TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
MESSAGE FROM THE CHAIRMAN 1
FUND REPORTS
Franklin Global Government
Income Fund 3
Franklin Short-Intermediate
U.S. Government Securities Fund 7
Franklin Convertible
Securities Fund 10
Franklin Adjustable U.S.
Government Securities Fund 14
Franklin Equity Income Fund 18
Franklin Adjustable Rate
Securities Fund 22
STATEMENT OF INVESTMENTS 25
FINANCIAL STATEMENTS 41
NOTES TO FINANCIAL STATEMENTS 47
</TABLE>
<PAGE>
MESSAGE FROM THE CHAIRMAN
June 15, 1995
Dear Shareholder:
It's a pleasure to bring you the semi-annual report for the Franklin Investors
Securities Trust, for the period ended April 30, 1995.
The six months covered by this report reminded all of us that volatility is a
fundamental market condition. Although stocks delivered below-average returns
in 1994, this year, to date, has been a different story. U.S. economic growth
has fallen to a more sustainable level, inflation appears to be under control,
and interest rates seem to have stabilized for the time being. Of even more
importance to shareholders in the Franklin Investors Securities Trust is the
significant rise in stock and bond prices thus far in 1995. In February, the
Dow Jones Industrial Average(R) broke the 4,000 mark for the first time, and
finished the period above 4,300. Likewise, bond prices, as measured by 10-year
Treasury prices, increased 4.8% through April 30, 1995.
Of course, there is no guarantee that these markets will continue to rise as
they have recently. As you know, volatility is a normal part of investing.
That's why we've always encouraged our shareholders to focus on their long-term
investment goals. History has shown that, over the long term, stocks and bonds
have delivered impressive results.(1) By concentrating on long-term investment
goals, you need not be unduly concerned with short-term market fluctuations.
Furthermore, many financial experts agree that a technique known as "dollar
cost averaging" may be one of the best ways to take advantage of market
downturns and rallies. With dollar cost averaging, you invest a fixed dollar
amount at regular intervals, regardless of the market's direction. Using this
method, you automatically purchase more shares when prices are low, and fewer
shares when prices are high, which can significantly
1. Past performance cannot guarantee future results.
1
<PAGE>
reduce your average cost per share. Of course, no investment technique can
assure a profit or completely protect against loss. But, dollar cost averaging
can provide you with a simple investment strategy that can minimize the effects
of market volatility and help you make the most of your investment dollars.(2)
For more information on dollar cost averaging, please see your investment
advisor, or call Franklin Templeton Fund Information, toll free, at
1-800/DIAL BEN.
You can also help minimize the effects of market fluctuations by diversifying
your investments. Mutual funds offer investors a level of diversification that
would be almost impossible to achieve on their own. In addition, the Franklin
Templeton Group of Funds offers over 110 different mutual funds, each with its
own investment objective. If your objectives change, chances are we offer a
fund to match your new objective. You can exchange shares between most Franklin
and Templeton funds within the same class, usually without paying any
additional fees or charges.(3)
For specific information about each fund in the Trust, including the effects of
market conditions and management strategies upon its performance, please refer
to the pages listed in the table of contents.
As always, we appreciate your support, welcome your questions and look forward
to serving you in the years to come.
Sincerely,
Charles B. Johnson
Chairman
Franklin Investors Securities Trust
2. Dollar cost averaging involves continuous investment in securities,
regardless of fluctuating price levels. You should consider your financial
ability to continue purchases through periods of low price levels or changing
economic conditions.
3. Shares of the funds, if held for at least six months, may be exchanged for
shares of the same class of most other Franklin or Templeton funds, without any
additional fees or charges. Shareholders using timing services will be charged
a $5 fee for each exchange. Certain funds do not permit timing accounts or
there may be certain restrictions, as detailed in each fund's prospectus. The
exchange program may be modified or discontinued by the funds.
2
<PAGE>
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.
Economic reports released by the federal government since the beginning of the
year indicate that the growth rate of Gross Domestic Product (GDP) is slowing,
and that the Federal Reserve Board is willing to keep monetary policy steady
for a while. This may mean that long-term interest rates could continue to
decline gradually for the next two or three months. In fact, on March 31, 1995,
the 30-year U.S. Treasury bill yielded 7.34%, down from 7.99% on November 30,
1994.
While interest rates held steady throughout the reporting period and growth in
the U.S. declined, there were few signs of slowing elsewhere. It is estimated
that Japan's GDP will grow at a rate of 2.5% during 1995.* Interest rates rose
over the last year even though inflation remained low and there was no
significant change in the central bank's administered rates. However, the Bank
of Japan has indicated that monetary policy will take into account any
disruptive factors in the bond and currency markets. January's earthquake in
Kobe may disrupt economic activity in the short term, but may stimulate growth
as rebuilding gets underway.
* Source: International Monetary Fund (IMF) World Economic Outlook, October
1994.
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX
** Total market value is the value of the fund's investments and does not
include certain liabilities and other assets. Please see page 25 of this report
for a complete listing of the fund's assets.
- -------------------------------------------------------------------------------
3
<PAGE>
In Germany, the strong mark exerted pressure on the German economy and, at the
same time, alleviated pressure on the country's wholesale prices. German
domestic demand began to show an upward trend after being particularly weak in
1994. Strong exports and investments were responsible for the early stage of
the recovery, but consumer spending may provide a greater contribution to the
growth in 1995. German GDP increased about 2.3% in 1994 and is forecast to be
at 2.8% for 1995.+ While the Bundesbank has kept monetary policy steady, the
improvement in economic activity is likely to lead to a tightening of monetary
policy.
The financial crisis surrounding Mexico's devaluation of its currency in
December 1994 significantly affected fixed-income securities markets. The
ensuing deterioration of investor confidence negatively affected many Latin
American markets, and even impacted U.S. dollar-denominated bonds of developing
countries. We reacted decisively to this situation by selling all of the fund's
Mexican peso positions throughout the reporting period.
+ Source: IMF World Economic Outlook, October 1994.
FRANKLIN GLOBAL GOVERNMENT INCOME FUND
Geographic Distribution
As a percentage of total market value
<TABLE>
<CAPTION>
COUNTRY 10/31/94 4/30/95
------- -------- -------
<S> <C> <C>
Argentina 7.6% 7.8%
Australia 16.3% 13.9%
Canada 17.5% 14.9%
Denmark 5.4% 7.1%
European Currency 1.0% 0.0%
France 0.4% 0.0%
Germany 2.8% 11.8%
Greece 3.3% 0.0%
India 0.5% 0.5%
Indonesia 0.0% 2.1%
Italy 5.1% 0.0%
Japan 0.3% 5.5%
Mexico 4.3% 1.0%
New Zealand 7.7% 6.9%
South Africa 4.9% 1.3%
Spain 5.3% 2.9%
Sweden 3.8% 4.1%
Thailand 1.1% 1.2%
United Kingdom 7.6% 8.5%
United States 5.1% 10.6%
</TABLE>
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 25 OF THIS REPORT.
4
<PAGE>
With signs of slower economic growth and stable monetary policy emerging in the
U.S., we sold our U.S. Treasury bills (securities with maturities of one year
or less) and invested the proceeds in longer-term Treasury notes, thus
extending the duration in the dollar block portion of the portfolio.
On October 31, 1994, 9.32% of the fund's portfolio was held in cash and other
investments. We used the fund's cash to increase the overall European position
in the portfolio. The focus was primarily on German bonds, which increased to
11.8% of total market value from 2.8% on October 31, 1994, the United Kingdom
(8.5% of the portfolio, up from 7.6% on October 31, 1994) and Denmark (7.1% of
total market value, up from 5.4% on that same date), taking advantage of the
strong European currencies and stable monetary policy. Due to steep yield
curves and moderate inflationary pressures in international markets, we
extended the duration of the fund's German and U.K. securities. At the end of
the reporting period, 5.77% of the fund was held in cash.
The Italy allocation was eliminated due to deteriorating economic fundamentals
and political uncertainty within that country.
We used a portion of the fund's cash to initiate a position in the Japanese
bond market (5.5% of total market value) to take advantage of the high real
interest rates (current interest rate minus inflation) and strong currency. The
new allocations have thus expanded our exposure to Europe and Japan, and
increased the duration of the overall portfolio, bringing the fund more in line
with the Salomon Brothers World Government Hedged Index.
As always, we encourage you to view your investment from a long-term
perspective. Bond markets have traditionally provided solid returns over most
10- to 20-year time periods, and we believe this trend is likely to continue.++
++ The fund's share price and returns will fluctuate with market conditions,
currencies, and the economic and political climates where investments are
made. These special risk considerations are discussed in the prospectus.
5
<PAGE>
PERFORMANCE SUMMARY
Your fund's share price, as measured by net asset value, declined slightly
during the reporting period to $8.03 on April 30, 1995, from $8.06 on October
31, 1994.
Over the reporting period, shareholders received distributions totaling 36
cents ($0.36) per share. Based on the current monthly dividend of 6.0 cents
($0.060) per share and the maximum offering price of $8.39 on April 30, 1995,
your fund's distribution rate was 8.58%. Dividends will vary based on the
earnings of the fund's portfolio, and past distributions are not predictive of
future results.
The Franklin Global Government Income Fund reported a six-month cumulative
total return of +4.29%, and a one-year return of +2.60% for the periods ended
April 30, 1995. Cumulative total return measures the change in value of an
investment, assuming reinvestment of dividends and capital gains, if any, and
does not include the maximum initial sales charge.
We have always maintained a long-term perspective and we encourage shareholders
to do the same. While the fund may experience volatility from time to time, we
believe that its performance will be satisfactory over the long term. The table
to the right illustrates that if you had invested at the fund's inception in
1988, your total return would have been over 61% at the end of the reporting
period.
FRANKLIN GLOBAL GOVERNMENT INCOME FUND
Periods ended April 30, 1995
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR (03/15/88)
------ ------ ----------
<S> <C> <C> <C>
Cumulative
Total Return 1 2.60% 43.68% 61.29%
Average Annual
Total Return 2 -1.75% 6.59% 6.29%
Distribution Rate 3 8.58%
30-Day Standardized Yield 4 7.96%
</TABLE>
1. Cumulative total returns show the change in value of an investment over the
specified periods and do not reflect the maximum 4.25% initial sales charge.
See note below.
2. Average annual total return represents the average annual increase in value
of an investment over the specified periods and includes the maximum 4.25%
initial sales charge. See note below.
3. Based on an annualization of the fund's current 6.0 cent per share monthly
dividend and the maximum offering price of $8.39 on April 30, 1995.
4. Yield, calculated as required by the SEC, is based on the fund's earnings
for the 30 days ended April 30, 1995.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge, with dividends reinvested at the offering price. Thus, actual total
returns for purchasers of shares during that period would have been 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 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.
The historical total return figures shown above pertain only to Class I shares
of the fund. Class II shares, which the fund began offering on May 1, 1995, are
subject to different fees and expenses, which will affect their performance.
Total return figures for Class II shares are not yet available. Please see the
prospectus for more details regarding Class I and Class II shares.
Past expense reductions by the fund's manager increased the fund's total
returns.
6
<PAGE>
FRANKLIN SHORT-INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND
FUND OBJECTIVE
Seeks to provide investors with high current income, while also seeking to
preserve shareholders' capital, by investing primarily in U.S. government
securities with maturities between two and five years.
The six-month period ended April 30, 1995, was characterized by extremely
volatile interest rates. The Federal Reserve Board raised the federal funds
rate twice during the reporting period, to 6.00% from 4.75%, in an attempt to
slow economic growth and avoid accelerated inflation. Yields on two-year U.S.
Treasury notes rose to 7.725% on December 29, 1994, from 6.824% on October 31,
1994.* However, in January 1995, the yield on the two-year note began to
reverse its earlier rise, dropping over 110 basis points (a basis point is
1/100th of a percentage point) to end the period at 6.58%.
The economy slowed considerably by the end of the reporting period. Consumer
activity was reduced to the extent that production levels for high ticket items
such as autos were scaled back. Despite the slower economic growth, factory
capacity utilization remained high at 84.9%, and unemployment remained low at
5.5%.** Since high utilization and low unemployment usually result in
inflation, we believe it is unlikely that the Fed will lower interest rates in
the near future.
We remained cautious with the portfolio's investments over the reporting
period, shortening the fund's average maturity to two years and four months
from two years and 10 months on October 31, 1994. We sold zero coupon
securities in the portfolio and purchased interest-bearing (current-paying)
issues of similar maturity, further reducing the interest-rate sensitivity of
the fund. We will consider lengthening the portfolio's average maturity only
when yields on longer-term bonds rise enough to compensate for the additional
interest-rate risk. For example, on April 30, 1995, one-year Treasury bills
offered 92% of the yield of five-year Treasuries.*
We maintain a conservative investment posture, avoiding investments in
derivative securities. Your fund invests 100% of its portfolio in U.S. Treasury
securities, with emphasis on obligations that have remaining maturities of less
than five years.
* Source: Micropal
** Source: U.S. Bureau of Labor Statistics
7
<PAGE>
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 -- the highest mutual fund credit rating possible -- due to
the high credit quality of U.S. Treasury securities.@
At this time, inflation remains subdued, and real interest rates (current
interest rate minus inflation) are attractive. Currently, the market offers
investors intermediate-term Treasuries that have interest rates well above
inflation rates. We hope to allow investors to benefit from these high rates
while minimizing the risk to their principal. As always, we will continue to
monitor the economic climate, and assess how changes in the economy will impact
future Federal Reserve Board policy.
+ Individual securities owned by the fund, but not shares of the fund, are
guaranteed by the U.S. government as to the timely payment of principal and
interest.
@ The rating reflects Standard & Poor's assessment of the overall
credit quality 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 $10.16 on
April 30, 1995, from $10.03 on October 31, 1994.
The Franklin Short-Intermediate U.S. Government Securities Fund continued to
meet its investment objective of providing high current income to its
shareholders. For the six-month period, shareholders received 26.7 cents
($0.267) per share in dividend income.++ We are pleased to report that due to
increased fund income, we were able to adjust your fund's monthly dividend to
4.7 cents ($0.047) from 4.4 cents ($0.044) per share, effective with the April
1995 distribution. Dividends will vary, based on the earnings of the fund's
portfolio, and past distributions are not necessarily indicative of future
trends.
++ Assumes 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.
8
<PAGE>
At the end of the reporting period, your fund's distribution rate was 5.43%,
based on an annualization of the current monthly dividend of 4.7 cents per
share and the maximum offering price of $10.39 on April 30, 1995.
Your fund provided a cumulative total return of +4.02% for the six-month
period, and a one-year total return of +4.99%. Cumulative total return reflects
the change in value of an investment during the periods indicated, assuming
reinvestment of dividends and capital gains, if any. This calculation does not
include the initial sales charge. Past performance is not predictive of future
results.
We have always maintained a long-term perspective and encourage shareholders to
do the same. While the fund may experience volatility from time to time, we are
confident that its performance will be satisfactory over the long term. The
table to the right illustrates that if you had invested at the fund's inception
in 1987, your total return would have been over +75% at the end of the
reporting period.
FRANKLIN SHORT-INTERMEDIATE
U.S. GOVERNMENT SECURITIES FUND
Periods ended April 30, 1995
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR (04/15/87)
------ ------ ----------
<S> <C> <C> <C>
Cumulative
Total Return 1 4.99% 42.91% 75.16%
Average Annual
Total Return 2 2.67% 6.92% 6.91%
Distribution Rate 3 5.43%
30-Day Standardized Yield 4 5.96%
</TABLE>
1. Cumulative total returns show the change in value of an investment over the
specified periods and do not reflect the 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 includes the maximum 2.25% initial
sales charge. See note below.
3. Based on an annualization of the fund's current 4.7 cent per share monthly
dividend and the maximum offering price of $10.39 on April 30, 1995.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ending April 30, 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 capital gains,
if any, 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.
9
<PAGE>
FRANKLIN CONVERTIBLE SECURITIES FUND
FUND OBJECTIVE
Seeks to maximize total return consistent with reasonable risk through a
portfolio of convertible securities.
The most significant economic factor impacting the fund's performance was the
recent decline in long-term interest rates. During the six months ended April
30, 1995, long-term U.S. Treasury rates fell over 60 basis points to 7.34% on
April 30, 1995, from 7.99% on November 30, 1994, primarily as a result of a
slowing domestic economy and continued subdued levels of inflation. Economic
growth slowed to an annualized rate of 2.8% in the first quarter of 1995 from
5.1% in the fourth quarter of 1994, and is projected to decline to 2.0% in the
second quarter of 1995.* Inflation, meanwhile, is running at an annual rate of
2.5%.
From October 31, 1994, through the end of the calendar year, your fund felt the
effects of 1994's interest rate increases. For example, the fund's share price
dropped $1.18 per share to $11.16 on December 31, 1994, from $12.34 on October
31, 1994. As long-term interest rates began to decline, however, the fund's net
asset value price rebounded, rising to $11.75 by the end of the six-month
reporting period.
This decline in long-term rates affected the fund in several ways. As rates
fell, prices of fixed-income securities rose. For example, long-term Treasury
bond prices rose nearly 7% as a result of this decline.** Since a significant
portion of the value of a convertible security is derived from its value as a
fixed-income investment, convertible prices rose as well.
Lower interest rates often increase equity prices by reducing the risk of
inflation and boosting corporate earnings. Additionally, lower interest rates
may imply continued economic growth and, presumably, modest inflation -- both
of which are bullish for stocks. In fact, the prices of the Standard & Poor's
500 Stock Index(R) and the NASDAQ rose 8.97% and 8.55%, respectively, in the
past six months. As convertible securities are also tied to equity markets,
their prices benefited from the improvement in these markets. This climate was
advantageous for the fund, which posted a one-year total return of +8.56% for
the period ended
* Source: U.S. Bureau of Labor Statistics
** Source: Merrill Lynch Treasury Bond Indices
10
<PAGE>
April 30, 1995 -- significantly better than the average convertible securities
fund. According to Lipper Analytical Services, Inc., the average total return
of a convertible securities fund was 6.02% for the year ended April 30, 1995.+
We manage the fund using a fundamental, bottom-up approach to analysis. From
the universe of convertible issuers, we attempt to identify quality companies
selling at prices that we judge to be below their intrinsic values. Having
identified those companies, the fund looks for securities that have attractive
risk/reward profiles, or favorable leverage. As a result of this approach, we
seldom use strategies based on the economic outlook; instead, our fund holdings
are a result of perceived value.
