Table of Contents
Page
Message from the Chairman 1
Fund Reports
Franklin Global Government
Income Fund 3
Franklin Short-Intermediate
U.S. Government Securities Fund 10
Franklin Convertible
Securities Fund 14
Franklin Adjustable U.S.
Government Securities Fund 19
Franklin Equity Income Fund 24
Franklin Adjustable Rate
Securities Fund 30
Statement of Investments 35
Financial Statements 50
Notes to Financial Statements 56
Report of Independent Auditors 67
To reduce the volume of mail shareholders receive and to reduce expenses, only
one copy of most Fund reports, such as the Fund's annual and semi-annual
reports, may be mailed to a household. Additional reports may be obtained,
without charge, by calling Fund Information at 1-800/DIAL BEN (1-800/342-5236).
MESSAGE FROM THE CHAIRMAN
December 15, 1995
Dear Shareholder:
It's a pleasure to bring you the annual report of the Franklin Investors
Securities Trust for the period ended October 31, 1995.
Overall, the Trust's fiscal year was one marked by contrasts. During the first
four months of the reporting period, the Federal Reserve Board continued its
aggressive campaign to control inflation, raising the federal funds rate twice,
to 6.00% from 4.75%.
By March 1995, the effects of these tightenings were realized. U.S. Gross
Domestic Product (GDP) fell from an annualized rate of 5.1% in the fourth
quarter of 1994 to just 1.3% in the second quarter of 1995.* This economic
climate resulted in what is commonly referred to as a "soft landing" -- an ideal
investment environment characterized by modest economic growth and low
inflation.
However, the extremely slow growth of the second fiscal quarter prompted the Fed
to ease monetary policy in July 1995.
*Source: U.S. Commerce Department
The bond markets anticipated the move, as interest rates decreased steadily
since the start of 1995. Shortly after July, economic reports indicated that the
rate of growth would again increase in the third quarter of 1995. Likewise,
interest rates rose, especially for longer maturity bonds. This positive
climate, in combination with strong corporate earnings, bode well for the U.S.
stock market, and resulted in a powerful upward surge in equity prices. Under
these economic conditions, the funds within the Franklin Investors Securities
Trust performed well over the fiscal year.
While this stable economic environment proved beneficial to the performance of
the funds in the Trust, no one can predict what lies ahead for investors.
There's no guarantee that the markets will continue to perform as well in the
months to come. As you know, markets experience volatility, which is a normal
part of investing.
Market fluctuations are why we have always encouraged our shareholders to focus
on their long-term investment goals. If you can remain invested over the long
term, you may be able to overlook short-term volatility that accompanies stock
and bond markets.
The following pages contain specific information about each fund's performance.
While each fund has distinct investment objectives, the fundamental principles
remain the same: careful selection and constant professional investment
supervision.
We appreciate your continued support, welcome your comments, and look forward to
serving you in the years to come.
Sincerely,
Charles B. Johnson
Chairman
Franklin Investors Securities Trust
FRANKLIN GLOBAL GOVERNMENT INCOME FUND
Fund Objective:
Seeks a high level of current income consistent with preservation of capital,
with capital appreciation as a secondary consideration, through a portfolio of
domestic and foreign debt securities.*
GRAPHIC MATERIAL 1 OMMITTED - SEE APPENDIX AT END OF DOCUMENT
*The risks of investing in a global fund concentrating in a single industry,
such as currency fluctuation and increased susceptibility to adverse economic,
political or regulatory developments, are described in the fund's prospectus.
Global bond markets generally followed the rising interest rate trend set in the
U.S. during 1994. However, after yields continued to rise over the first two
months of the fund's fiscal year, this upward trend reversed and interest rates
generally declined until the end of June 1995. When U.S. bond yields began again
to rise in early July 1995, other markets followed. Prices in global bond
markets declined at the beginning of the reporting period, and rose for roughly
seven months before declining again in July and early August.
In Japan, Gross Domestic Product (GDP) was essentially flat, with the annualized
growth rate for the first quarter of 1995 reporting an increase of only 0.3%.**
The Japanese economy has struggled with a strong currency for the last several
years. A plan to stimulate consumer spending is being put into effect, but the
combination of a strong currency and a weakened banking system are preventing a
resurgence of business activity.
**Source: Japanese Ministry of International Trade and Industry
The German economy was also adversely affected by a strong currency. German
firms reported pressure on profits because of lower margins on foreign trade. At
the same time, the strong Deutschmark alleviated pressure on wholesale prices
and helped to keep inflation low. The Bundesbank eased monetary policy earlier
in 1995, but maintained a fairly tight policy in view of the moderate trend in
consumer prices.
The deceleration of worldwide economic growth enabled global bond markets to
perform well over the fund's fiscal year. This is best illustrated in the U.S.
bond market and in those markets closely related to it: Canada, Australia and
New Zealand, which comprise 14.9%, 11.3% and 2.0%, respectively, of the fund's
total net assets. Rates have fallen in each of these markets as growth
expectations slowed. When growth was strong, authorities were more likely to
tighten rates there than in other regions. As a result, rates have had further
to fall.
Franklin Global Government Income Fund
Geographic Distribution
As a percentage of total market value
Country 10/31/94 10/31/95
Argentina 7.6% 6.1%
Australia 16.3% 11.3%
Canada 17.5% 14.9%
Denmark 5.4% 6.3%
European Currency 1.0% 0.0%
France 0.4% 4.7%
Germany 2.8% 12.7%
Greece 3.3% 0.0%
India 0.5% 0.5%
Indonesia 0.0% 0.0%
Italy 5.1% 3.1%
Japan 0.3% 0.0%
Mexico 4.3% 3.2%
New Zealand 7.7% 2.0%
South Africa 4.9% 1.5%
Spain 5.3% 4.9%
Sweden 3.8% 0.0%
Thailand 1.1% 0.8%
United Kingdom 7.6% 0.0%
United States 5.1% 28.0%
Total market value is the value of the fund's investments and does not include
certain liabilities and other assets. For a complete list of portfolio holdings,
please see page 35 of this report.
We also focused on higher yielding markets. In the European region, we
concentrated on Italy and Spain, now at 3.1% and 4.9%, respectively, of the
portfolio's total net assets. In addition, we focused on the dollar bloc region
(in particular, Australia and Canada), and also made investments in a broad
range of emerging markets such as Argentina (6.1%). A positive factor for lower
global rates has been a decline in market volatility. The Bundesbank, the U.S.
Federal Reserve and the Bank of Japan all eased monetary policy in the third
quarter of 1995. This tended to make investors more comfortable, reassuring them
that even if growth accelerates, interest rates may not increase as rapidly as
in the past. As investors reach for additional yield and threats to stability
seem to be more remote, the higher risk markets mentioned above should perform
well.
The global economy continues to expand -- albeit at a moderate rate -- and
inflation remains subdued. The U.S. Federal Reserve may slow its easing of
monetary policy, but we believe the global decline in interest rates will
continue. As global economic expansion moves forward, however, some upward
pressure on inflation is likely. Still, upward movement remains muted compared
with the experience of recent business cycles. Growth may increase slightly in
1996, but is unlikely to be a threat to inflation, and our general expectation
is that the low volatility in global interest rates should continue into the
first quarter of 1996.
Performance Summary
Class I Shares
The Franklin Global Government Income Fund reported a one-year cumulative total
return of +12.65% for the period ended October 31, 1995. Total return measures
the change in value of an investment, assuming reinvestment of dividends and
capital gains, and does not include the maximum initial sales charge.
The price of your fund's shares, as measured by net asset value, increased to
$8.31 on October 31, 1995, from $8.06 on October 31, 1994.
Over the reporting period, shareholders received income distributions totaling
71 cents ($0.71) per share. Due to reduced income earned by the fund, the
dividend was reduced to 5.0 cents ($0.050) from 6.0 cents ($0.060) per share.
Based on the current monthly dividend of 5.0 cents per share and the maximum
offering price of $8.68 on October 31, 1995, the distribution rate was 6.91%.
Dividends will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future results.
GRAPHIC MATERIAL 2 OMMITTED - SEE APPENDIX AT END OF DOCUMENT
*This performance graph assumes an initial $10,000 investment and includes the
maximum 4.25% initial sales charge, all fund expenses and account fees. It also
assumes that your dividends and capital gains, if any, were reinvested at net
asset value. The Salomon World Government Hedged Index includes price
appreciation or depreciation and distributions as a percentage of the original
investment. Due to their recent inception, Class II shares are not represented
in the above illustration. Past performance is not predictive of future results.
During the fiscal year, the fund recognized net foreign currency losses due to
fluctuations in the value of its foreign currency denominated securities. Under
the Internal Revenue Service Code, these losses reduce the fund's regular
investment income available for distribution to shareholders. Therefore, 6.5
cents ($0.065) per share of the total distributions to Class I shareholders were
characterized as returns of capital. In general, return-of-capital distributions
are not taxable; rather, they reduce the cost basis of your shares in the fund
and affect the computation of a capital gain or loss when you sell your shares.
For more information, please consult your personal tax advisor, or refer to IRS
Publication 550 (Investment Income and Expenses).
The graph on page 6 compares the performance of the fund's shares since
inception with inflation, as measured by the Consumer Price Index (CPI), and the
Salomon World Government Hedged Index. As you can see, the fund's return has out
paced the CPI. While the Salomon Index has outperformed the fund, it should be
noted that there are a number of performance differentials between the index and
the fund. Unmanaged market indices do not pay commissions or market spreads to
buy and sell securities. Further, they do not pay management fees to cover
salaries to security analysts or portfolio managers. On the other hand, the
fund's performance results include the maximum initial sales charge, all fund
expenses and account fees. If operating expenses such as the fund's had been
applied to the index, its (the index) performance would have been lower. In
addition, unlike the index, mutual funds are never 100% invested because of the
need to have cash on hand to redeem shares. Please remember that an index is
simply a measure of performance and cannot be invested in directly.
Class II Shares
The price of your fund's shares, as measured by net asset value, increased to
$8.31 on October 31, 1995, from $8.03 on May 1, 1995 (inception date for Class
II shares).
Over the abbreviated six-month reporting period, shareholders received monthly
income distributions totaling 33.08 cents ($0.3308) per share. Based on the
current monthly dividend of 4.7 cents ($0.047) per share and the maximum
offering price of $8.39 on October 31, 1995, the distribution rate was 6.72%.
The Class II dividend was decreased from 5.6 cents ($0.056) to 4.88 cents
($0.0488) effective with the October 1995 distribution. This dividend reflects
an annual adjustment to the 12b-1 fee differential between Class I and Class II
shares for the fiscal year ended October 31, 1995. The dividend for Class II
shares is 4.7 cents ($0.047) per share for November 1995. Dividends will vary
depending on income earned by the fund, and past performance is not predictive
of future results.
During the fiscal year, the fund recognized net foreign currency losses due to
fluctuations in the value of its foreign currency denominated securities. Under
the Internal Revenue Service Code, these losses reduce the fund's regular
investment income available for distribution to shareholders. Therefore, 3 cents
($0.03) per share of the total distributions to Class II shareholders were
characterized as returns of capital. In general, return-of-capital distributions
are not taxable; rather, they reduce the cost basis of your shares in the fund
and affect the computation of a capital gain or loss when you sell your shares.
For more information, please consult your personal tax advisor, or refer to IRS
Publication 550 (Investment Income and Expenses).
Franklin Global Government Income Fund
Periods ended October 31, 1995
<TABLE>
<CAPTION>
Since Since
Inception Inception
1-Year 5-Year (3/15/88) (5/01/95)
Cumulative Total Return1
<S> <C> <C> <C> <C>
Class I Shares 12.65% 45.51% 74.22% --
Class II Shares -- -- -- 7.09%
Average Annual Total Return2
Class I Shares 6.69% 6.86% 6.94% --
Aggregate Total Return3
Class II Shares -- -- -- 5.71%
Distribution Rate3
Class I Shares 6.91%
Class II Shares 6.72%
30-Day Standardized Yield4
Class I Shares 6.79%
Class II Shares 6.42%
</TABLE>
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the maximum 4.25% initial sales
charge for Class I shares, or the 1.0% initial sales charge and 1.0% Contingent
Deferred Sales Charge (CDSC) for Class II shares, applicable to shares redeemed
within the first 18 months of investment. See note below.
2. Average annual total return represents the average change in value of an
investment over the specified periods and reflects the maximum 4.25% initial
sales charge for Class I shares. See note below.
3. Aggregate total return includes the 1.0% initial sales charge and represents
the change in value of an investment since the inception date of the fund's
Class II shares. It also includes the 1.0% CDSC applicable to shares redeemed
within 18 months of purchase. Since Class II shares have existed for less than
one year, average annual total returns are not provided. See note below.
3. Class I shares distribution rate is based on an annualization of the fund's
current 5.0 cent per share monthly dividend and the maximum offering price of
$8.68 on October 31, 1995. Class II shares distribution rate is based on an
annualization of the fund's current 4.7 cent per share monthly dividend and the
maximum offering price of $8.39 on October 31, 1995.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended October 31, 1995.
Note: Prior to July 1, 1994, Class I fund shares were offered at a lower initial
sales charge, with dividends reinvested at the public offering price. Thus,
actual total returns for purchasers of shares during that period would have been
somewhat different than noted above. Effective May 1, 1994, the fund eliminated
the sales charge on reinvested dividends and implemented a plan of distribution
under Rule 12b-1 for Class I shares, which will affect future performance. Class
II shares, which the fund began offering on May 1, 1995, are subject to
different fees and expenses, which will affect their performance. Please see the
prospectus for more details regarding Class I and Class II shares.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Investment return and principal value will fluctuate with
market conditions, and you may have a gain or loss when you sell your shares.
Past performance cannot guarantee future results.
Past expense reductions by the fund's manager increased the fund's total
returns.
FRANKLIN SHORT-INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND
Fund Objective:
Seeks to provide investors with a high level of current income, while also
seeking to preserve shareholders' capital, by investing primarily in U.S.
government securities with maturities between two and five years.
Recent economic trends show an acceleration in the third quarter of 1995, as
demonstrated by the increase in Gross Domestic Product (GDP) to 4.2%, from 1.3%
in the second quarter.* Despite this increased growth, the bond market has yet
to react to this change, as exhibited by the decrease in the two-year Treasury
note yield to 5.61% on October 31, 1995, from 6.84% one year earlier.**
*Source: U.S. Commerce Department
**Source: Micropal
We remained cautious in our investment strategies during the reporting period.
For instance, we shortened the fund's average maturity to two years on October
31, 1995, from two years and 10 months on October 31, 1994, in order to reduce
volatility. Furthermore, the fund's portfolio continues to contain only
interest-bearing securities, since zero-coupon bonds present a higher risk of
volatility relative to current market conditions.
As you have probably heard, the U.S. government recently experienced a budget
impasse, resulting in a temporary shutdown of all federal "non-essential"
services during the week of November 14, 1995. While this caused some short-term
market volatility, investors in short- and intermediate-term U.S. government
securities were not adversely affected. Despite the temporary lack of a federal
budget, the threat of default passed as Treasury Secretary Robert Rubin worked
to make principal and interest payments from the government's many trust funds.
In addition, management believes the increased attention to balancing the budget
will benefit fixed-income investors in the long term.
Management continues to employ its conservative, "plain vanilla" investment
strategy. Consequently, your fund maintains a portfolio of 100% U.S. Treasury
securities. These securities are backed by the full faith and credit of the U.S.
government as to the timely payment of principal and interest, which provides
investors with a high degree of credit safety+. In fact, your fund is rated
"AAAf" by Standard & Poor's Corporation -- the highest mutual fund credit rating
possible.a
We continue to remain cautious in our investment strategies
until we can assess the impact of recent economic acceleration on Federal
Reserve policy and the rate of inflation. We will consider lengthening the
portfolio's average maturity only when longer-term bond yields rise enough to
compensate for additional interest-rate risk.
+Individual securities owned by the fund, but not shares of the fund, are
guaranteed by the U.S. government as to timely payment of principal and
interest.
aThe rating reflects Standard & Poor's assessment of the overall credit rating
of the fund's portfolio, based primarily on the fund's stated investment
objectives and policies. It considers, for example, the credit quality of
portfolio investments and management. The rating does not reflect the yield or
market price of the fund's shares or approval by Standard & Poor's, and is
subject to change.
Performance Summary
The fund's share price, as measured by net asset value, increased to $10.35 on
October 31, 1995 from $10.03 on October 31, 1994.
The fund continued to meet its investment objective of providing a high level of
current income to its shareholders. During the one-year reporting period,
shareholders received income distributions totaling 54.9 cents ($0.549) per
share.aa Dividends will vary based on the earnings of the fund's portfolio, and
past distributions do not guarantee future results.
At the close of the fiscal year, your fund's distribution rate was 5.33%, based
on an annualization of the current monthly dividend of 4.7 cents ($0.047) per
share and the maximum offering price of $10.59 on October 31, 1995.
aaAssume shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distribution will vary, depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all income earned by the
fund during the reporting period.
The Franklin Short-Intermediate U.S. Government Securities Fund provided a
cumulative total return of +8.90% for the one-year period ended October 31,
1995. Total return measures the change in value of an investment over the
periods indicated, assuming reinvestment of dividends and capital gains, if any,
and does not include the maximum initial sales charge. Past performance does not
guarantee future results.
Based on a $10,000 investment, the graph to the right shows that the total
return of your fund significantly outperformed the total return of the Consumer
Price Index (CPI), demonstrating that your fund has outpaced inflation -- the
primary goal of any investment. However, the fund slightly underperformed the
Lehman Brothers Mutual Fund Short U.S. Treasury Index.** Of course, unmanaged
market indices have inherent performance differentials in comparison to any
fund. For example, they do not pay commissions or market spreads to buy and sell
securities, nor do they pay management fees to cover salaries of security
analysts or portfolio managers. Unlike unmanaged indices, mutual funds are never
100% invested because of the need to have cash on hand to redeem shares. The
performance shown for the fund includes the maximum initial sales charge, all
fund expenses and account fees. If operating expenses such as the fund's had
been applied to the index, the total return of the index would have been lower.
Please remember that an index is simply a measure of performance and cannot be
invested in directly.
GRAPHIC MATERIAL 3 OMMITTED - SEE APPENDIX AT END OF DOCUMENT
*This performance graph assumes an initial $10,000 investment and includes the
maximum 2.25% initial sales charge, all fund expenses and account fees. It also
assumes that your dividends and capital gains, if any, were reinvested at net
asset value. The Lehman Brothers Mutual Fund Short U.S. Government Index
includes price appreciation or depreciation and distributions as a percentage of
the original investment. Past performance is not predictive of future results.
**The unmanaged Lehman Brothers Mutual Fund Short U.S. Treasury Index invests in
U.S. government securities and Treasuries, with maturities from one to five
years.
While the past year exhibited moderate progress in the bond market,
investors should anticipate short-term price fluctuations in the Franklin
Short-Intermediate U.S. Government Securities Fund. We continue to maintain a
long-term investment approach and believe the fund's performance will be
rewarding for long-term investors. For example, the fund reported a cumulative
total return of +40.86% during the 5 years ended October 31, 1995, as indicated
in the table to the right.
Franklin Short-Intermediate
U.S. Government Securities Fund
Periods ended October 31, 1995
Since
Inception
1-Year 5-Year (04/15/87)
Cumulative
Total Return1 8.90% 40.86% 83.37%
Average Annual
Total Return2 6.45% 6.60% 7.06%
Distribution Rate3 5.33%
30-Day Standardized Yield4 4.96%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not reflect the current, maximum 2.25% initial
sales charge. See note below
2. Average annual total return represents the average annual change in value of
an investment over the specified periods and reflects the current, maximum 2.25%
initial sales charge. See note below.
3. Distribution rate is based on an annualization of the fund's current 4.7 cent
per share monthly dividend and the maximum offering price of $10.59 on October
31, 1995.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended October 31, 1995.
Note: Prior to May 1, 1994, the fund reinvested dividends at the offering price.
Thus, actual total returns to purchasers of shares during that period would have
been somewhat different than noted above. Effective May 1, 1994, the fund
eliminated the sales charge on reinvested dividends and implemented a plan of
distribution under Rule 12b-1, which will affect future performance. All total
return calculations assume reinvestment of dividends and any capital gains at
net asset value. Investment return and principal value will fluctuate with
market conditions, and you may have a gain or loss when you sell your shares.
Past performance is not predictive of future results.
Past expense reductions by the fund's manager increased the fund's total
returns.
FRANKLIN CONVERTIBLE SECURITIES FUND
Fund Objective:
Seeks to maximize total return consistent with reasonable risk through a
portfolio of convertible securities.
We manage the Franklin Convertible Securities Fund using a fundamental,
"bottom-up" approach to analysis. While selecting from the universe of
convertible issuers, we attempt to identify quality companies whose stocks are
selling at prices that we judge to be below their intrinsic values. Having
identified those companies, we look for securities that have attractive
risk/reward profiles or favorable leverage. We seldom use strategies based
solely on the economic outlook; rather, our fund holdings are a result of
perceived value -- a bottom-up approach.
Technology and communications (broadcast/ media, cable, long
distance/telecommunications) were the primary sectors that drove the fund's
strong performance over the fiscal year. These sectors comprised 19.0% and
10.0%, respectively, of the total net assets on October 31, 1995, up from 6.5%
and 9.4% a year ago. Specific companies in the telecommunications sector that
performed well over the reporting period were Evergreen Media, Comcast Corp.,
and All American Communications. Altera and Seagate Technology boosted the
performance of the fund's technology sector over the fiscal year.
GRAPHIC MATERIAL 4 OMMITTED - SEE APPENDIX AT END OF DOCUMENT
We limited our exposure to the oil and gas, and metals and resources sectors. We
reduced our holdings in oil and gas to 7.8% from 10.4%, and decreased our
position in metals and resources to 5.0% on October 31, 1995 from 6.4% on
October 31, 1994, as slow economic growth put downward pressure on commodities
prices. Securities within these sectors may again become attractive,
particularly if economic growth accelerates.
We continue to consider real estate investment trusts (REITs) as attractive
values because they have not fully participated in the equity market rally and
are, in our opinion, relatively undervalued. Additionally, we believe the
convertibles of many REIT issuers offer the most attractive risk/reward profile
within the convertible securities universe.
In addition, we slightly increased our holdings in industrial equipment over the
reporting period to 2.0% from 1.8% on October 31, 1994. As interest rates have
declined in the last six months, the economy should begin to revive and
securities in this area may benefit, becoming attractive growth investments.
Franklin Convertible Securities Fund
Top Five Holdings on October 31,1995
As a percentage of total net assets
Company % of Total
Industry Net Assets
Dovatron International, Inc. 4.26%
Electronics
All American Communications 2.83%
Entertainment
Sun Healthcare 2.71%
Health Services
Liberty Property Trust 2.58%
REIT
Prime Hospitality 2.52%
Real Estate
For a complete list of portfolio holdings, please see page 39 of this report.
Looking forward, we believe that convertible securities will remain attractive
as they can provide investors with above-average yields and offer a less
volatile opportunity to participate in the stock market. As we continue to
monitor the currently inexpensive convertible securities market, we will
continue to seek opportunities for investments as they arise.
Performance Summary
Class I Shares
The Franklin Convertible Securities Fund reported a one-year cumulative total
return of +15.18% for the period ended October 31, 1995. Total return measures
the change in value of an investment, assuming reinvestment of dividends and
capital gains at net asset value, and does not include the maximum initial sales
charge.
The price of your fund's shares, as measured by net asset value, increased to
$12.73 on October 31, 1995, from $12.34 on October 31, 1994.
During the reporting period, shareholders received distributions totaling $1.289
per share, including income distributions of 59.2 cents ($0.592) per share,
short-term capital gains of 45 cents ($0.45) per share and long-term capital
gains of 24.7 cents ($0.247) per share. Due to increased income earned by the
fund, we were able to increase the monthly dividend to 5.0 cents ($0.050) from
4.6 cents ($0.046), effective with the January 1995 distribution. Distributions
will vary depending on income earned by the fund and any profits realized from
the sale of securities in the fund's portfolio. Past performance is not
predictive of future results.
Based on the current monthly dividend of 5.0 cents per share and the maximum
offering price of $13.33 on October 31, 1995, the distribution rate was 4.50%.
The graph on the following page compares the performance of the fund with the
unmanaged Goldman Sachs Convertible 100 Index. The index is comprised of 100
convertible securities from a variety of industries and is generally considered
representative of the overall convertibles market. We are pleased to report
that, as illustrated by the graph, the fund has outperformed the index since
1989, despite the inherent performance differentials the index enjoys. For
example, the index doesn't pay commissions or market spreads to buy and sell
securities. Further, it doesn't pay management fees to cover salaries to
security analysts or portfolio managers. On the other hand, the performance
shown for the fund includes the maximum initial sales charge, all fund expenses
and account fees. If operating expenses such as the fund's had been applied to
the index, its (the index) performance would have been lower. In addition,
unlike the unmanaged index, mutual funds are never 100% invested because of the
need to have cash on hand to redeem shares. Please remember that an index is
simply a measure of performance and cannot be invested in directly.
