited)
U.S. Government
Adjustable Adjustable
Rate Mortgage Rate Securities
Portfolio Portfolio
----------- ---------
Investment income:
Interest (Note 1) $5,713,411 $296,182
----------- ---------
Expenses:
Management fees (Note 6) 344,181 17,837
Professional fees 10,644 960
Custodian fees 7,723 422
Rating service fees 2,046 1,079
Trustees' fees and expenses 1,292 41
Reports to shareholders 114 176
Amortization of organization
costs (Note 2) -- 366
Other 2,782 120
Expenses waived by Manager
(Note 6) (153,012) (9,810)
----------- ---------
Total expenses 215,770 11,191
----------- ---------
Net investment income 5,497,641 284,991
----------- ---------
Realized and unrealized gain
(loss) on investments:
Net realized gain (loss) (79,183) 13,721
Net unrealized appreciation 1,441,762 122,615
----------- ---------
Net realized and unrealized gain
on investments 1,362,579 136,336
----------- ---------
Net increase in net assets
resulting from operations $6,860,220 $421,327
=========== =========
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Financial Statements (cont.)
Statements of Changes in Net Assets
for the eight months ended December 31, 1995 (unaudited)
and the year ended October 31, 1994
U.S. Government Adjustable Rate
Adjustable Rate Mortgage Portfolio Securities Portfolio
---------------------- --------------------
For the two For the For the two For the
months ended year ended months ended year ended
12/31/95 10/31/95 12/31/95 10/31/95
---------- ----------- --------- ----------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C>
Net investment income.............................................. $ 5,497,641 $ 37,919,267 $ 284,991 $ 1,896,437
Net realized gain (loss) from investments.......................... (79,183) (7,672,691) 13,721 (602,782)
Net unrealized appreciation on investments......................... 1,441,762 16,342,196 122,615 913,301
---------- ----------- --------- ----------
Net increase in net assets resulting from operations........... 6,860,220 46,588,772 421,327 2,206,956
Distributions to shareholders from net investment income ............ (5,497,641) (37,919,267) (284,991) (1,896,437)
Decrease in net assets from capital share transactions (Note 4)...... (19,475,380) (233,338,662) (2,869,620) (14,850,372)
---------- ----------- --------- ----------
Net decrease in net assets..................................... (18,112,801) (224,669,157) (2,733,284) (14,539,853)
Net assets (there is no undistributed net investment income at beginning
or end of period):
Beginning of period................................................ 522,801,957 747,471,114 27,078,900 41,618,753
---------- ----------- --------- ----------
End of period...................................................... $504,689,156 $522,801,957 $24,345,616 $27,078,900
========== =========== ========= ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Notes to Financial Statements (unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Adjustable Rate Securities Portfolios (the Trust) is a no-load, open-end
management investment company (mutual fund), registered under the Investment
Company Act of 1940, as amended. The Trust has two diversified portfolios (the
Portfolios) consisting of the U.S. Government Adjustable Rate Mortgage Portfolio
(the Mortgage Portfolio) and Adjustable Rate Securities Portfolio (the
Securities Portfolio). Each of the Portfolios issues a separate series of shares
and maintains a totally separate and distinct investment portfolio. The shares
of the Trust are issued in private placements and are thus exempt from
registration under the Securities Act of 1933.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
a. Security Valuation:
Portfolio securities listed on a securities exchange or on the NASDAQ for which
market quotations are readily available are valued at the last sale price or, if
there is no sale price, within the range of the most recent quoted bid and asked
prices. Other securities are valued based on a variety of factors, including
yield, risk, maturity, trade activity and recent developments related to the
securities. Portfolio securities which are traded both in the over the counter
market and on a securities exchange are valued according to the broadest and
most representative market as determined by the manager. The Trust may utilize a
pricing service, bank or broker/dealer experienced in such matters to perform
any of the pricing functions, under procedures approved by the Board of Trustees
(the Board). Securities for which market quotations are not available, are
valued in accordance with procedures established by the Board.