During the past six months, we maintained our holdings in the oil and gas, and
metals and resources sectors of the portfolio. We believe that individual
stocks in these sectors have bright outlooks and compelling valuations. Oil and
gas securities presented us with good value because of the warm winter and
resulting depressed gas
FRANKLIN CONVERTIBLE SECURITIES FUND
Top Five Holdings on April 30,1995
As a percentage of total net assets
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
-------- ----------
<S> <C>
PMI/Allstate 3.51%
Insurance
Roosevelt Financial 2.06%
Financial
Magma Copper 2.00%
Metal & Resources
Diamond Shamrock 1.95%
Oil & Gas
National Semiconductor 1.93%
Technology
</TABLE>
FOR A COMPLETE LIST OF PORTFOLIO HOLDINGS, PLEASE SEE PAGE 30 OF THIS REPORT.
+ The fund was ranked #6 out of 26 convertible securities funds for the
one-year period, and #5 out of 19 funds for the five-year period ended
April 30, 1995, as measured by Lipper Analytical Services, Inc., a nationally
recognized mutual fund rating organization. Lipper rankings do not include
sales charges; past expense reductions by the fund's manager increased the
fund's total returns. Rankings may have been different if these factors had
been considered. Past performance cannot guarantee future results.
11
<PAGE>
prices, which caused the stock prices of many companies in this sector to sell
well below our analysis of their actual value. In addition, investor perception
that worldwide economic activity was declining -- an attitude that was fueled
by the interest rate hikes in the first six months of 1994 -- further depressed
oil, steel and base metal stocks. In this environment, we identified companies
that we believed would do well over the long term, and we were able to buy them
at good values. Our holdings in oil and gas varied little, rising to 13.6% of
total net assets on April 30, 1995, from 13.3% on October 31, 1994. Metals and
resources increased slightly to 8.0% by April 30, 1995, from 6.4% on October
31, 1994.
We also maintained our weighting in the real estate investment trust sector
(REITs) with 8.6% of total net assets, up slightly from 8.3% on October 31,
1994. We feel these companies will benefit from reductions in overhead and
redundant operations to drive earnings and share prices higher. The shares of
many REIT companies are now selling at a discount to their asset values, and
the convertibles of these issuers offer very favorable leverage. We find this
situation positive for the portfolio, and continue to add to our positions in
Security Capital and Liberty Property Trust.
We believe that convertible securities as an asset class are attractively
priced. They currently sell at a discount to their theoretical value, while
yields are up (implying better downside protection during stock declines, all
else being equal) and conversion premiums are down (implying more upside
participation during equity advances -- again, all else being equal). We
continue to believe that convertible securities are an attractive means by
which to participate in a company's growth and can provide a unique combination
of above-average current yield and less volatile growth.@ We believe the
Franklin Convertible Securities Fund is well-positioned with heavy weightings
in the energy and REIT sectors, which should benefit from continued economic
growth while hedging the fund, to a degree, against unexpected inflation.
@ Convertible securities tend to earn less income than non-convertible,
fixed-income securities; in a rising stock market they tend to experience less
capital appreciation than pure equities.
12
<PAGE>
PERFORMANCE SUMMARY
The Franklin Convertible Securities Fund reported a six-month cumulative total
return of +3.81%, and a one-year total return of +8.56% for the periods ended
April 30, 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.
Your fund's share price, as measured by net asset value, declined during the
reporting period to $11.75 on April 30, 1995, from $12.34 on October 31, 1994.
As stated previously, this decline was due in large part to rising interest
rates throughout most of 1994.
During the reporting period, shareholders received distributions totaling 98.9
cents ($0.989) per share, including income distributions of 29.2 cents ($0.292)
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. We are pleased to
report that because of increased income earned by the fund, we were able to
adjust your monthly dividend to 5.0 cents ($0.050) per share from 4.6 cents
($0.046) per share, effective with the January 1995 distribution. Based on the
current monthly dividend of 5.0 cents per share and the maximum offering price
of $12.30 on April 30, 1995, your fund's distribution rate was 4.88%.
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.
FRANKLIN CONVERTIBLE SECURITIES FUND
Periods ended April 30, 1995
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR (04/15/87)
------ ------ ----------
<S> <C> <C> <C>
Cumulative
Total Return 1 8.56% 90.24% 115.56%
Average Annual
Total Return 2 3.66% 12.69% 9.38%
Distribution Rate 3 4.88%
30-Day Standardized Yield 4 4.41%
</TABLE>
1. Cumulative total returns show the change in value of an investment over the
specified periods and do not reflect the maximum 4.5% 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 includes the maximum 4.5% initial
sales charge. See note below.
3. Based on an annualization of the current 5.0 cent per share monthly dividend
and the maximum offering price of $12.30 on April 30, 1995.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended April 30, 1995.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge, with dividends reinvested at the 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, which will affect future performance. 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 is not predictive of future results.
Past expense reductions by the fund's manager increased the fund's total
return.
13
<PAGE>
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.*
Short-term interest rates exhibited volatility through much of the reporting
period, before stabilizing in the first few months of 1995. Although the
Federal Reserve Board raised the federal funds rate twice during the six-month
period, short-term market rates declined following the second move in February.
One-year Treasuries, for example, began the period yielding 5.72%. After rising
to 7.20% on December 31, 1994, they fell to 6.09% on April 30, 1995.**
The adjustable rate mortgage securities (ARMs) in which your fund invests were
positively affected by this stabilization of short-term interest rates. ARMs
have adjustable interest-rate payments (also known as coupons) that reset at
periodic intervals to reflect current interest rates. ARMs also have annual
caps limiting how much their coupons can change at each reset date, and how
much they can change each year. In a stable interest rate environment, or one
in which rates rise slowly, ARM coupons adjust smoothly. When rates rise
sharply, however, caps prevent coupons from rising at the same speed. Coupons
remain below market levels, and ARM prices subsequently decline until further
coupon adjustments occur. During 1994, as interest rates rose quickly, many
adjustable securities hit their annual caps, and were unable to adjust at the
same speed as general interest rates. As interest rates stabilized during the
past six months, many ARM coupons were able to catch up and now reflect current
rates more closely.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX
* 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 the timely payment of principal and interest.
** Source: Micropal
14
<PAGE>
The graph on the previous page compares the fund's distribution rate to
one-year Treasury yields from May 1, 1990, to April 30, 1995.+ As you can see,
the fund's distribution rate reflected overall interest rate trends, falling in
the early 1990s and rising in 1994. Because of their periodic adjustment and
annual caps, adjustable rate securities tend to lag current interest rates.
Although one-year Treasury yields began to increase in September of 1993, it
was not until May of 1994 that the fund's distribution rate began to rise.
During the reporting period, the fund's monthly dividend reflected the recent
trend toward higher rates. As the table to the right illustrates, the fund's
dividend climbed steadily to 4.5 cents ($0.045) per share in April 1995 from
3.6 cents ($0.036) per share in November 1994.
The fund's underlying portfolio consists primarily of adjustable rate mortgage
securities 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).
<TABLE>
<CAPTION>
DIVIDEND AMOUNT
MONTH PER SHARE
- ----- ---------------
<S> <C>
November 3.6 cents
December 4.0 cents
January 4.3 cents
February 4.4 cents
March 4.4 cents
April 4.5 cents
</TABLE>
These securities are of high credit quality and have earned the fund a "AAAf"
rating -- the highest mutual fund credit rating possible -- from Standard &
Poor's Corporation.++ As explained
+ Distribution rate is calculated by annualizing the fund's monthly dividend
and dividing by the public offering price on a specific date.
@ The fund invests all of its assets in the U.S. Government 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.
++The 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.
15
<PAGE>
previously, adjustable rate securities have yearly caps limiting how much their
coupons can rise or fall. Fannie Maes and Freddie Macs generally have caps of
2% annually. Ginnie Maes, on the other hand, usually have annual caps of only
1%. As a result, Ginnie Maes tend to be more sensitive to changes in interest
rates. During the fiscal period, we increased our holdings in Fannie Maes and
Freddie Macs as protection against further interest-rate volatility. Fannie
Maes rose to 61.6% of total net assets from 59.4% on October 31, 1994, while
Freddie Macs increased to 32.7% of total net assets from 28.8% on October 31,
1994. Ginnie Maes declined to 3.2% from 7.8% on October 31, 1994.
The average maturity of your fund remained stable at 27 years, while its
weighted average coupon increased to 7.10% on April 30, 1995, from 6.20% on
October 31, 1994. As a result, the fund's monthly dividend rose steadily, as
demonstrated by the table on the previous page.
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX
Looking forward, short-term rates should continue to rise in the immediate
future, although not as sharply as they did throughout 1994. We are actively
positioning the fund to respond favorably to such an environment. Our main
concern for the fund continues to be stability of principal while maintaining a
yield that is competitive with short-term investment alternatives.
16
<PAGE>
PERFORMANCE SUMMARY
The Franklin Adjustable U.S. Government Securities Fund's share price, as
measured by net asset value, rose slightly to $9.24 on April 30, 1995, from
$9.20 on October 31, 1994.
For the six-month period ended April 30, 1995, your fund paid income
distributions totaling 25.2 cents ($0.252) per share. Dividends will vary based
on the earnings of the fund's portfolio, and past distributions are not
necessarily predictive of future trends.
Based on an annualization of the current monthly dividend of 4.5 cents ($0.045)
per share and the maximum offering price of $9.45 on April 30, 1995, your
fund's distribution rate was 5.71%.
For the six-month and one-year periods ended April 30, 1995, the fund posted
cumulative total returns of +3.23% and +3.12%, respectively. Cumulative total
return measures the change in value of an investment during the periods
indicated, assuming reinvestment of dividends and capital gains, if any. This
calculation does not include the maximum sales charge, and past performance is
not predictive of future results.
Management maintains a long-term perspective and encourages shareholders to do
the same. While the fund may experience volatility from time to time, its
managers believe that its performance will be rewarding over the long term. For
example, as the table to the right demonstrates, the fund has provided an
average annual return of +5.25% since its inception in 1987.
FRANKLIN ADJUSTABLE U.S.
GOVERNMENT SECURITIES FUND
Periods ended April 30, 1995
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR (10/20/87)
------ ------ ----------
<S> <C> <C> <C>
Cumulative
Total Return 1 3.12% 23.88% 50.38%
Average Annual
Total Return 2 0.75% 3.90% 5.25%
Distribution Rate 3 5.71%
30-Day Standardized Yield 4 5.94%
</TABLE>
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 stated periods. The figures have been restated to
reflect the current, maximum 2.25% initial sales charge. See note below.
3. Distribution rate is based on an annualization of the fund's current 4.5
cents per share monthly dividend and the maximum offering price of $9.45 on
April 30, 1995.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended April 30, 1995.
Note: 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.
Franklin Advisers, Inc., the fund's administrator and the managers 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 distribution rate and
total return would have been lower, and the yield would have been 5.50%. The
fee waiver may be discontinued at any time.
17
<PAGE>
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.
Over the last six months, the economic climate exhibited many cross-currents.
The U.S. economy continued to experience above-average long-term growth during
the second half of 1994; however, recent evidence points to an economic
slowdown for the first half of 1995. Consumer spending, as reflected by retail,
auto and housing sales, has been notably weak in recent months.
Conversely, investment spending and corporate profits remain strong. The
Federal Reserve Board, ever vigilant in its attempt to control economic growth
and inflation, continued to raise the federal funds and discount rates during
the period. Inflation, as measured by the Consumer Price Index (CPI), remains
modest to date, although mounting pressures such as higher commodity prices,
lower unemployment rates and a weak U.S. dollar point to potentially higher
rates ahead. Stock and bond markets responded favorably to the changing
economic climate during the six-month period. Long-term interest rates declined
and stock prices -- as measured by the Standard & Poor's 500 Stock Index(R) --
increased 8.97% over the reporting period.
The Franklin Equity Income Fund benefited from this climate of lower interest
rates and higher stock prices. The fund provided a total return of +6.01% for
the six-month period ending April 30, 1995. The fund's performance relative to
the S&P 500(R) was largely attributable to its defensive posture stemming from
its high cash position over the reporting period.
With a higher U.S. stock market and a lack of attractively valued investment
opportunities, we opted to take profits and raise the cash levels in the fund's
portfolio. By April 30, 1995, cash levels (including short-term Treasuries) had
risen to 28.5% of total net assets, up from 21.7% on October 31, 1994. The
common stock allocation was reduced during the reporting period to 53.2% from
56.3% of total net assets, and convertible preferred stocks to 17.7% from
22.0%.
18
<PAGE>
From an industry perspective, the fund continued to increase its allocation in
the utilities and energy sectors while maintaining or lowering positions in all
remaining industries. Specifically, we increased the portfolio's weighting in
the integrated natural gas industry. These stocks became attractive on a
relative yield basis after they were sold off following a drop in natural gas
prices. We initiated new positions in Consolidated Natural Gas (5.6% yield
based on initial purchase price) and National Fuel Gas (5.9% yield based on
initial purchase price). Both companies are integrated and offer leverage to
higher natural gas prices through their exploration and production
subsidiaries. With these purchases and the addition to existing utility and
energy positions, these industries now represent the largest and third-largest
sectors of the fund, comprising 16.7% and 13.0% of total net assets,
respectively.
FRANKLIN EQUITY INCOME FUND
Top 10 Holdings on April 30, 1995
As a percentage of total net assets
<TABLE>
<CAPTION>
INDUSTRY % OF TOTAL
SECTOR NET ASSETS
-------- ----------
<S> <C>
Chemical Bank 1.86%
Banking
Nynex 1.78%
Utilities - Telephone
Bristol-Myers Squibb Co. 1.77%
Pharmaceutical
GTE Corporation 1.76%
Utilities - Telephone
Hanson Plc. 1.75%
Conglomerate
Atlantic Richfield 1.75%
Oil
CINergy Corporation 1.75%
Utilities - Electric
Dun & Bradstreet 1.74%
Publishing
Exxon Corporation 1.70%
Oil
Pennzoil Co. 1.68%
Oil
</TABLE>
FOR A COMPLETE LIST OF PORTFOLIO HOLDINGS, PLEASE SEE PAGE 36 OF THIS REPORT.
19
<PAGE>
We also initiated a new position in the financial sector with the purchase of
J.P. Morgan (5.0% yield). J.P. Morgan is the nation's third largest bank with
assets of over $130 billion. The stock had fallen over concerns about the
company's derivatives exposure. However, after careful investigation, we found
that the company's exposure to derivatives was minimal. As such, the fund used
this weakness to begin a position at attractive valuation levels.
We continued to reduce our holdings in the pharmaceutical/healthcare industry.
While most of the stocks still enjoy favorable growth prospects and attractive
valuations, the recent positive performance of the group is providing selective
opportunities for the fund to take profits. This industry now represents 7% of
the fund's assets, down from 9% at the end of 1994.
Finally, we took profits in the forest and paper products and the savings and
loan sectors. Both sectors rallied strongly over the last six months, and we
used this opportunity to reduce our holdings in these areas.
With stock market yields at low historical levels (2.6% for the S&P 500(R)),
and short-term investment rates at attractive levels compared to stocks, we
continued to have difficulty finding stocks at attractive prices. Therefore,
short-term investments as a percentage of the total fund increased to 28.5% as
of April 30, 1995, up from 21.7% on October 31, 1994. With this large cash
position, the fund is poised to take advantage of opportunities when valuations
improve.
<PAGE>
PERFORMANCE SUMMARY
The Franklin Equity Income Fund reported a six-month cumulative total return of
+6.01%, and a one-year return of +12.79% for the periods ended April 30, 1995.
Total return measures the change in value of an investment, assuming
reinvestment of dividends and capital gains, if any, and does not include the
maximum initial sales charge.
Your fund's share price, as measured by net asset value, increased during the
reporting period to $14.40 on April 30, 1995, from $14.14 on October 31, 1994.
During the reporting period, shareholders received income distributions
totaling 55.2 cents ($0.552) per share, including 30 cents ($0.30) per share in
dividend income, 0.9 cents ($0.009) per share in a special year-end
distribution, and 24.3 cents ($0.243) per share in long-term capital gains.
Based on the current monthly dividend of 5.0 cents ($0.05) per share and the
maximum offering price of $15.08 on April 30, 1995, your fund's distribution
rate was 3.98%. 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.
FRANKLIN EQUITY INCOME FUND
Periods ended April 30, 1995
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR (03/15/88)
- --------------------------------------------------------------
<S> <C> <C> <C>
Cumulative
Total Return 1 12.79% 79.86% 127.70%
Average Annual
Total Return 2 7.71% 11.43% 11.51%
Distribution Rate 3 3.98%
30-Day Standardized Yield 4 4.41%
- --------------------------------------------------------------
</TABLE>
1. Cumulative total returns show the change in value of an investment over the
specified periods. These calculations do not include the maximum 4.5% initial
sales charge. See note below.
2. Average annual total return represents the average annual change in value of
an investment over the stated periods and includes the maximum 4.5% initial
sales charge. See note below.
3. Based on an annualization of the fund's current 5.0 cent per share monthly
dividend and maximum offering price of $15.08 on April 30, 1995.
4. Yield, calculated as required by the SEC, is based on earnings of the fund's
portfolio during the 30 days ended April 30, 1995.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge, with dividends reinvested at the offering price. Thus, actual total
returns for purchasers of shares during that period would have been 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 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.
21
<PAGE>
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.
Short-term interest rates exhibited volatility through much of the reporting
period, stabilizing in the first few months of 1995. Although the Federal
Reserve Board raised the federal funds rate twice during the six-month period,
short-term interest rates actually declined following the second move in
February. One-year Treasuries, for example, began the period yielding 5.72%.
After rising to 7.20% on December 31, 1994, Treasuries fell to 6.32% on April
30, 1995.(*)
The adjustable rate mortgage securities (ARMs) in which your fund invests were
positively affected by this stabilization of short-term interest rates. ARMs
have adjustable interest-rate payments (also known as coupons) that reset at
periodic intervals to reflect the current rates. ARMs also have annual caps
limiting how much their coupons can change at each reset date, and how much
they can change each year. In a stable interest rate environment, or one in
which rates rise slowly, ARM coupons adjust smoothly. The sharp rise in
interest rates that took place throughout most of 1994 caused ARM coupon
adjustments to lag this rate movement, and many securities hit their annual
caps. As a result, coupons remained below market levels, and prices
subsequently declined until additional adjustment occurred.
In contrast, the relative stability in interest rates in recent months has
allowed many of these securities to catch up to last year's movement in rates.