Class II Shares
The price of your fund's shares, as measured by net asset value, decreased to
$12.72 on October 31, 1995, from $13.02 on October 1, 1995 (the Class II shares
inception date).
During the abbreviated one-month reporting period, shareholders received
distributions totaling 4.7 cents ($0.047) per share. Based on the current
monthly dividend of 4.7 cents per share and the maximum offering price of $12.85
on October 31, 1995, the distribution rate was 4.39%. Distributions will vary
depending on income earned by the fund and past performance is not predictive of
future results.
GRAPHIC MATERIAL 5 OMMITTED - SEE APPENDIX AT END OF DOCUMENT
*This performance graph assumes an initial $10,000 investment and includes the
maximum 4.5% initial sales charge, all fund expenses and account fees. It also
assumes that your dividends and capital gains, if any, were reinvested at net
asset value. The Goldman Sachs Convertible 100 Index includes price appreciation
or depreciation and distributions as a percentage of the original investment.
Due to their recent inception, Class II shares are not represented in the above
illustration. Past performance is not predictive of future results.
Franklin Convertible Securities Fund
Periods ended October 31, 1995
<TABLE>
<CAPTION>
Since
Inception
1-Year 5-Year (04/15/87)
Cumulative Total Return1
<S> <C> <C> <C>
Class I Shares 15.18% 139.35% 139.15%
Average Annual Total Return2
Class I Shares 10.01% 17.97% 10.13%
Distribution Rate3
Class I Shares 4.50%
Class II Shares 4.39%
30-Day Standardized Yield4
Class I Shares 2.97%
Class II Shares 2.29%
</TABLE>
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the maximum 4.5% initial sales charge
for Class I shares. See note below.
2. Average annual total return represents the average annual change in value of
an investment over the specified periods and reflects the maximum 4.5% initial
sales charge for Class I shares. Since Class II shares have been in existence
for less than one year, average annual total returns are not provided. See note
below.
3. Class I shares distribution rate is based on an annualization of the fund's
current 5.0 cent per share monthly dividend and the maximum offering price of
$13.33 on October 31, 1995. Class II shares distribution rate is based on an
annualization of the fund's current 4.7 cent per share monthly dividend and the
maximum offering price of $12.85 on October 31, 1995.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended October 31, 1995.
Note: Prior to July 1, 1994, Class I fund shares were offered at a lower
initial sales charge, with dividends reinvested at the public offering price.
Thus, actual total returns for purchasers of shares during that period would
have been somewhat different than noted above. Effective May 1, 1994, the fund
eliminated the sales charge on reinvested dividends and implemented a plan of
distribution under Rule 12b-1 for Class I shares, which will affect future
performance. Class II shares, which the fund began offering on October 1, 1995,
are subject to different fees and expenses, which will affect their performance.
Total return figures for Class II shares are not included as they have not been
available for a sufficient period of time. Please see the prospectus for more
details regarding Class I and Class II shares.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Investment return and principal value will fluctuate with
market conditions and you may have a gain or loss when you sell your shares.
Past performance cannot guarantee future results.
Past expense reductions by the fund's manager increased the fund's total
returns.
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
Fund Objective:
Seeks to provide a high level of current income consistent with lower volatility
of principal, by investing in a portfolio consisting primarily of
adjustable-rate U.S. government agency-guaranteed mortgage-backed securities.*
*Individual securities in the underlying portfolio, 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.
Over this reporting period, the economy slowed as interest rates reversed an
earlier trend of sharp increases. Consequently, the adjustable rate mortgage
(ARM) securities in which your fund invests appreciated in value. As shown in
the Performance Summary on page 21 of this report, your fund's share price
increased 14 cents to $9.34 on October 31, 1995, from $9.20 on October 31, 1994.
The fund's underlying portfolio consists primarily of ARMs or other securities
collateralized by or representing an interest in mortgages issued or guaranteed
by the U.S. government, its agencies or instrumentalities+. These include
obligations of the Federal National Mortgage Association (FNMA or Fannie Mae),
the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) and the
Government National Mortgage Association (GNMA or Ginnie Mae). These securities
retain a high credit quality and have earned the fund a "AAAf" rating -- the
highest mutual fund credit rating possible -- from Standard & Poor's
Corporation.a
+The fund invests all of its assets in the U.S. Government Adjustable Rate
Portfolio, whose investment objective is the same as that of the fund.
Individual securities in the underlying portfolio, but not shares of the fund,
are guaranteed by the U.S. government, its agencies or instrumentalities.
aThe rating reflects Standard & Poor's assessment of the overall credit quality
of the fund's portfolio, based primarily on the fund's stated objectives and
policies. It considers, for example, the credit quality of the portfolio
investments and management. The rating does not reflect the yield or market
price of the fund's shares or approval by Standard & Poor's, and is subject to
change.
After experiencing significant depreciation due to rising interest rates, ARMs
regained their value as their adjustable interest-rate payments (also known as
coupons) were able to reflect upward trends in interest rates. ARM coupons reset
at periodic intervals to reflect current rates, and are subject to annual caps,
which limit how much their coupons can change at any reset period.
In a relatively stable interest-rate environment, these securities can adjust
smoothly.
Since ARM yields generally take longer to adjust to changes in interest rates,
the sharp interest-rate hikes of late 1994 and early 1995 have resulted in
increased income through the end of the reporting period. Monthly dividend
income rose to its current 4.8 cents ($0.048) per share in October 1995 from 3.6
cents ($0.036) per share in November 1994, as illustrated in the table below.
Other factors contributing to increased income include a stable average maturity
of 27 years and an increase in weighted average coupon to 7.47% on October 31,
1995, from 6.20% on October 31, 1994.
Dividend Amount
Month Per Share
November 1994 3.6 cents
December 1994 4.0 cents
January 1995 4.3 cents
February 1995 4.4 cents
March 1995 4.4 cents
April 1995 4.5 cents
May 1995 4.5 cents
June 1995 4.7 cents
July 1995 4.8 cents
August 1995 4.8 cents
September 1995 4.8 cents
October 1995 4.8 cents
GRAPHIC MATERIAL 6 OMMITTED - SEE APPENDIX AT END OF DOCUMENT
As shown in the graph above, the fund's distribution rate remained competitive,
exceeding the yield of other short-term securities, such as the one-year
Treasury bill. On October 31, 1994, the fund's distribution rate of 4.21% was
over two percent below the T-Bill annualized yield of 6.91%. By October 31,
1995, the fund's distribution rate had risen to 6.03%, exceeding the current
T-Bill annualized yield of 5.30%. Of course, past performance is not indicative
of future results.
Lower long-term interest rates have provided an incentive for many homeowners to
refinance their adjustable rate mortgage loans into fixed-rate mortgages so as
to lock in a lower rate. To reduce the negative impact of ARM prepayments on the
portfolio, we have maintained an overweighting in seasoned, non-convertible
ARMs. These securities are less likely to experience high levels of prepayments
than other ARM securities. In addition, the fund's portfolio remains
concentrated in Constant Maturity Treasury (CMT) ARMs, which tend to be less
price sensitive in periods of fluctuating interest rates. We remain
underweighted in ARMs tied to the 11th District Cost of Funds Index (COFI), due
to the lagging nature of that index.
Looking forward, we anticipate continued slower growth and lower inflation,
which should result in stable, less volatile interest rates. We are actively
positioning the fund to perform well in this environment, which should benefit
ARMs in general. Our main concern, of course, continues to be stability of
principal while maintaining a yield that is competitive with short-term
investment alternatives.
Performance Summary
The fund's share price, as measured by net asset value, rose slightly to $9.34
on October 31, 1995 from $9.20 on October 31, 1994.
The fund continued to meet its investment objective of providing a high level of
current income to its shareholders. Your fund paid income distributions totaling
53.6 cents ($0.536) per share during the one-year reporting period. Dividends
will vary based on the earnings of the fund's portfolio, and past distributions
do not guarantee future results.
At the close of the fiscal year, your fund's distribution rate was 6.03%, based
on an annualization of the current monthly dividend of 4.8 cents ($0.048) per
share and the maximum offering price of $9.55 on October 31, 1995.
The Franklin Adjustable U.S. Government Securities Fund provided a cumulative
total return of +7.57% for the one-year period ended October 31, 1995. Total
return measures the change in value of an investment during the periods
indicated, assuming reinvestment of dividends and capital gains, if any, and
does not include the maximum initial sales charge. Past performance does not
guarantee future results.
Based on a $10,000 investment, the graph to the right shows that the total
return of your fund slightly underperformed the total returns of the six-month
CD and the Lehman Brothers Mutual Fund Short U.S. Government Index.** The
performance shown for the fund includes the maximum initial sales charge, all
fund expenses and account fees. If operating expenses such as the fund's had
been applied to the index, its total return would have been lower. Of course,
unmanaged market indices have inherent performance differentials in comparison
to any fund. For example, they do not pay commissions or market spreads to buy
and sell securities, nor do they pay management fees to cover salaries to
security analysts or portfolio managers. Unlike unmanaged indices, mutual funds
are never fully invested because of the need to have cash on hand to redeem
shares. The securities held by the Lehman Brothers Index generally have longer
maturities than those held by the fund. Moreover, the Index does not include a
mortgage component, and consists primarily of U.S. Treasuries and U.S.
government agency securities. Please remember that an index is simply a measure
of performance and cannot be invested in directly.
GRAPHIC MATERIAL 7 OMMITTED - SEE APPENDIX AT END OF DOCUMENT
*This performance graph assumes an initial $10,000 investment and includes the
maximum 2.25% initial sales charge, all fund expenses and account fees. It also
assumes that your dividends and capital gains, if any, were reinvested at net
asset value. The Lehman Brothers Mutual Fund Short U.S. Government Index
includes price appreciation or depreciation and distributions as a percentage of
the original investment. Past performance is not predictive of future results.
**Six-month certificates of deposit total returns are an aver- age of the top
rates paid by major New York banks. CDs are insured by the FDIC up to $100,000
and have principal and interest rate guarantees. The unmanaged Lehman Brothers
Mutual Fund Short U.S. Government Index invests in U.S. government securities,
with maturities from one to five years.
We have always maintained a long-term investment perspective and encourage
shareholders to do the same. While the fund may experience occasional short-term
volatility, the portfolio managers believe its performance should be rewarding
over the long term. As the table to the right indicates, the fund has provided a
cumulative total return of +56.70% since its inception in April 1987.
Franklin Adjustable
U.S. Government Securities Fund
Periods ended October 31, 1995
Since
Inception
1-Year 5-Year (04/15/87)
Cumulative
Total Return1 7.57% 23.07% 56.70%
Average Annual
Total Return2 5.17% 3.77% 5.45%
Distribution Rate3 6.03%
30-Day Standardized Yield4 5.62%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the current, maximum 2.25% initial
sales charge. See note below.
2. Average annual total return represents the average annual change in value of
an investment over the specified periods, and reflects the current, maximum
2.25% initial sales charge. See note below.
3. Based on an annualization of the fund's current 4.8 cent per share monthly
dividend and the maximum offering price of $9.55 on October 31, 1995.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended October 31, 1995.
Note: All total return calculations assume reinvestment of dividends and any
capital gains at net asset value. Investment return and principal value will
fluctuate with market conditions, and you may have a gain or loss when you sell
your shares. Past performance cannot guarantee future results.
Franklin Advisers, Inc., the fund's administrator and the manager of the fund's
underlying portfolio, is voluntarily waiving a portion of its fees, which
reduces expenses and increases distribution rate, yield, and total return to
shareholders. Without these reductions, the fund's total return and distribution
rate would have been lower, and the yield for the period would have been
5.08%.The fee waiver may be discontinued at any time upon notice of the fund's
Board of Trustees.
FRANKLIN EQUITY INCOME FUND
Fund Objective:
Seeks to maximize total return, emphasizing high current income and capital
appreciation consistent with reasonable risk, through a portfolio of common
stocks with above-average yields.
While the market advance of 1995 was fairly broad based, certain sectors were
especially strong during the reporting period. Health care stocks responded to
an improved regulatory environment, and certain cyclical stocks such as paper
companies benefited from firming industry prices. Other strong performers
included financial services and technology, which enjoyed above average earnings
growth throughout the year. Though the fund's dividend yield requirements
limited participation in the technology sector, its holdings in other strong
areas contributed significantly to overall performance for the twelve-month
period.
The fund strives to invest in stocks when they are out of favor with investors
and trading below their true value. As a result of the high market valuations
and positive market sentiment throughout 1995, it was more challenging to
identify stocks that were significantly undervalued based on our yield
disciplines. Consequently, we maintained a defensive position over the reporting
period, with cash and short-term securities representing 22% of total net
assets, up from 15% on October 31, 1994. This increased cash position will
provide the flexibility to take advantage of future investment opportunities.
While we remained defensively postured due to a general lack of attractive
valuations, we were able to identify several undervalued sectors. In fact, our
common stock position increased to 68% on October 31, 1995, up from 56% at this
time last year. One of the sectors that we identified as having excellent
valuations is the electric utilities group. By the fourth quarter of 1994,
utility stocks were down 30% from their peak levels in September 1993. This
prompted us to initiate new positions in San Diego Gas & Electric, Scana Corp.,
Public Service of Colorado, Central and Southwest, New England Electric, and
Oklahoma Gas and Electric. All six are well-positioned to perform in this
increasingly competitive utilities environment. These new purchases, along with
additions to existing positions, increased the fund's assets in electric
utilities stocks to 13.8% on October 31, 1995, from 6.9% on October 31, 1994.
Likewise, we took advantage of seasonably weak gas prices during the first and
third quarters of 1995 and initiated new investment positions in Consolidated
Natural Gas and National Fuel Gas. These integrated natural gas common stocks
represented 3.6% of the fund's total net assets at the end of the reporting
period, up from zero a year ago.
We also benefited from relatively weak foreign stock markets and made several
new investments. One such investment was YPF Sociedad Anonima, a major
international oil company in Argentina.
Franklin Equity Income Fund Top 10 Holdings on October 31, 1995 As a
percentage of total net assets
Industry % of total
Sector net assets
Dominion Resources 2.25%
Utilities - Electric
Dun & Bradstreet 2.24%
Publishing
Texaco 2.23%
Oil
Atlantic Richfield 2.21%
Oil
CINergy Corporation 2.19%
Utilities - Electric
Bristol-Myers Squibb 2.03%
Pharmaceuticals
Exxon Corp. 2.02%
Oil
Hanson Plc. 1.95%
Conglomerate
GTE Corp. 1.92%
Utilities - Telephone
Nynex 1.89%
Utilities - Telephone
For a complete list of portfolio holdings, please see page 45 of this report.
YPF's stock fell sharply in response to the Mexican peso devaluation, and now
trades at a discount to the international oil industry. With the addition of YPF
to the portfolio, the fund's total investments in energy stocks increased to
13.2%. We also purchased shares in Portucel, a Portuguese paper company, and
Nordbanken, a Swedish bank. Both of these stocks offer attractive yields and
trade at substantial discounts to comparable U.S. companies.
During the year, we also initiated positions in real estate investment trusts
(REITs). Specifically, we obtained two apartment REITs: Oasis Residential and
Equity Residential. Both are located in high growth areas, offer attractive
valuations and have high dividend yields in excess of seven percent.
On the other hand, we reduced our holdings in convertible preferred stocks over
the reporting period to 10% from 22%. We originally initiated these positions in
an effort to participate in companies that offered strong appreciation potential
but, because their common stocks didn't meet our minimum yield requirements, we
chose not to convert them into the company's underlying stock. By October 31,
1995, we sold a number of these holdings, including James River, Boise Cascade
and Chemical Bank, as they met our price objectives. In addition to Chemical
Bank, we sold other financial common stocks, namely H.F. Ahmanson and Great
Western Financial.
Finally, we trimmed our position in health care stocks, reducing our total
holding in this sector to 4.5% from 9.6% a year ago. Capitalizing on our
relative yield discipline, we had built a position in this sector in 1993 during
the uncertainty surrounding proposed health care reform. By the end of the
reporting period, we sold positions in Merck and Zeneca and reduced our holdings
of Baxter International and Upjohn -- all at significant profits.
Performance Summary
Class I Shares
The Franklin Equity Income Fund reported a one-year cumulative total return of
+14.10% for the period ended October 31, 1995. Total return measures the change
in value of an investment, assuming reinvestment of dividends and capital gains
at net asset value, and does not include the maximum initial sales charge.
The price of your fund's Class I shares, as measured by net asset value,
increased to $15.19 on October 31, 1995, from $14.14 on October 31, 1994.
During the reporting period, shareholders received distributions totaling 85.2
cents ($0.852) per share, including income distributions of 60 cents ($0.60) per
share, 0.9 cents ($0.009) per share in a special year-end income distribution,
and a long-term capital gain of 24.3 cents ($0.243) per share. Based on the
current monthly dividend of 5.0 cents ($0.05) per share and the maximum offering
price of $15.91 on October 31, 1995, the distribution rate was 3.77%.
Distributions will vary depending on income earned by the fund and any profits
realized from the sale of securities in the fund's portfolio. Past performance
is not predictive of future results.
The graph on page 27 compares the performance of the fund with the unmanaged
Standard & Poor's 500 Stock Index (S&P 500)(R) and the Consumer Price Index
(CPI). The fund outperformed the CPI, keeping your investment return well ahead
of inflation. While the fund slightly underperformed the S&P 500(R) over the
reporting period, it should be noted that some inherent performance
differentials exist between the index and the fund. For example, the index
doesn't pay commissions or market spreads to buy and sell securities. Further,
it doesn't pay management fees to cover salaries to security analysts or
portfolio managers. On the other hand, the performance shown for the fund
includes the maximum initial sales charge, all fund expenses and account fees.
If operating expenses such as the fund's had been applied to the index, its (the
index) performance would have been lower. In addition, unlike the unmanaged
index, mutual funds are never 100% invested because of the need to have cash on
hand to redeem shares. Please remember that an index is simply a measure of
performance and cannot be invested in directly.
GRAPHIC MATERIAL 8 OMMITTED - SEE APPENDIX AT END OF DOCUMENT
*This performance graph assumes an initial $10,000 investment and includes the
maximum 4.5% initial sales charge, all fund expenses and account fees. It also
assumes that your dividends and capital gains, if any, were reinvested at net
asset value. The S&P 500 Stock Index includes price appreciation or depreciation
and distributions as a percentage of the original investment. Due to their
recent inception, Class II shares are not represented in the above illustration.
Past performance is not predictive of future results.
Class II Shares
The price of your fund's Class II shares, as measured by net asset value,
decreased to $15.19 on October 31, 1995, from $15.34 on October 1, 1995 (the
Class II shares inception date).
During the abbreviated one-month reporting period, shareholders received income
distributions totaling 4.7 cents ($0.047) per share. Based on the current
monthly dividend of 4.7 cents per share and the maximum offering price of $15.34
on October 31, 1995, your fund's distribution rate was 3.68%. Dividends will
vary depending on income earned by the fund, and past performance is not
predictive of future results.
Franklin Equity Income Fund
Periods ended October 31, 1995
<TABLE>
<CAPTION>
Since
Inception
1-Year 5-Year (03/15/88)
Cumulative Total Return1
<S> <C> <C> <C>
Class I Shares 14.10% 114.75% 145.22%
Average Annual Total Return2
Class I Shares 8.94% 15.45% 11.79%
Distribution Rate3
Class I Shares 3.77%
Class II Shares 3.68%
30-Day Standardized Yield4
Class I Shares 4.05%
Class II Shares 3.53%
</TABLE>
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the maximum 4.5% initial sales charge
for Class I shares. See note below.
2. Average annual total return represents the average annual change in value of
an investment over the specified periods and reflects the maximum 4.5% initial
sales charge. Since Class II shares have been in existence for less than one
year, average annual total returns are not provided for Class II shares. See
note below.
3. Class I shares distribution rate is based on an annualization of the fund's
current 5.0 cent per share monthly dividend and the maximum offering price of
$15.91 on October 31, 1995. Class II shares distribution rate is based on an
annualization of the fund's current 4.7 cent per share monthly dividend and the
maximum offering price of $15.34 on October 31, 1995.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended October 31, 1995.
Note: Prior to July 1, 1994, Class I fund shares were offered at a lower initial
sales charge, with dividends reinvested at the public offering price. Thus,
actual total returns for purchasers of shares during that period would have been
somewhat different than noted above. Effective May 1, 1995, the fund eliminated
the sales charge on reinvested dividends and implemented a plan of distribution
under Rule 12b-1 for Class I shares, which will affect future performance. Class
II shares, which the fund began offering on October 1, 1995, are subject to
different fees and expenses, which will affect their performance. Total return
figures for Class II shares are not included as they have not been available for
a sufficient period of time. Please see the prospectus for more details
regarding Class I and Class II shares.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Investment return and principal value will fluctuate with
market conditions and you may have a gain or loss when you sell your shares.
Past performance cannot guarantee future results.
Past expense reductions by the fund's manager increased the fund's total
returns.
FRANKLIN ADJUSTABLE RATE SECURITIES FUND
Fund Objective:
Seeks a high level of current income with lower volatility of principal than a
fund that invests in fixed-rate securities, by investing in a portfolio of
adjustable rate securities.
Over this reporting period, the economy slowed as interest rates reversed an
earlier trend of rapid increases. Consequently, the adjustable rate mortgage
(ARM) securities in which your fund invests appreciated in value. As shown in
the Performance Summary on page 32 of this report, your fund's share price
increased 12 cents to $9.82 on October 31, 1995, from $9.70 on October 31, 1994.
Your fund invests in an underlying portfolio consisting primarily of high
quality, AA- and AAA-rated adjustable rate mortgage-backed securities+. At the
end of the reporting period, 68.25% of the fund's portfolio was invested in
securities rated AAA by rating agencies, while the remaining 31.75% consisted of
AA-rated securities. These ratings do not guarantee the fund's market value or
signify approval of its shares by national rating agencies, yet they reflect the
quality of the bonds as described in the fund's prospectus and are subject to
change.
+The fund invests all of its assets in the Adjustable Rate Mortgage Portfolio,
whose investment objective is the same as that of the fund. Individual
securities in the underlying portfolio, but not shares of the fund, are
guaranteed by the U.S. government, its agencies or instrumentalities.
After experiencing significant depreciation due to rising interest rates, ARMs
regained their value as their adjustable interest-rate payments (also known as
coupons) were able to reflect upward trends in interest rates. ARM coupons reset
at periodic intervals to reflect current rates, and are subject to annual caps,
which limit how much their coupons can change at any reset period. In a stable
interest-rate environment, these securities can adjust smoothly.
Since ARM yields generally adjust gradually to changes in interest rates, the
sharp interest-rate hikes of late 1994 and early 1995 have resulted in increased
ARM income through the close of the reporting period. Dividend income fluctuated
between a low of 4.5 cents ($0.045) per share and a high of 5.4 cents ($0.054)
per share. An increase in weighted average coupon to 7.56% on October 31, 1995,
from 6.69% a year earlier, and an average maturity of 27 to 28 years also
contributed to the fund's increased income.
GRAPHIC MATERIAL 9 OMMITTED - SEE APPENDIX AT END OF DOCUMENT
As exhibited in the graph to the right, the fund's distribution rate remained
competitive in comparison with other short-term securities, such as the one-year
Treasury bill. On October 31, 1994, the fund's distribution rate of 5.61% was
over one percent below the T-Bill annualized yield of 6.91%. By October 31,
1995, the fund's distribution rate had risen to 5.66%, exceeding the current
T-Bill annualized yield of 5.30%. Of course, past performance is not indicative
of future results.
Lower long-term interest rates have provided an incentive for many homeowners to
refinance their adjustable rate mortgage loans into fixed-rate mortgages so as
to lock in a lower rate. To reduce the negative impact of ARM prepayments on the
portfolio, we have maintained an overweighting in seasoned, non-convertible
ARMs. These securities are less likely to experience high levels of
prepayments, in comparison with other ARM securities. In addition, the fund's
portfolio remains concentrated in Constant Maturity Treasury (CMT) ARMs, which
tend to be less price sensitive in periods of fluctuating interest rates. We
remain underweighted in ARMs tied to the 11th District Cost of Funds Index
(COFI), due to the lagging nature of that index.
Looking forward, we anticipate continued slower growth and lower inflation,
which should result in stable, less volatile interest rates. We are actively
positioning the fund to perform well in this environment, which should benefit
ARMs in general. Our main concern, of course, continues to be stability of
principal while maintaining a yield that is competitive with short-term
investment alternatives.
Performance Summary
The fund's share price, as measured by net asset value, rose slightly to $9.82
on October 31, 1995 from $9.70 on October 31, 1994.
The fund continued to meet its investment objective of providing a high level of
current income to its shareholders. Your fund paid income distributions totaling
58 cents ($0.58) per share during the one-year reporting period.a Dividends will
vary based on the earnings of the fund's portfolio, and past distributions do
not guarantee future results.
aAssumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distribution will vary, depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all income earned by the
fund during the reporting period.
At the close of the fiscal year, your fund's distribution rate was 5.97%, based
on the annualization of the current monthly dividend of 5.0 cents ($0.050) per
share and the maximum offering price of $10.05 on October 31, 1995.