b. Income Taxes:
The Portfolios intend to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make the
requisite distributions to shareholders which will be sufficient to relieve the
Portfolios from income and excise taxes. Each Portfolio is treated as a separate
entity in the determination of compliance with the Internal Revenue Code.
c. Security Transactions:
Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Realized gains and losses on security transactions are
determined on the basis of specific identification.
d. Investment Income, Expenses and Distributions:
Net investment income includes income, calculated on an accrual basis,
amortization of original issue and market discount or premium, if any, and
estimated expenses which are accrued daily. The total available for
distributions is computed daily.
Distributions are normally declared each day the New York Stock Exchange is open
for business, equal to the total available for distributions (as defined above),
and are payable to shareholders of record as of the close of business the
preceding day. Such distributions are automatically reinvested monthly in
additional shares of these Portfolios at net asset value.
Net realized capital losses may differ for financial statement and tax purposes
primarily due to differing treatment of wash sale transactions.
e. Expense Allocation:
Common expenses incurred by the Trust are allocated among the Portfolios based
on the ratio of net assets of each Portfolio to the combined net assets. In all
other respects, expenses are charged to each Portfolio as incurred on a specific
identification basis.
f. Repurchase Agreements:
The Portfolios may enter into a joint repurchase agreement whereby their
uninvested cash balances are deposited into a joint cash account to be used to
invest in one or more repurchase agreements with government securities dealers
recognized by the Federal Reserve Board and/or member banks of the Federal
Reserve System. The value and face amount of the joint repurchase agreement are
allocated to the Portfolios based on their pro rata interest. A repurchase
agreement is accounted for as a loan by the Portfolios to the seller,
collateralized by underlying U.S. government securities, which are delivered to
the Portfolios' custodian. The market value, including accrued interest, of the
initial collateralization is required to be at least 102% of the dollar amount
invested by the Portfolios, with the value of the underlying securities marked
to market daily to maintain coverage of at least 100%. At December 31, 1995, all
outstanding joint repurchase agreements held by the Portfolios had been entered
into on December 29, 1995.
g. Securities Purchased on a When-Issued or Delayed Delivery Basis:
The Portfolios may purchase securities on a when-issued or delayed delivery
basis, with payment and delivery scheduled for a future date. These transactions
are subject to market fluctuations and are subject to the risk that the value at
delivery may be more or less than the trade date purchase price. Although the
Portfolios will generally purchase these securities with the intention of
holding the securities, they may sell the securities before the settlement date.
These securities, if any, are identified on the accompanying Statement of
Investments in Securities and Net Assets. The Portfolios sets aside sufficient
investment securities as collateral for these purchase commitments.
2. ORGANIZATION COSTS
The organization costs of the Securities Portfolio are amortized on a
straight-line basis over a period of five years from December 26, 1991, the
effective date of registration. In the event Franklin Resources, Inc.
(Resources) (which was the sole shareholder prior to December 26, 1991) redeems
its initial shares within the five-year period, the pro rata share of the
then-unamortized deferred organization cost will be deducted from the redemption
price paid to Resources. New investors purchasing shares of the Portfolio
subsequent to that date bear such costs during the amortization period only as
such charges are accrued daily against investment income.
3. CAPITAL LOSS CARRYOVERS
At October 31, 1995, for tax purposes, the Portfolios had accumulated capital
loss carryovers as follows:
U.S. Government
Adjustable Rate Adjustable Rate
Mortgage Portfolio Securities Portfolio
----------- ------------
Capital loss carryovers
Expiring in: 2000................. $ 45,446,278 $ 57,701
2001................. 17,175,340 50,908
2002................. 67,102,060 1,987,888
2003................. 7,677,608 609,391
----------- ------------
$137,401,286 $2,705,888
=========== ============
For tax purposes, the aggregate cost of securities and net unrealized
depreciation of the Portfolios are the same as for financial statement purposes
at December 31, 1995.