This has resulted in an improvement in both income as well as security prices.
The chart on the following page compares the fund's distribution rate to
one-year U.S. Treasury rates from February 1, 1992, to April 30, 1995.** As you
can see, the fund's distribution rate reflected overall interest rate trends,
falling in 1992 and 1993, and rising in 1994. Because of their periodic
adjustment and annual caps, adjustable rate securities tend to lag current
interest rates. Although one-year Treasury rates began to increase in September
of 1993, it was not until early 1994 that the fund's distribution rate began to
rise.
* Source: Micropal
** Distribution rate is calculated by annualizing the fund's monthly dividend
and dividing by the offering price on a specific date.
22
<PAGE>
We continued to concentrate the portfolio's holdings in securities that are
tied to one-year Constant Maturity Treasury (CMT) ARMs. These securities tend
to be less price sensitive in times of changing interest rates. In addition, we
remain underweighted in ARMs tied to the 11th District Cost of Funds Index
(COFI) because of the lagging nature of that index.
Your fund invests in an underlying portfolio consisting primarily of high
quality, AA-rated adjustable-rate mortgage-backed securities.@ At the end of
the reporting period, 31.7% of the fund's portfolio was invested in securities
rated AAA by outside ratings agencies, and 68.3% in AA-rated securities. These
ratings, while not guaranteeing the fund's market value or signifying approval
of the shares by national ratings agencies, reflect the quality of the bonds as
described in the fund's prospectus and are subject to change.
The average maturity of your fund remained stable at 27 years, while its
weighted average coupon increased to 7.28% on April 30, 1995, from 6.69% on
October 31, 1994.
GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX
We anticipate that short-term rates may continue to rise in the immediate
future, although not as sharply as they did in 1994. For this reason, we are
actively positioning the fund to perform well in this environment. Our main
concern continues to be stability of principal while maintaining a yield that
is competitive with short-term investment alternatives.
@ 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.
23
<PAGE>
PERFORMANCE SUMMARY
The fund's share price, as measured by net asset value, increased slightly to
$9.72 on April 30, 1995, from $9.70 on October 31, 1994.
The Franklin Adjustable Rate Securities Fund continued to meet its investment
objective of providing high current income to its shareholders. For the
six-month period ended April 30, 1995, your fund paid monthly distributions
totaling 28.16 cents ($0.2816) per share.@ Dividends will vary based on the
earnings of the fund's portfolio, and past distributions are not indicative of
future trends.
At the end of the reporting period, your fund's distribution rate was 5.67%,
based on an annualization of the current monthly dividend of 4.7 cents ($0.047)
per share and the maximum offering price of $9.94 on April 30, 1995. Your fund
provided a cumulative total return of +3.16% for the six-month period, and
+4.73% for the one-year period ended April 30, 1995. Cumulative total return
measures the change in value of an investment over the periods indicated,
assuming reinvestment of dividends and capital gains, if any. These
calculations do not include the maximum initial sales charge. Past performance
is not predictive of future results.
We have always maintained a long-term perspective and encourage shareholders to
do the same. While the fund may experience volatility from time to time, we are
confident that its performance will be satisfactory over the long term.
FRANKLIN ADJUSTABLE RATE SECURITIES FUND
Periods ended April 30, 1995
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 3-YEAR (12/26/91)
- -------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative
Total Return 1 4.73% 13.49% 15.32%
Average Annual
Total Return 2 2.33% 3.52% 3.64%
Distribution Rate 3 5.67%
30-Day Standardized Yield 4 6.17%
- -------------------------------------------------------------------
</TABLE>
1. Cumulative total returns show the change in value of an investment over the
specified periods and do not reflect the maximum 2.25% initial sales charge.
See note below.
2. Average annual total return represents the average annual increase in value
of an investment over the specified periods and includes the maximum 2.25%
initial sales charge. See note below.
3. Based on an annualization of the fund's current 4.7 cent per share monthly
dividend and the maximum offering price of $9.94 on April 30, 1995.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended April 30, 1995.
Note: 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 is not predictive of 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 would have been 5.72%.
The fee waiver may be discontinued at any time.
@ Assumes 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.
24
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COUNTRY* SHARES FRANKLIN GLOBAL GOVERNMENT INCOME FUND (NOTE 1)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCKS 2.3%
FINANCIAL SERVICES
US 386,780 Nortel Communications, Inc., pfd., Series A ....... $ 3,283,762
US 30,000 Nortel Communications, Inc., pfd., Series B, ADR .. 585,000
-----------
TOTAL PREFERRED STOCKS (COST $4,200,838)..... 3,868,762
-----------
FACE
AMOUNT
------
BONDS, NOTES & DEBENTURES 83.7%
ARGENTINA 5.5%
US 2,500,000 b Hidro Electrica Alicuras, 8.375%, 03/15/99 ........ 2,000,000
US 16,500,000 Republic of Argentina, 5.00%, 03/31/23 ............ 7,249,688
-----------
9,249,688
-----------
AUSTRALIA 13.9%
AU 18,500,000 Government of Australia, 13.00%, 07/15/00 ......... 15,442,525
AU 68,000 Fanmac Ltd., 13.95%, 05/15/06 ..................... 49,546
AU 8,360,000 Queensland Treasury Corp., 8.875%, 11/08/96 ....... 6,103,770
AU 3,000,000 Queensland Treasury Corp., 8.00%, 05/14/03 ........ 1,891,494
-----------
23,487,335
-----------
CANADA 14.5%
CA 16,000,000 d Canadian Strip, 0.00%, 12/01/08 ................... 3,734,177
CA 15,000,000 Government of Canada, 9.50%, 10/01/98 ............. 11,575,889
CA 5,000,000 Government of Canada, 9.50%, 06/01/10 ............. 3,991,394
CA 6,000,000 Province of British Columbia, 8.00%,
09/08/23 ........................................ 4,066,786
CA 1,725,000 Rogers Cablesystems, Inc., 9.65%, 01/15/14 ........ 1,072,138
-----------
24,440,384
-----------
DENMARK 4.6%
DK 17,689,000 Government of Denmark, 8.00%, 5/15/03 ............. 3,139,184
DK 23,837,461 Nykredit, 11.00%, 10/01/10 ........................ 4,569,887
-----------
7,709,071
-----------
GERMANY 11.8%
DD 3,140,000 Bundesobligation, 5.375%, 02/22/99 ................. 2,213,405
DD 11,210,000 Bundesschatzanweisungen, 6.875%, 12/02/98 .......... 8,288,606
DD 4,330,000 Deutsche Bundespost, 7.75%, 10/01/04 ............... 3,228,755
DD 3,720,000 German Unity Fund, 8.00%, 01/21/02 ................. 2,846,632
DD 4,585,000 International Bank of Reconstruction and
Development, 7.125%, 04/12/05 ..................... 3,306,261
-----------
19,883,659
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
COUNTRY* AMOUNT FRANKLIN GLOBAL GOVERNMENT INCOME FUND (NOTE 1)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS, NOTES & DEBENTURES (CONT.)
GREAT BRITAIN 7.3%
GB 3,670,000 United Kingdom Treasury, 7.00%, 08/06/97 .......... $ 5,805,353
GB 3,590,000 United Kingdom Treasury, 12.25%, 03/26/99 ......... 6,513,018
-----------
12,318,371
-----------
INDIA .5%
US 900,000 b Essar Gujarat, Ltd., FRN, 9.40%, 07/15/99 ......... 902,250
-----------
ITALY 2.3%
EC 1,500,000 Government of Italy, 9.25%, 03/07/11 .............. 1,903,560
GB 1,200,000 Government of Italy, 10.50%, 04/28/14 ............. 2,013,488
-----------
3,917,048
-----------
JAPAN 5.5%
JP 175,000,000 European Investment Bank, 5.875%, 11/26/99 ........ 2,374,011
JP 242,000,000 European Investment Bank, 6.625%, 03/15/00 ........ 3,383,709
JP 251,000,000 International Bank of Reconstruction and
Development, 6.75%, 03/15/00 ..................... 3,524,484
-----------
9,282,204
-----------
MEXICO 1.0%
US 600,000 United Mexican States, FRN, 7.25%, 12/31/19 ....... 394,875
US 2,400,000 United Mexican States, Series B, 6.25%, 12/31/19 .. 1,260,000
-----------
1,654,875
-----------
NEW ZEALAND 6.8%
NZ 15,500,000 Government of New Zealand, 10.00%, 03/15/02 ....... 11,561,240
-----------
SOUTH AFRICA 1.3%
ZA 11,350,000 ESCOM, E168, utility deb., 11.00%, 06/01/08 ....... 2,174,109
-----------
SPAIN 1.8%
SP 365,000,000 Government of Spain, 11.60%, 01/15/97 ............. 2,999,167
-----------
SWEDEN 3.3%
SE 58,000,000 Government of Sweden, 6.00%, 02/09/05 ............. 5,580,838
-----------
UNITED STATES 3.6%
US 1,400,000 Federal Home Loan Mortgage Corp., 7.82%, 01/27/98 . 1,431,423
US 770,000 U.S. Treasury Bonds, 11.625%, 11/15/04 ............ 1,007,978
US 2,600,000 U.S. Treasury Notes, 7.25%, 05/15/04 .............. 2,633,311
US 930,000 U.S. Treasury Notes, 9.125%, 05/15/99 ............. 1,005,271
-----------
6,077,983
-----------
TOTAL BONDS, NOTES & DEBENTURES
(COST $148,905,344) ....................... 141,238,222
-----------
TOTAL PREFERRED STOCKS, BONDS, NOTES &
DEBENTURES (COST $153,106,182) ............ 145,106,984
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
COUNTRY* AMOUNT FRANKLIN GLOBAL GOVERNMENT INCOME FUND (NOTE 1)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
e SHORT TERM INVESTMENTS
BONDS 5.7%
DK 23,000,000 Government of Denmark, 9.00%, 11/15/95 .................... $ 4,273,633
SP 240,000,000 Government of Spain, 13.45%, 04/15/96 ..................... 1,998,375
SE 10,000,000 Staten Bostadsfinansier, 13.00%, 09/20/95 ................. 1,388,795
TH 50,000,000 Thailand Military Bank Notes, 6.875%, 06/01/95 ............ 2,020,736
------------
Total Bonds (COST $10,034,547) ...................... 9,681,539
------------
COMMERCIAL PAPER 2.1%
US 3,600,000 Goldman Sachs Group, 14.00%, 06/15/95 (COST $3,600,000) ... 3,487,680
------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS
(COST $166,740,729) ................................ 158,276,203
------------
f,g RECEIVABLES FROM REPURCHASE AGREEMENTS 3.2%
US 5,513,779 Joint Repurchase Agreement, 5.975%, 05/01/95
(Maturity Value $5,466,078) (COST $5,463,358)
Collateral: U.S. Treasury Notes, 4.75% - 9.00%,
07/15/96 - 01/31/00 .................................... 5,463,358
------------
TOTAL INVESTMENTS (COST $172,204,087) 97.0% ...... 163,739,561
OTHER ASSETS AND LIABILITIES, NET 3.0% ........... 5,079,118
------------
NET ASSETS 100.0% ................................ $168,818,679
============
At April 30, 1995, the net unrealized depreciation based
on the cost of investments for income tax purposes of
$172,237,334 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value
over tax cost ........................................... $ 3,719,562
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax
cost over value ........................................ (12,217,335)
------------
Net unrealized depreciation ............................. $ (8,497,773)
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
(UNAUDITED) (CONT.)
FRANKLIN GLOBAL GOVERNMENT INCOME FUND
- -------------------------------------------------------------------------------
PORTFOLIO ABBREVIATIONS:
FRN - Floating Rate Notes
COUNTRY LEGEND:
AU - Australia
CA - Canada
DD - Germany
DK - Denmark
EC - European Community
GB - Great Britain
JP - Japan
NZ - New Zealand
SE - Sweden
SP - Spain
TH - Thailand
US - United States of America
ZA - South Africa
* Securities traded in currency of country indicated.
b See Note 7 regarding Rule 144A securities.
d Zero coupon bonds. The current effective yield may vary. The original
accretion rate will remain constant.
e Certain short term securities are traded on a discount basis; the rates shown
are the discount rates at the time of purchase by the Fund. Other securities
bear interest at the rates shown, payable at fixed dates or upon maturity.
f Face amount for repurchase agreements is for the underlying collateral.
g See Note 1(g) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
FACE FRANKLIN SHORT-INTERMEDIATE VALUE
AMOUNT U.S. GOVERNMENT SECURITIES FUND (NOTE 1)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES 99.1%
$25,000,000 U.S. Treasury Notes, 7.50%, 11/15/01 ..................... $ 25,734,375
12,000,000 U.S. Treasury Notes, 6.375%, 01/15/99 .................... 11,842,500
7,895,000 U.S. Treasury Notes, 5.125%, 03/31/98 .................... 7,566,859
6,000,000 U.S. Treasury Notes, 5.50%, 09/30/97 ..................... 5,848,121
70,000,000 U.S. Treasury Notes, 6.875%, 02/28/97 .................... 70,371,832
6,500,000 U.S. Treasury Notes, 6.75%, 02/28/97 ..................... 6,520,313
5,000,000 U.S. Treasury Notes, 6.25%, 01/31/97 ..................... 4,976,559
4,000,000 U.S. Treasury Notes, 6.125%, 12/31/96 .................... 3,980,000
22,300,000 U.S. Treasury Notes, 6.25%, 08/31/96 ..................... 22,237,268
47,995,000 U.S. Treasury Notes, 5.125%, 03/31/96 .................... 47,477,615
------------
TOTAL U.S. GOVERNMENT SECURITIES (COST $206,917,694).. 206,555,442
------------
f,g RECEIVABLES FROM REPURCHASE AGREEMENTS
12,092 Joint Repurchase Agreement, 5.975%, 05/01/95
(Maturity Value $11,703)(COST $11,697)
Collateral: U.S. Treasury Notes, 4.75% - 9.00%,
07/15/96 - 01/31/00 ..................................... 11,697
------------
TOTAL INVESTMENTS (COST $206,929,391) 99.1% ........ 206,567,139
OTHER ASSETS AND LIABILITIES, NET .9% .............. 1,922,453
------------
NET ASSETS 100.0% ................................. $208,489,592
============
At April 30, 1995, the net unrealized depreciation based
on the cost of investments for income tax purposes of
$206,929,391 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value over
tax cost .............................................. $ 713,908
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value ............................................ (1,076,160)
------------
Net unrealized depreciation ............................ $ (362,252)
============
</TABLE>
f Face amount for repurchase agreements is for the underlying collateral.
g See Note 1(g) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN CONVERTIBLE SECURITIES FUND (NOTE 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS 41.6%
BROADCAST/MEDIA 1.1%
17,800 Evergreen Media Corp., $3.00 cvt. pfd., Series A ................ $ 801,000
----------
COMMERCIAL SERVICES 1.2%
13,000 General Motors Corp., $3.25 cvt. pfd., Series C ................. 814,125
----------
CONGLOMERATES 1.1%
50,000 b Westinghouse Electric Co., $1.30 cvt. pfd., Series C ............ 756,250
----------
CONSTRUCTION 1.1%
15,700 b McDermott International, Inc., $2.875 cum. cvt. pfd., Series C .. 737,900
----------
ENERGY 3.0%
22,500 Occidental Petroleum Corp., $3.00 cvt. pfd. ..................... 1,282,500
14,500 b Occidental Petroleum Corp., $3.875 cvt. pfd. .................... 792,063
----------
2,074,563
----------
ENTERTAINMENT .7%
20,000 AMC Entertainment, Inc., $1.75 cvt. pfd. ........................ 490,000
----------
FINANCIAL SERVICES 7.3%
68,000 Allstate Corp., $2.30 cvt. exch. pfd. ........................... 2,456,500
2,300 Citicorp, $5.375 cvt. cum. pfd. ................................. 292,675
26,000 Integon Corp., $3.875 cvt. pfd. ................................. 1,319,500
17,300 Travelers Corp., 2.75% cvt. pfd., Series B ...................... 1,044,488
----------
5,113,163
----------
GOLD 1.5%
15,000 AMAX Gold, Inc., $3.75 cvt. pfd., Series B ...................... 720,000
5,200 Battle Mountain Gold Co., $3.25 cvt. pfd. ....................... 301,600
----------
1,021,600
----------
HEALTH CARE 1.2%
35,000 FHP International Corp., $1.25 cvt. pfd., Class A ............... 826,875
----------
METAL & RESOURCES 5.7%
19,200 Armco, Inc., $3.625 cvt. pfd., Series A ......................... 1,041,600
6,000 b Bethlehem Steel Corp., $3.50 cvt. pfd. .......................... 261,000
10,000 Cyprus/AMAX Minerals Co., $4.00 cvt. pfd., Series A ............. 611,250
23,000 Magma Copper Co., 5.625%, cvt. pfd., Series D ................... 1,397,250
15,200 WHX Corp., 6.50% cvt. pfd., Series A ............................ 646,000
----------
3,957,100
----------
OIL & GAS 7.5%
24,000 b Diamond Shamrock, $2.50 cvt. pfd. ............................... 1,341,000
45,800 Gerrity Oil & Gas, $1.50 cvt. pfd. .............................. 583,950
27,600 Noble Drilling Corp., $2.25 cvt. exch. pfd. ..................... 993,600
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN CONVERTIBLE SECURITIES FUND (NOTE 1)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (CONT.)
OIL & GAS (CONT.)