The fund produced a cumulative total return of +7.57% for the one-year period
ended October 31, 1995. Total return measures the change in value of an
investment over the periods indicated, assuming reinvestment of dividends and
capital gains, if any, and does not include the maximum initial sales charge.
Past performance is not predictive of future results.
Based on a $10,000 investment, the graph to the right shows that the total
return of your fund slightly outperformed the total return of the six-month CD,
and slightly underperformed that of the Lehman Brothers Mutual Fund Short U.S.
Government Index.** The performance shown for the fund includes the maximum
initial sales charge, all fund expenses and account fees. If operating expenses
such as the fund's had been applied to the index, its total return would have
been lower. Of course, unmanaged market indices have inherent performance
differentials in comparison with any fund. For example, they do not pay
commissions or market spreads to buy and sell securities, nor do they pay
management fees to cover salaries to security analysts or portfolio managers.
Unlike unmanaged indices, mutual funds are never fully invested because of the
need to have cash on hand to redeem shares. The securities held by the Lehman
Brothers Mutual Fund Short U.S. Government Index generally have longer
maturities than those held by the fund. Moreover, the Index does not include a
mortgage component and consists primarily of U.S. Treasuries and U.S. government
agency securities. Please remember that an index is simply a measure of
performance and cannot be invested in directly.
GRAPHIC MATERIAL 10 OMMITTED - SEE APPENDIX AT END OF DOCUMENT
**Six-month certificates of deposit total returns are an average of the top
rates paid by major New York banks. CDs are insured by the FDIC up to $100,000
and have principal and interest rate guarantees. The unmanaged Lehman Brothers
Mutual Fund Short U.S. Government Index invests in U.S. government securities,
with maturities from one to five years.
We continue to emphasize a long-term investment approach and encourage
shareholders to do the same. While the fund may experience some occasional
short-term volatility, its managers anticipate rewarding performance over the
long term.
*This performance graph assumes an initial $10,000 investment and includes the
maximum 2.25% initial sales charge, all fund expenses and account fees. It also
assumes that your dividends and capital gains, if any, were reinvested at net
asset value. The Lehman Brothers Mutual Fund Short U.S. Government Index
includes price appreciation or depreciation and distributions as a percentage of
the original investment. Past performance is not predictive of future results.
Franklin Adjustable Rate Securities Fund
Periods ended October 31, 1995
Since
Inception
1-Year 3-Year (12/26/91)
Cumulative
Total Return1 7.57% 14.54% 20.10%
Average Annual
Total Return2 5.18% 3.84% 4.25%
Distribution Rate3 5.97%
30-Day Standardized Yield4 5.68%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the current, maximum 2.25% initial
sales charge. See note below.
2. Average annual total return represents the average annual change in value of
an investment over the specified periods and reflects the current, maximum 2.25%
initial sales charge. See note below.
3. Based on an annualization of the fund's current 5.0 cent per share monthly
dividend and the maximum offering price of $10.05 on October 31, 1995.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended October 31, 1995.
Note: All total return calculations assume reinvestment of dividends and any
capital gains at net asset value. Investment return and principal value will
fluctuate with market conditions, and you may have a gain or loss when you sell
your shares. Past performance cannot guarantee future results.
Franklin Advisers, Inc., the fund's administrator and the manager of the fund's
underlying portfolio, is voluntarily waiving a portion of its fees, which
reduces expenses and increases yield, total return and distribution rate to
shareholders. Without these reductions, the fund's total return and distribution
rate would have been lower, and the yield for the period would have been 5.06%.
The fee waiver may be discontinued at any time upon notice to the fund's Board
of Trustees.
FRANKLIN INVESTORS SECURITIES TRUST
Statement of Investments in Securities and Net Assets, October 31, 1995
<TABLE>
<CAPTION>
Face Value
Country Amount* Franklin Global Government Income Fund (Note 1)
Bonds, Notes, Bills & Debentures 94.1%
Argentina 6.1%
<S> <C> <C> <C>
US 2,500,000 b Hidro Electrica Alicura, SA, 8.375%, 03/15/99 .................... $ 2,212,500
US 16,500,000 Republic of Argentina, L, 4.25%, VRN, 03/31/23 ................... 7,868,438
-------------
10,080,938
-------------
Australia 11.3%
AU 7,500,000 Government of Australia, 13.00%, 07/15/00......................... 6,747,183
AU 3,000,000 Queensland Treasury Corp. Exch. Global, 8.00%, 05/14/03 .......... 2,178,180
AU 13,000,000 Queensland Treasury Corp., 8.00%, 08/14/01........................ 9,789,396
-------------
18,714,759
-------------
Canada 14.9%
CA 16,000,000 c Canadian Strip, 0.00%, 12/01/08................................... 4,192,609
CA 15,000,000 Government of Canada, 9.50%, 10/01/98 ............................ 11,970,325
CA 5,000,000 Government of Canada, 9.50%, 06/01/10............................. 4,256,066
CA 6,000,000 Province of British Columbia, 8.00%, 09/08/23..................... 4,348,488
-------------
24,767,488
-------------
Denmark 6.3%
DK 3,000,000 Government of Denmark, 9.00%, 11/15/95 ........................... 549,414
DK 17,689,000 Government of Denmark, 8.00%, 05/15/03 ........................... 3,311,425
DK 35,000,000 Kingdom of Denmark, 8.00%, 11/15/01............................... 6,645,002
-------------
10,505,841
-------------
France 4.7%
FR 16,946,000 Government of France, 9.5%, 01/25/01.............................. 3,899,992
FR 17,980,000 Government of France, emp oat, 8.50%, 03/28/00.................... 3,961,969
-------------
7,861,961
-------------
Germany 12.7%
DD 4,330,000 Deutsche Bundespost, 7.75%, 10/01/04.............................. 3,291,779
DD 490,000 Federal Republic of Germany, Bundeschatweis, 6.875%, 12/02/98..... 367,600
DD 3,140,000 Federal Republic of Germany, Bundesobl 110, 5.375%, 02/22/99...... 2,265,031
DD 3,720,000 Federal Republic of Germany, Bundes, 8.00%, 01/21/02.............. 2,906,833
DD 10,930,000 Federal Republic of Germany, Unity, 8.75%, 08/20/01............... 8,848,410
DD 4,585,000 International Bank Recon/Dev., 7.125%, 04/12/05................... 3,363,593
-------------
21,043,246
-------------
India 0.5%
US 900,000 b Essar Gujarat Ltd., 8.40%, FRN, 07/15/99.......................... 896,625
-------------
Italy3.1%
IT 5,165,000,000 Government of Italy, 10.50%, 07/15/00............................. $ 3,164,720
GB 1,200,000 Government of Italy, 10.50%, 04/28/14............................. 2,061,892
-------------
5,226,612
-------------
Mexico3.2%
US 3,400,000 United Mexican States, 11.188%, FRN, 07/20/97..................... 3,425,500
US 2,400,000 United Mexican States, Series B, 6.25%, 12/31/19.................. 1,413,000
US 600,000 United Mexican States, Series D, 6.875%, FRN, 12/31/19............ 402,000
-------------
5,240,500
-------------
New Zealand2.0%
NZ 2,665,000 Government of New Zealand, 6.50%, 02/15/00........................ 1,714,204
NZ 2,435,000 Government of New Zealand, 8.00%, 04/15/04 ....................... 1,686,572
-------------
3,400,776
-------------
South Africa1.5%
ZA 11,350,000 ESCOM, E168, 11.00%, 06/01/08..................................... 2,443,957
-------------
Spain4.9%
ES 354,230,000 Government of Spain, 12.25%, 03/25/00............................. 3,071,803
ES 240,000,000 Government of Spain, 13.45%, 04/15/96............................. 1,976,968
ES 365,000,000 Government of Spain, 11.60%, 01/15/97............................. 3,045,830
-------------
8,094,601
-------------
Thailand0.6%
TH 10,000,000 Thailand Military Bank, 11.125%, 06/03/96......................... 397,377
TH 14,000,000 Thailand Military Bank, CD, 11.00%, 06/05/96...................... 556,328
-------------
953,705
-------------
United States22.3%
US 3,910,000 U.S. Treasury Bond, 7.625%, 02/15/25.............................. 4,539,275
US 4,330,000 U.S. Treasury Note, 8.00%, 08/15/99............................... 4,651,373
US 4,400,000 U.S. Treasury Note, 7.50%, 11/15/01 .............................. 4,758,204
US 4,730,000 U.S. Treasury Note, 7.50%, 05/15/02............................... 5,138,719
US 4,040,000 U.S. Treasury Note, 5.75%, 08/15/03............................... 3,985,096
US 3,100,000 U.S. Treasury Note, 5.875%, 02/15/04.............................. 3,077,246
US 2,600,000 U.S. Treasury Note, 7.25%, 05/15/04............................... 2,813,278
US 1,470,000 U.S. Treasury Note, 11.625%, 11/15/04............................. 2,033,657
US 5,818,000 U.S. Treasury Note, 6.50%, 05/15/05............................... 6,021,631
-------------
37,018,479
-------------
Total Bonds, Notes, Bills & Debentures (Cost $159,336,631)........ 156,249,488
-------------
Short Term Securities
Bond 0.2%
TH 10,000,000 Bangkok Bank, 11.50%, 05/16/96 (Cost $405,983).................... $ 398,729
-------------
Total Investments before Repurchase Agreements
(Cost $159,742,614)............................................... 156,648,217
-------------
d Receivables from Repurchase Agreements3.5%
US 5,660,000 Lehman Government Securities, 5.85%, 11/01/95
(Maturity Value $5,759,936) (Cost $5,759,000)
Collateral: U.S. Treasury Note, 6.375%, 07/15/99................ 5,759,000
-------------
Total Investments (Cost $165,501,614)97.8%....................... 162,407,217
Other Assets and Liabilities, Net2.2%............................ 3,755,690
-------------
Net Assets100.0%................................................. $166,162,907
=============
At October 31, 1995, the net unrealized depreciation based on the
cost of investments for income tax purposes of $165,501,614
was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost............... $ 2,481,712
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value............... (5,576,109)
-------------
Net unrealized depreciation..................................... $ (3,094,397)
=============
</TABLE>
PORTFOLIO ABBREVIATIONS:
CD - Certificate of Deposit
FRN - Floating Rate Notes
VRN - Variable Rate Notes
COUNTRY LEGEND:
AU - Australia
CA - Canada
DD - Germany
DK - Denmark
ES - Spain
FR - France
GB - Great Britain
IT - Italy
NZ - New Zealand
TH - Thailand US -
United States
ZA - South Africa
*Face amount is stated in the currency of country indicated, and value is stated
in U.S. dollars.
bSee Note 7 regarding Rule 144A securities.
cZero coupon bonds. The current effective yield may vary. The original accretion
rate will remain constant.
dFace amount for repurchase agreements is for the underlying collateral.
The accompanying notes are an integral part of these financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, October 31, 1995
Face Franklin Short-Intermediate Value
Amount U.S. Government Securities Fund (Note 1)
U.S. Government Securities98.6%
<C> <C> <C>
$ 25,000,000 U.S. Treasury Notes, 7.50%, 11/15/01 ........................................... $ 27,054,672
12,000,000 U.S. Treasury Notes, 6.375%, 01/15/99 .......................................... 12,228,743
1,530,000 U.S. Treasury Notes, 5.125%, 03/31/98 .......................................... 1,512,308
6,000,000 U.S. Treasury Notes, 5.50%, 09/30/97 ........................................... 5,992,500
21,000,000 U.S. Treasury Notes, 6.00%, 08/31/97............................................ 21,131,250
25,000,000 U.S. Treasury Notes, 5.875%, 07/31/97 .......................................... 25,109,375
3,000,000 U.S. Treasury Notes, 5.625%, 06/30/97 .......................................... 3,001,875
70,000,000 U.S. Treasury Notes, 6.875%, 02/28/97 .......................................... 71,137,500
6,500,000 U.S. Treasury Notes, 6.75%, 02/28/97 ........................................... 6,595,465
5,000,000 U.S. Treasury Notes, 6.25%, 01/31/97 ........................................... 5,040,625
4,000,000 U.S. Treasury Notes, 6.125%, 12/31/96 .......................................... 4,026,248
22,300,000 U.S. Treasury Notes, 6.25%, 08/31/96 ........................................... 22,418,455
-------------
Total U.S. Government Securities (Cost $201,589,041)............................ 205,249,016
-------------
d,e Receivables from Repurchase Agreements.2%
311,709 Joint Repurchase Agreement, 5.887%, 11/01/95 (Cost $316,908)
Daiwa Securities America, Inc., (Maturity Value $69,732)
Collateral: U.S. Treasury Bills, 04/25/96
U.S. Treasury Notes, 6.125%, 09/30/00
Donaldson, Lufkin & Jenrette, (Maturity Value $82,409)
Collateral: U.S. Treasury Notes, 5.125% - 8.25%, 07/31/96 - 03/31/00
Swiss Bank Corp., (Maturity Value $82,409)
Collateral: U.S. Treasury Notes, 6.875%, 03/31/00
UBS Securities, Inc., (Maturity Value $82,409)
Collateral: U.S. Treasury Notes, 5.125% - 8.50%, 11/15/95 - 01/31/00............ 316,908
-------------
Total Investments (Cost $201,905,949)98.8%...................................... 205,565,924
Other Assets and Liabilities, Net1.2%........................................... 2,491,516
-------------
Net Assets100.0%................................................................ $208,057,440
=============
At October 31, 1995, the net unrealized appreciation based on
the cost of investments for income tax purposes of $201,905,949 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was
an excess of value over tax cost............................................... $3,687,608
Aggregate gross unrealized depreciation for all investments in which there was
an excess of tax cost over value............................................... (27,633)
-------------
Net unrealized appreciation .................................................... $ 3,659,975
=============
dFace amount for repurchase agreements is for the underlying collateral.
eSee Note 1(g) regarding Joint Repurchase Agreements.
The accompanying notes are an integral part of these financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
Statement of Investments in Securities and Net Assets, October 31, 1995
Value
Shares Franklin Convertible Securities Fund (Note 1)
Convertible Preferred Stocks 27.0%
Automobile/Auto Parts1.0%
<S> <C> <C>
13,000 General Motors Corp., $3.25 cvt. pfd., Series C ................................. $ 871,000
-------------
Conglomerates1.6%
90,000 b Westinghouse Electric Co., $1.30 cvt. pfd., Series C ............................ 1,293,750
-------------
Financial Services4.1%
30,000 Allstate Corp., $2.30 cvt. exch. pfd. ........................................... 1,305,000
. 26,200 Integon Corp., $3.875 cvt. pfd. ................................................. 1,411,525
10,000 Travelers Corp., 2.75% cvt. pfd., Series B ...................................... 705,000
-------------
3,421,525
-------------
Gold1.1%
15,000 AMAX Gold, Inc., $3.75 cvt. pfd., Series B....................................... 708,750
5,200 Battle Mountain Gold Co., $3.25 cvt. pfd. ....................................... 248,300
-------------
957,050
-------------
Health Care1.0%
35,000 FHP International Corp., $1.25 cvt. pfd., Class A ............................... 831,250
-------------
Home Builders1.3%
40,000 Beazer Homes USA, Inc., 8.00% cvt. pfd. ......................................... 1,115,000
-------------
Metal & Resources3.3%
19,100 Armco, Inc., $3.625 cvt. pfd., Series A ......................................... 976,488
9,000 b Bethlehem Steel Corp., $3.50 cvt. pfd. .......................................... 391,500
9,000 Magma Copper Co., 5.625% cvt. pfd., Series D..................................... 542,250
20,000 WHX Corp., 6.50% cvt. pfd., Series A ............................................ 882,500
-------------
2,792,738
-------------
Oil & Gas5.6%
4,700 Gerrity Oil & Gas, $1.50 cvt. pfd. .............................................. 49,938
20,000 b Lomak Petroleum, Inc., 8.125% cvt. pfd. ......................................... 500,000
80,000 Noble Drilling Corp., $2.25 cvt. exch. pfd. ..................................... 560,000
14,500 b Occidental Petroleum Corp., $3.875 cvt. pfd. .................................... 812,906
42,000 b Parker & Parsley Petroleum Co., 6.25% cvt. pfd. ................................. 1,869,000
49,500 Snyder Oil Corp., $1.50 cvt. pfd. ............................................... 921,937
-------------
4,713,781
-------------
Real Estate.7%
15,000 b Catellus Development Corp., $3.625 cvt. pfd., Series A .......................... 571,875
-------------
Real Estate Investment Trusts2.1%
21,500 Merry Land & Investment Co., $1.75 cvt. pfd., Series A........................... 451,500
53,600 Security Capital Pacific Trust, $1.75 cvt. pfd., Series A........................ 1,273,000
-------------
1,724,500
-------------
Restaurants.3%
21,100 Flagstar Cos., Inc., $2.25 cvt. pfd., Series A .................................. $ 279,575
-------------
Savings & Loans2.2%
22,900 Roosevelt Financial Group, $3.25 cvt. pfd. ...................................... 1,414,075
7,500 Sovereign Bancorp, Inc., 6.25% cvt. pfd., Series B .............................. 424,687
-------------
1,838,762
-------------
Textiles1.2%
20,500 Fieldcrest Cannon, Inc., $3.00 cvt. pfd., Series A .............................. 963,500
-------------
Tobacco1.5%
200,000 RJR Nabisco Holdings Corp., $0.6012 cvt. pfd. ................................... 1,250,000
-------------
Total Convertible Preferred Stocks (Cost $22,729,248)............................ 22,624,306
-------------
Face
Amount
Convertible Bonds65.9%
Advertising.9%
$ 600,000 b Omnicom Group, cvt. deb., 4.50%, 09/01/00........................................ 720,750
-------------
Broadcast/Media5.1%
2,415,000 b All American Communications, Inc., cvt. deb., 6.50%, 10/01/03 ................... 2,366,700
1,822,700 Time Warner, Inc., cvt., senior notes, 8.75%, 01/10/15 .......................... 1,897,885
-------------
4,264,585
-------------
Cable.9%
2,200,000 c Rogers Communication, Inc., cvt. sub. notes, LYONs, (original accretion rate 5.50%),
0.00%, 05/20/13 ................................................................ 778,250
-------------
Commercial Services3.0%
700,000 b Danka Business Systems, cvt. sub. notes, 6.75%, 04/01/02......................... 925,750
1,500,000 b U.S. Filter Corp., cvt. sub. notes, 6.00%, 09/15/05.............................. 1,586,250
-------------
2,512,000
-------------
Conglomerates.9%
500,000 b Thermo Electron Corp., cvt. deb., 5.00%, 04/15/01................................ 762,500
-------------
Electronics10.5%
1,260,000 b Altera Corp., cvt. sub. notes, 5.75%, 06/15/02 .................................. 1,697,850
1,000,000 b Bay Networks, Inc., cvt. sub. deb., 5.25%, 05/15/03 ............................. 1,128,750
500,000 b Diagnostic Retrieval Systems, cvt. senior sub. notes, 9.00%, 10/01/03 ........... 502,500
3,500,000 b Dovatron International, Inc., cvt. sub. notes, 6.00%, 10/15/02 .................. 3,570,000
300,000 General Instrument Corp., cvt. junior sub. notes, 5.00%, 06/15/00 ............... 303,000
1,400,000 b Sanmina Corp., cvt. sub. notes, 5.50%, 08/15/02 ................................. 1,561,000
-------------
8,763,100
-------------
Financial Services2.0%
$1,000,000 Mitsubishi Bank, Ltd., cvt. guaranteed, 3.00%, 11/30/02 ......................... $ 1,045,000
1,500,000 b,c Mutual Risk Management, cvt. sub. deb., (original accretion rate 5.25%),
0.00%, 10/30/15................................................................. 525,000
100,000 b Peregrine Investment Finance, cvt. guaranteed, 4.50%, 12/01/00 .................. 81,750
-------------
1,651,750
-------------
Grocery/Food2.6%
1,150,000 Chock Full O'Nuts, cvt. deb., 7.00%, 04/01/12 ................................... 1,052,250
1,000,000 b Grand Metropolitan, Plc., cvt. unsub. notes, 6.50%, 01/31/00 .................... 1,135,000
-------------
2,187,250
-------------
Health Care6.4%
500,000 Integrated Health Services, Inc., cvt. senior sub. deb., 5.75%, 01/01/01......... 502,500
790,000 Maxxim Medical, sub. deb., 6.75%, 03/01/03 ...................................... 782,100
2,000,000 b Sandoz Capital BVI Ltd., cvt. guaranteed, 2.00%, 10/06/02........................ 1,762,500
2,750,000 Sun Healthcare Group, Inc., cvt. sub. notes, 6.00%, 03/01/04 .................... 2,268,750
-------------
5,315,850
-------------
Industrial Equipment2.0%
1,330,000 Raymond Corp., cvt. sub. deb., 6.50%, 12/15/03 .................................. 1,665,825
-------------
Insurance1.0%
800,000 Horace Mann Educators Corp., cvt. sub. notes, 6.50%, 12/01/99.................... 815,000
-------------
Lodging2.5%
2,000,000 Prime Hospitality Corp., cvt. sub. notes, 7.00%, 04/15/02........................ 2,112,500
-------------
Long Distance/Telecommunications4.0%
1,200,000 b,c Cellular Communications, Inc., cvt. sub. notes, (original accretion rate 7.50%),
0.00%, 07/27/99................................................................. 1,014,000
1,200,000 Compania de Telefono de Chile, cvt. sub. deb., 4.50%, 01/15/03 .................. 1,266,000
3,000,000 c US Cellular Corp., cvt. notes, (original accretion rate 6.00%), 0.00%, 06/15/15 . 1,057,500
-------------
3,337,500
-------------
Metal & Resources1.7%
400,000 Bema Gold Corp. cvt. sub. notes, 7.50%, 02/28/00................................. 428,000
700,000 b Homestake Mining Co., cvt. sub. deb., 5.50%, 06/23/00 ........................... 712,250
200,000 Inco, Ltd., cvt. deb., 5.75%, 07/01/04 .......................................... 258,000
-------------
1,398,250
-------------
Oil & Gas2.2%
2,000,000 Pennzoil Co., cvt. guaranteed, 4.75%, 10/01/03 .................................. 1,885,000
-------------
Publishing/Newspapers.2%
$ 500,000 c Hollinger, Inc., cvt. sub. notes, (original accretion rate 6.00%), 0.00%, 10/05/13 $ 151,875
-------------
Real Estate1.1%
1,000,000 U.S. Home Corp., cvt. sub. notes, 4.875%, 11/01/05 .............................. 905,000
-------------
Real Estate Investment Trusts4.3%
1,500,000 b Health Care Properties Investment, Inc., cvt. sub. notes, 6.00%, 11/08/00 ....... 1,462,500
2,105,000 Liberty Property Trust, cvt. sub. deb., 8.00%, 07/01/01.......................... 2,157,625
-------------
3,620,125
-------------
Retail5.4%
1,000,000 Federated Dept Stores, Inc., cvt. notes, 5.00%, 10/01/03 ........................ 975,000
1,500,000 b Food Lion, Inc., cvt. sub. deb., 5.00%, 06/01/03................................. 1,462,500
600,000 Lowe's Cos., cvt. sub. notes, 3.00%, 07/22/03 ................................... 667,500
300,000 c Office Depot, Inc., cvt. notes, (original accretion rate 4.00%), 0.00%, 11/01/08 194,250
1,500,000 Proffitt's, Inc., cvt. sub. deb., 4.75%, 11/01/03................................ 1,252,500
-------------
4,551,750
-------------
Semiconductors.8%
800,000 c Motorola, Inc., cvt. sub. notes, LYONs, (original accretion rate 6.00%) 0.00%, 09/27/13 640,000
-------------
Technology7.7%
3,250,000 c Automatic Data Process, cvt. deb., LYONs, (original accretion rate 5.25%)
0.00%, 02/20/12................................................................. 1,535,625
750,000 EMC, Corp., cvt. sub. notes, 4.25%, 01/01/01..................................... 753,750
950,000 Seagate Technology, Inc., cvt. sub. deb., 6.75%, 05/01/12 ....................... 1,064,000
2,000,000 b,c Silicon Graphics, Inc., cvt. sub. deb.,
(original accretion rate 4.15%), 0.00%, 11/02/13 1,150,000
2,050,000 VLSI Technology, cvt. sub. deb., 7.00%, 05/01/12 ................................ 1,952,625
-------------
6,456,000
-------------
Transportation.7%
600,000 Air Express International Corp., cvt. sub. deb., 6.00%, 01/15/03 ................ 621,000
-------------
Total Convertible Bonds (Cost $52,624,511) ...................................... 55,115,860
-------------
Total Long Term Investments (Cost $75,353,759) .................................. 77,740,166
-------------
d,e Receivables from Repurchase Agreements 6.6%.....................................