4. TRUST SHARES
At December 31, 1995, there was an unlimited number of $.01 par value shares of
beneficial interest authorized. Transactions in each of the Portfolios' shares
for the two months ended December 31, 1995 and the year ended October 31, 1995
were as follows:
<TABLE>
<CAPTION>
U.S. Government Adjustable Adjustable Rate
Rate Mortgage Portfolio Securities Portfolio
--------------------- -------------------
Shares Amount Shares Amount
--------- ----------- -------- ----------
Two months ended December 31, 1995
<S> <C> <C> <C> <C>
Shares sold............................................................ 1,392,125 $ 13,008,065 114,508 $ 1,125,124
Shares issued in reinvestment of distributions......................... 589,238 5,515,316 26,528 261,213
Shares redeemed........................................................ (4,064,786) (37,998,761) (432,328) (4,255,957)
--------- ----------- -------- ----------
Net decrease........................................................... (2,083,423) $ (19,475,380) (291,292)$ (2,869,620)
========= =========== ======== ==========
Year ended October 31, 1995
Shares sold............................................................ 8,454,626 $ 78,435,001 1,241,431 $12,019,117
Shares issued in reinvestment of distributions......................... 4,106,743 37,916,533 196,161 1,906,803
Shares redeemed........................................................ (37,893,534) (349,690,196) (2,973,631) (28,776,292)
--------- ----------- -------- ----------
Net decrease........................................................... (25,332,165) $(233,338,662) (1,536,039) $(14,850,372)
========= =========== ======== ==========
5. PURCHASES AND SALES OF SECURITIES
Aggregate purchases and sales of securities (excluding purchases and sales of
short-term securities) for the two months ended December 31, 1995, were as
follows:
U.S. Government
Adjustable Rate Adjustable Rate
Mortgage PortfolioSecurities Portfolio
----------- ------------
<S> <C> <C>
Purchases..................................................................................... $9,839,813 $2,150,816
=========== ============
Sales......................................................................................... $25,581,873 $2,920,648
=========== ============
</TABLE>
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Under the terms of the management agreement with the Mortgage Portfolio and the
Securities Portfolio, Franklin Advisers, Inc. (Advisers) provides investment
advice, administrative services, office space, and facilities to each Portfolio
and receives fees computed monthly based on the average daily net assets at an
annualized rate of 0.40 of 1% for the first $5 billion of net assets, 0.35 of 1%
of net assets in excess of $5 billion up to and including $10 billion, 0.33 of
1% of the net assets in excess of $10 billion up to and including $15 billion,
and 0.30 of 1% of net assets in excess of $15 billion. For the two months ended
December 31, 1995, Advisers agreed in advance to waive $153,012 and $9,810 of
the management fees for the Mortgage Portfolio and Securities Portfolio,
respectively.
As of December 31, 1995, 52,604,560 shares of the Mortgage Portfolio were owned
by the Franklin Adjustable U.S. Government Securities Fund and 1,347,661 shares
were owned by the Franklin Institutional Adjustable U.S. Government Securities
Fund. This represents 98% and 2%, respectively, of the outstanding shares of the
Mortgage Portfolio.
As of December 31, 1995, 1,580,523 shares of the Securities Portfolio were owned
by the Franklin Adjustable Rate Securities Fund and 887,803 shares were owned by
the Franklin Institutional Adjustable Securities Fund. This represents 64% and
36%, respectively, of the outstanding shares of the Securities Portfolio. The
remaining 1,353 shares of the Securities Portfolio were owned by Resources.
Certain officers and trustees of the Trust are also officers and/or directors of
Advisers, which is a wholly-owned subsidiary of Resources, and of the Franklin
Adjustable U.S. Government Securities Fund and the Franklin Adjustable Rate
Securities Fund.