28,000 b Parker & Parsley Petroleum Co., 6.25% cvt. pfd. ............... $ 1,316,000
47,675 Snyder Oil Corp., $1.50 cvt. pfd. ............................. 1,036,931
-----------
5,271,481
-----------
REAL ESTATE .4%
6,250 Catellus Development Corp., $3.75 cvt. pfd., Series A ......... 312,500
-----------
REAL ESTATE INVESTMENT TRUSTS 2.9%
40,334 Merry Land & Investment Co., $1.75 cvt. pfd., Series A ........ 761,304
57,500 Security Capital Pacific Trust, $1.75 cvt. pfd., Series A ..... 1,293,750
-----------
2,055,054
-----------
RESTAURANT .8%
31,100 Flagstar Cos., Inc., $2.25 cvt. pfd., Series A ................ 583,125
-----------
SAVINGS & LOANS 2.9%
9,700 Great Western Financial Corp., $4.375 cvt. pfd. ............... 551,687
22,900 Roosevelt Financial Group, $3.25 cvt. pfd. .................... 1,442,700
-----------
1,994,387
-----------
SEMICONDUCTORS 1.9%
16,300 National Semiconductor Corp., $3.25 cvt. pfd. ................. 1,352,900
-----------
TEXTILES 1.3%
20,500 Fieldcrest Cannon, Inc., $3.00 cvt. pfd., Series A ............ 943,000
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $29,114,195) ... 29,105,023
-----------
FACE
AMOUNT
------
CONVERTIBLE BONDS 54.7%
ADVERTISING .9%
$ 600,000 b Omnicom Group, cvt. deb., 4.50%, 09/01/00 ..................... 654,750
-----------
BROADCAST/MEDIA 1.2%
1,000,000 b All American Communications, Inc., cvt. deb., 6.50%, 10/01/03 . 868,750
-----------
CABLE 3.5%
3,000,000 Comcast Corp., cvt. notes, 1.125%, 04/15/07 ................... 1,260,000
3,705,000 d Rogers Communication, Inc., cvt. sub. notes, LYONs,
(original accretion rate 5.50%), 0.00%, 05/20/13 .............. 1,218,019
-----------
2,478,019
-----------
COMMERCIAL SERVICES .8%
480,000 b Danka Business Systems, cvt. sub. notes, 6.75%, 04/01/02 ...... 537,000
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN CONVERTIBLE SECURITIES FUND (NOTE 1)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BONDS (CONT.)
CONGLOMERATES 3.7%
$1,750,000 b Hanson America, Inc., cvt. notes, 2.39%, 03/01/01 ............. $ 1,338,750
1,000,000 b Thermo Electron Corp., cvt. deb., 5.00%, 04/15/01 ............. 1,235,000
-----------
2,573,750
-----------
FINANCIAL SERVICES 2.5%
750,000 Fifth Third Bancorp, sub. notes, 4.25%, 01/15/98 .............. 720,000
600,000 b Industrial Credit & Investment, cvt. deb., 2.50%, 04/03/00 .... 457,500
800,000 b Peregrine Investment Finance, cvt. guaranteed, 4.50%, 12/01/00. 579,000
-----------
1,756,500
-----------
GROCERY/FOOD 3.6%
1,150,000 Chock Full O'Nuts, cvt. deb., 7.00%, 04/01/12 ................. 1,012,000
1,000,000 b Grand Metropolitan, Plc., cvt. unsub., 6.50%, 01/31/00 ........ 1,080,000
250,000 Kroger Co., cvt. junior sub. deb., 6.375%, 12/01/99 ........... 343,437
-----------
2,435,437
-----------
HEALTH CARE 2.6%
450,000 GranCare, Inc., cvt. sub. deb., 6.50%, 01/15/03 ............... 389,250
790,000 Maxxim Medical, sub. deb., 6.75%, 03/01/03 .................... 738,650
800,000 Pacific Physician Services, cvt. sub. deb., 5.50%, 12/15/03 ... 660,000
-----------
1,787,900
-----------
INDEPENDENT POWER PRODUCER .5%
400,000 AES Corp., cvt. deb., 6.50%, 03/15/02 ......................... 379,500
-----------
INDUSTRIAL EQUIPMENT 2.4%
1,100,000 Raymond Corp., cvt. sub. deb., 6.50%, 12/15/03 ................ 1,325,500
350,000 Varlen Corp., cvt. sub. deb., 6.50%, 06/01/03 ................. 346,500
-----------
1,672,000
-----------
INSURANCE COMPANIES 1.9%
1,000,000 d Fidelity National Financial, cvt. sub. notes, LYONs,
(original accretion rate 5.50%) 0.00%, 02/15/09 .............. 375,000
1,000,000 Leucadia National Corp., cvt. deb., 5.25%, 02/01/03 ........... 960,000
-----------
1,335,000
-----------
LONG DISTANCE/TELECOMMUNICATIONS 3.0%
1,200,000 b,d Cellular Communications, Inc., cvt. sub. notes,
(original accretion rate 7.50%), 0.00%, 07/27/99 ............. 942,000
1,180,000 Compania de Telefonos de Chile, cvt. sub. deb., 4.50%,
01/15/03 ..................................................... 1,159,350
-----------
2,101,350
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN CONVERTIBLE SECURITIES FUND (NOTE 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BONDS (CONT.)
METAL & RESOURCES 2.3%
$ 700,000 b Homestake Mining Co., cvt. sub. deb., 5.50%, 06/23/00 ......... $ 708,750
200,000 Inco, Ltd., cvt. deb., 5.75%, 07/01/04 ........................ 211,750
800,000 Teck Corp., cvt. sub. deb., 3.75%, 07/15/06 ................... 725,000
-----------
1,645,500
-----------
OIL & GAS 3.1%
500,000 b Apache Corp., cvt. sub. deb., 6.00%, 01/15/02 ................. 547,500
725,000 Noble Affiliates, cvt. sub. notes, 4.25%, 11/01/03 ............ 694,188
1,000,000 b Seacor Holdings, Inc., cvt. sub. deb., 6.00%, 07/01/03 ........ 963,750
-----------
2,205,438
-----------
PUBLISHING/NEWSPAPERS .9%
2,100,000 d Hollinger, Inc., cvt. sub. notes, (original
accretion rate 6.00%), 0.00%, 10/05/13 ....................... 609,000
-----------
REAL ESTATE 2.1%
500,000 b Henderson Capital International, cvt. deb., 4.00%, 10/27/96 ... 491,250
1,400,000 U.S. Home Corp., cvt. sub. notes, 4.875%, 11/01/05 ............ 990,500
-----------
1,481,750
-----------
REAL ESTATE INVESTMENT TRUSTS 3.2%
1,000,000 b Health Care Properties Investment, Inc., cvt. sub., 6.00%,
11/08/00 ..................................................... 920,000
1,380,000 Liberty Property Trust, cvt. sub. deb., 8.00%, 07/01/01 ....... 1,324,800
-----------
2,244,800
-----------
RETAIL 2.0%
550,000 Carter Hawley Hale Stores, cvt. senior sub. notes, 6.25%,
12/31/00 ..................................................... 401,500
1,250,000 Proffitt's, Inc., cvt. sub. deb. 4.75%, 11/01/03 .............. 1,006,250
-----------
1,407,750
-----------
SEMICONDUCTORS 1.4%
1,400,000 d Motorola, Inc., cvt. sub. notes, LYONs, (original accretion
rate 6.00%), 0.00%, 09/27/13 ................................. 1,008,000
-----------
SOFTWARE .9%
500,000 Sterling Software, Inc., cvt. sub. deb., 5.75%, 02/01/03 ...... 645,000
-----------
TECHNOLOGY 7.2%
875,000 b 3COM Corp., sub. notes, 10.25%, 11/01/01 ...................... 1,010,625
850,000 d Automatic Data Processing, cvt. deb., LYONs, (original
accretion rate 5.25%) 0.00%, 02/20/12 ........................ 374,000
850,000 b Seagate Technology, Inc., cvt. sub. deb., 5.00%, 11/01/03 ..... 1,092,250
550,000 Seagate Technology, Inc., cvt. sub. deb., 6.75%, 05/01/12 ..... 518,375
1,750,000 b,d Silicon Graphics, Inc., cvt. sub. deb., (original
accretion rate 4.15%), 0.00%, 11/02/13 ....................... 1,078,438
875,000 VLSI Technology, cvt. sub. deb., 7.00%, 05/01/12 .............. 934,062
-----------
5,007,750
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN CONVERTIBLE SECURITIES FUND (NOTE 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BONDS (CONT.)
TELECOMMUNICATIONS 2.1%
$1,240,000 b Aspect Telecommunications Corp., cvt. sub. deb., 5.00%,
10/15/03 ..................................................... $ 1,436,850
-----------
TRANSPORTATION 2.9%
825,000 AMR Corp., cvt. sub. deb., 6.125%, 11/01/24 ................... 796,125
1,100,000 Air Express International Corp., cvt. sub. deb., 6.00%,
01/15/03 ..................................................... 1,262,250
-----------
2,058,375
-----------
TOTAL CONVERTIBLE BONDS (COST $37,457,336)................. 38,330,169
-----------
TOTAL LONG TERM INVESTMENTS (COST $66,571,531) ............ 67,435,192
-----------
f,g RECEIVABLES FROM REPURCHASE AGREEMENTS 4.3%
3,052,126 Joint Repurchase Agreement, 5.975%, 05/01/95
(Maturity Value $3,025,675) (COST $3,024,169)
Collateral: U.S. Treasury Notes, 4.75% - 9.00%,
07/15/96 - 01/31/00 .......................................... 3,024,169
-----------
TOTAL INVESTMENTS (COST $69,595,700) 100.6% ........... 70,459,361
LIABILITIES IN EXCESS OF OTHER ASSETS, NET (.6)% ...... (424,296)
-----------
NET ASSETS 100.0%....................................... $70,035,065
===========
At April 30, 1995, the net unrealized appreciation based on the
cost of investments for income tax purposes of $69,595,700 was
as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost......... $ 3,310,011
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value......... (2,446,350)
-----------
Net unrealized appreciation.................................. $ 863,661
===========
</TABLE>
PORTFOLIO ABBREVIATIONS:
LYONs - Liquid Yield Option Notes
a Non-income producing.
b See Note 7 regarding Rule 144A securities.
d Zero coupon bonds. The current effective yield may vary. The original
accretion rate will remain constant.
f Face amount for repurchase agreements is for the underlying collateral.
g See Note 1(g) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND (NOTE 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS 100.2%
62,787,807 U.S. Government ARM Portfolio (Note 1) ....................... $578,903,582
------------
TOTAL INVESTMENTS (COST $631,270,984) 100.2% ........... 578,903,582
LIABILITIES IN EXCESS OF OTHER ASSETS, NET (.2)% ....... (1,004,250)
------------
NET ASSETS 100.0% ...................................... $577,899,332
============
At April 30, 1995, the net unrealized depreciation based
on the cost of investments for income tax purposes of
$631,561,256 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 ................................................ (52,657,674)
------------
Net unrealized depreciation ................................ $(52,657,674)
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN EQUITY INCOME FUND (NOTE 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 53.2%
CHEMICALS 3.6%
38,000 Chemed Corp. .................................................. $ 1,168,500
19,800 Dow Chemical Co. .............................................. 1,376,100
35,500 Goodrich (B.F.) Co. ........................................... 1,655,187
-----------
4,199,787
-----------
CONGLOMERATES 3.0%
108,500 Hanson, Plc., Sponsored ADR ................................... 2,061,500
71,700 Ogden Corp. ................................................... 1,460,887
-----------
3,522,387
-----------
FINANCE 1.2%
34,300 Great Western Financial Corp. .................................. 724,588
10,000 Morgan (J.P.) & Co., Inc. ...................................... 656,250
-----------
1,380,838
-----------
INSURANCE 2.3%
30,000 Aetna Life & Casualty Co. ..................................... 1,710,000
13,400 CIGNA Corp. ................................................... 973,175
-----------
2,683,175
-----------
MEDICAL SUPPLIES 1.0%
34,900 Baxter International, Inc. .................................... 1,212,775
-----------
OIL-INTEGRATED-INTERNATIONAL 10.3%
18,000 Atlantic Richfield Co. ........................................ 2,061,000
34,900 Chevron Corp. ................................................. 1,653,387
28,700 Exxon Corp. ................................................... 1,998,237
11,800 Mobil Corp. ................................................... 1,119,525
40,300 Pennzoil Co. .................................................. 1,969,663
28,600 Texaco, Inc. .................................................. 1,955,525
64,000 YPF, SA, ADR .................................................. 1,296,000
-----------
12,053,337
-----------
PAPER & FOREST PRODUCTS 2.4%
48,300 Federal Paper Board Co. ....................................... 1,430,887
33,100 Potlatch Corp. ................................................ 1,410,888
-----------
2,841,775
-----------
PHARMACEUTICALS 5.8%
22,500 American Home Products Corp. .................................. 1,735,313
32,000 Bristol-Myers Squibb Co. ...................................... 2,084,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN EQUITY INCOME FUND (NOTE 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
PHARMACEUTICALS (CONT.)
31,400 Merck & Co., Inc. ............................................. $1,346,275
45,400 Upjohn Co. .................................................... 1,645,750
----------
6,811,338
----------
PUBLISHING 1.7%
39,200 Dun & Bradstreet Corp. ........................................ 2,043,300
----------
RETAIL STORES 2.2%
137,000 Kmart Corp. ................................................... 1,900,875
15,000 Penney (J.C.) Co., Inc. ....................................... 656,250
----------
2,557,125
----------
STEEL .9%
16,700 Carpenter Technology Corp. .................................... 1,008,262
----------
TOBACCO 2.3%
25,600 American Brands, Inc. ......................................... 1,036,800
25,500 Philip Morris Cos., Inc. ...................................... 1,727,625
----------
2,764,425
----------
TRANSPORTATION .8%
53,000 Yellow Corp. .................................................. 954,000
----------
UTILITIES - ELECTRIC 7.1%
33,800 American Electric Power Co. ................................... 1,106,950
81,800 CINergy Corp. ................................................. 2,055,225
42,200 Dominion Resources, Inc. ...................................... 1,540,300
64,000 PacifiCorp .................................................... 1,216,000
1,300 New England Electric System ................................... 39,163
61,300 SCEcorp ....................................................... 1,026,775
43,000 Texas Utilities Co. ........................................... 1,402,875
----------
8,387,288
----------
UTILITIES - NATURAL GAS 2.0%
30,000 Consolidated Natural Gas Co. .................................. 1,181,250
40,000 National Fuel Gas Co. ......................................... 1,155,000
----------
2,336,250
----------
UTILITIES - TELEPHONE 6.6%
18,200 BellSouth Corp. ............................................... 1,114,750
60,700 GTE Corp. ..................................................... 2,071,387
51,100 NYNEX Corp. ................................................... 2,088,713
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN EQUITY INCOME FUND (NOTE 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
UTILITIES - TELEPHONE (CONT.)
47,300 Pacific Telesis Group.......................................... $ 1,460,387
25,700 U.S. West, Inc. ............................................... 1,063,338
-----------
7,798,575
-----------
TOTAL COMMON STOCKS (COST $57,152,251) .................... 62,554,637
-----------
CONVERTIBLE PREFERRED STOCKS 17.7%
19,200 Battle Mountain Gold Co., $3.25 cvt. pfd. ..................... 1,113,600
31,000 b Bethlehem Steel Corp., $3.50 cvt. pfd. ........................ 1,348,500
21,300 Boise Cascade Corp., $1.58 cvt. pfd., Series G ................ 588,413
36,200 b Catellus Development Corp., $3.625 cvt. pfd., Series B ........ 1,493,250
27,800 Chemical Banking Corp., $5.00 cvt. pfd. ....................... 2,182,300
15,900 Evergreen Media Corp., $3.00 cvt. pfd., Series A .............. 715,500
23,100 General Motors Corp., $3.25 cvt. pfd., Series C ............... 1,446,637
20,000 James River Corp., $1.553 cvt. pfd., Series P.................. 490,000
30,000 Kaufman & Broad Homes Corp., $1.52 cvt. pfd., Series B ........ 427,500
19,200 b Occidental Petroleum Corp., $3.875 cvt. pfd. .................. 1,048,800
29,000 b Parker & Parsley Petroleum Co., $3.125 cvt. pfd. .............. 1,363,000
235,000 RJR Nabisco Holdings Corp., $.601 cvt. pfd., Series C ......... 1,410,000
25,500 Roosevelt Financial Group, $3.25 cvt. pfd. .................... 1,606,500
109,000 Santa Fe Energy Resources, Inc., $0.73 cvt. pfd., Series A .... 1,049,125
21,100 b Transco Energy Co., $3.50 cvt. pfd. ........................... 1,176,325
21,100 Travelers Corp., $2.75 cvt. pfd. .............................. 1,273,913
83,000 b Westinghouse Electric Co., $1.30 cvt. pfd., Series C .......... 1,255,375
19,200 WHX Corp., $3.75 cvt. pfd., Series B........................... 806,400
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $20,626,312) ..... 20,795,138
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
- ----------
<S> <C> <C>
CONVERTIBLE BONDS .6%
$ 755,000 AMR Corp., cvt. sub. deb., 6.125%, 11/01/24 (COST $613,105) ... 728,575
-----------
SHORT TERM INVESTMENTS
GOVERNMENT SECURITIES 2.9%
3,500,000 U.S. Treasury Notes, 5.40%, 09/21/95 (COST $3,420,893) ........ 3,420,476
-----------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS
(COST $81,812,561) ....................................... 87,498,826
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN EQUITY INCOME FUND (NOTE 1)
- --------------------------------------------------------------------------------------------
<S> <C>
f RECEIVABLES FROM REPURCHASE AGREEMENTS 26.7%
$16,576,603 g Joint Repurchase Agreement, 5.975%, 05/01/95
(Maturity Value $16,432,293)
Collateral: U.S. Treasury Notes, 4.75% - 9.00%,
07/15/96 - 01/31/00 .......................................... $ 16,424,115
15,818,000 Nikko Government Securities Co., Inc., 5.90%, 05/01/95
(Maturity Value $15,007,375)
Collateral: U.S. Treasury Notes, 6.00%, 10/15/99 ............. 15,000,000
------------
TOTAL RECEIVABLES FROM REPURCHASE AGREEMENTS
(COST $31,424,115) ....................................... 31,424,115
------------
TOTAL INVESTMENTS (COST $113,236,676) 101.1% ............ 118,922,941
LIABILITIES IN EXCESS OF OTHER ASSETS, NET (1.1)% ....... (1,359,276)
------------
NET ASSETS 100.0% ....................................... $117,563,665
============
At April 30, 1995, the net unrealized appreciation based on
the cost of investments for income tax purposes of
$113,247,740 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost ........ $ 7,785,190
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value ........ (2,109,989)
------------
Net unrealized appreciation ................................. $ 5,675,201
============
</TABLE>
b See Note 7 regarding Rule 144A securities.
f Face amount for repurchase agreements is for the underlying collateral.
g See Note 1(g) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN ADJUSTABLE RATE SECURITIES FUND (NOTE 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS 99.9%
1,987,968 Adjustable Rate Securities Portfolio (Note 1) ................. $19,303,168
-----------
TOTAL INVESTMENTS (COST $19,972,170) 99.9% ............. 19,303,168
OTHER ASSETS AND LIABILITIES, NET .1% .................. 10,611
-----------
NET ASSETS 100.0% ...................................... $19,313,779
===========
At April 30, 1995, the net unrealized depreciation based on the
cost of investments for income tax purposes of $19,983,027 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 ........ (679,859)
-----------
Net unrealized depreciation ................................. $ (679,859)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
40
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
APRIL 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN GLOBAL SHORT-INTERMEDIATE FRANKLIN
GOVERNMENT U.S. GOVERNMENT CONVERTIBLE
INCOME FUND SECURITIES FUND SECURITIES FUND
--------------- ------------------ ---------------
<S> <C> <C> <C>
Assets:
Investments:
At identified cost........................ $166,740,729 $206,917,694 $66,571,531
============ ============ ===========
At value.................................. 158,276,203 206,555,442 67,435,192
Receivables from repurchase agreements at
value and cost ........................... 5,463,358 11,697 3,024,169
Cash....................................... 100 -- 44,924
Receivables:
Dividends and interest.................... 4,447,994 2,638,943 610,655
Investment securities sold................ 13,862,133 -- 938,333
Capital shares sold....................... 131,408 18,085 245,423
------------ ------------ -----------
Total assets.......................... 182,181,196 209,224,167 72,298,696
------------ ------------ -----------
Liabilities:
Payables:
Investment securities purchased........... 12,913,539 -- 2,142,820
Capital shares repurchased................ 145,418 149,480 45,147
Distribution fees......................... 11,881 10,377 27,330
Management fees........................... 80,771 97,043 36,454
Shareholder servicing costs............... 7,001 5,697 2,484
Accrued expenses and other liabilities..... 89,357 53,827 9,396
Unrealized depreciation on forward foreign
currency contracts (Note 2)............... 114,550 -- --
Bank overdraft ............................ -- 418,151 --
------------ ------------ -----------
Total liabilities..................... 13,362,517 734,575 2,263,631
------------ ------------ -----------
Net assets, at value........................ $168,818,679 $208,489,592 $70,035,065
============ ============ ===========
Net assets consist of:
Undistributed net investment income........ $ 15,829,946 $ 495,112 $ 196,753
Unrealized appreciation (depreciation)
on investments and translation of assets
and liabilities denominated in foreign
currencies................................ (8,527,493) (362,252) 863,661
Net realized gain (loss) from investments
and foreign currency transactions......... (21,376,864) (5,659,891) 320,771
Capital shares............................. 210,310 205,148 59,585
Additional paid-in capital................. 182,682,780 213,811,475 68,594,295
------------ ------------ -----------
Net assets, at value........................ $168,818,679 $208,489,592 $70,035,065
============ ============ ===========
Shares outstanding.......................... 21,030,970 20,514,788 5,958,504
============ ============ ===========
Net asset value per share*.................. $8.03 $10.16 $11.75
============ ============ ===========
</TABLE>
*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.