$ 5,458,713 Joint Repurchase Agreement, 5.887%, 11/01/95 (Cost $5,545,880)
Daiwa Securities America, Inc., (Maturity Value $1,220,293)
Collateral: U.S. Treasury Bills, 04/25/96
U.S. Treasury Notes, 6.125%, 09/30/00
Donaldson, Lufkin & Jenrette, (Maturity Value $1,442,165)
Collateral: U.S. Treasury Notes, 5.125% - 8.25%, 07/31/96 - 03/31/00
Swiss Bank Corp., (Maturity Value $1,442,165)
Collateral: U.S. Treasury Notes, 6.875%, 03/31/00
UBS Securities, Inc., (Maturity Value $1,442,165)
Collateral: U.S. Treasury Notes, 5.125% - 8.50%, 11/15/95 - 01/31/00............. $ 5,545,880
-------------
Total Investments (Cost $80,899,639)99.5%........................................ 83,286,046
Other Assets and Liabilities, Net.5%............................................. 446,772
-------------
Net Assets100.0%................................................................. $83,732,818
=============
At October 31, 1995, the net unrealized appreciation based on
the cost of investments for income tax purposes of $80,912,054 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was
an excess of value over tax cost................................................ $ 4,188,406
Aggregate gross unrealized depreciation for all investments in which there was
an excess tax cost over value................................................... (1,814,414)
-------------
Net unrealized appreciation...................................................... $ 2,373,992
=============
</TABLE>
PORTFOLIO ABBREVIATIONS:
LYONs - Liquid Yield Option Notes
bSee Note 7 regarding Rule 144A securities.
cZero coupon bonds. The current effective yield may vary. The original accretion
rate will remain constant.
dFace amount for repurchase agreements is for the underlying collateral.
eSee Note 1(g) regarding Joint Repurchase Agreements.
The accompanying notes are an integral part of these financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
Statement of Investments in Securities and Net Assets, October 31, 1995
<TABLE>
<CAPTION>
Value
Shares Franklin Adjustable U.S. Government Securities Fund (Note 1)
Mutual Funds 100.1%
<S> <C> <C>
54,635,889 U.S. Government ARM Portfolio (Note 1) ........................................... $509,752,849
-------------
Total Investments (Cost $548,994,094)100.1%.......................................... 509,752,849
Liabilities in Excess of Other Assets, Net(.1%) ..................................... (382,267)
-------------
Net Assets100.0%..................................................................... $509,370,582
=============
At October 31, 1995, the net unrealized depreciation based on the
cost of investments for income tax purposes of $549,575,507 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 ..................................................... (39,822,658)
-------------
Net unrealized depreciation......................................................... $(39,822,658)
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
Statement of Investments in Securities and Net Assets, October 31, 1995
<TABLE>
<CAPTION>
Value
Shares Franklin Equity Income Fund (Note 1)
Common Stocks 68.3%
Chemicals3.3%
<S> <C> <C>
38,000 Chemed Corp. .................................................................. $ 1,330,000
28,300 Dow Chemical Co. .............................................................. 1,942,088
35,500 Goodrich (B.F.) Co. ........................................................... 2,338,562
-------------
5,610,650
-------------
Conglomerates3.6%
212,500 Hanson, Plc., Sponsored ADR.................................................... 3,293,750
121,700 Ogden Corp. ................................................................... 2,768,675
6,575 a U.S. Industries, Inc. ......................................................... 98,625
-------------
6,161,050
-------------
Finance1.2%
12,500 Morgan (J.P.) & Co., Inc. ..................................................... 964,062
37,800 b Nordbanken, AB, Sponsored ADR ................................................. 1,127,415
-------------
2,091,477
-------------
Insurance3.1%
29,300 Aetna Life & Casualty Co. ..................................................... 2,061,987
11,400 CIGNA Corp. ................................................................... 1,130,025
45,000 Lincoln National Corp. ........................................................ 2,008,125
-------------
5,200,137
-------------
Medical Supplies.4%
16,900 Baxter International, Inc. .................................................... 652,763
-------------
Oil-Integrated-International13.2%
35,000 Atlantic Richfield Co. ........................................................ 3,736,250
53,900 Chevron Corp. ................................................................. 2,519,825
44,700 Exxon Corp. ................................................................... 3,413,962
19,800 Mobil Corp. ................................................................... 1,994,850
46,800 Pennzoil Co. .................................................................. 1,766,700
55,500 Texaco, Inc. .................................................................. 3,780,938
95,900 Ultramar Corp. ................................................................ 2,337,562
167,000 YPF, SA, ADR .................................................................. 2,859,875
-------------
22,409,962
-------------
Paper & Forest Products2.3%
205,000 b Portucel Industrial, SA ....................................................... 1,435,759
60,000 Potlatch Corp. ................................................................ 2,527,500
-------------
3,963,259
-------------
Pharmaceuticals4.1%
30,000 American Home Products Corp. .................................................. $ 2,658,750
45,000 Bristol-Myers Squibb Co. ...................................................... 3,431,250
16,900 Upjohn Co. .................................................................... 857,675
-------------
6,947,675
-------------
Publishing2.2%
63,400 Dun & Bradstreet Corp. ........................................................ 3,788,150
-------------
Real Estate Investment Trusts2.5%
76,000 Equity Residential Properties Trust ........................................... 2,128,000
93,800 Oasis Residential, Inc. ....................................................... 2,040,150
-------------
4,168,150
-------------
Retail Stores2.6%
207,000 Kmart Corp. ................................................................... 1,681,875
63,800 Penney (J.C.) Co., Inc. ....................................................... 2,687,575
-------------
4,369,450
-------------
Steel.8%
33,400 Carpenter Technology Corp. .................................................... 1,265,025
-------------
Tobacco2.8%
45,100 American Brands, Inc. ......................................................... 1,933,662
34,000 Philip Morris Cos., Inc. ...................................................... 2,873,000
-------------
4,806,662
-------------
Utilities - Electric13.8%
47,900 American Electric Power Co. ................................................... 1,826,188
45,000 Central & South West Corp. .................................................... 1,203,750
130,800 CINergy Corp. ................................................................. 3,711,450
96,000 Dominion Resources, Inc. ...................................................... 3,816,000
39,500 New England Electric System ................................................... 1,540,500
11,400 Oklahoma Gas and Electric Co. ................................................. 456,000
130,000 PacifiCorp..................................................................... 2,453,750
62,000 Public Service Co. of Colorado ................................................ 2,115,750
105,000 San Diego Gas & Electric Co. .................................................. 2,441,250
6,100 Scana Corp. ................................................................... 154,788
61,300 SCEcorp........................................................................ 1,042,100
70,500 Texas Utilities Co. ........................................................... 2,590,875
-------------
23,352,401
-------------
Utilities - Natural Gas3.6%
55,300 Consolidated Natural Gas Co. .................................................. $ 2,101,400
67,000 National Fuel Gas Co. ......................................................... 1,993,250
78,700 Pacific Enterprises............................................................ 1,947,825
-------------
6,042,475
-------------
Utilities - Telephone8.8%
28,200 BellSouth Corp. ............................................................... 2,157,300
78,700 GTE Corp. ..................................................................... 3,246,375
68,100 NYNEX Corp. ................................................................... 3,200,700
40,300 Pacific Telesis Group.......................................................... 1,224,112
67,000 Southern New England Telecommunications Corp. ................................. 2,420,375
54,700 U.S. West, Inc. ............................................................... 2,605,088
-------------
14,853,950
-------------
Total Common Stocks (Cost $106,180,059)........................................ 115,683,236
-------------
Convertible Preferred Stocks9.6%
34,000 Battle Mountain Gold Co., $3.25 cvt. pfd. ..................................... 1,623,500
31,000 b Bethlehem Steel Corp., $3.50 cvt. pfd. ........................................ 1,348,500
46,200 b Catellus Development Corp., $3.625 cvt. pfd., Series B......................... 1,761,375
33,600 General Motors Corp., $3.25 cvt. pfd., Series C................................ 2,251,200
9,200 b Occidental Petroleum Corp., $3.875 cvt. pfd. .................................. 515,775
29,000 b Parker & Parsley Petroleum Co., $3.125 cvt. pfd. .............................. 1,290,500
300,000 RJR Nabisco Holdings Corp., $0.601 cvt. pfd., Series C......................... 1,875,000
25,500 Roosevelt Financial Group, $3.25 cvt. pfd. .................................... 1,574,625
109,000 Santa Fe Energy Resources, Inc., $0.73 cvt. pfd., Series A .................... 1,062,750
21,100 Travelers Corp., $2.75 cvt. pfd. .............................................. 1,487,550
103,000 b Westinghouse Electric Co., $1.30 cvt. pfd., Series C........................... 1,480,625
-------------
Total Convertible Preferred Stocks (Cost $16,592,286).......................... 16,271,400
-------------
Total Long Term Investments (Cost $122,772,345) ............................... 131,954,636
-------------
d Receivables from Repurchase Agreements21.9%.....................................
$ 20,000,000 ......Citicorp Securities, Inc., 5.850%, 11/01/95, (Maturity Value $20,003,250)
Collateral: U.S. Treasury Notes, 6.50%, 09/30/96 ............................. $ 20,000,000
16,912,126 e Joint Repurchase Agreement, 5.887%, 11/01/95
Daiwa Securities America, Inc., (Maturity Value $3,780,742)
Collateral: U.S. Treasury Bills, 04/25/96
U.S. Treasury Notes, 6.125%, 09/30/00
Donaldson, Lufkin & Jenrette, (Maturity Value $4,468,149)
Collateral: U.S. Treasury Notes, 5.125% - 8.25%, 07/31/96 - 03/31/00
Swiss Bank Corp., (Maturity Value $4,468,149)
Collateral: U.S. Treasury Notes, 6.875%, 03/31/00
UBS Securities, Inc., (Maturity Value $4,468,149)
Collateral: U.S. Treasury Notes, 5.125% - 8.50%, 11/15/95 - 01/31/00 ........ 17,182,379
-------------
Total Receivables from Repurchase Agreements (Cost $37,182,379)................ 37,182,379
-------------
Total Investments (Cost $159,954,724)99.9% .................................... 169,137,015
Other Assets & Liabilities, Net.1% ............................................ 146,821
-------------
Net Assets100.0% .............................................................. $169,283,836
=============
At October 31, 1995, the net unrealized appreciation based on
the cost of investments for income tax purposes of $159,996,151 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was
an excess of value over tax cost............................................ $ 13,555,482
Aggregate gross unrealized depreciation for all investments in which there was
an excess of tax cost over value............................................ (4,414,618)
-------------
Net unrealized appreciation.................................................... $ 9,140,864
=============
</TABLE>
aNon-income producing.
bSee Note 7 regarding Rule 144A securities.
dFace amount for repurchase agreements is for the underlying collateral.
eSee Note 1(g) regarding Joint Repurchase Agreements.
The accompanying notes are an integral part of these financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
Statement of Investments in Securities and Net Assets, October 31, 1995
<TABLE>
<CAPTION>
Value
Shares Franklin Adjustable Rate Securities Fund (Note 1)
Mutual Funds 100.1%
<S> <C> <C>
1,736,779 Adjustable Rate Securities Portfolio (Note 1) ...................................... $17,037,804
-------------
Total Investments (Cost $17,443,950) 100.1% ............................. 17,037,804
Liabilities in Excess of Other Assets, Net (0.1%) ....................... (24,048)
-------------
Net Assets 100.0% ....................................................... 17,013,756
=============
At October 31, 1995, the net unrealized depreciation based on the
cost of investments for income tax purposes of $17,461,184 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 ................................................... (423,380)
-------------
Net unrealized depreciation ...................................................... $ (423,380)
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
Financial Statements
<TABLE>
<CAPTION>
Statements of Assets and Liabilities
October 31, 1995
Franklin
Franklin GlobalShort-Intermediate Franklin
Government U.S. Government Convertible
Income Fund Securities Fund Securities Fund
--------- ------------ ----------
Assets:
Investments in securities:
<S> <C> <C> <C>
At identified cost........................................... $159,742,614 $201,589,041 $75,353,759
========= ============ ==========
At value..................................................... 156,648,217 205,249,016 77,740,166
Receivables from repurchase agreements, at value and cost..... 5,759,000 316,908 5,545,880
Cash.......................................................... 1,002 -- 105,290
Receivables:
Dividends and interest....................................... 5,308,780 3,064,491 679,634
Investment securities sold................................... 9,897,809 -- 924,559
Capital shares sold.......................................... 543,753 122,362 171,566
--------- ------------ ----------
Total assets................................................... 178,158,561 208,752,777 85,167,095
--------- ------------ ----------
Liabilities:
Payables:
Investment securities purchased.............................. 9,779,831 -- 1,253,125
Capital shares repurchased................................... 1,629,865 160,143 69,990
Unrealized depreciation on forward foreign currency contract (Note 2)276,015 -- --
Distributions to shareholders................................ -- 371,252 --
Management fees.............................................. 81,368 96,853 43,648
Distribution fees............................................ 25,983 36,340 51,880
Shareholder servicing costs.................................. 9,610 7,097 5,675
Accrued expenses and other liabilities........................ 192,982 23,652 9,959
--------- ------------ ----------
Total liabilities.............................................. 11,995,654 695,337 1,434,277
--------- ------------ ----------
Net assets, at value........................................... $166,162,907 $208,057,440 $83,732,818
========= ============ ==========
Net assets consist of:
Undistributed net investment income........................... $ 100,998 $ 613,089 $ 152,947
Unrealized appreciation (depreciation) on investments and translation
of assets and liabilities denominated in foreign currencies... (3,337,199) 3,659,975 2,386,407
Net realized gain (loss) from investments and foreign currency (4,593,867) (6,000,273) 4,650,203
Class I capital shares........................................ 198,497 201,015 65,614
Class II capital shares....................................... 1,436 -- 165
Additional paid-in capital.................................... 173,793,042 209,583,634 76,477,482
--------- ------------ ----------
Net assets, at value........................................... $166,162,907 $208,057,440 $83,732,818
========= ============ ==========
Class I Shares:
Net assets, at value.......................................... $164,970,139 $208,057,440 $83,523,394
========= ============ ==========
Shares outstanding............................................ 19,849,662 20,101,531 6,561,376
========= ============ ==========
Net asset value per share*.................................... $8.31 $10.35 $12.73
========= ============ ==========
Maximum offering price per share (100/95.75, 100/97.75, 100/95.5
of net asset value per share, respectively)................... $8.68 $10.59 $13.33
========= ============ ==========
Class II Shares:
Net assets, at value.......................................... $ 1,192,768 $ 209,424
========= ==========
Shares outstanding............................................ 143,557 16,471
========= ==========
Net asset value per share*.................................... $8.31 $12.71
========= ==========
Maximum offering price per share (100/99 of net asset value per share) $8.39 $12.84
========= ==========
*Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
FRANKLIN INVESTORS SECURITIES TRUST Financial Statements (cont.)
Statements of Assets and Liabilities (cont.)
October 31, 1995
Franklin
Adjustable Franklin
U.S. Government Franklin Equity Adjustable Rate
Securities Fund Income Fund Securities Fund
----------- ---------- ----------
Assets:
Investments in securities:
<S> <C> <C> <C>
At identified cost............................................ $548,994,094 $122,772,345 $17,443,950
=========== ========== ==========
At value...................................................... 509,752,849 131,954,636 17,037,804
Receivables from repurchase agreements, at value and cost...... -- 37,182,379 --
Cash........................................................... 67,505 169,977 2,337
Receivables:
Dividends and interest........................................ -- 590,197 --
Investment securities sold.................................... -- 1,101,991 --
Capital shares sold........................................... 142,499 165,601 49
----------- ---------- ----------
Total assets.................................................... 509,962,853 171,164,781 17,040,190
----------- ---------- ----------
Liabilities:
Payables:
Investment securities purchased................................. -- 1,644,561 --
Capital shares repurchased...................................... 179,441 38,030 10
Distributions to shareholders................................... -- 12 383
Management fees................................................. 42,905 80,946 1,426
Distribution fees............................................... 330,669 90,648 9,170
Shareholder servicing costs..................................... 24,156 12,014 1,000
Accrued expenses and other liabilities......................... 15,100 14,734 14,445
----------- ---------- ----------
Total liabilities............................................... 592,271 1,880,945 26,434
----------- ---------- ----------
Net assets, at value............................................ $509,370,582 $169,283,836 $17,013,756
=========== ========== ==========
Net assets consist of:
Undistributed net investment income............................ 1,352,705 399,686 --
Unrealized appreciation (depreciation)
on investments and translation of assets
and liabilities denominated in foreign currencies.............. (39,241,245) 9,182,291 (406,146)
Net realized gain (loss) on investments and foreign currency... (70,252,669) 4,605,186 (717,939)
Class I capital shares......................................... 545,179 111,216 17,323
Class II capital shares........................................ -- 254 --
Additional paid-in capital..................................... 616,966,612 154,985,203 18,120,518
----------- ---------- ----------
Net assets, at value............................................ $509,370,582 $169,283,836 $17,013,756
=========== ========== ==========
Class I Shares:
Net assets, at value........................................... $509,370,582 $168,897,460 $17,013,756
=========== ========== ==========
Shares outstanding............................................. 54,517,877 11,121,614 1,732,290
=========== ========== ==========
Net asset value per share*..................................... $9.34 $15.19 $9.82
=========== ========== ==========
Maximum offering price per share (100/97.75, 100/95.50, 100/97.75
of net asset value per share, respectively).................... $9.55 $15.91 $10.05
=========== ========== ==========
Class II Shares:
Net assets, at value........................................... $ 386,376
==========
Shares outstanding............................................. 25,444
==========
Net asset value per share*..................................... $15.19
==========
Maximum offering price per share (100/99 of net asset value per share) $15.34
==========
*Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
FRANKLIN INVESTORS SECURITIES TRUST Financial Statements (cont.)
Statements of Operations
for the year ended October 31, 1995
Franklin
Franklin GlobalShort-Intermediate Franklin
Government U.S. Government Convertible
Income Fund Securities Fund Securities Fund
---------- ------------ ----------
Investment income:
<S> <C> <C> <C>
Dividends..................................................... $ 427,054 $-- $ 1,554,812
Interest (Note 1) (net of foreign taxes withheld
of $263,165 in the Global Fund).............................. 15,392,484 13,146,067 2,659,811
---------- ------------ ----------
Total income................................................... 15,819,538 13,146,067 4,214,623
---------- ------------ ----------
Expenses:
Management fees (Note 6)...................................... 984,273 1,187,800 453,492
Distribution fees Class I (Note 6)............................ 140,502 165,809 152,573
Distribution fees Class II (Note 6)........................... 1,690 -- 268
Shareholder servicing costs (Note 6).......................... 84,305 69,391 50,531
Trustees' fees and expenses................................... 21,361 24,611 8,171
Custodian fees................................................ 219,572 19,045 8,800
Reports to shareholders....................................... 104,305 51,197 25,561
Registration and filing fees.................................. 34,684 17,569 27,229
Other......................................................... 54,728 28,408 13,840
---------- ------------ ----------
Total expenses................................................. 1,645,420 1,563,830 740,465
---------- ------------ ----------
Net investment income......................................... 14,174,118 11,582,237 3,474,158
---------- ------------ ----------
Realized and unrealized gain (loss) from investments and foreign currency:
Net realized gain (loss) from:
Investments................................................. (2,432,835) (3,564,637) 4,651,306
Foreign currency transactions............................... (1,772,728) -- --
Net unrealized appreciation (depreciation) on:
Investments................................................. 10,346,004 10,082,805 2,080,220
Translation of assets and liabilities denominated
in foreign currency........................................... (553,587) -- --
---------- ------------ ----------
Net realized and unrealized gain from investments
and foreign currency.......................................... 5,586,854 6,518,168 6,731,526
---------- ------------ ----------
Net increase in net assets resulting from operations........... $19,760,972 $18,100,405 $10,205,684
========== ============ ==========
The accompanying notes are an integral part of these financial statements.
FRANKLIN INVESTORS SECURITIES TRUST Financial Statements (cont.)
Statements of Operations (cont.)
for the year ended October 31, 1995
Franklin
Adjustable Franklin
U.S. Government Franklin Equity Adjustable Rate
Securities Fund Income Fund Securities Fund
----------- ---------- ----------
Investment income:
<S> <C> <C> <C>
Dividends...................................................... $36,196,034 $ 4,900,662 $1,278,303
Interest (Note 1).............................................. -- 1,819,320 --
----------- ---------- ----------
Total income.................................................... 36,196,034 6,719,982 1,278,303
----------- ---------- ----------
Expenses:
Management fees (Note 6)....................................... -- 754,194 --
Administration fees (Note 6)................................... 584,957 -- 19,936
Distribution fees Class I (Note 6)............................. 1,380,307 285,906 41,946
Distribution fees Class II (Note 6)............................ -- 204 --
Shareholder servicing costs (Note 6)........................... 252,742 87,841 6,299
Trustees' fees and expenses ................................... 68,143 13,760 687
Reports to shareholders........................................ 187,527 53,316 12,439
Registration and filing fees................................... 25,890 33,261 15,704
Custodian fees................................................. -- 11,206 --
Other.......................................................... 4,055 17,650 9,654
Payments from manager (Note 6)................................. -- (15,980) (14,588)
----------- ---------- ----------
Total expenses.................................................. 2,503,621 1,241,358 92,077
----------- ---------- ----------
Net investment income.......................................... 33,692,413 5,478,624 1,186,226
----------- ---------- ----------
Realized and unrealized gain (loss) from
investments and foreign currency:
Net realized gain (loss) from:
Investments.................................................. (18,757,683) 4,618,316 (298,102)
Foreign currency transactions................................ -- (2,097) --
Net unrealized appreciation on investments................... 26,814,593 6,569,952 508,371
----------- ---------- ----------
Net realized and unrealized gain from
investments and foreign currency............................... 8,056,910 11,186,171 210,269
----------- ---------- ----------
Net increase in net assets resulting from operations............ $41,749,323 $16,664,795 $1,396,495
=========== ========== ==========
The accompanying notes are an integral part of these financial statements.
FRANKLIN INVESTORS SECURITIES TRUST Financial Statements (cont.)
Statements of Changes in Net Assets
for the years ended October 31, 1995 and 1994
Franklin Global Franklin Short-Intermediate Franklin Convertible
Government Income Fund U.S. Government Securities Fund Securities Fund
-------------------- -------------------- -------------------
1995 1994 1995 1994 1995 1994
---------- ---------- ---------- ---------- --------- ---------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income ......... $ 14,174,118 $ 17,125,270 $ 11,582,237 $ 11,953,764 $ 3,474,158 $ 2,847,213
Net realized gain (loss) from
investments and foreign
currency transactions........... (4,205,563) (15,812,563) (3,564,637) (2,434,010) 4,651,306 3,806,156
Net realized gain on expired
written foreign currency options -- 90,000 -- -- -- --
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currency................ 9,792,417 (13,307,282) 10,082,805 (14,853,553) 2,080,220 (5,480,396)
---------- ---------- ---------- ---------- --------- ---------
Net increase (decrease)
in net assets resulting
from operations................. 19,760,972 (11,904,575) 18,100,405 (5,333,799) 10,205,684 1,172,973
Distributions to shareholders from:
Undistributed net investment
income:
Class I...................... (13,730,112) (1,894,107) (11,517,255) (11,480,943) (3,522,594) (2,799,225)
Class II..................... (18,628) -- -- -- (593) --
Net realized capital gains:
Class I....................... -- (1,855,676) -- (2,327,982) (3,804,886) (456,579)
Return of capital distribution for
tax purposes
Class I....................... (1,386,320) (14,044,105) -- -- -- --
Class II...................... (1,753) -- -- -- -- --
Increase (decrease) in net assets
from capital share transactions
(Note 3)........................ (25,665,095) 21,275,793 (23,877,441) (29,183,526) 13,986,181 21,511,587
---------- ---------- ---------- ---------- --------- ---------
Net increase (decrease) in
net assets...................... (21,040,936) (8,422,670) (17,294,291) (48,326,250) 16,863,792 19,428,756
Net assets:
Beginning of year............... $187,203,843 $195,626,513 $225,351,731 $273,677,981 $66,869,026 $47,440,270
---------- ---------- ---------- ---------- --------- ---------
End of year..................... $166,162,907 $187,203,843 $208,057,440 $225,351,731 $83,732,818 $66,869,026
========== ========== ========== ========== ========= =========
Undistributed net investment
income included in net assets:
Beginning of year.............. $ 16,291,164 $ 1,060,001 $ 548,107 $ 75,286 $ 201,976 $ 153,988
========== ========== ========== ========== ========= =========
End of year.................... $ 100,998 $ 16,291,164 $ 613,089 $ 548,107 $ 152,947 $ 201,976
========== ========== ========== ========== ========= =========
The accompanying notes are an integral part of these financial statements.
FRANKLIN INVESTORS SECURITIES TRUST Financial Statements (cont.)