<TABLE>
<CAPTION>
7. FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the period by Portfolio are as follows:
Per Share Operating Performance Ratios/Supplemental Data
------------------------------------------------------- -------------------------
Total Distri- Distri- Net Ratio of Ratio of Net
Net Asset Net Net Realized From butions butions Assets Expenses Investment
Period Value at Invest-& Unrealized Invest- From Net From Total Net Asset At End to AverageIncome to Portfolio
Ended Beginning ment Gain (Loss) ment Investment Capital Distri- Value at End Total of Period Net Average Turnover
Oct.31,of Period Income on SecuritiesOperationsIncome Gains butions of Period Return+(in 000's)Assets++ Net Assets Rate
U.S. Government Adjustable Rate Mortgage Portfolio
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19921 $10.00 $.493 $ .013 $ .506 $(.493) $(.003) $(.496) $10.01 5.13% $4,315,658 .31%* 7.25%* 48.96%
19933 10.01 .544 (.100) .444 (.544) -- (.544) 9.91 4.53 4,201,411 .30 5.49 66.44
19934 9.91 .313 (.090) .223 (.313) -- (.313) 9.82 2.28 2,130,229 .27* 4.15* 76.55
1994 9.82 .415 (.630) (.215) (.415) -- (.415) 9.19 (2.22) 747,471 .02 4.01 56.43
1995 9.19 .572 .140 .712 (.572) -- (.572) 9.33 7.99 522,802 .18 6.17 20.16
19955 9.33 .100 .020 .120 (.100) -- (.100) 9.35 1.29 504,689 .25* 6.39* 1.98
Adjustable Rate Securities Portfolio
19922 10.00 -- -- -- -- -- -- 10.00 -- -- -- -- --
19933 10.00 .599 .020 .619 (.599) -- (.599) 10.02 6.36 44,656 -- 5.80 88.92
19934 10.02 .368 .010 .378 (.368) -- (.368) 10.03 3.83 124,309 .11* 4.76* 158.70
1994 10.03 .469 (.340) .129 (.469) -- (.469) 9.69 1.32 41,619 .25 4.55 192.06
1995 9.69 .625 .120 .745 (.625) -- (.625) 9.81 7.94 27,079 .25 6.36 50.29
19955 9.81 .096 .050 .146 (.096) -- (.096) 9.86 1.49 24,346 .25* 6.37* 11.04
*Annualized.
1For the period May 20, 1991 (effective date) to January 31, 1992.
2For the period December 26, 1991 (effective date) to January 31, 1992.
3For the year ended January 31,1993.
4For the nine months ended October 31,1993.
5For the two months ended December 31,1995.
+Total return measures the change in value of an investment over the periods indicated. It is not annualized. It assumes
reinvestment of dividends and capital gains, if any, at net asset value.
++During the periods indicated below, Advisers agreed in advance to waive a portion of its management fees and made
payments of other expenses incurred by the Portfolios. Had such action not been taken, the ratios of expenses to average
net assets would have been as follows:
</TABLE>
Ratio of
expenses
to average
net assets
------
U.S. Government Adjustable Rate Mortgage Portfolio
19921................................................ .41%*
19933................................................ .42
19934................................................ .41*
1994................................................. .42
1995................................................. .43
19955................................................ .43*
Ratio of
expenses
to average
net assets
------
Adjustable Rate Securities Portfolio
19922................................................ --%
19933................................................ .64
19934................................................ .47*
1994................................................. .43
1995................................................. .47
19955................................................ .47*
IFT Adjustable Rate Funds
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING
(PURSUANT TO ITEM 304 (a) of REGULATION S-T)
GRAPHIC MATERIAL (1)
This chart shows in pie chart format the fund's securities breakdown by
issuing agency as a percentage of the fund's total net assets.
<TABLE>
<CAPTION>
Portfolio Composition on 12/31/95
<S> <C>
FNMA 61.0%
FHLMC 24.0%
GNMA 12.0%
Cash & Equivalents 3.0%
</TABLE>