41
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
APRIL 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN
ADJUSTABLE FRANKLIN
U.S. GOVERNMENT FRANKLIN EQUITY ADJUSTABLE RATE
SECURITIES FUND INCOME FUND SECURITIES FUND
--------------- --------------- ---------------
<S> <C> <C> <C>
Assets:
Investments:
At identified cost.......................... $631,270,984 $ 81,812,561 $19,972,170
============ ============ ===========
At value.................................... 578,903,582 87,498,826 19,303,168
Receivables from repurchase agreements at
value and cost.............................. -- 31,424,115 --
Cash......................................... 63,876 157,037 688
Receivables:
Dividends and interest...................... -- 426,137 --
Investment securities sold.................. -- 287,500 --
Capital shares sold......................... 80,604 362,161 18,000
------------ ------------ -----------
Total assets............................ 579,048,062 120,155,776 19,321,856
------------ ------------ -----------
Liabilities:
Payables:
Investment securities purchased............. -- 2,383,200 --
Capital shares repurchased.................. 596,870 94,121 --
Distribution fees........................... 345,947 50,114 8,077
Management fees............................. -- 59,359 --
Administration fees......................... 48,634 -- --
Shareholder servicing costs................. 23,362 3,910 --
Accrued expenses and other liabilities....... 133,917 1,407 --
------------ ------------ -----------
Total liabilities....................... 1,148,730 2,592,111 8,077
------------ ------------ -----------
Net assets, at value.......................... $577,899,332 $117,563,665 $19,313,779
============ ============ ===========
Net assets consist of:
Undistributed net investment income.......... $ 1,801,278 $ 199,542 $ --
Unrealized appreciation (depreciation)
on investments and translation of assets
and liabilities denominated in foreign
currencies.................................. (52,367,402) 5,686,265 (669,002)
Net realized gain (loss) from investments
and foreign currency transactions........... (64,002,176) 959,123 (642,702)
Capital shares............................... 625,385 81,657 19,868
Additional paid-in capital................... 691,842,247 110,637,078 20,605,615
------------ ------------ -----------
Net assets, at value.......................... $577,899,332 $117,563,665 $19,313,779
============ ============ ===========
Shares outstanding............................ 62,538,540 8,165,724 1,986,769
============ ============ ===========
Net asset value per share*.................... $9.24 $14.40 $9.72
============ ============ ===========
</TABLE>
*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.
42
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN GLOBAL SHORT-INTERMEDIATE FRANKLIN
GOVERNMENT U.S. GOVERNMENT CONVERTIBLE
INCOME FUND SECURITIES FUND SECURITIES FUND
--------------- ------------------ ---------------
<S> <C> <C> <C>
Investment income:
Interest (Note 1).......................... $ 8,258,451 $ 6,539,884 $1,230,794
Dividends.................................. -- -- 756,020
----------- ----------- ----------
Total income.......................... 8,258,451 6,539,884 1,986,814
----------- ----------- ----------
Expenses:
Management fees (Note 6)................... 493,259 600,846 206,003
Custodian fees............................. 115,235 9,955 3,344
Reports to shareholders.................... 59,556 44,526 16,519
Distribution fees (Note 6)................. 56,952 82,248 63,155
Shareholder servicing costs (Note 6)....... 41,205 31,581 19,004
Registration & filing fees................. 17,626 20,151 10,547
Trustees' fees and expenses................ 9,307 11,001 3,068
Professional fees.......................... 8,729 8,352 2,949
Other...................................... 5,737 -- 4,743
----------- ----------- ----------
Total expenses........................ 807,606 808,660 329,332
----------- ----------- ----------
Net investment income............... 7,450,845 5,731,224 1,657,482
----------- ----------- ----------
Realized and unrealized gain (loss) on
investments and foreign currency:
Net realized gain (loss) from:
Investments.............................. (5,376,892) (3,224,255) 320,371
Foreign currency transactions............ (36,426) -- --
Net unrealized appreciation
(depreciation) on:
Investments................................ 4,780,642 6,060,578 557,474
Translation of assets and liabilities in
foreign currencies........................ (178,519) -- --
----------- ----------- ----------
Net realized and unrealized gain (loss) from
investments and foreign currencies.......... (811,195) 2,836,323 877,845
----------- ----------- ----------
Net increase in net assets resulting from
operations.................................. $ 6,639,650 $ 8,567,547 $2,535,327
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
43
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE SIX MONTHS ENDED APRIL 30, 1995
<TABLE>
<CAPTION>
FRANKLIN
ADJUSTABLE FRANKLIN
U.S. GOVERNMENT FRANKLIN EQUITY ADJUSTABLE RATE
SECURITIES FUND INCOME FUND SECURITIES FUND
--------------- --------------- ---------------
<S> <C> <C> <C>
Investment income:
Interest (Note 1).......................... $ -- $ 729,155 $ --
Dividends.................................. 19,131,571 2,142,661 686,138
------------ ---------- ---------
Total income.......................... 19,131,571 2,871,816 686,138
------------ ---------- ---------
Expenses:
Management fees (Note 6)................... -- 303,773 --
Administration fees (Note 6)............... 313,976 -- 5,086
Custodian fees............................. -- 3,995 --
Reports to shareholders.................... 125,200 26,563 3,365
Distribution fees (Note 6)................. 772,901 114,473 20,698
Shareholder servicing costs (Note 6)....... 118,848 28,396 3,801
Registration & filing fees................. 12,967 11,839 --
Trustees' fees and expenses................ 32,129 4,659 --
Professional fees.......................... 4,116 4,757 2,523
Other...................................... 31,446 2,470 7,898
------------ ---------- ---------
Total expenses........................ 1,411,583 500,925 43,371
------------ ---------- ---------
Net investment income............... 17,719,988 2,370,891 642,767
------------ ---------- ---------
Realized and unrealized gain (loss) on
investments and foreign currency:
Net realized gain (loss) from:
Investments.............................. (12,507,190) 970,187 (222,865)
Net unrealized appreciation on:
Investments.............................. 13,688,436 3,073,926 245,515
------------ ---------- ---------
Net realized and unrealized gain from
investments and foreign currencies......... 1,181,246 4,044,113 22,650
------------ ---------- ---------
Net increase in net assets resulting from
operations................................. $ 18,901,234 $6,415,004 $ 665,417
============ ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
44
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED APRIL 30, 1995 (UNAUDITED)
AND FOR THE YEAR ENDED OCTOBER 31, 1994
<TABLE>
<CAPTION>
FRANKLIN GLOBAL FRANKLIN SHORT-INTERMEDIATE FRANKLIN CONVERTIBLE
GOVERNMENT INCOME FUND U.S. GOVERNMENT SECURITIES FUND SECURITIES FUND
--------------------------- ------------------------------- --------------------------
SIX MONTHS YEAR SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
04/30/95 10/31/94 04/30/95 10/31/94 04/30/95 10/31/94
----------- ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income............. $ 7,450,845 $ 17,125,270 $ 5,731,224 $ 11,953,764 $ 1,657,482 $ 2,847,213
Net realized gain (loss)
on investments and foreign
currency transactions............ (5,413,318) (15,812,563) (3,224,255) (2,434,010) 320,371 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 currencies............... 4,602,123 (13,307,282) 6,060,578 (14,853,553) 557,474 (5,480,396)
------------ ------------ ------------ ------------ ----------- -----------
Net increase (decrease) in
net assets resulting from
operations..................... 6,639,650 (11,904,575) 8,567,547 (5,333,799) 2,535,327 1,172,973
Distributions to shareholders from:
Undistributed net investment
income........................... (7,912,063) (1,894,107) (5,784,219) (11,480,943) (1,662,705) (2,799,225)
Net realized capital gains........ -- (1,855,676) -- (2,327,982) (3,803,383) (456,579)
Return of capital distribution
for tax purposes................. -- (14,044,105) -- -- -- --
Increase (decrease) in net assets
from capital share transactions
(Note 3).......................... (17,112,751) 21,275,793 (19,645,467) (29,183,526) 6,096,800 21,511,587
------------ ------------ ------------ ------------ ----------- -----------
Net increase (decrease) in
net assets..................... (18,385,164) (8,422,670) (16,862,139) (48,326,250) 3,166,039 19,428,756
Net assets:
Beginning of period............... $187,203,843 $195,626,513 $225,351,731 $273,677,981 $66,869,026 $47,440,270
------------ ------------ ------------ ------------ ----------- -----------
End of period..................... $168,818,679 $187,203,843 $208,489,592 $225,351,731 $70,035,065 $66,869,026
============ ============ ============ ============ =========== ===========
Undistributed net investment
income included in net assets:
Beginning of period .............. $ 16,291,164 $ 1,060,001 $ 548,107 $ 75,286 $ 201,976 $ 153,988
============ ============ ============ ============ =========== ===========
End of period..................... $ 15,829,946 $ 16,291,164 $ 495,112 $ 548,107 $ 196,753 $ 201,976
============ ============ ============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
45
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE SIX MONTHS ENDED APRIL 30, 1995 (UNAUDITED)
AND FOR THE YEAR ENDED OCTOBER 31, 1994
<TABLE>
<CAPTION>
FRANKLIN ADJUSTABLE FRANKLIN ADJUSTABLE RATE
GOVERNMENT SECURITIES FUND FRANKLIN EQUITY INCOME FUND SECURITIES FUND
------------------------------ ----------------------------- --------------------------
SIX MONTHS YEAR SIX MONTHS YEAR SIX MONTH YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
04/30/95 10/31/94 04/30/95 10/31/94 04/30/95 10/31/94
------------- --------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income............. $ 17,719,988 $ 39,530,974 $ 2,370,891 $ 3,071,085 $ 642,767 $ 1,667,314
Net realized gain (loss)
on investments and foreign
currency transactions............. (12,507,190) (41,756,476) 970,187 1,644,175 (222,865) (419,700)
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies............... 13,688,436 (30,761,861) 3,073,926 (2,521,207) 245,515 (878,448)
------------- --------------- ------------ ----------- ----------- ------------
Net increase (decrease) in
net assets resulting from
operations...................... 18,901,234 (32,987,363) 6,415,004 2,194,053 665,417 369,166
Distributions to shareholders
from:
Undistributed net investment
income.......................... (17,176,568) (35,166,432) (2,255,348) (3,312,595) (642,767) (1,667,314)
Net realized capital gains....... -- -- (1,652,756) (984,309) -- --
Increase (decrease) in net
assets from capital share
transactions (Note 3)............. (124,442,156) (1,044,733,399) 22,294,001 52,688,385 (5,273,111) (11,946,617)
------------- --------------- ------------ ----------- ----------- ------------
Net increase (decrease) in
net assets..................... (122,717,490) (1,112,887,194) 24,800,901 50,585,534 (5,250,461) (13,244,765)
Net assets:
Beginning of period............... $ 700,616,822 $ 1,813,504,016 $ 92,762,764 $42,177,230 $24,564,240 $ 37,809,005
------------- --------------- ------------ ----------- ----------- ------------
End of period..................... $ 577,899,332 $ 700,616,822 $117,563,665 $92,762,764 $19,313,779 $ 24,564,240
============= =============== ============ =========== =========== ============
Undistributed net investment
income included in net assets:
Beginning of period............... $ 1,257,858 $ (3,106,684) $ 83,999 $ 325,509 $ -- $ --
============= =============== ============ =========== =========== ===========
End of period..................... $ 1,801,278 $ 1,257,858 $ 199,542 $ 83,999 $ -- $ --
============= =============== ============ =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
46
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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 objective 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, 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 will begin offering two classes of shares, Class I and Class
II, effective May 1, 1995. Class I shares will be sold with a higher front-end
sales charge. Class II shares will be sold with a lower front-end sales charge,
but may be subject to a contingent deferred sales charges. Each class of shares
will have 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.
On May 1, 1995, all previously outstanding shares will become Class I shares.
Realized and unrealized gains or losses and net investment income, other than
class specific expenses, will be 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 price
is used. Occasionally,
47
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
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. If events materially affect the value of these foreign
securities occur during such period, then these securities will be valued at
fair value as determined by management and approved in good faith 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 April 30, 1995, the Adjustable Rate Fund owns 69%
of the Adjustable Rate Securities Portfolio and the Adjustable U.S. Government
Fund owns 96% 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.
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 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 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 of receipt of an
investor's funds. 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 treatment of wash sale transactions.
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.
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 valuation. Purchases and sales of securities, income and expenses are
translated at the rate of exchange quoted on the
48
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
1. SIGNIFICANT ACCOUNTING POLICIES (CONT.)
F. FOREIGN CURRENCY TRANSLATION: (CONT.)
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 dates and settlement dates on
securities transactions, the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Trusts books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at the end of the period,
resulting from changes in exchange rates.
G. REPURCHASE AGREEMENTS:
The Trust may enter into a Joint Repurchase Agreement whereby its uninvested
cash balance is deposited into a joint cash account to be used to invest in one
or more repurchase agreements with government securities dealers recognized by
the Federal 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 Trust purchases a U.S. government security from
a dealer or bank subject to an agreement to resell it at a mutually agreed upon
price and date. Such a transaction is accounted for as a loan by the Trust to
the seller, collateralized by the underlying security. The transaction requires
the initial collateralization of the seller's obligation by U.S. Government
securities with market value, including accrued interest, of at least 102% of
the dollar amount invested by the Funds, with the value of the underlying
security marked to market daily to maintain coverage of at least 100%. The
collateral is delivered to the Trust's custodian and held until resold to the
dealer or bank. At April 30, 1995, all outstanding repurchase agreements held
by the Trust had been entered into on April 28, 1995.
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 income. 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.
Any gain or loss realized from a forward currency contract is recorded as a
realized gain or loss from investments. See the accompanying Statement of
Operations for the fund's total realized gains or losses from investments
during the year.
The Fund segregates in its custodian bank 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.