Statements of Changes in Net Assets (cont.)
for the years ended October 31, 1995 and 1994
Franklin Adjustable U.S. Franklin Adjustable Rate
Government Securities Fund Franklin Equity Income Fund Securities Fund
--------------------- ------------------- ------------------
1995 1994 1995 1994 1995 1994
---------- ----------- ---------- --------- --------- ---------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income........ $ 33,692,413 $ 39,530,974 $ 5,478,624 $ 3,071,085 $1,186,226 $1,667,314
Net realized gain (loss) from
investments.................. (18,757,683) (41,756,476) 4,616,219 1,644,175 (298,102) (419,700)
Net unrealized appreciation
(depreciation) on investments 26,814,593 (30,761,861) 6,569,952 (2,521,207) 508,371 (878,448)
---------- ----------- ---------- --------- --------- ---------
Net increase (decrease)
in net assets resulting
from operations............. 41,749,323 (32,987,363) 16,664,795 2,194,053 1,396,495 369,166
Distributions to shareholders from:
Undistributed net investment
income:
Class I.................... (33,597,566) (35,166,432) (5,162,293) (3,312,595) (1,186,226) (1,667,314)
Class II................... -- -- (644) -- -- --
Net realized capital gains:
Class I.................... -- -- (1,652,725) (984,309) -- --
Increase (decrease) in net assets
from capital share transactions
(Note 3)..................... (199,397,997) (1,044,733,399) 66,671,939 52,688,385 (7,760,753) (11,946,617)
---------- ----------- ---------- --------- --------- ---------
Net increase (decrease)
in net assets................ (191,246,240) (1,112,887,194) 76,521,072 50,585,534 (7,550,484) (13,244,765)
Net assets:
Beginning of year........... $700,616,822 $1,813,504,016 $ 92,762,764 $42,177,230 $24,564,240 $37,809,005
---------- ----------- ---------- --------- --------- ---------
End of year................. $509,370,582 $ 700,616,822 $169,283,836 $92,762,764 $17,013,756 $24,564,240
========== =========== ========== ========= ========= =========
Undistributed net investment
income included in net assets:
Beginning of year........... $ 1,257,858 $ (3,106,684) $ 83,999 $ 325,509 $-- $--
========== =========== ========== ========= ========= =========
End of year................. $ 1,352,705 $ 1,257,858 $ 399,686 $ 83,999 $-- $--
========== =========== ========== ========= ========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Investors Securities Trust (the Trust) is an open-end management
investment company (mutual fund), registered under the Investment Company Act of
1940 as amended. The Trust currently has six separate funds (the Funds) in
operation consisting of five separate diversified Funds: Franklin
Short-Intermediate U.S. Government Securities Fund (the Short-Intermediate
Fund), Franklin Convertible Securities Fund (the Convertible Fund), Franklin
Adjustable U.S. Government Securities Fund (the Adjustable U.S. Government
Fund), Franklin Equity Income Fund (the Equity Income Fund), and Franklin
Adjustable Rate Securities Fund (the Adjustable Rate Fund); and one
non-diversified Fund: Franklin Global Government Income Fund (the Global Fund).
Each of the Funds issues a separate series of the Trust's shares and maintains a
totally separate investment portfolio.
The Adjustable Rate Fund and the Adjustable U.S. Government Fund invest
substantially all of their assets in the Adjustable Rate Securities Portfolio
and the U.S. Government Adjustable Rate Mortgage Portfolio, respectively. Both
are open-end, diversified management investment companies having the same
investment objectives as the Adjustable Rate Fund and Adjustable U.S. Government
Fund. The financial statements of the Adjustable Rate Securities Portfolio and
the U.S. Government Adjustable Rate Mortgage 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 Rate Fund and Adjustable U.S. Government Fund.
On June 15, 1993, the Board of Trustees authorized a change in the fiscal year
end of the Trust from January 31 of each year to October 31.
The Global Fund, the Convertible Fund and the Equity Income Fund offer two
classes of shares, Class I and Class II. Class I shares are sold with a higher
front-end sales charge than Class II. Each class of shares may be subject to a
contingent deferred sales charge and has the same rights, except with respect to
the effect of the respective sales charges, the distribution fees borne by each
class, voting rights on matters affecting a single class and the exchange
privilege of each class.
The offering of Class II shares in the Global Fund began May 1, 1995; the
offering of Class II shares in the Convertible Fund and the Equity Income Fund
began October 1, 1995, at which times all previously outstanding shares became
Class I shares. Realized and unrealized gains or 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.
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 Valuations: Portfolio securities listed on a securities exchange or
on the NASDAQ National Market System for which market quotations are readily
available are valued at the last quoted sale price of the day or, if there is no
such reported sale, within the range of the most recent quoted bid and asked
prices. Other securities for which market quotations are readily available are
valued at current market values, obtained from pricing services, which are based
on a variety of factors, including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific securities. Portfolio securities which are
traded both in the over-the-counter market and on a securities exchange are
valued according to the broadest and most representative market as determined by
the Manager. Other securities for which market quotations are not available, if
any, are valued in accordance with procedures established by the Board of
Trustees.
The value of a foreign security is determined as of the close of trading on the
foreign exchange on which it is traded or as of the close of trading on the New
York Stock Exchange, if that is earlier, and that value is then converted into
its U.S. dollar equivalent at the foreign exchange rate in effect at noon, New
York time, on the day the value of the foreign security is determined. If no
sale is reported at that time, the mean between the current bid and asked prices
is used. Occasionally
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
a. Security Valuations: (cont.)
events which affect the values of foreign securities and foreign exchange rates
may occur between the times at which they are determined and the close of the
exchange and will, therefore, not be reflected in the computation of the Fund's
net asset value, unless material. If events which materially affect the value of
these foreign securities occur during such period, then these securities will be
valued in accordance with procedures established by the Board of Trustees.
The values of the Adjustable Rate Fund and the Adjustable U.S. Government Fund
reflect the Funds' proportionate interest in the net assets of the Adjustable
Rate Securities Portfolio and the U.S. Government Adjustable Rate Mortgage
Portfolio, respectively. At October 31, 1995, the Adjustable Rate Fund owns 63%
of the Adjustable Rate Securities Portfolio and the Adjustable U.S. Government
Fund owns 98% of the U.S. Government Adjustable Rate Mortgage Portfolio. The
Portfolios' shares held by the Funds are valued at the net asset value of the
Portfolios.
The fair values of securities restricted as to resale, if any, are determined
following procedures approved by the Board of Trustees.
b. Income Taxes: The Trust intends to continue to qualify for the tax treatment
applicable to regulated investment companies under the Internal Revenue Code and
to make the requisite distributions to its shareholders which will be sufficient
to relieve it from income and excise taxes. Therefore, no income tax provision
is required. Each 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 for
both financial statement and income tax purposes.
d. Investment Income, Expenses and Distributions: Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Interest
income and estimated expenses are accrued daily. Bond discount, if any, is
amortized as required by the Internal Revenue Code.
The Short-Intermediate Fund and the Adjustable Rate Fund normally declare
dividends from their net investment income daily and distribute monthly. Daily
allocations of net investment income will commence on the date following the
receipt of an investor's funds for the Short-Intermediate Fund, and the date of
receipt of an investor's funds for the Adjustable Rate Fund. Dividends are
normally declared each day the New York Stock Exchange is open for business
equal to an amount per day set from time to time by the Board of Trustees, and
are payable to shareholders of record at the beginning of business on the
ex-date. Once each month, dividends are reinvested in additional shares of each
Fund or paid in cash as requested by the shareholders.
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions.
Net realized capital gains and losses differ for financial statement and tax
purposes primarily due to differing treatments of wash sales and foreign
currency transactions.
A portion of the distributions received by the Convertible Fund and the Equity
Income Fund from investments in Real Estate Investment Trust (REIT) securities
may be characterized as tax basis return of capital (ROC) distributions, which
are not recorded as dividend income, but reduce the cost basis of the REIT
securities. ROC distributions exceeding the cost basis of the REIT security are
recognized by the Funds as capital gain.
e. Expense Allocation: Common expenses incurred by the Trust are allocated among
the Funds based on the ratio of the 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.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
f. Foreign Currency Translation: The accounting records of the Trust are
maintained in U.S. dollars. All assets and liabilities denominated in foreign
currencies are translated into U.S. dollars at the rate of exchange of such
currencies against U.S. dollars on the date of the valuation. Purchases and
sales of securities, income and expenses are translated at the rate of exchange
quoted on the respective date that such transactions are recorded. Differences
between income and expense amounts recorded and collected or paid are recognized
when reported by the custodian bank.
The Trust does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency gains
or losses realized between the trade and settlement dates on securities
transactions, the difference between the amounts of dividends and interest, and
foreign withholding taxes recorded on the Trust books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized
appreciation/depreciation on translation of assets and liabilities denominated
in foreign currencies arise from changes in the value of assets and liabilities
other than investments in securities at fiscal year end, resulting from changes
in exchange rates.
g. Repurchase Agreements: The Funds may enter into Joint Repurchase Agreements
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 Funds based on their pro-rata interest.
In a repurchase agreement, the Fund purchases a U.S. government security from a
dealer or bank subject to an agreement to resell it at a mutually agreed upon
price and date. Such a transaction is accounted for as a loan by the Fund to the
seller, collateralized by the underlying security. The transaction requires the
initial collateralization of the seller's obligation by U.S. government
securities with market value, including accrued interest, of at least 102% of
the dollar amount invested by the Fund, with the value of the underlying
security marked to market daily to maintain coverage of at least 100%. The
collateral is delivered to the Fund's custodian and held until resold to the
dealer or bank. At October 31, 1995, all outstanding repurchase agreements held
by the Funds had been entered into on that date.
h. Securities Traded on a When-Issued or Delayed Delivery Basis: The Funds may
trade securities on a when-issued or delayed delivery basis, with payment and
delivery scheduled for a future date. These transactions are subject to market
fluctuations and are subject to the risk that the value at delivery may be more
or less than the trade date purchase price. Although the Funds will generally
purchase these securities with the intention of acquiring such securities, they
may sell such securities before the settlement date. These securities, if any,
are identified on the accompanying Statement of Investments in Securities and
Net Assets. The Funds set aside sufficient investment securities as collateral
for these purchase commitments.
2. FORWARD FOREIGN CURRENCY CONTRACTS
A forward currency contract, which is individually negotiated and privately
traded by currency traders and their customers, is a commitment to purchase or
sell a specific currency for an agreed-upon price at a future date.
The Global Fund may enter into forward contracts with the objective of
minimizing the risk to the Fund from adverse changes in the relationship between
currencies or to enhance fund value. The Fund may also enter into a forward
contract in relation to a security denominated in a foreign currency or when it
anticipates receipt in a foreign currency of dividends or interest payments in
order to "lock in" the U.S. dollar price of a security or the U.S. dollar
equivalent of such dividend or interest payments.
2. FORWARD FOREIGN CURRENCY CONTRACTS (cont.)
The Fund segregates sufficient cash, cash equivalents or readily marketable debt
securities as collateral for commitments created by open forward contracts. The
Fund could be exposed to risk if counterparties to the contracts are unable to
meet the terms of their contracts or if the value of the foreign currency
changes unfavorably.
As of October 31, 1995, the Global Fund had the following forward foreign
currency contracts outstanding:
<TABLE>
<CAPTION>
In Unrealized
Contracts to Sell Exchange for Settlement Date Gain (Loss)
------------------------------ --------- ---------- --------
<S> <C> <C> <C> <C>
17,000,000 Canadian Dollars........... U.S. $12,462,886 11/7/95 U.S. $(227,864)
5,900,000 Canadian Dollars........... U.S. $ 4,328,687 11/7/95 (75,750)
--------- --------
$16,791,573 $(303,614)
--------- --------
Unrealized gain on offsetting forward exchange contracts 27,599
--------
Net unrealized loss on forward exchange contracts $(276,015)
========
3. TRUST SHARES
At October 31, 1995, there was an unlimited number of $.01 par value shares of
beneficial interest authorized. Transactions in each of the Trust's shares for
the years ended October 31, 1995 and 1994 were as follows:
Franklin
Franklin Global Short-Intermediate U.S. Franklin Convertible
Government Income Fund Government Securities Fund Securities Fund
------------------- ------------------- ------------------
Shares Amount Shares Amount Shares Amount
-------- ---------- -------- ---------- -------- ---------
Class I Shares:
1995
<S> <C> <C> <C> <C> <C> <C>
Shares sold...................... 1,405,808 $11,289,031 1,923,830 $19,635,078 1,136,905 $13,796,683
Shares issued in reinvestment
of distributions................. 914,639 7,301,870 687,236 6,990,998 438,817 5,039,171
Shares redeemed.................. (3,754,938) (30,017,098) (4,676,736) (47,383,887) (709,203) (8,489,986)
Changes from exercise of
exchange privilege:
Shares sold.................... 4,026,233 32,375,881 2,100,546 21,187,519 873,451 10,600,521
Shares redeemed................ (5,954,669) (47,788,156) (2,404,299) (24,307,149) (596,771) (7,179,156)
-------- ---------- -------- ---------- -------- ---------
Net increase (decrease) .......... (3,362,927) $(26,838,472) (2,369,423) $(23,877,441) 1,143,199 $13,767,233
======== ========== ======== ========== ======== =========
1994
Shares sold...................... 3,796,264 $33,419,371 4,313,964 $44,921,900 1,219,366 $15,220,916
Shares issued in reinvestment
of distributions................. 990,104 8,503,475 830,236 8,591,490 168,878 2,090,918
Shares redeemed.................. (3,724,526) (32,088,082) (6,851,195) (70,807,735) (547,097) (6,756,318)
Changes from exercise of
exchange privilege:
Shares sold.................... 6,892,336 61,109,234 3,062,282 31,843,753 1,654,708 20,710,637
Shares redeemed................ (5,719,956) (49,668,205) (4,225,285) (43,732,934) (786,883) (9,754,566)
-------- ---------- -------- ---------- -------- ---------
Net increase (decrease) .......... 2,234,222 $21,275,793 (2,869,998) $(29,183,526) 1,708,972 $21,511,587
======== ========== ======== ========== ======== =========
3. TRUST SHARES (cont.)
Franklin Adjustable Franklin Franklin Adjustable
U.S. Government Securities Fund Equity Income Fund Rate Securities Fund
---------------------- ------------------ ------------------
Shares Amount Shares Amount Shares Amount
---------- ------------ -------- --------- -------- ----------
Class I Shares:
1995
<S> <C> <C> <C> <C> <C> <C>
Shares sold.................. 1,016,508 $ 9,397,466 3,614,424 $52,484,607 117,121 $ 1,139,481
Shares issued in reinvestment
of distributions............. 2,216,085 20,454,537 366,679 5,193,976 92,210 897,246
Shares redeemed.............. (21,188,303) (195,347,968) (1,075,354) (15,415,396) (872,954) (8,466,811)
Changes from exercise of
exchange privilege:
Shares sold.................. 13,013,049 120,583,082 2,458,319 35,549,903 1,073,318 10,376,223
Shares redeemed.............. (16,665,972) (154,485,114) (802,742) (11,531,516)(1,209,419) (11,706,892)
---------- ------------ -------- --------- -------- ----------
Net increase (decrease) ...... (21,608,633) $ (199,397,997) 4,561,326 $66,281,574 (799,724) $ (7,760,753)
========== ============ ======== ========= ======== ==========
1994
Shares sold.................. 3,326,762 $ 31,759,086 1,527,023 $21,485,674 679,940 $ 6,750,951
Shares issues in reinvestment
of distributions............. 2,149,801 20,490,985 228,516 3,222,627 122,836 1,210,194
Shares redeemed.............. (96,848,038) (924,096,481) (494,546) (6,953,175)(2,401,365) (23,641,545)
Changes from exercise of
exchange privilege:
Shares sold.................. 9,453,526 89,992,788 3,064,919 43,326,425 3,084,064 30,626,065
Shares redeemed.............. (27,618,581) (262,879,777) (594,376) (8,393,166)(2,719,427) (26,892,282)
---------- ------------ -------- --------- -------- ----------
Net increase (decrease) ...... (109,536,530) $(1,044,733,399) 3,731,536 $52,688,385 (1,233,952) $(11,946,617)
========== ============ ======== ========= ======== ==========
*For the period May 1, 1995 to October 31, 1995 with respect to the Global Fund
and the period October 1, 1995 to October 31, 1995 with respect to the
Convertible Fund and the Equity Income Fund.
Franklin Global Franklin Convertible Franklin
Government Income Fund Securities Fund Equity Income Fund
------------------- ------------------- ------------------
Shares Amount Shares Amount Shares Amount
-------- ---------- -------- ---------- -------- ---------
Class II Shares:
1995*
<S> <C> <C> <C> <C> <C> <C>
Shares sold...................... 141,430 $ 1,155,749 47,111 $ 606,814 25,330 $388,639
Shares issued in reinvestment
of distributions................. 1,742 14,236 46 593 41 629
Shares redeemed.................. (668) (5,456) -- -- -- --
Changes from exercise of
exchange privilege:
Shares sold.................... 3,593 29,749 97 1,249 498 7,595
Shares redeemed................ (2,540) (20,901) (30,783) (389,708) (425) (6,498)
-------- ---------- -------- --------- -------- ---------
Net increase...................... 143,557 $ 1,173,377 16,471 $ 218,948 25,444 $390,365
======== ========== ======== ========= ======== =========
4. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At October 31, 1995, for tax purposes, the Trust had accumulated net realized
gains or capital loss carryovers as follows:
Franklin Franklin Franklin
Global Short-Intermediate Franklin Adjustable Franklin Franklin
Government U.S. Government Convertible U.S. Government Equity Adjustable Rate
Income Fund Securities Fund Securities FundSecurities FundIncome Fund Securities Fund
-------- ------------ ---------- ----------- -------- ----------
Accumulated net realized
<S> <C> <C> <C> <C> <C> <C>
gains.................... -- -- $4,662,218 -- $4,648,680 --
======== ============ ========== =========== ======== ==========
Capital loss carryovers
Expiring in:
2000.................... -- -- -- $ 1,918,358 -- --
2001.................... -- -- -- 7,708,871 -- --
2002.................... $548,256 $2,434,010 -- 41,867,757 -- $414,821
2003.................... 4,045,611 3,564,637 -- 18,176,270 -- 286,740
-------- ------------ ---------- ----------- -------- ----------
$4,593,867 $5,998,647 -- $69,671,256 -- $701,561
======== ============ ========== =========== ======== ==========
For tax purposes, the aggregate cost of securities is higher (and unrealized
depreciation is higher) than for financial reporting purposes at October 31,
1995, by $12,415 in the Convertible Fund, $581,413 in the Adjustable U.S.
Government Securities Fund, $41,427 in the Equity Income Fund, and $17,234 in
the Adjustable Rate Fund.
5. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding purchases and sales of short-term
securities) for the year ended October 31, 1995, were as follows:
Franklin Franklin Franklin
Global Short-Intermediate Franklin Adjustable U.S. Franklin Franklin
Government U.S. Government Convertible Government Equity Adjustable Rate
Income Fund Securities Fund Securities FundSecurities Fund Income Fund Securities Fund
---------- ----------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Purchases............... $160,823,330 $118,916,876 $78,882,691 $104,643,793 $74,322,215 $10,727,587
========== =========== ========== =========== ========= ==========
Sales................... $173,027,094 $146,406,150 $73,187,495 $308,837,179 $26,133,957 $18,532,503
========== =========== ========== =========== ========= ==========
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Franklin Advisers, Inc. (Advisers), under the terms of a management agreement,
provides investment advice, administrative services, office space and facilities
to each Fund, and receives fees computed monthly based on the net assets of each
Fund on the last day of the month, except for the Adjustable U.S. Government
Fund and the Adjustable Rate Fund, as follows:
Annualized Fee RateMonth End Net Assets
------------- ----------------------------------
.625 of 1% First $100 million
.500 of 1% over $100 million, up to and including $250 million
.450 of 1% over $250 million
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)
Under the terms of a separate administration agreement with the Adjustable U.S.
Government Fund and the Adjustable Rate Fund, Advisers provides various
administrative, statistical, and other services, and receives fees computed
monthly based on the average daily net assets as follows:
Annualized Fee RateAverage Monthly Net Assets
------------- ----------------------------------
.100 of 1% First $5 billion
.090 of 1% over $5 billion, up to and including $10 billion
.080 of 1% over $10 billion
The terms of the management 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 the Funds' shares are registered. The Funds' expenses did not exceed
these limitations; however, for the year ended October 31, 1995, Advisers agreed
in advance to waive a portion of the management fees for the Equity Income Fund
of $15,980. In addition, Advisers agreed in advance to waive a portion of the
administration fee for the Adjustable Rate Securities Fund of $5,849 and made
payments of $8,739 for other expenses as reflected in the Statement of
Operations.
In its capacity as underwriter for the shares of the Funds, Franklin/Templeton
Distributors, Inc. (Distributors), receives commissions on sales of the Funds'
capital shares. Commissions are deducted from the gross proceeds received from
the sale of the shares of the Funds and as such are not expenses of the Funds.
Distributors may also make payments, out of its own resources, to the dealers
for certain sales of Class I and Class II shares. Commissions received by
Distributors and the amounts paid to other dealers for the year ended October
31,1995, were as follows:
Franklin Franklin Franklin
Global Short-Intermediate Franklin Adjustable Franklin Franklin
Government U.S. Government Convertible U.S. Government Equity Adjustable Rate
Income Fund Securities Fund Securities FundSecurities Fund Income FundSecurities Fund
-------- ------------ ---------- ----------- -------- ----------
Class I
<S> <C> <C> <C> <C> <C> <C>
Total commissions received. $377,052 $248,800 $453,446 $121,256 $1,252,879 $12,586
======== ============ ========== =========== ======== ==========
Paid to other dealers...... $360,075 $250,445 $438,928 $109,101 $1,202,611 $11,219
======== ============ ========== =========== ======== ==========
Class II
Total commissions received. $11,300 $ 5,129 $2,901
======== ========== ========
Paid to other dealers...... $23,311 $10,238 $5,832
======== ========== ========
Distributors also received contingent deferred sales charge of $24 and $500
relating to transactions in the Global Fund Class II shares and the Adjustable
U.S. Government Fund Class I shares, respectively.
Under the terms of a shareholder service agreement with Franklin/Templeton
Investor Services, Inc. (Investor Services), the Funds pay costs on a per
shareholder account basis. Shareholder servicing costs incurred by the Funds for
the year ended October 31, 1995, aggregated $551,109 of which $508,651 was paid
to Investor Services.
Under the terms of Distribution Plans pursuant to Rule 12b-1 of the Investment
Company Act of 1940, the Short-Intermediate Fund, the Adjustable U.S. Government
Fund and the Adjustable Rate Fund will reimburse Distributors in an amount up to
0.10%, 0.25%, 0.25%, respectively, per annum of the Funds' average daily net
assets for costs incurred in the promotion, offering and marketing of the Funds'
shares. Fees incurred by the Funds under the agreement aggregated $1,588,062 for
the year ended October 31, 1995.
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)
Under the terms of Distribution Plans pursuant to Rule 12b-1 of the Investment
Company Act of 1940, which were effective May 1, 1994, for Class I shares, and
which became effective for Class II shares on May 1, 1995, the Global Fund will
reimburse Distributors in an amount up to a maximum of 0.15% for Class I and
0.65% for Class II per annum of the average daily net assets of each class for
costs incurred in the promotion, offering and marketing of the Class I and Class
II shares. Fees incurred by the classes under the agreement aggregated $142,192
for the year ended October 31, 1995.
Under the terms of Distribution Plans pursuant to Rule 12b-1 of the Investment
Company Act of 1940, which were effective May 1, 1994, for Class I shares, and
which became effective for Class II shares on October 1, 1995, the Convertible
Fund and Equity Income Fund will reimburse Distributors in an amount up to a
maximum of 0.25% for Class I and 1.00% for Class II per annum of the average
daily net assets of each class for costs incurred in the promotion, offering and
marketing of the Class I and Class II shares. Fees incurred by the classes under
the agreement aggregated $438,951 for the year ended October 31, 1995.
Certain officers and trustees of the Trust are also officers and/or directors of
Distributors, Advisers, and Investor Services, all wholly-owned subsidiaries of
Franklin Resources, Inc., and the Adjustable Rate Securities Portfolio and the
U.S. Government Adjustable Rate Mortgage Portfolio.
7. RULE 144A SECURITIES
Rule 144A provides a non-exclusive safe harbor exemption from the registration
requirements of the Securities Act of 1933 for specified resales of restricted
securities to qualified institutional investors. The Funds value these
securities as disclosed in Note 1. At October 31, 1995, 144A securities were
held as follows:
Franklin
Global Franklin Franklin
Government Convertible Equity
Income Fund Securities FundIncome Fund
---------- ---------- --------
<S> <C> <C> <C>
Value.................................................................. $3,109,125 $29,566,581 $8,959,949
========== ========== ========
Ratio of value to net assets........................................... 1.87% 35.31% 5.29%
========== ========== ========
See the accompanying Statements of Investments in Securities and Net Assets for
specific information on such securities.
8. CREDIT RISKS
Although the Convertible Fund has a diversified portfolio, 72.45% of its
portfolio is invested in lower rated and comparable quality unrated high yield
securities. Investments in high yield securities are accompanied by a greater
degree of credit risk and such lower rated securities tend to be more sensitive
to economic conditions than higher rated securities. The risk of loss due to
default by the issuer may be significantly greater for the holders of high yield
securities, because such securities are generally unsecured and are often
subordinated to other creditors of the issuer.