49
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
2. FORWARD FOREIGN CURRENCY CONTRACTS (CONT.)
As of April 30, 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>
14,700,000 Canadian Dollars.......... U.S. $10,697,522 05/01/95 U.S. $(113,182)
14,700,000 Canadian Dollars.......... U.S. $10,804,057 05/01/95 727
----------- ---------
$21,501,579 $(112,455)
=========== =========
</TABLE>
<TABLE>
<CAPTION>
IN UNREALIZED
CONTRACTS TO BUY EXCHANGE FOR SETTLEMENT DATE GAIN (LOSS)
-------------------------------------- ------------ --------------- -----------
<S> <C> <C> <C>
14,700,000 Canadian Dollars.......... U.S. $10,812,799 05/01/95 U.S. $(2,095)
=========== =======
</TABLE>
3. TRUST SHARES
At April 30, 1995 there were an unlimited number of shares of beneficial
interest authorized with a par value of $0.01 per share. Transactions in each
of the Trust's shares for the six months ended April 30, 1995 and for the year
ended October 31, 1994 were as follows:
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN GLOBAL SHORT-INTERMEDIATE U.S. FRANKLIN CONVERTIBLE
GOVERNMENT INCOME FUND GOVERNMENT SECURITIES FUND SECURITIES FUND
------------------------- -------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Six months ended April 30, 1995
Shares sold........................ 692,221 $ 5,453,819 674,687 $ 6,761,432 483,907 $ 5,528,899
Shares issued in reinvestment of
distributions.................... 488,694 3,836,797 351,036 3,522,579 340,754 3,801,571
Shares redeemed.................... (2,266,980) (17,853,617) (2,732,931) (27,363,815) (369,279) (4,221,957)
Changes from exercise of exchange
privilege:
Shares sold...................... 1,802,642 14,260,163 1,351,525 13,459,985 371,728 4,243,527
Shares redeemed.................. (2,898,196) (22,809,913) (1,600,483) (16,025,648) (286,783) (3,255,240)
---------- ------------ ---------- ------------ --------- -----------
Net increase (decrease)....... (2,181,619) $(17,112,751) (1,956,166) $(19,645,467) 540,327 $ 6,096,800
========== ============ ========== ============ ========= ===========
Year ended October 31, 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
========== ============ ========== ============ ========= ===========
</TABLE>
50
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
3. TRUST SHARES (CONT.)
<TABLE>
<CAPTION>
FRANKLIN ADJUSTABLE FRANKLIN FRANKLIN ADJUSTABLE
U.S. GOVERNMENT SECURITIES FUND EQUITY INCOME FUND RATE SECURITIES FUND
------------------------------- ------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ ------------- ---------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Six months ended April 30, 1995
Shares sold........................ 514,348 $ 4,711,080 1,296,364 $18,044,476 67,431 $ 652,625
Shares issued in reinvestment of
distributions.................... 1,226,831 11,234,788 219,503 2,996,657 49,803 482,035
Shares redeemed.................... (13,844,977) (126,782,255) (618,773) (8,597,537) (656,442) (6,349,092)
Changes from exercise of
exchange privilege:
Shares sold...................... 5,544,307 50,865,997 1,093,793 15,169,989 984,860 9,510,747
Shares redeemed.................. (7,028,479) (64,471,766) (385,451) (5,319,584) (990,897) (9,569,426)
----------- --------------- --------- ----------- --------- ------------
Net increase (decrease)....... (13,587,970) $ (124,442,156) 1,605,436 $22,294,001 (545,245) $ (5,273,111)
=========== =============== ========= =========== ========= ============
Year ended October 31, 1994
Shares sold....................... 3,326,762 $ 31,759,086 1,527,023 $21,485,674 679,940 $ 6,750,951
Shares issued 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)
============ =============== ========= =========== ========== ============
</TABLE>
4. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At October 31, 1994, for tax purposes, the Funds had accumulated net realized
gains or capital loss carryovers as follows:
<TABLE>
<CAPTION>
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 FUND SECURITIES FUND INCOME FUND SECURITIES FUND
----------- ---------------- --------------- --------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Accumulated net realized
gains..................... -- -- $3,803,383 -- $1,652,726 --
======== ========== ========== =========== ========== ========
Capital loss carryovers
Expiring in:
October 31, 2000........ -- -- -- $ 1,918,358 -- --
October 31, 2001........ -- -- -- 7,708,871 -- --
October 31, 2002........ $548,256 $2,434,010 -- 41,867,757 -- $414,821
-------- ---------- ---------- ----------- ---------- --------
$548,256 $2,434,010 -- $51,494,986 -- $414,821
======== ========== ========== =========== ========== ========
</TABLE>
For income tax purposes, the aggregate cost of securities is higher (and
unrealized appreciation is lower) than for financial reporting purposes at
April 30, 1995 by $33,247 in the Global Fund, $290,272 in the Adjustable U.S.
Government Fund, $11,064 in the Equity Income Fund and $10,857 in the
Adjustable Rate Fund.
51
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
5. PURCHASES AND SALES OF SECURITIES
Aggregate purchases and sales of securities (excluding purchases and sales of
short-term securities) for the six months ended April 30, 1995 were as follows:
<TABLE>
<CAPTION>
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 FUND SECURITIES FUND INCOME FUND SECURITIES FUND
----------- --------------- --------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Purchases............. $67,968,376 $69,928,906 $24,911,243 $ 40,703,057 $16,305,933 $ 8,965,663
=========== =========== =========== ============ =========== ===========
Sales................. $73,784,230 $92,373,146 $22,810,506 $168,980,525 $ 8,862,364 $14,325,869
=========== =========== =========== ============ =========== ===========
</TABLE>
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Franklin Advisers, Inc., under the terms of a management agreement, provides
investment advice, office space and facilities to each Fund, and receives fees
computed monthly on the net assets on the last day of the month of each fund,
except for the Adjustable U.S. Government Fund and the Adjustable Rate Fund, as
follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE MONTH END NET ASSETS
------------------- --------------------
<S> <C>
.625 of 1% First $100 million
.500 of 1% over $100 million, up to and including $250 million
.450 of 1% over $250 million
</TABLE>
Under the terms of a separate administration agreement with the Adjustable U.S.
Government Fund and the Adjustable Rate Fund, Franklin Advisers, Inc. provides
various administrative, statistical, and other services, and receives fees
computed monthly based on the average daily net assets as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE AVERAGE MONTHLY NET ASSETS
------------------- --------------------------
<S> <C>
.100 of 1% First $5 billion
.090 of 1% over $5 billion, up to and including $10 billion
.080 of 1% over $10 billion
</TABLE>
The terms of these agreements provide that aggregate annual expenses of the
Funds 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 six months ended April 30, 1995, Franklin
Advisers, Inc. agreed in advance to waive a portion of the management fees for
the Equity Income Fund of $15,980. In addition, Franklin Advisers, Inc. agreed
in advance to waive a portion of the administration fee for the Adjustable Rate
Securities Fund of $5,849.
In its capacity as underwriter for the shares of the Trust, Franklin/Templeton
Distributors, Inc. received commissions on sales of the Trust's shares.
Commissions received by Franklin/Templeton Distributors, Inc., and the amounts
which were subsequently paid to other dealers for the six months ended April
30, 1995 were as follows:
<TABLE>
<CAPTION>
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 FUND SECURITIES FUND INCOME FUND SECURITIES FUND
----------- --------------- --------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Total commissions
received ............. $174,367 $114,774 $172,284 $56,979 $440,138 $7,664
======== ======== ======== ======= ======== ======
Paid to other dealers... $163,294 $100,292 $153,002 $50,548 $390,202 $6,877
======== ======== ======== ======= ======== ======
</TABLE>
52
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
Commissions are deducted from the gross proceeds received from the sale of the
shares of the Trust, and as such are not expenses of the Funds.
Pursuant to a shareholder service agreement with Franklin/Templeton Investor
Services, Inc., the Funds pay costs on a per shareholder account basis. Such
costs incurred for the six months ended April 30, 1995 aggregated $242,835 of
which $209,374 was paid to Franklin/Templeton Investor Services, Inc.
Under the terms of a Distribution Agreement pursuant to Rule 12b-1 of the
Investment Company Act of 1940, the Global Fund, the Short-Intermediate Fund,
the Convertible Fund, the Adjustable U.S. Government Fund, the Equity Income
Fund, and the Adjustable Rate Fund will reimburse Franklin/Templeton
Distributors, Inc. in an amount up to 0.15%, 0.10%, 0.25%, 0.10%, 0.25%, and
0.10%, respectively per annum of each Fund's average daily net assets for costs
incurred in the promotion, offering and marketing of the Fund's shares. Fees
incurred by the Funds under the agreement aggregated $1,110,427 for the six
months ended April 30, 1995.
Certain officers and trustees of the Trust are also officers and/or directors
of Franklin/Templeton Distributors, Inc., Franklin Advisers, Inc., and
Franklin/Templeton Investor Services, Inc., all wholly-owned subsidiaries of
Franklin Resources, Inc.
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 April 30, 1995, 144A securities were held as follows:
<TABLE>
<CAPTION>
FRANKLIN
GLOBAL FRANKLIN FRANKLIN
GOVERNMENT CONVERTIBLE EQUITY
INCOME FUND SECURITIES FUND INCOME FUND
----------- --------------- -----------
<S> <C> <C> <C>
Value.......................... $2,902,250 $21,146,376 $7,685,250
========== =========== ==========
Ratio of value to net assets... 1.72% 30.19% 6.54%
========== =========== ==========
</TABLE>
See the accompanying statement of investments in securities and net assets for
specific information on such securities.
8. CREDIT RISKS
Although the Convertible Fund and the Equity Income Fund have diversified
portfolios, 41.77% and 0.62% of their portfolios are invested in lower rated
and comparable quality unrated high yield securities, respectively. Investments
in higher yield securities are accompanied by a greater degree of credit risk
and such lower quality 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 yielding
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 risks, 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.
53
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
9. FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding throughout the
periods by fund are as follows:
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------------------------------
NET DISTRI-
NET REALIZED TOTAL BUTIONS DISTRI-
ASSET & UN- FROM FROM DISTRI- BUTIONS NET
VALUE AT NET REALIZED INVEST- NET BUTIONS FROM ASSET
PERIOD BEGIN- INVEST- GAIN MENT INVEST- FROM RETURN TOTAL VALUE
ENDED NING OF MENT (LOSS) ON OPER- MENT CAPITAL OF DISTRI- AT END
JAN 31 PERIOD INCOME SECURITIES ATIONS INCOME GAINS CAPITAL BUTIONS OF PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN GLOBAL GOVERNMENT INCOME FUND
1990 $10.39 $1.11 $(0.804) $ 0.306 $(1.116) $ -- $ -- $(1.116) $ 9.58
1991 9.58 1.05 (0.174) 0.876 (1.107) (0.009) -- (1.116) 9.34
1992 9.34 0.86 0.246 1.106 (0.900) (0.156) -- (1.056) 9.39
1993 9.39 0.83 (0.698) 0.132 (0.713) (0.075) (0.124) (0.912) 8.61
1993 2 8.61 0.58 0.716 1.296 (0.576) -- -- (0.576) 9.33
1994 3 9.33 1.30 (1.806) (0.506) (0.078) (0.083) (.603) (0.764) 8.06
1995 4 8.06 0.41 (0.080) 0.330 (0.360) -- -- (0.360) 8.03
FRANKLIN SHORT-INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND
1990 10.12 0.78 0.097 0.877 (0.837) -- -- (0.837) 10.16
1991 10.16 0.76 0.248 1.008 (0.864) (0.004) -- (0.868) 10.30
1992 10.30 0.58 0.374 0.954 (0.786) (0.078) -- (0.864) 10.39
1993 10.39 0.57 0.432 1.002 (0.565) (0.257) -- (0.822) 10.57
1993 2 10.57 0.38 0.245 0.625 (0.390) (0.005) -- (0.395) 10.80
1994 3 10.80 0.49 (0.696) (0.206) (0.472) (0.092) -- (0.564) 10.03
1995 4 10.03 0.27 0.127 0.397 (0.267) -- -- (0.267) 10.16
FRANKLIN CONVERTIBLE SECURITIES FUND
1990 9.60 0.80 (0.395) 0.405 (0.695) -- -- (0.695) 9.31
1991 9.31 0.78 (0.729) 0.051 (0.831) -- -- (0.831) 8.53
1992 8.53 0.44 2.194 2.634 (0.684) -- -- (0.684) 10.48
1993 10.48 0.61 1.034 1.644 (0.684) -- -- (0.684) 11.44
1993 2 11.44 0.45 1.413 1.863 (0.513) -- -- (0.513) 12.79
1994 3 12.79 0.59 (0.327) 0.263 (0.594) (0.119) -- (0.713) 12.34
1995 4 12.34 0.29 0.109 0.399 (0.292) (0.697) -- (0.989) 11.75
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
1990 10.07 0.94 0.034 0.974 (0.994) -- -- (0.994) 10.05
1991 10.05 0.88 0.066 0.946 (1.006) -- -- (1.006) 9.99
1992 9.99 0.74 0.027 0.767 (0.777) -- -- (0.777) 9.98
1993 9.98 0.51 (0.105) 0.405 (0.522) (0.003) -- (0.525) 9.86
1993 2 9.86 0.28 (0.086) 0.194 (0.284) -- -- (0.284) 9.77
1994 3 9.77 0.35 (0.606) (0.256) (0.314) -- -- (0.314) 9.20
1995 4 9.20 0.26 0.032 0.292 (0.252) -- -- (0.252) 9.24
FRANKLIN EQUITY INCOME FUND
1990 11.00 0.75 0.527 1.277 (0.655) (0.092) -- (0.747) 11.53
1991 11.53 0.72 (0.803) (0.083) (0.736) (0.071) -- (0.807) 10.64
1992 10.64 0.42 1.967 2.387 (0.660) (0.057) -- (0.717) 12.31
1993 12.31 0.66 1.307 1.967 (0.682) (0.135) -- (0.817) 13.46
1993 2 13.46 0.60 1.435 2.035 (0.495) (0.090) -- (0.585) 14.91
1994 3 14.91 0.62 (0.358) 0.262 (0.725) (0.307) -- (1.032) 14.14
1995 4 44.14 0.32 0.492 0.812 (0.309) (0.243) -- (0.552) 14.40
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------
RATIO
NET RATIO OF OF NET
ASSETS AT EXPENSES INVESTMENT
PERIOD END OF TO AVERAGE INCOME PORTFOLIO
ENDED TOTAL PERIOD NET TO AVERAGE TURNOVER
JAN 31 RETURN+ (IN 000'S) ASSETS** NET ASSETS RATE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FRANKLIN GLOBAL GOVERNMENT INCOME FUND
1990 2.69% $ 12,421 0.03% 11.97% 41.34%
1991 9.27 29,660 0.25 11.80 72.21
1992 12.15 78,911 0.50 7.87 155.40
1993 1.08 153,899 0.72 7.08 49.20
1993 2 15.14 195,627 0.77* 6.74* 67.36
1994 3 (5.72) 187,204 0.89 8.54 80.69
1995 4 4.29 168,819 0.93 8.54* 44.11
FRANKLIN SHORT-INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND
1990 8.78 30,996 0.27 7.60 151.36
1991 10.19 48,981 0.48 7.56 71.44
1992 9.44 163,690 0.71 5.90 102.05
1993 10.01 235,382 0.56 5.40 78.96
1993 2 5.90 273,678 0.55* 4.75* 31.71
1994 3 (1.99) 225,352 0.65 4.75 99.09
1995 4 4.02 208,490 0.75* 5.29* 32.45
FRANKLIN CONVERTIBLE SECURITIES FUND
1990 3.85 14,774 0.24 8.25 30.87
1991 0.37 15,843 0.25 8.90 45.42
1992 31.50 20,282 0.26 6.84 64.90
1993 16.12 28,307 0.25 6.01 60.00
1993 2 16.50 47,440 0.25* 5.25* 31.05
1994 3 2.07 66,869 0.84 4.84 68.39
1995 4 3.81 70,035 1.00* 5.02* 37.32
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
1990 10.16 82,257 0.39 9.03 76.32
1991 9.91 1,173,486 0.30 8.23 96.50
1992 7.96 3,513,415 0.37 7.10 30.89
1993 4.16 2,971,424 0.36 5.10 30.36
1993 2 1.99 1,813,504 0.38* 3.92* 6.97
1994 3 (2.65) 700,617 0.40 3.67 5.99
1995 4 3.23 577,899 0.45* 5.64* 6.45
FRANKLIN EQUITY INCOME FUND
1990 11.43 7,221 -- 6.23 33.11
1991 (0.92) 10,808 0.18 6.60 26.99
1992 22.76 16,144 0.25 5.77 40.59
1993 16.23 26,092 0.25 5.18 31.05
1993 2 15.27 42,177 0.25* 5.86* 19.33
1994 3 1.83 92,763 0.77 4.53 39.51
1995 4 6.01 117,564 0.98* 4.65* 11.45
</TABLE>
54
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
9. FINANCIAL HIGHLIGHTS (CONT.)
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------------
NET DISTRI-
NET REALIZED TOTAL BUTIONS DISTRI-
ASSET & UN- FROM FROM DISTRI- BUTIONS NET
VALUE AT NET REALIZED INVEST- NET BUTIONS FROM ASSET
PERIOD BEGIN- INVEST- GAIN MENT INVEST- FROM RETURN TOTAL VALUE
ENDED NING OF MENT (LOSS) ON OPER- MENT CAPITAL OF DISTRI- AT END TOTAL
JAN 31 PERIOD INCOME SECURITIES ATIONS INCOME GAINS CAPITAL BUTIONS OF PERIOD RETURN+
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN ADJUSTABLE RATE SECURITIES FUND
1992 1 $10.00 $ -- $ -- $ -- $ -- $-- $-- $ -- $10.00 --%
1993 10.00 0.60 0.031 0.631 (0.601) -- -- (0.601) 10.03 6.48
1993 2 10.03 0.37 0.009 0.379 (0.369) -- -- (0.369) 10.04 3.83
1994 3 10.04 0.45 (0.341) 0.109 (0.449) -- -- (0.449) 9.70 1.11
1995 4 9.70 0.28 0.022 0.302 (0.282) -- -- (0.282) 9.72 3.16
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------
RATIO
NET RATIO OF OF NET
ASSETS AT EXPENSES INVESTMENT
PERIOD END OF TO AVERAGE INCOME PORTFOLIO
ENDED PERIOD NET TO AVERAGE TURNOVER
JAN 31 (IN 000'S) ASSETS** NET ASSETS RATE
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
FRANKLIN ADJUSTABLE RATE SECURITIES FUND
1992 1 $ -- --% --% --%
1993 12,521 -- 5.84 48.95
1993 2 37,809 -- 4.69* 49.11
1994 3 24,564 0.20 4.45 84.67
1995 4 19,314 0.40* 5.87* 40.68
</TABLE>
1 For the period December 26, 1991 (effective date of registration) to
January 31, 1992.
2 For the nine months ended October 31, 1993.
3 For the year ended October 31, 1994.
4 For the six months ended April 30, 1995.
* Annualized
+ Total return measures the change in value of an investment over the periods
indicated. It does not include the maximum initial sales charge and assumes
reinvestment of dividends at the offering price except for the Adjustable
U.S. Government Fund and Adjustable Rate Fund which reinvest dividends and
capital gains at net asset value. Effective May 1, 1994, with the
implementation of the Rule 12b-1 distribution plan, as discussed in Note 6,
the existing sales charge on reinvested dividends has been eliminated.
** 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 Funds in the Trust. Had
such action not been taken, the ratios of expenses to average net assets
would have been as follows:
<TABLE>
<CAPTION>
RATIO OF EXPENSE TO
AVERAGE NET ASSETS
-------------------
<S> <C>
FRANKLIN GLOBAL GOVERNMENT INCOME FUND
1990................................................. 0.96%
1991................................................. 0.87
1992................................................. 0.80
1993................................................. 0.73
FRANKLIN SHORT-INTERMEDIATE U.S. GOVERNMENT
SECURITIES FUND
1990................................................. 0.77%
1991................................................. 0.74
1993................................................. 0.65
1993 2............................................... 0.63*
1994 3............................................... 0.68
FRANKLIN CONVERTIBLE SECURITIES FUND
1990................................................. 0.89%
1991................................................. 0.84
1992................................................. 0.94
1993................................................. 0.81
1993 2............................................... 0.86*
1994 3............................................... 0.92
FRANKLIN ADJUSTABLE U.S. GOVERNMENT
SECURITIES FUND
1990................................................. 0.87%
1991................................................. 0.82
1992................................................. 0.48
1993................................................. 0.38
FRANKLIN EQUITY INCOME FUND
1990................................................. 0.83%
1991................................................. 0.83
1992................................................. 0.84
1993................................................. 0.81
1993 2............................................... 0.87*
1994 3............................................... 0.95
1995 4............................................... 1.01*
FRANKLIN ADJUSTABLE RATE SECURITIES FUND
1992 1............................................... --
1993................................................. 1.27%
1993 2............................................... 0.54*
1994 3............................................... 0.42
1995 4............................................... 0.45*
</TABLE>
55
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO (NOTE 1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES 97.5%
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) 32.7%
$ 6,844,321 FHLMC, Cap 11.253%, Margin 1.75% + CMT, Resets Annually, 7.125%, 11/01/16 ..... $ 6,960,411
3,579,583 FHLMC, Cap 11.939%, Margin 2.127% + CMT, Resets Annually, 7.150%, 07/01/20 .... 3,600,631
20,486,504 FHLMC, Cap 12.17%, Margin 2.18% + CMT, Resets Annually, 7.627%, 03/01/23 ...... 20,888,857
1,238,462 FHLMC, Cap 12.176%, Margin 2.015% + CMT, Resets Annually, 6.911%, 04/01/20 .... 1,236,852
5,086,373 FHLMC, Cap 12.177%, Margin 2.265% + CMT, Resets Annually, 7.186%, 07/01/20 .... 5,121,061
3,132,586 FHLMC, Cap 12.723%, Margin 2.189% + CMT, Resets Annually, 7.361%, 04/01/19..... 3,239,094
6,345,988 FHLMC, Cap 12.79%, Margin 2.07% + CMT, Resets Annually, 7.216%, 04/01/19....... 6,476,524
1,149,790 FHLMC, Cap 12.80%, Margin 2.05% + CMT, Resets Annually, 7.482%, 11/01/18....... 1,176,495
9,330,235 FHLMC, Cap 12.806%, Margin 2.23% + CMT, Resets Annually, 7.397%, 04/01/18...... 9,525,608
4,543,447 FHLMC, Cap 12.875%, Margin 1.875% + CMT, Resets Annually, 7.153%, 07/01/17..... 4,599,967
1,024,934 FHLMC, Cap 12.998%, Margin 2.195% + CMT, Resets Annually, 7.453%, 02/01/19..... 1,048,133
7,927,322 FHLMC, Cap 13.006%, Margin 2.00% + CMT, Resets Annually, 7.198%, 09/01/19 ..... 8,069,054
8,005,388 FHLMC, Cap 13.045%, Margin 1.875% + CMT, Resets Annually, 7.165%, 12/01/18 .... 8,112,579
6,324,452 FHLMC, Cap 13.07%, Margin 2.12% + CMT, Resets Annually, 7.206%, 04/01/22....... 6,450,561
4,412,359 FHLMC, Cap 13.156%, Margin 1.915% + CMT, Resets Annually, 7.326%, 12/01/16 .... 4,492,195
2,387,726 FHLMC, Cap 13.16%, Margin 2.115% + CMT, Resets Annually, 7.345%, 07/01/19...... 2,435,456
4,498,691 FHLMC, Cap 13.246%, Margin 2.175% + CMT, Resets Annually, 7.443%, 10/01/18 .... 4,599,627
2,117,174 FHLMC, Cap 13.269%, Margin 2.249% + CMT, Resets Annually, 7.24%, 05/01/19...... 2,189,836
994,528 FHLMC, Cap 13.286%, Margin 2.164% + CMT, Resets Annually, 7.551%, 10/01/19..... 1,017,718
3,191,474 FHLMC, Cap 13.292%, Margin 2.115% + CMT, Resets Annually, 7.426%, 03/01/19..... 3,260,123
949,842 FHLMC, Cap 13.302%, Margin 2.04% + CMT, Resets Annually, 7.437%, 04/01/18...... 969,930
2,164,996 FHLMC, Cap 13.306%, Margin 2.057% + CMT, Resets Annually, 7.343%, 12/01/18..... 2,208,273
3,246,725 FHLMC, Cap 13.36%, Margin 2.242% + CMT, Resets Annually, 7.054%, 07/01/20...... 3,328,736
6,442,845 FHLMC, Cap 13.364%, Margin 2.225% + CMT, Resets Annually, 7.377%, 07/01/19..... 6,581,678
6,193,093 FHLMC, Cap 13.366%, Margin 2.102% + CMT, Resets Annually, 7.597%, 03/01/18 .... 6,338,930
12,363,954 FHLMC, Cap 13.37%, Margin 2.04% + CMT, Resets Annually, 7.328%, 04/01/19....... 12,602,825
11,219,954 FHLMC, Cap 13.65%, Margin 2.249% + CMT, Resets Annually, 7.083%, 07/01/20...... 11,520,873
15,439,210 FHLMC, Cap 13.74%, Margin 2.306% + CMT, Resets Annually, 7.116%, 04/01/21...... 15,809,904
955,607 FHLMC, Cap 13.77%, Margin 2.057% + CMT, Resets Annually, 7.278%, 02/01/19...... 973,439
6,640,863 FHLMC, Cap 13.793%, Margin 2.214% + CMT, Resets Annually, 7.254%, 11/01/19..... 6,818,971
10,902,755 FHLMC, Cap 13.879%, Margin 2.089% + CMT, Resets Annually, 7.306%, 04/01/18..... 11,212,283
5,127,405 FHLMC, Cap 14.277%, Margin 2.412% + CMT, Resets Annually, 7.383%, 07/01/19..... 5,238,933
3,332,830 FHLMC, Cap 14.307%, Margin 1.957% + 3CMT, Resets Every 3 years,
8.574%, 12/01/21............................................................. 3,371,190
1,789,047 FHLMC, Cap 14.451%, Margin 2.00% + CMT, Resets Annually, 7.289%, 12/01/18...... 1,822,502
4,451,372 FHLMC, Cap 14.90%, Margin 2.546% + CMT, Resets Annually, 8.221%, 02/01/19...... 4,597,333
------------
TOTAL FEDERAL HOME LOAN MORTGAGE CORP. (COST $200,314,126)................. 197,896,582
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
56
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO (NOTE 1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES (CONT.)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) 61.6%
$19,403,666 FNMA, Cap 11.287%, Margin 2.249% + CMT, Resets Annually, 6.261%, 04/01/25...... $ 19,812,967
2,184,528 FNMA, Cap 11.49%, Margin 2.225% + CMT, Resets Annually, 7.60%, 09/01/21........ 2,246,197
3,538,498 FNMA, Cap 12.605%, Margin 2.536% + 6 Month DR, Resets Semi-Annually,
6.998%, 11/01/18 ............................................................ 3,483,580
19,351,665 FNMA, Cap 12.637%, Margin 2.00% + NCI, Resets Annually, 5.875%, 11/01/17....... 19,212,331
6,222,216 FNMA, Cap 12.64%, Margin 2.00% + CMT, Resets Annually, 7.194%, 03/01/19........ 6,360,175
15,720,631 FNMA, Cap 12.66%, Margin 1.75% + 6 Month DR, Resets Annually,
6.782%, 01/01/19 ............................................................ 15,567,983
11,785,419 FNMA, Cap 12.705%, Margin 1.25% + COFI, Resets Monthly, 5.839%, 09/01/18....... 11,656,015
12,241,871 FNMA, Cap 12.729%, Margin 1.875% + NCI, Resets Annually, 5.801%, 07/01/29...... 12,092,397
5,205,309 FNMA, Cap 12.787%, Margin 1.25% + COFI, Resets Monthly, 7.454%, 01/01/19....... 5,219,728
5,742,575 FNMA, Cap 12.788%, Margin 2.11% + CMT, Resets Annually, 7.081%, 11/01/20....... 5,867,287
8,527,507 FNMA, Cap 12.804%, Margin 1.75% + CMT, Resets Annually, 7.001%, 05/01/19....... 8,705,561
4,226,259 FNMA, Cap 12.84%, Margin 2.762% + 6 Month DR, Resets Semi-Annually,
7.322%, 06/01/17............................................................. 4,210,368
8,663,908 FNMA, Cap 12.85%, Margin 2.078% + 5CMT, Resets Every 5 Years,
7.982%, 10/01/17............................................................. 8,704,368
9,178,444 FNMA, Cap 12.89%, Margin 2.125% + 6 Month DR, Resets Semi-Annually,
6.541%, 07/01/17............................................................. 9,246,823
2,742,859 FNMA, Cap 12.911%, Margin 2.00% + 6 Month DR, Resets Semi-Annually,
7.27%, 02/01/18.............................................................. 2,668,253
11,394,497 FNMA, Cap 12.938%, Margin 1.25% + COFI, Resets Monthly, 5.839%, 02/01/19....... 11,269,384
5,427,579 FNMA, Cap 12.993%, Margin 2.092% + CMT, Resets Annually, 7.343%, 12/01/19...... 5,559,767
7,173,025 FNMA, Cap 13.01%, Margin 2.10% + CMT, Resets Monthly, 7.483%, 06/01/19......... 7,367,525
9,799,714 FNMA, Cap 13.021%, Margin 1.986% + CMT, Resets Annually, 7.222%, 07/01/22...... 9,998,549
12,779,972 FNMA, Cap 13.03%, Margin 1.25% + COFI, Resets Monthly, 6.863%, 02/01/20........ 12,635,558
7,986,926 FNMA, Cap 13.03%, Margin 1.75% + 6 Month TB, Resets Semi-Annually,
6.836%, 12/01/20............................................................. 7,924,388
7,801,035 FNMA, Cap 13.005%, Margin 1.97% + 3CMT, Resets Every 3 Years,
7.906%, 11/01/17 ............................................................ 7,973,984
7,765,220 FNMA, Cap 13.063%, Margin 2.175% + CMT, Resets Annually, 7.553%, 04/01/19...... 7,861,819
8,730,639 FNMA, Cap 13.099%, Margin 1.75% + 6 Month TB, Resets Semi-Annually,
6.846%, 07/01/20............................................................. 8,656,863
5,991,004 FNMA, Cap 13.147%, Margin 1.895% + CMT, Resets Annually, 6.984%, 04/01/19...... 6,110,023
4,111,100 FNMA, Cap 13.202%, Margin 2.478% + 6 Month DR, Resets Semi-Annually,
7.195%, 11/01/26............................................................. 4,203,352
4,592,942 FNMA, Cap 13.249%, Margin 2.00% + CMT, Resets Annually, 6.912%, 06/01/19....... 4,683,102
9,952,033 FNMA, Cap 13.281%, Margin 2.00% + CMT, Resets Annually, 7.370%, 10/01/19....... 10,200,300
8,716,830 FNMA, Cap 13.32%, Margin 1.25% + COFI, Resets Semi-Annually,
7.433%, 04/01/03............................................................. 8,735,396
</TABLE>
The accompanying notes are an integral part of these financial statements.
57
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO (NOTE 1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES (CONT.)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) (CONT.)
$17,577,014 FNMA, Cap 13.452%, Margin 2.148% + CMT, Resets Annually, 7.256%, 09/01/22...... $ 18,054,581
15,395,932 FNMA, Cap 13.644%, Margin 2.011% + CMT, Resets Annually, 7.18%, 01/01/18....... 15,731,426
8,805,662 FNMA, Cap 13.662%, Margin 2.177% + CMT, Resets Annually, 7.31%, 03/01/21....... 9,020,719
11,573,427 FNMA, Cap 13.791%, Margin 2.143% + CMT, Resets Annually, 7.231%, 12/01/20...... 11,894,589
4,924,703 FNMA, Cap 13.797%, Margin 2.20% + CMT, Resets Annually, 7.802%, 03/01/19....... 5,078,304
6,495,679 FNMA, Cap 13.80%, Margin 0.94% + 6 Month DR, Resets Semi-Annually,
6.782%, 07/01/24............................................................. 6,087,556
5,830,201 FNMA, Cap 13.887%, Margin 2.25% + CMT, Resets Annually, 7.757%, 02/01/19....... 6,024,754
4,257,704 FNMA, Cap 13.896%, Margin 2.25% + CMT, Resets Annually, 7.64%, 12/01/18........ 4,372,135
9,428,318 FNMA, Cap 14.069%, Margin 2.089% + CMT, Resets Annually, 7.051%, 01/01/19...... 9,628,386
2,871,557 FNMA, Cap 14.142%, Margin 2.118% + CMT, Resets Annually, 7.641%, 03/01/21...... 2,933,439
16,346,714 FNMA, Cap 14.354%, Margin 2.07% + 5CMT, Resets Every 5 Years,
8.091%, 05/01/21............................................................. 16,729,062
11,334,353 FNMA, Cap 14.887%, Margin 1.720% + CMT, Resets Annually, 6.327%, 01/01/16...... 11,390,796
4,599,615 FNMA, Cap 14.952%, Margin 2.523% + CMT, Resets Annually, 6.931%, 05/01/19...... 4,738,798
2,113,606 FNMA, Cap 15.381%, Margin 2.168% + CMT, Resets Annually, 7.255%, 02/01/20...... 2,161,964
------------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION (COST $379,593,569)............ 372,080,552
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) 3.2%
11,749,008 GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 7.125%, 07/20/23........ 11,869,670
7,569,033 GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 7.125%, 08/20/23........ 7,646,766
------------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (COST $20,419,773).......... 19,516,436
------------
TOTAL ADJUSTABLE RATE MORTGAGE SECURITIES (COST $600,327,468).............. 589,493,570
------------
a SHORT TERM INVESTMENTS
GOVERNMENT SECURITIES 1.7%
10,735,000 U.S. Treasury Bills, 5.94% - 6.27%, 09/07/95 - 01/11/96 (COST $10,499,939)..... 10,505,733
------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS (COST $610,827,407)......... 599,999,303
------------
b,c RECEIVABLES FROM REPURCHASE AGREEMENTS
26,199 Joint Repurchase Agreement, 5.975%, 05/01/95 (Maturity Value $26,025)
(COST $26,012)
Collateral: U.S. Treasury Notes, 4.75% - 9.00%, 07/15/96 - 01/31/00 ........... 26,012
------------
TOTAL INVESTMENTS (COST $610,853,419) 99.2%.............................. 600,025,315
OTHERS ASSETS AND LIABILITIES, NET .8%................................... 4,593,892
------------
NET ASSETS 100.0%........................................................ $604,619,207
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
58
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
VALUE
U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO (NOTE 1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
At April 30, 1995, the net unrealized depreciation based on the cost of
investments for income tax purposes of $610,853,419 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost............................... $ 402,915
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value............................... (11,231,019)
------------
Net unrealized depreciation ............................................... $(10,828,104)
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
CMT - 1 Year Constant Maturity Treasury Index
3CMT - 3 Year Constant Maturity Treasury Index
5CMT - 5 Year Constant Maturity Treasury Index
COFI - 11th District Cost of Funds Index
DR - Discount Rate
NCI - National Median Cost of Funds Index
TB - Treasury Bill Rate
a Certain short-term securities are traded on a discount basis; the rates
shown are the discount rates at the time of the purchase by the Fund. Other
securities bear interest at the rates shown, payable at fixed dates or upon
maturity.
b Face amount for repurchase agreements is for the underlying collateral.
c See Note 1(f) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
59
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT ADJUSTABLE RATE SECURITIES PORTFOLIO (NOTE 1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES 88.9%
$3,263,346 Glendale Federal Bank, Cap 12.25%, Margin 1.78% + CMT, Resets Monthly,
8.313%, 03/25/30............................................................... $ 3,271,505
1,394,140 Homeowners Federal Savings, Cap 13.00%, Margin 1.75% + CMT, Resets
Annually, 6.817%, 12/01/17..................................................... 1,407,210
2,273,544 PHMS, Cap 10.88%, Margin 2.50% + CMT, Resets Annually, 7.889%, 01/25/23.......... 2,304,805
2,988,336 PHMS, Cap 11.67%, Margin 2.67% + CMT, Resets Annually, 6.925%, 07/25/22.......... 2,950,982
2,998,855 RFC, Cap 11.46%, Margin 2.25% + CMT, Resets Annually, 7.438%, 11/25/22........... 3,026,969
3,330,533 RFC, Cap 11.73%, Margin 1.00% + COFI, Resets Semi-Annually, 4.958%, 07/25/19..... 3,080,743
1,768,636 RTC, Cap 12.66%, Margin 1.75% + 6 Month TB, Resets Semi-Annually,
8.484%, 04/26/21............................................................... 1,727,185
2,524,143 RTC, Cap 14.69%, Margin 1.55% + 3CMT, Resets Every 3 Years, 7.417%, 06/25/22..... 2,464,194
1,736,397 RTC, Cap 16.48%, Margin NACR - 0.15%, Resets Annually, 7.389%, 07/25/20.......... 1,697,872
2,837,434 Salomon Brothers Mortgage Securities, Cap 14.00%, Margin 0.96% + NACR,
Resets Annually, 7.65%, 10/26/16............................................... 2,834,775
-----------
TOTAL ADJUSTABLE RATE MORTGAGE SECURITIES (COST $25,802,976) ................ 24,766,240
-----------
GOVERNMENT SECURITIES 3.6%
1,000,000 U.S. Treasury Notes, 6.25%, 01/31/97 (COST $985,157)............................. 995,312
-----------
TOTAL LONG TERM INVESTMENTS (COST $26,788,133)............................... 25,761,552
-----------
a SHORT TERM INVESTMENTS
GOVERNMENT SECURITIES 6.8%
1,985,000 U.S. Treasury Bills, 6.21%, 02/08/96 (COST $1,891,784)........................... 1,893,402
-----------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS (COST $28,679,917)............ 27,654,954
-----------
b,c RECEIVABLES FROM REPURCHASE AGREEMENTS .1%
16,122 Joint Repurchase Agreement, 5.975%, 05/01/95 (Maturity Value $15,604)
(COST $15,596)
Collateral: U.S Treasury Notes, 4.75% - 9.00%, 07/15/96 - 01/31/00............... 15,596
-----------
TOTAL INVESTMENTS (COST $28,695,513) 99.4%.................................. 27,670,550
OTHER ASSETS AND LIABILITIES, NET .6%........................................ 178,978
-----------
NET ASSETS 100.0% ........................................................... $27,849,528
===========
At April 30, 1995, the net unrealized depreciation based on the
cost of investments for income tax purposes of $28,695,513 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost................................. $ 17,000
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value....................................... (1,041,963)
-----------
Net unrealized depreciation ................................................. $(1,024,963)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
60
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
(UNAUDITED) (CONT.)