Although each of the Funds has a diversified investment portfolio, there are
certain credit risks, foreign currency exchange risk, or event risks due to the
manner in which certain Funds are invested, which may subject the Funds more
significantly to economic changes occurring in certain industries, or sectors as
follows:
The Global Fund has investments in excess of 10% of its total net assets in debt
securities denominated in Australian dollars, Canadian dollars, and Deutsche
marks.
9. FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding throughout each
year by Fund are as follows:
Per Share Operating Performance Ratios/Supplemental Data
---------------------------------------------------- -------------------------
Net Distri-
Net Realized Total butions Distri- Distri- Ratio
Asset & Un- From From butions butions Net Net Ratio of of Net
Value at Net realized Invest- Net From From Asset Assets at Expenses Investment
Year Begin- Invest- Gain ment Invest- RealizedReturn Total Value End of to Average Income Portfolio
Ended ning of ment (Loss)on Oper- ment Capital of Distri- at End Total Year Net to Average Turnover
Oct. 31,Year Income Securities ations Income Gains Capital butions of Year Return**(in 000's)Assets5 Net Assets Rate
Franklin Global Government Income Fund
Class I Shares:
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19922 $9.34 $0.86 $0.246 $1.106 $(0.900) $(0.156) $-- $(1.056) $9.39 12.15% $ 78,911 0.50% 7.87% 155.40%
19932 9.39 0.83 (0.698) 0.132 (0.713) (0.075) (0.124) (0.912) 8.61 1.08 153,899 0.72 7.08 49.20
19933 8.61 0.58 0.716 1.296 (0.576) -- -- (0.576) 9.33 15.14 195,627 0.77* 6.74* 67.36
1994 9.33 1.30 (1.806) (.506) (0.078) (.083) (0.603) (0.764) 8.06 (5.72) 187,204 0.89 8.54 80.69
1995 8.06 0.67 0.290 0.960 (0.645) -- (0.065) (0.710) 8.31 12.65 164,970 0.96 8.29 103.49
Class II Shares:+++
1995+ 8.03 0.31 0.301 0.611 (0.301) -- (0.030) (0.331) 8.31 7.09 1,193 1.54* 7.41* 103.49
Franklin Short-Intermediate U.S. Government Securities Fund
Class I Shares:
19922 $10.30 $0.58 $0.374 $0.954$ (0.786) $(0.078) -- $(0.864) $10.39 9.44%$ 163,690 0.71% 5.90% 102.05%
19932 10.39 0.57 0.432 1.002 (0.565) (0.257) -- (0.822) 10.57 10.01 235,382 0.56 5.40 78.96
19933 10.57 0.38 0.245 0.625 (0.390) (0.005) -- (0.395) 10.80 5.90 273,678 0.55* 4.75* 31.71
1994 10.80 0.49 (0.696) (0.206) (0.472) (0.092) -- (0.564) 10.03 (1.99) 225,352 0.65 4.75 99.09
1995 10.03 0.56 0.309 0.869 (0.549) -- -- (0.549) 10.35 8.90 208,057 0.73 5.42 56.34
Franklin Convertible Securities Fund
Class I Shares:
19922 8.53 0.44 2.194 2.634 (0.684) -- -- (0.684) 10.48 31.50 20,282 0.26 6.84 64.90
19932 10.48 0.61 1.034 1.644 (0.684) -- -- (0.684) 11.44 16.12 28,307 0.25 6.01 60.00
19933 11.44 0.45 1.413 1.863 (0.513) -- -- (0.513) 12.79 16.50 47,440 0.25* 5.25* 31.05
1994 12.79 0.59 (0.327) 0.263 (0.594) (0.119) -- (0.713) 12.34 2.07 66,869 0.84 4.84 68.39
1995 12.34 0.58 1.099 1.679 (0.592) (0.697) -- (1.289) 12.73 15.18 83,523 1.03 4.82 108.64
Class II Shares:+++
1995++ 13.06 0.07 (0.373) (0.303) (0.047) -- -- (0.047) 12.71 (2.33) 209 1.60* 3.64* 108.64
Franklin Adjustable U.S. Government Securities Fund
Class I Shares:
19922 9.99 0.74 0.027 0.767 (0.777) -- -- (0.777) 9.98 7.96 3,513,415 0.684 7.10 30.89
19932 9.98 0.51 (0.105) 0.405 (0.522) (0.003) -- (0.525) 9.86 4.16 2,971,424 0.664 5.10 30.36
19933 9.86 0.28 (0.086) 0.194 (0.284) -- -- (0.284) 9.77 1.99 1,813,504 0.654* 3.92* 6.97
1994 9.77 0.35 (0.606) (0.256) (0.314) -- -- (0.314) 9.20 (2.65) 700,617 0.424 3.67 5.99
1995 9.20 0.54 0.136 0.676 (0.536) -- -- (0.536) 9.34 7.57 509,371 0.614 5.76 17.81
Franklin Equity Income Fund
Class I Shares:
19922 10.64 0.42 1.967 2.387 (0.660) (0.057) -- (0.717) 12.31 22.76 16,144 0.25 5.77 40.59
19932 12.31 0.66 1.307 1.967 (0.682) (0.135) -- (0.817) 13.46 16.23 26,092 0.25 5.18 31.05
19933 13.46 0.60 1.435 2.035 (0.495) (0.090) -- (0.585) 14.91 15.27 42,177 0.25* 5.86* 19.33
1994 14.91 0.62 (0.358) 0.262 (0.725) (0.307) -- (1.032) 14.14 1.83 92,763 0.77 4.53 39.51
1995 14.14 0.63 1.272 1.902 (0.609) (0.243) -- (0.852) 15.19 14.10 168,897 1.00 4.44 27.86
Class II Shares:+++
1995++ 15.38 0.05 (0.193) (0.143) (.047) -- -- (0.047) 15.19 (0.93) 386 1.99* 3.57* 27.86
Franklin Adjustable Rate Securities Fund
19921 10.00 -- -- -- -- -- -- -- 10.00 -- -- -- -- --
19932 10.00 0.60 0.031 0.631 (0.601) -- -- (0.601) 10.03 6.48 12,521 -- 5.84 48.95
19933 10.03 0.37 0.009 0.379 (0.369) -- -- (0.369) 10.04 3.83 37,809 0.114* 4.69* 49.11
1994 10.04 0.45 (0.341) 0.109 (0.449) -- -- (0.449) 9.70 1.11 24,564 0.454 4.45 84.67
1995 9.70 0.58 0.120 0.700 (0.580) -- -- (0.580) 9.82 7.57 17,014 0.704 5.82 53.30
</TABLE>
1For the period December 26, 1991 (effective date of registration) to January
31, 1992.
2For the year ended January 31.
3For the nine months ended October 31, 1993.
+For the period ended May 1, 1995 to October 31, 1995.
++For the period ended October 1, 1995 to October 31, 1995.
+++Ratios have been calculated using daily average net assets during the period.
*Annualized
**Total return measures the change in value of an investment over the periods
indicated, and is not annualized. It does not include the maximum front-end
sales charge or the deferred contingent sales charge and assumes reinvestment of
dividends and capital gains, if any, at net asset value. Prior to May 1, 1994,
dividends were reinvested at the maximum offering price.
4Includes the Funds' share of the Portfolios' allocated expenses.
5During the periods indicated, Franklin Advisers, Inc., the investment manager
of the Funds and Portfolios agreed in advance to waive a portion of its
administration and management fees and made payments of other expenses incurred
by the Funds and Portfolios. Had such action not been taken, the Funds' ratios
of expenses to average net assets would have been as follows:
Ratio of expense to
average net assets
----------
Franklin Global Government Income Fund
Class I
19922................................. 0.80%
19933................................. 0.73*
Franklin Short-Intermediate
U.S. Government Securities Fund
19932.................................. 0.65%
19933.................................. 0.63*
1994................................... 0.68
Franklin Convertible Securities Fund
Class I
19922.................................. 0.94%
19932.................................. 0.81
19933.................................. 0.86*
1994................................... 0.92
Ratio of expense to
average net assets
----------
Franklin Adjustable U.S. Government
Securities Fund
19922................................. 0.89%4
19932................................. 0.804
19933................................. 0.79
1994.................................. 0.82
1995.................................. 0.86
Franklin Equity Income Fund
Class I
19922................................. 0.84%
19932................................. 0.81
19933................................. 0.87*
1994.................................. 0.95
1995.................................. 1.02
Franklin Adjustable Rate Securities Fund
19921................................. --
19932................................. 1.91%4
19933................................. 1.014*
1994.................................. 0.854
1995.................................. 0.994
Under IRC 854(b)(2) of the Internal Revenue Code, the Funds hereby designate the
following percentage amounts of their ordinary income dividends paid by the
Funds during the fiscal year ended October 31, 1995, as income qualifying for
the dividends received deduction.
Convertible Securities Fund......................... 21.43%
Equity Income Fund.................................. 74.26%
FRANKLIN INVESTORS SECURITIES TRUST
Report of Independent Auditors
To the Shareholders and Board of Trustees
of Franklin Investors Securities Trust:
We have audited the accompanying statements of assets and liabilities of the
various funds comprising the Franklin Investors Securities Trust, including each
Fund's statement of investments in securities and net assets, as of October 31,
1995, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated thereon.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the funds comprising the Franklin Investors Securities Trust as of October
31, 1995, the results of their operations for the year then ended, the changes
in their net assets for each of the two years in the period then ended, and the
financial highlights for each of the periods indicated thereon, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
December 8, 1995
ADJUSTABLERATESECURITIESPORTFOLIOS
Statement of Investments in Securities and Net Assets, October 31, 1995
<TABLE>
<CAPTION>
Face Value
Amount U.S. Government Adjustable Rate Mortgage Portfolio (Note 1)
Adjustable Rate Mortgage Securities96.6%
Federal Home Loan Mortgage Corp. (FHLMC)25.9%
<C> <C> <C>
$ 6,486,145 FHLMC, Cap 11.253%, Margin 1.75% + CMT, Resets Annually, 7.779%, 11/01/16...... $ 6,632,610
2,642,734 FHLMC, Cap 11.939%, Margin 2.127% + CMT, Resets Annually, 7.801%, 07/01/20..... 2,697,122
1,158,740 FHLMC, Cap 12.176%, Margin 2.015% + CMT, Resets Annually, 7.339%, 04/01/20..... 1,174,256
4,617,382 FHLMC, Cap 12.177%, Margin 2.265% + CMT, Resets Annually, 7.468%, 07/01/20..... 4,721,043
907,915 FHLMC, Cap 12.68%, Margin 2.195% + CMT, Resets Annually, 7.823%, 02/01/19...... 928,289
2,847,028 FHLMC, Cap 12.723%, Margin 2.189% + CMT, Resets Annually, 7.868%, 04/01/19..... 2,942,973
5,666,177 FHLMC, Cap 12.744%, Margin 2.00% + CMT, Resets Annually, 7.927%, 07/01/18...... 5,811,118
6,036,075 FHLMC, Cap 12.79%, Margin 2.07% + CMT, Resets Annually, 7.769%, 04/01/19....... 6,220,598
1,049,482 FHLMC, Cap 12.80%, Margin 2.05% + CMT, Resets Annually, 7.498%, 11/01/18 ...... 1,065,487
8,763,998 FHLMC, Cap 12.806%, Margin 2.23% + CMT, Resets Annually, 7.749%, 04/01/18...... 9,059,345
7,228,305 FHLMC, Cap 13.006%, Margin 2.00% + CMT, Resets Annually, 7.567%, 09/01/19...... 7,445,431
5,374,091 FHLMC, Cap 13.07%, Margin 2.12% + CMT, Resets Annually, 7.921%, 04/01/22....... 5,524,942
4,145,794 FHLMC, Cap 13.156%, Margin 1.915% + CMT, Resets Annually, 7.328%, 12/01/16..... 4,244,938
2,363,866 FHLMC, Cap 13.16%, Margin 2.115% + CMT, Resets Annually, 7.684%, 07/01/19...... 2,439,826
3,854,267 FHLMC, Cap 13.246%, Margin 2.175% + CMT, Resets Annually, 7.524%, 10/01/18..... 3,978,410
1,785,997 FHLMC, Cap 13.269%, Margin 2.249% + CMT, Resets Annually, 7.909%, 05/01/19..... 1,849,525
685,545 FHLMC, Cap 13.286%, Margin 2.164% + CMT, Resets Annually, 7.838%, 10/01/19 .... 700,072
2,747,142 FHLMC, Cap 13.292%, Margin 2.115% + CMT, Resets Annually, 7.635%, 03/01/19..... 2,829,791
868,495 FHLMC, Cap 13.302%, Margin 2.04% + CMT, Resets Annually, 7.439%, 04/01/18 ..... 892,584
1,945,682 FHLMC, Cap 13.306%, Margin 2.057% + CMT, Resets Annually, 7.626%, 12/01/18..... 2,004,036
2,994,881 FHLMC, Cap 13.36%, Margin 2.242% + CMT, Resets Annually, 8.097%, 07/01/20...... 3,104,224
5,573,928 FHLMC, Cap 13.364%, Margin 2.225% + CMT, Resets Annually, 7.966%, 07/01/19..... 5,782,517
5,789,578 FHLMC, Cap 13.366%, Margin 2.102% + CMT, Resets Annually, 7.597%, 03/01/18..... 5,962,675
11,206,472 FHLMC, Cap 13.37%, Margin 2.04% + CMT, Resets Annually, 7.634%, 04/01/19....... 11,517,562
9,746,883 FHLMC, Cap 13.65%, Margin 2.249% + CMT, Resets Annually, 8.033%, 07/01/20...... 10,099,720
733,246 FHLMC, Cap 13.77%, Margin 2.057% + CMT, Resets Annually, 7.669%, 02/01/19...... 739,163
5,235,750 FHLMC, Cap 13.793%, Margin 2.214% + CMT, Resets Annually, 7.955%, 11/01/19..... 5,397,482
10,372,361 FHLMC, Cap 13.879%, Margin 2.089% + CMT, Resets Annually, 7.711%, 04/01/18 .... 10,670,048
2,966,425 FHLMC, Cap 14.307%, Margin 1.957% + 3CMT, Resets Every 3 Years,
8.60%, 12/01/21 .............................................................. 3,061,766
1,719,346 FHLMC, Cap 14.451%, Margin 2.00% + CMT, Resets Annually, 7.42%, 12/01/18 ...... 1,761,178
4,249,865 FHLMC, Cap 14.90%, Margin 2.546% + CMT, Resets Annually, 8.228%, 02/01/19 ..... 4,459,469
-------------
Total Federal Home Loan Mortgage Corp. (Cost $135,982,186)..................... 135,718,200
-------------
Federal National Mortgage Association (FNMA)61.1%
3,293,207 FNMA, Cap 12.605%, Margin 2.536% + 6 Month DR, Resets Semi-Annually,
7.533%, 11/01/18.............................................................. 3,416,538
18,611,592 FNMA, Cap 12.637%, Margin 2.00% + NCI, Resets Annually, 6.485%, 11/01/17....... 18,773,513
5,755,655 FNMA, Cap 12.64%, Margin 2.00% + CMT, Resets Annually, 7.724%, 03/01/19........ 5,924,411
Federal National Mortgage Association (FNMA) (cont.)
$ 14,663,088 FNMA, Cap 12.66%, Margin 1.75% + 6 Month DR, Resets Annually,
7.297%, 01/01/19............................................................... $ 14,941,686
4,698,024 FNMA, Cap 12.662%, Margin 1.25% + COFI, Resets Monthly, 6.905%, 01/01/19....... 4,702,205
11,679,517 FNMA, Cap 12.705%, Margin 1.25% + COFI, Resets Monthly, 6.394%, 09/01/18....... 11,653,354
5,169,685 FNMA, Cap 12.787%, Margin 1.25% + COFI, Resets Monthly, 7.454%, 01/01/19....... 5,209,801
5,380,481 FNMA, Cap 12.788%, Margin 2.11% + CMT, Resets Annually, 7.970%, 11/01/20....... 5,560,082
7,880,916 FNMA, Cap 12.804%, Margin 1.75% + CMT, Resets Annually, 7.418%, 05/01/19....... 8,134,576
3,960,326 FNMA, Cap 12.84%, Margin 2.762% + 6 Month DR, Resets Semi-Annually,
7.815%, 06/01/17.............................................................. 4,156,877
7,701,343 FNMA, Cap 12.85%, Margin 2.078% + 5CMT, Resets Every 5 Years,
7.985%, 10/01/17.............................................................. 7,924,682
8,827,407 FNMA, Cap 12.89%, Margin 2.125% + 6 Month DR, Resets Semi-Annually,
7.122%, 07/01/17.............................................................. 8,962,112
2,507,963 FNMA, Cap 12.911%, Margin 2.00% + 6 Month DR, Resets Semi-Annually,
7.350%, 02/01/18.............................................................. 2,534,472
11,320,379 FNMA, Cap 12.938%, Margin 1.25% + COFI, Resets Monthly, 6.429%, 02/01/19 ...... 11,295,020
4,913,891 FNMA, Cap 12.993%, Margin 2.092% + CMT, Resets Annually, 7.865%, 12/01/19...... 5,103,051
7,048,239 FNMA, Cap 13.005%, Margin 1.97% + 3CMT, Resets Every 3 Years,
8.123%, 11/01/17.............................................................. 7,263,703
6,964,521 FNMA, Cap 13.01%, Margin 2.10% + CMT, Resets Monthly, 7.644%, 06/01/19......... 7,204,921
11,099,155 FNMA, Cap 13.03%, Margin 1.25% + COFI, Resets Monthly, 6.877%, 02/01/20........ 11,133,228
7,543,674 FNMA, Cap 13.03%, Margin 1.75% + 6 Month TB, Resets Semi-Annually,
7.634%, 12/01/20.............................................................. 7,689,417
7,432,428 FNMA, Cap 13.063%, Margin 2.175% + CMT, Resets Annually, 7.704%, 04/01/19...... 7,696,799
7,874,867 FNMA, Cap 13.099%, Margin 1.75% + 6 Month TB, Resets Semi-Annually,
7.646%, 07/01/20.............................................................. 8,022,047
5,692,587 FNMA, Cap 13.147%, Margin 1.895% + CMT, Resets Annually, 7.716%, 04/01/19...... 5,887,649
3,927,794 FNMA, Cap 13.202%, Margin 2.478% + 6 Month DR, Resets Semi-Annually,
7.893%, 11/01/26.............................................................. 4,034,316
4,007,503 FNMA, Cap 13.249%, Margin 2.00% + CMT, Resets Annually, 7.872%, 06/01/19....... 4,122,479
9,271,494 FNMA, Cap 13.281%, Margin 2.00% + CMT, Resets Annually, 7.605%, 10/01/19 ...... 9,594,532
8,489,983 FNMA, Cap 13.32%, Margin 1.25% + COFI, Resets Monthly, 7.920%, 04/01/03........ 8,494,823
16,005,786 FNMA, Cap 13.452%, Margin 2.148% + CMT, Resets Annually, 7.776%, 09/01/22...... 16,589,997
14,870,123 FNMA, Cap 13.644%, Margin 2.011% + CMT, Resets Annually, 7.752%, 01/01/18...... 15,369,907
7,681,967 FNMA, Cap 13.662%, Margin 2.177% + CMT, Resets Annually, 7.964%, 03/01/21...... 8,014,918
10,611,009 FNMA, Cap 13.791%, Margin 2.143% + CMT, Resets Annually, 8.046%, 12/01/20...... 10,978,469
4,880,937 FNMA, Cap 13.797%, Margin 2.20% + CMT, Resets Annually, 7.802%, 03/01/19 ...... 5,059,140
6,113,202 FNMA, Cap 13.80%, Margin 0.94% + 6 Month DR, Resets Semi-Annually,
6.893%, 07/01/24.............................................................. 6,032,630
5,328,418 FNMA, Cap 13.887%, Margin 2.25% + CMT, Resets Annually, 7.762%, 02/01/19....... 5,532,925
Federal National Mortgage Association (FNMA) (cont.)
$ 4,162,026 FNMA, Cap 13.896%, Margin 2.25% + CMT, Resets Annually, 7.670%, 12/01/18....... $ 4,303,468
8,593,055 FNMA, Cap 14.069%, Margin 2.089% + CMT, Resets Annually, 7.633%, 01/01/19...... 8,891,525
2,297,476 FNMA, Cap 14.142%, Margin 2.118% + CMT, Resets Annually, 7.690%, 03/01/21...... 2,375,591
14,725,546 FNMA, Cap 14.354%, Margin 2.07% + 5CMT, Resets Every 5 Years,
8.064%, 05/01/21.............................................................. 15,180,125
3,993,207 FNMA, Cap 14.42%, Margin 2.099% + CMT, Resets Annually, 7.889%, 03/01/20....... 4,126,500
10,711,879 FNMA, Cap 14.887%, Margin 1.72% + CMT, Resets Annually, 7.634%, 01/01/16....... 10,922,047
4,062,732 FNMA, Cap 14.952%, Margin 2.523% + CMT, Resets Annually, 8.941%, 05/01/19...... 4,225,038
2,096,797 FNMA, Cap 15.381%, Margin 2.168% + CMT, Resets Annually, 8.056%, 02/01/20...... 2,189,164
-------------
Total Federal National Mortgage Association (Cost $321,037,193)................ 319,227,738
-------------
Government National Mortgage Association (GNMA)9.6%
9,149,734 GNMA, Cap 10.00%, Margin 1.50% + CMT, Resets Annually, 6.00%, 01/20/24......... 9,162,817
5,745,469 GNMA, Cap 11.00%, Margin 1.50% + CMT, Resets Annually, 6.00%, 08/20/24......... 5,879,855
8,145,960 GNMA, Cap 11.00%, Margin 2.50% + CMT, Resets Annually, 6.00%, 07/20/25......... 8,188,807
2,774,056 GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 6.50%, 07/20/25......... 2,806,957
7,095,937 GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 6.50%, 09/01/25......... 7,180,094
9,998,089 GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 7.125%, 07/20/23........ 10,247,541
6,733,728 GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 7.125%, 08/20/23........ 6,901,734
-------------
Total Government National Mortgage Association (Cost $50,915,091).............. 50,367,805
-------------
Total Long-Term Investments (Cost $507,934,470)................................ 505,313,743
-------------
d,eReceivables from Repurchase Agreements1.5%
7,633,075 Joint Repurchase Agreements, 5.887%, 11/01/95 (Cost $7,754,634)
Daiwa Securities America, Inc., (Maturity Value $1,706,298)
Collateral: U.S. Treasury Bills, 04/25/96
U.S. Treasury Notes, 6.125%, 09/30/00
Donaldson, Lufkin & Jenrette, (Maturity Value $2,016,535)
Collateral: U.S. Treasury Notes, 5.125% - 8.25%, 07/31/96 - 03/31/00
Swiss Bank Corp., (Maturity Value $2,016,535)
Collateral: U.S. Treasury Notes, 6.875%, 03/31/00
UBS Securities, Inc., (Maturity Value $2,016,535)
Collateral: U.S. Treasury Notes, 5.125% - 8.50%, 11/15/95 - 01/31/00......... 7,754,634
-------------
Total Investments (Cost $515,689,104)98.1%.................................... 513,068,377
Others Assets and Liabilities, Net1.9%........................................ 9,733,580
-------------
Net Assets100%................................................................ $522,801,957
=============
At October 31, 1995, the net unrealized depreciation based on
the cost of investments for income tax purposes of $515,689,104 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was
an excess of value over tax cost.............................................. $ 1,571,783
Aggregate gross unrealized depreciation for all investments in which there was
an excess of tax cost over value.............................................. (4,192,510)
-------------
Net unrealized depreciation ................................................... $ (2,620,727)
=============
</TABLE>
PORTFOLIO ABBREVIATIONS:
3CMT - 3 Year Constant Maturity Treasury Index
5CMT - 5 Year Constant Maturity Treasury Index
CMT - 1 Year Constant Maturity Treasury Index
COFI - Cost of Funds Index
DR - Discount Rate
NCI - National District Cost of Funds Index
TB - Treasury Bill Rate
dFace amount for repurchase agreements is for the underlying collateral.
eSee Note 1(f) regarding Joint Repurchase Agreements.
The accompanying notes are an integral part of these financial statements.
ADJUSTABLERATESECURITIESPORTFOLIOS
Statement of Investments in Securities and Net Assets, October 31, 1995
<TABLE>
<CAPTION>
Face Value
Amount Adjustable Rate Securities Portfolio (Note 1)
Adjustable Rate Mortgage Securities 79.9%
<C> <C> <C>
$ 878,306 FNMA, Cap 12.65%, Margin 1.75% + NCI, Resets Monthly, 6.625%, 10/01/28........... $ 878,262
774,027 GNMA, Cap 11.00%, Margin 1.50% + CMT, Resets Annually, 6.50%, 02/20/17 .......... 783,176
1,275,424 Homeowners Federal Savings, Cap 13.00%, Margin 1.75% + CMT, Resets Annually,
7.46%, 01/25/18................................................................. 1,288,179
1,932,199 PHMS, Cap 10.88%, Margin 2.50% + CMT, Resets Annually, 8.06%, 01/25/23........... 1,966,013
2,086,020 PHMS, Cap 11.67%, Margin 2.67% + CMT, Resets Annually, 8.74%, 07/25/22........... 2,122,526
1,298,157 PHMS, Cap 12.02%, Margin 2.55% + CMT, Resets Annually, 8.08%, 03/25/22........... 1,319,252
1,200,000 PHMS, Cap 12.625%, Margin 2.55% + CMT, Resets Annually, 8.625%, 08/25/20......... 1,291,500
2,616,806 RFC, Cap 11.46%, Margin 2.25% + CMT, Resets Annually, 7.97%, 11/25/22............ 2,664,645
1,637,674 RTC, Cap 12.66%, Margin 1.75% + 6 Month TB, Resets Semi-Annually,
7.50%, 04/26/21................................................................. 1,590,592
2,318,301 RTC, Cap 14.69%, Margin 1.55% + 3CMT, Resets Every 3 Years, 7.51%, 06/25/22...... 2,306,710
1,591,724 RTC, Cap 16.48%, Margin NACR - 0.15%, Resets Annually, 7.59%, 07/25/20........... 1,546,957
1,304,276 Ryland Mortgage Securities Corp., Cap 11.00%, Margin 1.00% + COFI,
Resets Monthly, 6.13%, 04/25/21................................................. 1,285,120
2,612,075 Salomon Brothers Mortgage Securities, Cap 14.00%, Margin 0.96% + NACR,
Resets Annually, 8.24%, 10/25/16................................................ 2,591,669
-------------
Total Adjustable Rate Mortgage Securities (Cost $22,189,652)..................... 21,634,601
-------------
Fixed Rate Mortgage Securities4.7%
1,314,244 Countrywide Mortgage-Backed Securities, Inc., Series 1994-I, Class A8, 6.25%,
07/25/09 (Cost $1,278,102)...................................................... 1,278,312
-------------
Other Adjustable Rate Securities4.8%
1,300,000 Advanta Credit Card Master Trust, Margin 0.16% + 1 Month LIBOR, Resets Monthly,
6.03%, 09/01/00 (Cost $1,301,523)............................................... 1,303,055
-------------
U.S Government Securities7.6%
1,000,000 U.S. Treasury Notes, 6.75%, 05/31/97............................................. 1,017,187
1,000,000 U.S. Treasury Notes, 8.50%, 07/15/97............................................. 1,046,562
-------------
Total U.S. Government Securities (Cost $2,054,453) .............................. 2,063,749
-------------
Total Long-Term Investments (Cost $26,823,730)................................... 26,279,717
-------------
d,eReceivables from Repurchase Agreements2.6%.......................................
$ 695,644 Joint Repurchase Agreements, 5.887%, 11/01/95 (Cost $706,588)
Daiwa Securities America, Inc., (Maturity Value $155,475)
Collateral: U.S. Treasury Bills, 04/25/96
U.S. Treasury Notes, 6.125%, 09/30/00
Donaldson, Lufkin & Jenrette, (Maturity Value $183,743)
Collateral: U.S. Treasury Notes, 5.125% - 8.25%, 07/31/96 - 03/31/00
Swiss Bank Corp., (Maturity Value $183,743)
Collateral: U.S. Treasury Notes, 6.875%, 03/31/00
UBS Securities, Inc., (Maturity Value $183,743)
Collateral: U.S. Treasury Notes, 5.125% - 8.50%, 11/15/95 - 01/31/00............. $ 706,588
-------------
Total Investments (Cost $27,530,318)99.6%....................................... 26,986,305
Other Assets and Liabilities, Net.4%............................................ 92,595
-------------
Net Assets100.0%................................................................ $27,078,900
=============
At October 31, 1995, the net unrealized depreciation based on
the cost of investments for income tax purposes of $27,530,318 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was
an excess of value over tax cost................................................ $ 17,543
Aggregate gross unrealized depreciation for all investments in which there was
an excess of tax cost over value................................................ (561,556)
-------------
Net unrealized depreciation...................................................... $ (544,013)
=============
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 District Cost of Funds Index
PHMS - Prudential Home Mortgage Securities
RFC - Residential Finance Corp.
RTC - Resolution Trust Corp.
TB - Treasury Bill Rate
dFace amount for repurchase agreements is for the underlying collateral.
eSee Note 1(f) regarding Joint Repurchase Agreements.
The accompanying notes are an integral part of these financial statements.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Financial Statements
Statements of Assets and Liabilities
October 31, 1995
U.S. Government
Adjustable Rate Adjustable Rate
Mortgage PortfolioSecurities Portfolio
---------- -----------
Assets:
Investments in securities:
<S> <C> <C>
At identified cost....................................................... $507,934,470 $26,823,730
========== ===========
At value................................................................. 505,313,743 26,279,717
Receivables from repurchase agreements, at value and cost................. 7,754,634 706,588
Cash...................................................................... 3,137,654 --
Receivables:
Interest................................................................. 3,941,508 234,803
Investment securities sold............................................... 2,869,491 --
Unamortized organization costs (Note 2)................................... -- 2,745
---------- -----------
Total assets......................................................... 523,017,030 27,223,853
---------- -----------
Liabilities:
Payables:
Capital shares repurchased............................................... -- 125,717
Distributions payable to shareholders.................................... 18,831 --
Management fees.......................................................... 106,645 4,106
Professional fees........................................................ 61,989 3,011
Accrued expenses and other liabilities.................................... 27,608 12,119
---------- -----------
Total liabilities.................................................... 215,073 144,953
---------- -----------
Net assets, at value....................................................... $522,801,957 $27,078,900
========== ===========
Net assets consist of:
Unrealized depreciation on investments.................................... $ (2,620,727) $ (544,013)
Net realized loss from investments........................................ (137,401,286) (2,705,888)
Capital shares............................................................ 560,356 27,610
Additional paid-in capital................................................ 662,263,614 30,301,191
---------- -----------
Net assets, at value....................................................... $522,801,957 $27,078,900
========== ===========
Shares outstanding......................................................... 56,035,644 2,760,971
========== ===========
Net asset value per share.................................................. $9.33 $9.81
========== ===========
Representative computation (U.S. Government Adjustable Rate Mortgage
Portfolio) of net asset value, offering price and redemption price per share:
($522,801,957 O 56,035,644)............................................... $9.33
==========
The accompanying notes are an integral part of these financial statements.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Financial Statements (cont.)
Statements of Operations
for the year ended October 31, 1995
U.S. Government
Adjustable Rate Adjustable Rate
Mortgage PortfolioSecurities Portfolio
---------- -----------
Investment income:
<S> <C> <C>
Interest (Note 1)......................................................... $39,043,371 $1,971,336
---------- -----------
Expenses:
Management fees (Note 6).................................................. 2,456,413 119,324
Professional fees......................................................... 66,154 5,642
Custodian fees............................................................ 53,416 2,641
Rating service fees....................................................... 12,714 6,310
Trustees' fees and expenses............................................... 8,019 240
Reports to shareholders................................................... 4,621 1,058
Amortization of organization costs (Note 2)............................... -- 2,196
Other..................................................................... 11,103 1,428
Payments from Manager (Note 6)............................................ (1,488,336) (63,940)
---------- -----------
Total expenses....................................................... 1,124,104 74,899
---------- -----------
Net investment income............................................... 37,919,267 1,896,437
---------- -----------
Realized and unrealized gain (loss) on investments:
Net realized loss......................................................... (7,672,691) (602,782)
Net unrealized appreciation .............................................. 16,342,196 913,301
---------- -----------
Net realized and unrealized gain on investments............................ 8,669,505 310,519
---------- -----------
Net increase in net assets resulting from operations....................... $46,588,772 $2,206,956
========== ===========
The accompanying notes are an integral part of these financial statements.
ADJUSTABLERATESECURITIESPORTFOLIOS
Financial Statements (cont.)
Statements of Changes in Net Assets
for the years ended October 31, 1995 and 1994
U.S. Government Adjustable Rate
Adjustable Rate Mortgage Portfolio Securities Portfolio
----------------------- --------------------
1995 1994 1995 1994
---------- ----------- --------- ---------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C>
Net investment income..................... $ 37,919,267 $ 47,964,106 $ 1,896,437 $ 4,221,967
Net realized loss from investments ....... (7,672,691) (67,057,492) (602,782) (1,993,495)
Net unrealized appreciation (depreciation)
on investments............................. 16,342,196 (12,751,845) 913,301 (1,410,266)
---------- ----------- --------- ---------
Net increase (decrease) in net assets
resulting from operations.................. 46,588,772 (31,845,231) 2,206,956 818,206
Distributions to shareholders from
undistributed net investment income
(Note 1)................................... (37,919,267) (47,964,106) (1,896,437) (4,221,967)
Decrease in net assets from
capital share transactions (Note 4)........ (233,338,662) (1,302,948,561) (14,850,372) (79,286,725)
---------- ----------- --------- ---------
Net decrease in net assets............ (224,669,157) (1,382,757,898) (14,539,853) (82,690,486)
Net assets (there is no undistributed net
investment income at beginning or end
of year):
Beginning of year......................... 747,471,114 2,130,229,012 41,618,753 124,309,239
---------- ----------- --------- ---------
End of year............................... $522,801,957 $ 747,471,114 $27,078,900 $ 41,618,753
========== =========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
Adjustable Rate Securities Portfolios (the Trust) is a no load, open end,
diversified management investment company (mutual fund), registered under the
Investment Company Act of 1940 as amended. The Trust currently has two separate
portfolios (the Portfolios) consisting of the U.S.Government Adjustable Rate
Mortgage Portfolio (Mortgage Portfolio) and the Adjustable Rate Securities
Portfolio (Securities Portfolio). The shares of the Trust are issued in private
placements and are thus exempt from registration under the Securities Act of
1933.
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 Valuations:
Portfolio securities listed on a securities exchange or on the NASDAQ National
Market System for which market quotations are readily available are valued at
the last quoted sale price of the day or, if there is no such reported sale,
within the range of the most recent quoted bid and asked prices. Other
securities for which market quotations are readily available are valued at
current market values, obtained from pricing services, which are based on a
variety of factors, including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific securities. Portfolio securities which are
traded both in the over-the-counter market and on a securities exchange are
valued according to the broadest and most representative market as determined by
the Manager. Other securities for which market quotations are not available, if
any, are valued in accordance with procedures established by the Board of
Trustees.
b. Income Taxes:
The Trust intends to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make the
requisite distributions to its shareholders which will be sufficient to relieve
it from income and excise taxes. Therefore, no income tax provision is required.
Each Portfolio is treated as a separate entity in the determination of
compliance with the Internal Revenue Code.
c. Security Transactions:
Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Realized gains and losses on security transactions are
determined on the basis of specific identification for both financial statement
and income tax purposes.
Net realized capital losses may differ for financial statement and tax purposes
primarily due to differing treatment of wash
sale transactions.
d. Investment Income, Expenses and Distributions:
Distributions to shareholders are recorded on the ex-dividend date. Interest
income and estimated expenses are accrued daily. Bond discount, if any, is
amortized as required by the Internal Revenue Code. The Fund normally declares
dividends from its net investment income daily and distributes monthly. Daily
allocations of net investment income will commence on the date following receipt
of an investor's funds. Dividends are normally declared each day the New York
Stock Exchange is open for business and are equal to the Portfolio's total net
investment income and are payable to shareholders of record at the beginning of
business on the ex-date. Once each month, dividends are reinvested in additional
shares of the Portfolio or paid in cash as requested by the shareholders.
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.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
f. Repurchase Agreements:
The Funds may enter into Joint Repurchase Agreements 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
Trust based on its pro-rata interest.
In a repurchase agreement, the Fund purchases a U.S. Government security from a
dealer or bank subject to an agreement to resell it at a mutually agreed upon
price and date. Such a transaction is accounted for as a loan by the Fund to the
seller, collateralized by the underlying security. The transaction requires the
initial collateralization of the seller's obligation by U.S. Government
securities with market value, including accrued interest, of at least 102% of
the dollar amount invested by the Fund, with the value of the underlying
security marked to market daily to maintain coverage of at least 100%. The
collateral is delivered to the Fund's custodian and held until resold to the
dealer or bank. At October 31, 1995, all outstanding joint repurchase agreements
held by the Funds have been entered into on that date.
g. Securities Traded on a When-Issued or Delayed Delivery Basis:
The Funds may trade securities on a when-issued or delayed delivery basis, with
payment and delivery scheduled for a future date. These transactions are subject
to market fluctuations and are subject to the risk that the value at delivery
may be more or less than the trade date purchase price. Although the Funds will
generally purchase these securities with the intention of acquiring such
securities, they may sell such securities before the settlement date. These
securities, if any, are identified on the accompanying Statement of Investments
in Securities and Net Assets. The Funds set 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. (which was
the sole shareholder prior to December 26, 1991) redeems its seed money shares
within the five-year period, the pro rata share of the then-unamortized deferred
organization cost will be deducted from the redemption price paid to Franklin
Resources, Inc. New investors purchasing shares of the portfolio subsequent to
that date bear such costs during the amortization period only as such charges
are accrued daily against investment income.
3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
<TABLE>
<CAPTION>
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
<S> <C> <C>
Expiring in:2000..................... $ 45,439,616 $ 57,701
2001..................... 17,182,002 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 unrealized depreciation
of the Trust are the same as for financial statement purposes at October 31,
1995.
4. TRUST SHARES
At October 31, 1995, there was an unlimited number of $.01 par value shares of
beneficial interest authorized. Transactions in each of the Portfolio's shares
for the years ended October 31, 1995 and 1994 are as follows:
U.S. Government Adjustable Adjustable Rate
Rate Mortgage Portfolio Securities Portfolio
------------------------ ----------------------
Shares Amount Shares Amount
---------- ------------ --------- -----------
1995
<S> <C> <C> <C> <C>
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)
========== ============ ========= ===========
1994
Shares sold.................................. 3,234,621 $ 31,184,230 9,103,489 $ 90,799,027
Shares issued in reinvestment of distributions 5,053,223 47,948,131 426,689 4,211,388
Shares redeemed.............................. (143,954,457) (1,382,080,922) (17,497,118) (172,994,477)
Changes from exercise of the exchange
privilege:
Shares redeemed............................ -- -- (132,789) (1,302,663)
---------- ------------ --------- -----------
Net decrease................................. (135,666,613) $(1,302,948,561) (8,099,729) $ (79,286,725)
========== ============ ========= ===========
5. PURCHASES AND SALES OF SECURITIES
Aggregate purchases and sales of securities (excluding purchases and sales of
short-term securities) for the year ended October 31, 1995, were as follows:
U.S. Government
Adjustable Rate Adjustable Rate
Mortgage Portfolio Securities Portfolio
----------- ------------
<S> <C> <C>
Purchases.............................. $118,370,164 $13,873,368
=========== ============
Sales.................................. $344,966,249 $25,825,172
=========== ============
</TABLE>
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Franklin Advisers, Inc. (Advisers), under the terms of a management agreement,
provides investment advice, administrative services, office space and facilities
to each Portfolio, and receives fees computed monthly based on the average daily
net assets of each Portfolio during the month, equal to an annualized rate of
40/100 of 1% for the first $5 billion of net assets, 35/100 of 1% of net assets
in excess of $5 billion up to and including $10 billion, 33/100 of 1% of net
assets in excess of $10 billion up to and including $15 billion, and 30/100 of
1% of net assets in excess of $15 billion. The terms of the management agreement
provide that aggregate annual expenses of each Portfolio 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
Portfolio's shares are registered. Each Portfolio's expenses did not exceed
these limitations; however, for the year ended October 31, 1995, Advisers agreed
in advance to waive $1,488,336 and $63,940 of the management fees for the
Mortgage Portfolio and Securities Portfolio, respectively.
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)
As of October 31, 1995, 54,635,889 shares of the Mortgage Portfolio were owned
by the Franklin Adjustable U.S. Government Securities Fund and 1,399,755 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 October 31, 1995, 1,736,779 shares of the Securities Portfolio were owned
by the Franklin Adjustable Rate Securities Fund and 1,022,854 shares were owned
by the Franklin Institutional Adjustable Securities Fund. This represents 63%
and 37%, respectively, of the outstanding shares of the Securities Portfolio.
The remaining 1,338 shares of the Securities Portfolio were owned by Franklin
Resources, Inc.
Certain officers and trustees of the Trust are also officers and/or directors of
Advisers, a wholly-owned subsidiary of Franklin Resources, Inc., and the
Franklin Adjustable U.S. Government Securities Fund and the Franklin Adjustable
Rate Securities Fund.
7. FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Selected data for each share of beneficial interest outstanding throughout the
years by Portfolio are as follows:
Per Share Operating Performance Ratios/Supplemental Data
---------------------------------------------- -----------------------
Net
Realized & Distri- Distri- Net Net Ratio of Ratio of Net
Net Asset Net Unrealized butions butions Asset Assets Expenses Investment
Year Value at Invest- Gain Total From From Net From Total Value at End to Average Income to Portfolio
Ended Beginning ment (Loss)on Investment Investment Capital Distri- at End Total of Year Net Average Turnover
Oct. 31,of Year Income Securities Operations Income Gains butions of Year 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
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
</TABLE>
*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.
Total return measures the change in value of an investment over the period
indicated. It is not annualized. It assumes reinvestment of dividends and of
capital gains, if any, at net asset value. During the periods indicated below,
Franklin Advisers, Inc., the investment manager, agreed to waive in advance a
portion of its management fees and made payments of other expenses incurred by
the Portfolios. Had such action not been taken, the ratios of expenses to
average net assets would have been as follows:
Ratio of expenses
to average net assets
U.S. Government Adjustable Rate
Mortgage Portfolio
19921............................... .41%*
19933............................... .42
19934............................... .41*
1994................................ .42
1995................................ .43
Ratio of expenses
to average net assets
Adjustable Rate Securities Portfolio
19922............................... --%
19933............................... .64
19934............................... .47*
1994................................ .43
1995................................ .47
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Report of Independent Auditors
To the Shareholders and Board of Trustees
of Adjustable Rate Securities Portfolios:
We have audited the accompanying statements of assets and liabilities of the two
Portfolios comprising the Adjustable Rate Securities Portfolios (the Trust),
including each Portfolio's statement of investments in securities and net
assets, as of October 31, 1995, and the related statements of operations for the
year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods indicated in Note 7. These financial statements and financial highlights
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the two Portfolios comprising the Adjustable Rate Securities Portfolios as of
October 31, 1995, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and the financial highlights for each of the periods indicated in Note 7, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
December 8, 1995
Franklin Investors Securities Trust
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING
(PERSUANT TO ITEM 304 (a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
This chart shows in pie chart format the fund's securities breakdown by region
as a percentage of the fund's total net assets.
<TABLE>
<CAPTION>
Regional Breakdown on 10/31/95
<S> <C>
North America 42.9%
Europe 31.7%
Australia/New Zealand 13.3%
Latin America 9.3%
Mid-East/Africa 1.5%
Asia 1.3%
</TABLE>
GRAPHIC MATERIAL (2)
The following line graph hypothetically compares the performance of the Franklin
Global Government Income Fund to that of the Salomon Brothers World Government
Bond Index, based on a $10,000 investment from 4/1/88 to 10/31/95, for the Class
I Shares.
<TABLE>
<CAPTION>
Period Ending Global Gov't Income Sal Bros World Gov't Bond Index
<S> <C> <C>
4/1/88 $10,000 $10,000
4/30/88 $9,590 $9,951
5/31/88 $9,761 $9,857
6/30/88 $9,828 $9,643
7/31/88 $9,895 $9,584
8/31/88 $9,831 $9,476
9/30/88 $9,911 $9,721
10/31/88 $10,206 $10,170
11/30/88 $10,386 $10,326
12/31/88 $10,312 $10,220
1/31/89 $10,473 $10,071
2/28/89 $10,324 $10,078
3/31/89 $10,327 $9,938
4/30/89 $10,381 $10,069
5/31/89 $10,229 $9,857
6/30/89 $10,567 $10,055
7/31/89 $10,782 $10,512
8/31/89 $10,838 $10,159
9/30/89 $10,723 $10,352
10/31/89 $10,618 $10,439
11/30/89 $10,720 $10,534
12/31/89 $10,890 $10,663
1/31/90 $10,803 $10,522
2/28/90 $10,648 $10,360
3/31/90 $10,777 $10,257
4/30/90 $10,711 $10,226
5/31/90 $10,936 $10,565
6/30/90 $11,269 $10,758
7/31/90 $11,558 $11,095
8/31/90 $11,405 $11,009
9/30/90 $11,372 $11,132
10/31/90 $11,424 $11,628
11/30/90 $11,625 $11,821
12/31/90 $11,716 $11,938
1/31/91 $11,860 $12,237
2/28/91 $12,194 $12,240
3/31/91 $11,967 $11,796
4/30/91 $12,153 $11,978
5/31/91 $12,300 $11,962
6/30/91 $12,199 $11,837
7/31/91 $12,444 $12,090
8/31/91 $12,516 $12,325
9/30/91 $12,849 $12,806
10/31/91 $13,026 $12,941
11/30/91 $13,008 $13,143
12/31/91 $13,383 $13,826
1/31/92 $13,352 $13,580
2/29/92 $13,364 $13,504
3/31/92 $13,347 $13,361
4/30/92 $13,475 $13,457
5/31/92 $13,764 $13,870
6/30/92 $13,747 $14,259
7/31/92 $13,863 $14,591
8/31/92 $13,766 $14,999
9/30/92 $13,142 $15,149
10/31/92 $13,382 $14,737
11/30/92 $13,111 $14,503
12/31/92 $13,351 $14,590
1/31/93 $13,545 $14,844
2/28/93 $13,803 $15,136
3/31/93 $14,302 $15,369
4/30/93 $14,724 $15,694
5/31/93 $14,956 $15,851
6/30/93 $14,897 $15,817
7/31/93 $14,854 $15,862
8/31/93 $15,222 $16,339
9/30/93 $15,196 $16,533
10/31/93 $15,635 $16,505
11/30/93 $15,273 $16,388
12/31/93 $15,838 $16,527
1/31/94 $16,152 $16,660
2/28/94 $15,660 $16,551
3/31/94 $15,009 $16,528
4/30/94 $15,000 $16,546
5/31/94 $15,111 $16,401
6/30/94 $14,359 $16,637
7/31/94 $14,562 $16,770
8/31/94 $14,713 $16,711
9/30/94 $14,685 $16,832
10/31/94 $14,758 $17,101
11/30/94 $14,740 $16,865
12/31/94 $14,609 $16,912
1/31/95 $14,517 $17,267
2/28/95 $14,724 $17,709
3/31/95 $15,028 $18,761
4/30/95 $15,390 $19,108
5/31/95 $15,794 $19,647
6/30/95 $15,852 $19,763
7/31/95 $15,988 $19,811
8/31/95 $16,029 $19,129
9/30/95 $16,385 $19,556
10/31/95 $16,624 $19,700
</TABLE>
GRAPHIC MATERIAL (3)
The following line graph hypothetically compares the performance of the Franklin
Short-Intermediate U.S. Government Securities Fund to that of the Lehman
Brothers Mutual Fund Short U.S. Treasury 1-5 Year Index and the Consumer Price
Index, based on a $10,000 investment from 5/1/87 to 10/31/95.
<TABLE>
<CAPTION>
Period Ending SIUSGS LB 1-5 Trsy CPI
<S> <C> <C> <C>
5/1/87 $9,777 $10,000 $10,000
5/31/87 $9,806 $10,002 $10,035
6/30/87 $9,893 $10,116 $10,070
7/31/87 $9,922 $10,161 $10,096
8/31/87 $9,922 $10,162 $10,150
9/30/87 $9,875 $10,089 $10,203
10/31/87 $10,091 $10,334 $10,229
11/30/87 $10,141 $10,401 $10,238
12/31/87 $10,211 $10,481 $10,238
1/31/88 $10,382 $10,676 $10,265
2/29/88 $10,463 $10,774 $10,292
3/31/88 $10,474 $10,770 $10,336
4/30/88 $10,475 $10,772 $10,390
5/31/88 $10,466 $10,746 $10,425
6/30/88 $10,570 $10,876 $10,470
7/31/88 $10,571 $10,867 $10,514
8/31/88 $10,582 $10,879 $10,558
9/30/88 $10,708 $11,028 $10,629
10/31/88 $10,817 $11,155 $10,664
11/30/88 $10,778 $11,097 $10,672
12/31/88 $10,802 $11,110 $10,690
1/31/89 $10,881 $11,203 $10,744
2/28/89 $10,884 $11,184 $10,788
3/31/89 $10,930 $11,232 $10,850
4/30/89 $11,097 $11,439 $10,921
5/31/89 $11,231 $11,618 $10,983
6/30/89 $11,410 $11,871 $11,010
7/31/89 $11,558 $12,080 $11,036
8/31/89 $11,459 $11,962 $11,054
9/30/89 $11,518 $12,024 $11,089
10/31/89 $11,713 $12,242 $11,142
11/30/89 $11,807 $12,354 $11,169
12/31/89 $11,844 $12,399 $11,187
1/31/90 $11,858 $12,373 $11,302
2/28/90 $11,930 $12,428 $11,355
3/31/90 $11,956 $12,453 $11,418
4/30/90 $11,959 $12,454 $11,436
5/31/90 $12,152 $12,677 $11,462
6/30/90 $12,287 $12,826 $11,524
7/31/90 $12,423 $12,998 $11,568
8/31/90 $12,450 $13,012 $11,674
9/30/90 $12,563 $13,122 $11,772
10/31/90 $12,702 $13,286 $11,843
11/30/90 $12,829 $13,439 $11,869
12/31/90 $12,987 $13,613 $11,869
1/31/91 $13,091 $13,746 $11,940
2/28/91 $13,169 $13,829 $11,958
3/31/91 $13,249 $13,914 $11,976
4/30/91 $13,368 $14,056 $11,994
5/31/91 $13,436 $14,139 $12,030
6/30/91 $13,469 $14,173 $12,065
7/31/91 $13,581 $14,315 $12,083
8/31/91 $13,773 $14,551 $12,118
9/30/91 $13,926 $14,749 $12,172
10/31/91 $14,081 $14,921 $12,190
11/30/91 $14,209 $15,090 $12,225
12/31/91 $14,553 $15,381 $12,234
1/31/92 $14,352 $15,303 $12,252
2/29/92 $14,385 $15,343 $12,296
3/31/92 $14,316 $15,306 $12,359
4/30/92 $14,441 $15,454 $12,376
5/31/92 $14,652 $15,643 $12,393
6/30/92 $14,878 $15,846 $12,438
7/31/92 $15,192 $16,093 $12,464
8/31/92 $15,349 $16,256 $12,499
9/30/92 $15,617 $16,453 $12,534
10/31/92 $15,366 $16,288 $12,578
11/30/92 $15,272 $16,233 $12,596
12/31/92 $15,519 $16,415 $12,587
1/31/93 $15,807 $16,674 $12,648
2/28/93 $16,083 $16,869 $12,693
3/31/93 $16,149 $16,926 $12,737
4/30/93 $16,245 $17,055 $12,773
5/31/93 $16,191 $16,997 $12,791
6/30/93 $16,402 $17,181 $12,809
7/31/93 $16,423 $17,211 $12,809
8/31/93 $16,674 $17,418 $12,844
9/30/93 $16,727 $17,475 $12,871
10/31/93 $16,755 $17,517 $12,924
11/30/93 $16,658 $17,479 $12,933
12/31/93 $16,721 $17,549 $12,933
1/31/94 $16,891 $17,694 $12,968
2/28/94 $16,635 $17,514 $13,012
3/31/94 $16,410 $17,342 $13,056
4/30/94 $16,279 $17,242 $13,075
5/31/94 $16,292 $17,261 $13,084
6/30/94 $16,289 $17,287 $13,128
7/31/94 $16,482 $17,475 $13,164
8/31/94 $16,518 $17,529 $13,217
9/30/94 $16,407 $17,435 $13,252
10/31/94 $16,430 $17,457 $13,261
11/30/94 $16,338 $17,370 $13,279
12/31/94 $16,361 $17,410 $13,279
1/31/95 $16,599 $17,674 $13,332
2/28/95 $16,855 $17,973 $13,385
3/31/95 $16,945 $18,074 $13,429
4/30/95 $17,091 $18,260 $13,474
5/31/95 $17,422 $18,680 $13,501
6/30/95 $17,518 $18,792 $13,528
7/31/95 $17,564 $18,833 $13,528
8/31/95 $17,661 $18,961 $13,563
9/30/95 $17,742 $19,068 $13,590
10/31/95 $17,892 $19,253 $13,635
</TABLE>
GRAPHIC MATERIAL (4)
This chart shows in pie chart format the fund's securities breakdown by sector
as a percentage of the fund's total net assets.
<TABLE>
<CAPTION>
Portfolio Breakdown on 10/31/95
<S> <C>
Convertible Bonds 65.9%
Convertible Preferred Stocks 27.0%
Cash & Equivalents 7.1%
GRAPHIC MATERIAL (5)
The following line graph hypothetically compares the performance of the Franklin
Convertible Securities Fund to that of the Goldman Sachs Convertible 100 Index,
based on a $10,000 investment from 5/1/87 to 10/31/95.
</TABLE>
<TABLE>
<CAPTION>
Period Ending Convertible Sec. G.S. Convertible 100
<S> <C> <C>
5/1/87 $9,546 $10,000
5/31/87 $9,633 $9,961
6/30/87 $9,681 $10,165
7/31/87 $9,923 $10,598
8/31/87 $10,116 $10,820
9/30/87 $9,913 $10,560
10/31/87 $8,681 $8,627
11/30/87 $8,564 $8,420
12/31/87 $8,855 $8,787
1/31/88 $9,091 $9,235
2/29/88 $9,468 $9,612
3/31/88 $9,575 $9,699
4/30/88 $9,694 $9,809
5/31/88 $9,629 $9,740
6/30/88 $10,005 $10,120
7/31/88 $9,868 $9,966
8/31/88 $9,730 $9,756
9/30/88 $9,800 $9,840
10/31/88 $9,965 $9,999
11/30/88 $9,877 $9,798
12/31/88 $9,853 $9,963
1/31/89 $10,310 $10,453
2/28/89 $10,339 $10,487
3/31/89 $10,281 $10,559
4/30/89 $10,648 $10,843
5/31/89 $10,875 $10,975
6/30/89 $10,838 $10,862
7/31/89 $11,078 $11,007
8/31/89 $11,331 $11,244
9/30/89 $11,238 $11,034
10/31/89 $10,828 $10,585
11/30/89 $10,950 $10,722
12/31/89 $11,051 $10,704
1/31/90 $10,737 $10,152
2/28/90 $10,803 $10,225
3/31/90 $11,055 $10,383
4/30/90 $10,805 $10,019
5/31/90 $11,296 $10,644
6/30/90 $11,470 $10,617
7/31/90 $11,311 $10,501
8/31/90 $10,601 $9,917
9/30/90 $10,029 $9,364
10/31/90 $9,528 $8,859
11/30/90 $9,965 $9,355
12/31/90 $10,415 $9,604
1/31/91 $10,818 $10,127
2/28/91 $11,487 $10,736
3/31/91 $11,918 $10,975
4/30/91 $12,196 $11,082
5/31/91 $12,660 $11,487
6/30/91 $12,239 $11,129
7/31/91 $12,758 $11,431
8/31/91 $13,216 $11,801
9/30/91 $13,239 $11,769
10/31/91 $13,369 $12,002
11/30/91 $13,204 $11,687
12/31/91 $13,917 $12,264
1/31/92 $14,265 $12,856
2/29/92 $14,492 $13,152
3/31/92 $14,296 $12,999
4/30/92 $14,347 $13,008
5/31/92 $14,620 $13,290
6/30/92 $14,380 $13,156
7/31/92 $14,895 $13,617
8/31/92 $14,708 $13,610
9/30/92 $14,929 $13,888
10/31/92 $15,110 $13,914
11/30/92 $15,749 $14,235
12/31/92 $16,177 $14,429
1/31/93 $16,607 $14,756
2/28/93 $16,546 $14,928
3/31/93 $17,198 $15,431
4/30/93 $17,165 $15,403
5/31/93 $17,632 $15,788
6/30/93 $17,821 $16,026
7/31/93 $18,026 $15,986
8/31/93 $18,680 $16,431
9/30/93 $18,977 $16,450
10/31/93 $19,380 $16,702
11/30/93 $19,021 $16,642
12/31/93 $19,500 $16,900
1/31/94 $20,030 $17,316
2/28/94 $19,957 $17,238
3/31/94 $19,227 $16,722
4/30/94 $18,936 $16,421
5/31/94 $19,008 $16,471
6/30/94 $18,985 $16,309
7/31/94 $19,406 $16,648
8/31/94 $19,877 $17,118
9/30/94 $19,791 $16,866
10/31/94 $19,801 $16,787
11/30/94 $19,232 $16,198
12/31/94 $19,181 $16,080
1/31/95 $19,061 $16,398
2/28/95 $19,458 $16,941
3/31/95 $20,015 $17,440
4/30/95 $20,556 $17,861
5/31/95 $21,169 $18,373
6/30/95 $21,784 $18,989
7/31/95 $22,667 $19,572
8/31/95 $22,881 $19,816
9/30/95 $23,307 $20,048
10/31/95 $22,806 $19,611
</TABLE>
GRAPHIC MATERIAL (6)
The following line graph compares the Franklin Adjustable U.S. Government
Securities Fund's distribution rate to the One-Year Treasury Bill Annualized
Yield from 11/1/94 to 10/31/95.
<TABLE>
<CAPTION>
Period Ending Adj USGS 1-Yr T-Bill
<S> <C> <C>
11/94 4.61% 6.91%
12/94 5.16% 7.20%
1/95 5.52% 6.84%
2/95 5.62% 6.43%
3/95 5.61% 6.09%
4/95 5.71% 6.32%
5/95 5.62% 5.80%
6/95 5.92% 5.33%
7/95 6.04% 5.67%
8/95 6.02% 5.65%
9/95 6.02% 5.65%
10/95 6.03% 5.30%
</TABLE>
GRAPHIC MATERIAL (7)
The following line graph hypothetically compares the performance of the Franklin
Adjustable U.S. Government Securities Fund to that of the Lehman Brothers Mutual
Fund Short U.S. Government Index 1-2 Year, Lehman Brothers Mutual Fund Short
U.S. Government Index 1-5 Year, and the 6-month CD, based on a $10,000
investment from 11/1/87 to 10/31/95.
<TABLE>
<CAPTION>
Period Ending Adj USGS LB 1-2 LB 1-5 6-month CD
<S> <C> <C> <C> <C>
11/1/87 $10,000 $10,000 $10,000 $10,000
11/30/87 $9,775 $10,061 $10,066 $10,055
12/31/87 $9,834 $10,123 $10,146 $10,108
1/31/88 $9,941 $10,264 $10,336 $10,161
2/29/88 $10,020 $10,345 $10,435 $10,214
3/31/88 $10,078 $10,375 $10,432 $10,268
4/30/88 $10,097 $10,396 $10,432 $10,324
5/31/88 $10,076 $10,395 $10,406 $10,385
6/30/88 $10,164 $10,491 $10,533 $10,446
7/31/88 $10,183 $10,508 $10,525 $10,512
8/31/88 $10,203 $10,534 $10,538 $10,582
9/30/88 $10,283 $10,646 $10,684 $10,650
10/31/88 $10,384 $10,747 $10,808 $10,720
11/30/88 $10,424 $10,732 $10,751 $10,793
12/31/88 $10,464 $10,762 $10,765 $10,868
1/31/89 $10,537 $10,844 $10,855 $10,945
2/28/89 $10,558 $10,850 $10,837 $11,028
3/31/89 $10,605 $10,901 $10,878 $11,114
4/30/89 $10,726 $11,032 $11,080 $11,201
5/31/89 $10,816 $11,179 $11,258 $11,283
6/30/89 $10,925 $11,364 $11,503 $11,361
7/31/89 $11,004 $11,518 $11,703 $11,436
8/31/89 $11,085 $11,470 $11,591 $11,511
9/30/89 $11,187 $11,540 $11,652 $11,587
10/31/89 $11,325 $11,692 $11,862 $11,661
11/30/89 $11,429 $11,796 $11,973 $11,731
12/31/89 $11,546 $11,841 $12,016 $11,803
1/31/90 $11,607 $11,869 $11,996 $11,876
2/28/90 $11,692 $11,933 $12,051 $11,951
3/31/90 $11,786 $11,976 $12,075 $12,026
4/30/90 $11,866 $12,015 $12,079 $12,103
5/31/90 $11,972 $12,186 $12,295 $12,181
6/30/90 $12,063 $12,305 $12,439 $12,259
7/31/90 $12,175 $12,440 $12,607 $12,336
8/31/90 $12,261 $12,493 $12,621 $12,414
9/30/90 $12,359 $12,585 $12,728 $12,492
10/31/90 $12,446 $12,717 $12,886 $12,569
11/30/90 $12,534 $12,831 $13,035 $12,646
12/31/90 $12,647 $12,974 $13,202 $12,722
1/31/91 $12,758 $13,093 $13,331 $12,792
2/28/91 $12,866 $13,180 $13,414 $12,857
3/31/91 $12,973 $13,270 $13497. $12,920
4/30/91 $13,055 $13,385 $13,635 $12,981
5/31/91 $13,134 $13,460 $13,717 $13,042
6/30/91 $13,184 $13,520 $13,750 $13,104
7/31/91 $13,323 $13,625 $13,887 $13,167
8/31/91 $13,422 $13,795 $14,115 $13,226
9/30/91 $13,544 $13,920 $14,307 $13,283
10/31/91 $13,626 $14,056 $14,473 $13,336
11/30/91 $13,665 $14,196 $14,636 $13,386
12/31/91 $13,743 $14,381 $14,913 $13,427
1/31/92 $13,773 $14,382 $14,840 $13,468
2/29/92 $13,844 $14,424 $14,878 $13,509
3/31/92 $13,900 $14,439 $14,844 $13,553
4/30/92 $13,939 $14,563 $14,988 $13,593
5/31/92 $14,030 $14,685 $15,171 $13,634
6/30/92 $14,122 $14,811 $15,365 $13,674
7/31/92 $14,133 $14,964 $15,602 $13,708
8/31/92 $14,193 $15,070 $15,756 $13,742
9/30/92 $14,251 $15,195 $15,944 $13,774
10/31/92 $14,210 $15,125 $15,789 $13,807
11/30/92 $14,239 $15,111 $15,737 $13,845
12/31/92 $14,294 $15,240 $15,910 $13,880
1/31/93 $14,346 $15,379 $16,158 $13,913
2/28/93 $14,411 $15,487 $16,347 $13,945
3/31/93 $14,430 $15,529 $16,405 $13,977
4/30/93 $14,505 $15,614 $16,528 $14,009
5/31/93 $14,507 $15,581 $16,475 $14,042
6/30/93 $14,585 $15,678 $16,649 $14,075
7/31/93 $14,634 $15,715 $16,679 $14,109
8/31/93 $14,681 $15,825 $16,876 $14,142
9/30/93 $14,664 $15,874 $16,932 $14,174
10/31/93 $14,631 $15,908 $16,973 $14,207
11/30/93 $14,523 $15,922 $16,937 $14,239
12/31/93 $14,487 $15,978 $17,005 $14,272
1/31/94 $14,538 $16,069 $17,144 $14,304
2/28/94 $14,452 $15,998 $16,973 $14,341
3/31/94 $14,348 $15,956 $16,808 $14,382
4/30/94 $14,255 $15,913 $16,710 $14,428
5/31/94 $14,320 $15,940 $16,728 $14,479
6/30/94 $14,360 $15,984 $16,753 $14,532
7/31/94 $14,420 $16,112 $16,937 $14,586
8/31/94 $14,420 $16,167 $16,990 $14,640
9/30/94 $14,405 $16,154 $16,900 $14,699
10/31/94 $14,240 $16,199 $16,922 $14,768
11/30/94 $14,233 $16,147 $16,837 $14,836
12/31/94 $14,202 $16,186 $16,874 $14,910
1/31/95 $14,316 $16,384 $17,131 $14,981
2/28/95 $14,480 $16,579 $17,420 $15,052
3/31/95 $14,565 $16,673 $17,518 $15,123
4/30/95 $14,700 $16,808 $17,698 $15,192
5/31/95 $15,011 $17,042 $18,104 $15,259
6/30/95 $14,958 $17,132 $18,209 $15,325
7/31/95 $15,051 $17,213 $18,251 $15,391
8/31/95 $15,177 $17,307 $18,376 $15,457
9/30/95 $15,255 $17,385 $18,479 $15,523
10/31/95 $15,317 $17,514 $18,657 $15,596
</TABLE>
GRAPHIC MATERIAL (8)
The following line graph hypothetically compares the performance of the Franklin
Equity Income Fund to that of the S&P 500 Index and the Consumer Price Index
(CPI), based on a $10,000 investment from 4/1/88 to 10/31/95.
<TABLE>
<CAPTION>
Period Ending Equity Income S&P 500 CPI
<S> <C> <C> <C>
4/1/88 $9,552 $10,000 $10,000
4/30/88 $9,523 $10,111 $10,052
5/31/88 $9,685 $10,198 $10,086
6/30/88 $10,019 $10,666 $10,130
7/31/88 $10,048 $10,626 $10,172
8/31/88 $9,934 $10,264 $10,215
9/30/88 $10,241 $10,701 $10,283
10/31/88 $10,435 $10,999 $10,317
11/30/88 $10,303 $10,842 $10,325
12/31/88 $10,374 $11,030 $10,343
1/31/89 $10,951 $11,838 $10,395
2/28/89 $10,813 $11,543 $10,437
3/31/89 $11,046 $11,812 $10,498
4/30/89 $11,461 $12,425 $10,566
5/31/89 $11,806 $12,928 $10,626
6/30/89 $11,848 $12,855 $10,652
7/31/89 $12,648 $14,015 $10,677
8/31/89 $12,807 $14,290 $10,694
9/30/89 $12,801 $14,231 $10,729
10/31/89 $12,443 $13,901 $10,780
11/30/89 $12,625 $14,185 $10,806
12/31/89 $12,859 $14,525 $10,823
1/31/90 $12,230 $13,551 $10,935
2/28/90 $12,426 $13,725 $10,986
3/31/90 $12,505 $14,089 $11,047
4/30/90 $12,080 $13,738 $11,064
5/31/90 $12,870 $15,078 $11,090
6/30/90 $12,735 $14,977 $11,150
7/31/90 $12,467 $14,929 $11,192
8/31/90 $11,517 $13,579 $11,295
9/30/90 $10,992 $12,918 $11,390
10/31/90 $10,896 $12,862 $11,458
11/30/90 $11,594 $13,693 $11,483
12/31/90 $11,723 $14,075 $11,483
1/31/91 $12,151 $14,689 $11,552
2/28/91 $12,899 $15,739 $11,570
3/31/91 $13,067 $16,120 $11,587
4/30/91 $13,164 $16,159 $11,604
5/31/91 $13,705 $16,855 $11,639
6/30/91 $13,139 $16,083 $11,673
7/31/91 $13,673 $16,833 $11,690
8/31/91 $14,079 $17,232 $11,724
9/30/91 $14,109 $16,944 $11,776
10/31/91 $14,341 $17,171 $11,794
11/30/91 $14,036 $16,479 $11,828
12/31/91 $15,029 $18,364 $11,836
1/31/92 $14,950 $18,023 $11,854
2/29/92 $15,163 $18,255 $11,897
3/31/92 $14,973 $17,899 $11,957
4/30/92 $15,691 $18,424 $11,974
5/31/92 $15,845 $18,514 $11,991
6/30/92 $15,963 $18,238 $12,034
7/31/92 $16,716 $18,984 $12,059
8/31/92 $16,448 $18,595 $12,093
9/30/92 $16,354 $18,812 $12,127
10/31/92 $16,197 $18,876 $12,169
11/30/92 $16,647 $19,518 $12,186
12/31/92 $17,020 $19,758 $12,178
1/31/93 $17,414 $19,924 $12,237
2/28/93 $17,927 $20,195 $12,280
3/31/93 $18,401 $20,621 $12,323
4/30/93 $18,368 $20,122 $12,358
5/31/93 $18,637 $20,660 $12,375
6/30/93 $18,791 $20,719 $12,392
7/31/93 $18,984 $20,637 $12,392
8/31/93 $19,671 $21,419 $12,427
9/30/93 $19,799 $21,254 $12,453
10/31/93 $20,102 $21,691 $12,504
11/30/93 $19,893 $21,488 $12,513
12/31/93 $20,055 $21,748 $12,513
1/31/94 $20,524 $22,487 $12,547
2/28/94 $19,956 $21,878 $12,589
3/31/94 $19,115 $20,924 $12,632
4/30/94 $19,264 $21,192 $12,650
5/31/94 $19,505 $21,539 $12,659
6/30/94 $19,462 $21,011 $12,702
7/31/94 $19,977 $21,701 $12,736
8/31/94 $20,767 $22,590 $12,787
9/30/94 $20,364 $22,039 $12,822
10/31/94 $20,495 $22,535 $12,831
11/30/94 $19,915 $21,715 $12,847
12/31/94 $19,990 $22,036 $12,847
1/31/95 $20,556 $22,607 $12,899
2/28/95 $20,960 $23,489 $12,950
3/31/95 $21,260 $24,182 $12,993
4/30/95 $21,727 $24,892 $13,036
5/31/95 $22,180 $25,888 $13,062
6/30/95 $22,301 $26,489 $13,088
7/31/95 $22,590 $27,368 $13,088
8/31/95 $22,804 $27,437 $13,122
9/30/95 $23,600 $28,594 $13,148
10/31/95 $23,399 $28,491 $13,192
</TABLE>
GRAPHIC MATERIAL (9)
The following line graph compares the Franklin Adjustable Rate Securities Fund's
distribution rate to the One-Year Treasury Bill Annualized Yield from 11/1/94 to
10/31/95.
<TABLE>
<CAPTION>
Period Ending Adj USGS 1-Yr T-Bill
<S> <C> <C>
11/94 5.61% 6.91%
12/94 5.11% 7.20%
1/95 5.44% 6.84%
2/95 7.13% 6.43%
3/95 5.43% 6.09%
4/95 6.11% 6.32%
5/95 5.78% 5.80%
6/95 6.48% 5.33%
7/95 5.58% 5.67%
8/95 5.73% 5.65%
9/95 5.85% 5.65%
10/95 5.66% 5.30%
</TABLE>
GRAPHIC MATERIAL (10)
The following line graph hypothetically compares the performance of the Franklin
Adjustable U.S. Government Securities Fund to that of the Lehman Brothers Mutual
Fund Short U.S. Government Index 1-2 Year, Lehman Brothers Mutual Fund Short
U.S. Government Index 1-5 Year, and the 6-month CD, based on a $10,000
investment from 1/1/92 to 10/31/95.
<TABLE>
<CAPTION>
Period Ending Adj USGS LB 1-2 LB 1-5 6-month CD
<S> <C> <C> <C> <C>
1/1/92 $9,775 $10,000 $10,000 $10,000
1/31/92 $9,775 $10,001 $9,951 $10,030
2/29/92 $9,804 $10,030 $9,977 $10,061.09
3/31/92 $9,847 $10,041 $9,954 $10,093
4/30/92 $9,933 $10,126 $10,050 $10,124
5/31/92 $9,981 $10,211 $10,173 $10,154
6/30/92 $10,065 $10,299 $10,303 $10,183
7/31/92 $10,097 $10,405 $10,462 $10,209
8/31/92 $10,165 $10,479 $10,566 $10,234
9/30/92 $10,232 $10,566 $10,691 $10,258
10/31/92 $10,249 $10,517 $10,588 $10,283
11/30/92 $10,284 $10,507 $10,553 $10,311
12/31/92 $10,362 $10,597 $10,669 $10,337
1/31/93 $10,409 $10,694 $10,835 $10,362
2/28/93 $10,486 $10,769 $10,962 $10,386
3/31/93 $10,547 $10,798 $11,000 $10,410
4/30/93 $10,602 $10,857 $11,083 $10,434
5/31/93 $10,622 $10,834 $11,047 $10,458
6/30/93 $10,661 $10,902 $11,164 $10,483
7/31/93 $10,713 $10,928 $11,185 $10,508
8/31/93 $10,754 $11,004 $11,317 $10,532
9/30/93 $10,785 $11,038 $11,354 $10,556
10/31/93 $10,807 $11,062 $11,381 $10,580
11/30/93 $10,826 $11,071 $11,357 $10,605
12/31/93 $10,868 $11,111 $11,403 $10,629
1/31/94 $10,891 $11,173 $11,496 $10,653
2/28/94 $10,865 $11,124 $11,382 $10,680
3/31/94 $10,768 $11,095 $11,271 $10,711
4/30/94 $10,763 $11,066 $11,205 $10,746
5/31/94 $10,802 $11,084 $11,217 $10,783
6/30/94 $10,821 $11,115 $11,234 $10,823
7/31/94 $10,864 $11,204 $11,357 $10,863
8/31/94 $10,926 $11,242 $11,393 $10,903
9/30/94 $10,897 $11,233 $11,333 $10,947
10/31/94 $10,927 $11,264 $11,347 $10,998
11/30/94 $10,934 $11,228 $11,290 $11,049
12/31/94 $10,981 $11,255 $11,315 $11,104
1/31/95 $11,034 $11,392 $11,487 $11,157
2/28/95 $11,131 $11,528 $11,681 $11,210
3/31/95 $11,183 $11,594 $11,747 $11,263
4/30/95 $11,272 $11,688 $11,868 $11,314
5/31/95 $11,403 $11,850 $12,140 $11,364
6/30/95 $11,477 $11,913 $12,210 $11,413
7/31/95 $11,497 $11,969 $12,238 $11,462
8/31/95 $11,602 $12,035 $12,323 $11,511
9/30/95 $11,657 $12,089 $12,392 $11,561
10/31/95 $11,740 $12,178 $12,510 $11,615
</TABLE>