Adjustable Rate Securities Portfolio
- ------------------------------------------------------------------------------
PORTFOLIO ABBREVIATIONS:
CMT - 1 Year Constant Maturity Treasury Index
3CMT - 3 Year Constant Maturity Treasury Index
COFI - 11th District Cost of Funds Index
NACR - National Average Contract Rate
PHMS - Prudential Home Mortgage Securities
RFC - Residential Finance Corp.
RTC - Resolution Trust Corp.
TB - Treasury Bill Rate
a Certain short-term securities are traded on a discount basis; the rates shown
are the discount rates at the time of purchase by the Fund. Other securities
bear interest at the rates shown, payable at fixed dates or upon maturity.
b Face amount for repurchase agreements is for the underlying collateral.
c See Note 1(f) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
61
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
APRIL 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
U.S. GOVERNMENT
ADJUSTABLE RATE ADJUSTABLE RATE
MORTGAGE PORTFOLIO SECURITIES PORTFOLIO
------------------ --------------------
<S> <C> <C>
Assets:
Investments in securities:
At identified cost....................................................... $610,827,407 $28,679,917
============ ===========
At value................................................................. 599,999,303 27,654,954
Receivables from repurchase agreements, at value and cost................. 26,012 15,596
Receivables:
Interest................................................................. 4,545,036 191,946
Investment securities sold............................................... 1,703,934 66,631
Unamortized organization costs (Note 2)................................... -- 3,843
------------ -----------
Total assets......................................................... 606,274,285 27,932,970
------------ -----------
Liabilities:
Payables:
Capital shares repurchased............................................... 1,325,587 72,327
Management fees.......................................................... 247,299 4,534
Accrued expenses and other liabilities.................................... 82,192 6,581
------------ -----------
Total liabilities.................................................... 1,655,078 83,442
------------ -----------
Net assets, at value....................................................... $604,619,207 $27,849,528
============ ===========
Net assets consist of:
Unrealized depreciation on investments.................................... $(10,828,104) $(1,024,963)
Accumulated net realized loss............................................. (136,554,001) (2,500,634)
Capital shares............................................................ 655,982 28,683
Additional paid-in capital................................................ 751,345,330 31,346,442
------------ -----------
Net assets, at value....................................................... $604,619,207 $27,849,528
============ ===========
Shares outstanding......................................................... 65,598,219 2,868,268
============ ===========
Net asset value per share.................................................. $9.22 $9.71
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
62
<PAGE>
ADJUSTABLE RATES ECURITIES PORTFOLIOS FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
U.S. GOVERNMENT
ADJUSTABLE RATE ADJUSTABLE RATE
MORTGAGE PORTFOLIO SECURITIES PORTFOLIO
------------------ --------------------
<S> <C> <C>
Investment income:
Interest (Note 1)......................................................... $20,602,881 $1,047,875
----------- ----------
Expenses:
Management fees, net (Note 6)............................................. 326,722 33,428
Custodian fees............................................................ 31,995 1,752
Professional fees......................................................... 31,353 2,724
Trustees' fees and expenses............................................... 4,437 --
Reports to shareholders................................................... 1,563 957
Amortization of organization costs (Note 2)............................... -- 1,098
Other..................................................................... 15,666 681
----------- ----------
Total expenses....................................................... 411,736 40,640
----------- ----------
Net investment income............................................... 20,191,145 1,007,235
----------- ----------
Realized and unrealized gain (loss) on investments:
Net realized loss......................................................... (6,825,406) (397,528)
Net unrealized appreciation on investments................................ 8,134,819 432,351
----------- ----------
Net realized and unrealized gain on investments............................ 1,309,413 34,823
----------- ----------
Net increase in net assets resulting from operations....................... $21,500,558 $1,042,058
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
63
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED APRIL 30, 1995 (UNAUDITED)
AND THE YEAR ENDED OCTOBER 31, 1994
<TABLE>
<CAPTION>
U.S. GOVERNMENT ADJUSTABLE RATE
ADJUSTABLE RATE MORTGAGE PORTFOLIO SECURITIES PORTFOLIO
---------------------------------- -----------------------------
FOR THE FOR THE FOR THE FOR THE
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED 4/30/95 10/31/94 ENDED 4/30/95 10/31/94
-------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................... $ 20,191,145 $ 47,964,106 $ 1,007,235 $ 4,221,967
Net realized loss from security
transactions............................ (6,825,406) (67,057,492) (397,528) (1,993,495)
Net unrealized appreciation (depreciation)
on investments.......................... 8,134,819 (12,751,845) 432,351 (1,410,266)
------------- --------------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations........... 21,500,558 (31,845,231) 1,042,058 818,206
Distributions to shareholders from
undistributed net investment income
(Note 1)................................. (20,191,145) (47,964,106) (1,007,235) (4,221,967)
Decrease in net assets from
capital share transactions (Note 4)...... (144,161,320) (1,302,948,561) (13,804,048) (79,286,725)
------------- --------------- ------------ ------------
Net decrease in net assets............ (142,851,907) (1,382,757,898) (13,769,225) (82,690,486)
Net assets (there is no undistributed net
investment income at beginning or end
of period):
Beginning of period.................... 747,471,114 2,130,229,012 41,618,753 124,309,239
------------- --------------- ------------ ------------
End of period.......................... $ 604,619,207 $ 747,471,114 $ 27,849,528 $ 41,618,753
============= =============== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
64
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Adjustable Rate Securities Portfolios (the Trust) is a no load, open-end,
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. SECURITIES VALUATIONS:
Portfolio securities listed on a securities exchange or on the NASDAQ National
Market System for which market quotations are readily available are valued at
the last quoted sale price of the day or, if there is no such reported sale,
within the range of the most recent quoted bid and ask 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.
d. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Distributions to shareholders are recorded on the ex-dividend date. Interest
income and estimated expenses are accrued daily. Bond discount, if any, is
amortized as required by the Internal Revenue Code. The Fund normally declares
dividends from its net investment income daily and distributes monthly. Daily
allocations of net investment income will commence on the date of receipt of an
investor's funds. Dividends are normally declared each day the New York Stock
Exchange is open for business equal to the Portfolio's total net investment
income and are payable to shareholders of record at the beginning of business
on the ex-date. Once each month, dividends are reinvested in additional shares
of the Portfolio or paid in cash as requested by the shareholders.
Net realized capital losses differ for financial statement and tax purposes
primarily due to losses deferred from wash sale transactions.
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.
65
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
1. SIGNIFICANT ACCOUNTING POLICIES (CONT.)
f. REPURCHASE AGREEMENTS:
The Trust may enter into a Joint Repurchase Agreement whereby its uninvested
cash balance is deposited into a joint cash account to be used to invest in one
or more repurchase agreements with government securities dealers recognized by
the Federal 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 Trust purchases a U.S. Government security from
a dealer or bank subject to an agreement to resell it at a mutually agreed upon
price and date. Such a transaction is accounted for as a loan by the Trust to
the seller, collateralized by the underlying security. The transaction requires
the initial collateralization of the seller's obligation by U.S. Government
securities with market value, including accrued interest, of at least 102% of
the dollar amount invested by the Trust, with the value of the underlying
security marked to market daily to maintain coverage of at least 100%. The
collateral is delivered to the Trust's custodian and held until resold to the
dealer or bank. At April 30, 1995, all outstanding joint repurchase agreements
held by the Trust has been entered into on April 28, 1995.
2. UNAMORTIZED ORGANIZATION COSTS
The organization costs of the Securities Portfolio are amortized on a
straight-line basis over a period of five years, from December 26, 1991, the
effective date of registration. In the event Franklin Resources, Inc. (which
was the sole shareholder prior to December 26, 1991) redeems its seed money
shares within the five-year period, the pro rata share of the then-unamortized
deferred organization cost will be deducted from the redemption price paid to
Franklin Resources, Inc. New investors purchasing shares of the portfolio
subsequent to that date bear such costs during the amortization period only as
such charges are accrued daily against investment income.
3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At October 31, 1994, for tax purposes, the Portfolios had accumulated net
capital loss carryovers as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT ADJUSTABLE ADJUSTABLE RATE
RATE MORTGAGE PORTFOLIO SECURITIES PORTFOLIO
-------------------------- --------------------
<S> <C> <C>
Capital loss carryovers
Expiring in: 2000........... $ 45,446,278 $ 57,701
2001........... 17,175,340 50,908
2002........... 67,102,060 1,987,888
------------ ----------
$129,723,678 $2,096,497
============ ==========
</TABLE>
For tax purposes the aggregate cost of securities and unrealized depreciation
of the Trust are the same as for financial statement purposes at April 30,
1995.
66
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
4. TRUST SHARES
At April 30, 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 six months ended April 30, 1995, and the year ended October 31, 1994
are as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT ADJUSTABLE ADJUSTABLE RATE
RATE MORTGAGE PORTFOLIO SECURITIES PORTFOLIO
------------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ -------------- ----------- -------------
<S> <C> <C> <C> <C>
Six months ended April 30, 1995
Shares sold.................................. 2,407,206 $ 22,063,001 903,446 $ 8,716,553
Shares issued in reinvestment of
distributions 2,206,932 20,191,240 105,253 1,017,577
Shares redeemed.............................. (20,383,728) (186,415,561) (2,437,441) (23,538,178)
------------ --------------- ----------- -------------
Net decrease................................. (15,769,590) $ (144,161,320) (1,428,742) $ (13,804,048)
============ =============== =========== =============
Year ended October 31, 1994
Shares sold.................................. 3,234,621 $ 31,184,230 9,103,489 $ 90,799,027
Shares issued in reinvestment of
distributions 5,053,223 47,948,131 426,689 4,211,388
Shares redeemed.............................. (143,954,457) (1,382,080,922) (17,497,118) (172,994,477)
Changes from exercise of the exchange
privilege:
Shares redeemed.......................... -- -- (132,789) (1,302,663)
------------ --------------- ----------- -------------
Net decrease................................. (135,666,613) $(1,302,948,561) (8,099,729) $ (79,286,725)
============ =============== =========== =============
</TABLE>
5. PURCHASES AND SALES OF SECURITIES
Aggregate purchases and sales of securities (excluding purchases and sales of
short-term securities) for the six months ended April 30, 1995, were as
follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT ADJUSTABLE ADJUSTABLE RATE
RATE MORTGAGE PORTFOLIO SECURITIES PORTFOLIO
-------------------------- --------------------
<S> <C> <C>
Purchases............... $ 69,856,609 $ 3,611,627
------------ -----------
Sales................... $206,390,750 $15,910,885
============ ===========
</TABLE>
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Franklin Advisers, Inc., under the terms of a management agreement, provides
investment advice, administrative services, office space and facilities to the
Trust, and receives fees computed monthly based on the average daily net assets
of the Trust during the month. The Trust pays a fee equal to an annualized rate
of 40/100 of 1% for the first $5 billion of net assets, 35/100 of 1% of net
assets in excess of $5 billion up to and including $10 billion, 33/100 of 1% of
net assets in excess of $10 billion up to and including $15 billion, and 30/100
of 1% of net assets in excess of $15 billion. The terms of the management
agreement provide that aggregate annual expenses of the Trust be limited to the
extent necessary to comply with the limitations set forth in the laws,
regulations and administrative interpretations of the states in which the
Trust's shares are registered. The Trust's expenses did not exceed these
limitations; however, for the six months ended April 30, 1995, Franklin
Advisers, Inc. agreed in advance to waive $1,000,903 and $31,771 of the
management fees for the Mortgage Portfolio and Securities Portfolio,
respectively.
67
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
As of April 30, 1995, 62,787,807 shares of the Mortgage Portfolio were owned by
the Franklin Adjustable U.S. Government Securities Fund and 2,810,412 shares
were owned by the Franklin Institutional Adjustable U.S. Government Securities
Fund. This represents 96% and 4%, respectively, of the outstanding shares of
the Mortgage Portfolio.
As of April 30, 1995, 1,987,968 shares of the Securities Portfolio were owned
by the Franklin Adjustable Rate Securities Fund and 879,003 shares were owned
by the Franklin Institutional Adjustable Rate Securities Fund. This represents
69% and 31%, respectively, of the outstanding shares of the Securities
Portfolio. The remaining 1,297 shares of the Securities Portfolio were owned by
Franklin Resources, Inc.
Certain officers and trustees of the Trust are also officers and/or directors
of Franklin Advisers, Inc., a wholly owned subsidiary of Franklin Resources,
Inc.
7. FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
year by fund are as follows:
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------
NET
REALIZED & DISTRI- DISTRI- NET
NET ASET UNREALIZED BUTIONS BUTIONS ASSET
YEAR VALUE AT NET GAIN TOTAL FROM FROM NET FROM VALUE
ENDED BEGINNING INVESTMENT (LOSS) ON INVESTMENT INVESTMENT CAPITAL TOTAL AT END TOTAL
OCT. 31, OF YEAR INCOME SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR RETURN+
- -------- --------- ---------- ----------- ---------- ---------- ------- ------------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO
1992 1 $10.00 $.493 $ .013 $.506 $(.493) $(.003) $(.496) $10.01 5.13%
1993 3 10.01 .544 (.100) .444 (.544) -- (.544) 9.91 4.53
1993 9.91 .313 (.090) .223 (.313) -- (.313) 9.82 2.28
1994 9.82 .415 (.630) (.215) (.415) -- (.415) 9.19 (2.22)
1995 4 9.19 .279 .030 .309 (.279) -- (.279) 9.22 3.42
ADJUSTABLE RATE SECURITIES PORTFOLIO
1992 2 10.00 -- -- -- -- -- -- 10.00 --
1993 3 10.00 .599 .020 .619 (.599) -- (.599) 10.02 6.36
1993 10.02 .368 .010 .378 (.368) -- (.368) 10.03 3.83
1994 10.03 .469 (.340) .129 (.469) -- (.469) 9.69 1.32
1995 4 9.69 .304 .020 .324 (.304) -- (.304) 9.71 3.40
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
---------------------------------------------------------
RATIO OF RATIO
NET EXPENSES OF NET
ASSETS TO INVESTMENT
YEAR AT END AVERAGE INCOME PORTFOLIO
ENDED OF YEAR NET TO AVERAGE TURNOVER
OCT. 31, (IN 000's) ASSETS++ NET ASSETS RATE
- -------- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO
1992 1 $4,315,658 .31%* 7.25%* 48.96%
1993 3 4,201,411 .30 5.49 66.44
1993 2,130,229 .27* 4.15* 76.55
1994 747,471 .02 4.01 56.43
1995 4 604,619 .12* 6.08* 11.00
ADJUSTABLE RATE SECURITIES PORTFOLIO
1992 2 -- -- -- --
1993 3 44,656 -- 5.80 88.92
1993 124,309 .11* 4.76* 158.70
1994 41,619 .25 4.55 192.06
1995 4 27,850 .25* 6.18* 12.09
</TABLE>
*Annualized.
1 For the period May 20, 1991 (effective date) to January 31, 1992.
2 For the period December 26, 1991 (effective date) to January 31, 1992.
3 For the year ended January 31, 1993.
4 For the six months ended April 30,1995.
+ Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It assumes reinvestment of dividends and of
capital gains, if any, at net asset value.
68
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONT.)
7. FINANCIAL HIGHLIGHTS (CONT.)
<TABLE>
<CAPTION>
RATIO OF EXPENSES
TO AVERAGE NET ASSETS
---------------------
<S> <C>
U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO
1992 1................................................ .41%*
1993 3................................................ .42
1993.................................................. .41*
1994.................................................. .42
1995 4................................................ .43*
ADJUSTABLE RATE SECURITIES PORTFOLIO
1993 3................................................ .64
1993.................................................. .47*
1994.................................................. .43
1995 4................................................ .44*
</TABLE>
++ During the periods indicated below, Franklin Advisers, Inc., the investment
manager, agreed to waive in advance a portion of its management fees and made
payments of other expenses incurred by the Portfolio. Had such action not
been taken, the ratios of expenses to average net assets would have been as
follows:
69
<PAGE>
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING
(PURSUANT TO ITEM 304 (a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
This chart shows in pie format the fund's securities' regional breakdown by
sector as a percentage of total market value.
<TABLE>
<CAPTION>
Regional Portfolio Breakdown on 4/30/95
<S> <C>
United States 10.6%
Canada 14.9%
South Africa 1.3%
Latin America 8.8%
Australia/New Zealand 20.8%
Northern Europe 31.4%
Asia 9.3%
Southern Europe 2.9%
</TABLE>
GRAPHIC MATERIAL (2)
The following line graph compares the distribution rate of the Franklin
Adjustable U.S. Government Securities Fund with a one-year Treasury bill
between 5/1/90 and 4/30/95.
<TABLE>
<CAPTION>
Period
ending
<S> <C> <C>
Adj USG 1 Yr T-bill
May-90 10.25% 7.64%
Jun-90 9.91% 7.57%
Jul-90 9.56% 7.33%
Aug-90 9.22% 7.32%
Sep-90 9.22% 7.25%
Oct-90 9.23% 7.02%
Nov-90 9.24% 6.83%
Dec-90 9.23% 6.51%
Jan-91 8.65% 6.19%
Feb-91 8.41% 5.93%
Mar-91 8.40% 5.94%
Apr-91 8.41% 5.86%
May-91 8.07% 5.76%
Jun-91 7.86% 5.96%
Jul-91 7.49% 5.90%
Aug-91 7.36% 5.41%
Sep-91 7.00% 5.20%
Oct-91 6.88% 5.09%
Nov-91 6.79% 4.50%
Dec-91 6.56% 3.90%
Jan-92 6.06% 4.02%
Feb-92 5.95% 4.19%
Mar-92 5.84% 4.40%
Apr-92 5.61% 4.11%
May-92 5.25% 4.06%
Jun-92 5.24% 3.94%
Jul-92 5.26% 3.43%
Aug-92 4.91% 3.38%
Sep-92 4.80% 3.04%
Oct-92 4.83% 3.36%
Nov-92 4.72% 3.61%
Dec-92 4.49% 3.49%
Jan-93 4.28% 3.26%
Feb-93 4.16% 3.17%
Mar-93 3.93% 3.16%
Apr-93 3.68% 3.26%
May-93 3.69% 3.39%
Jun-93 3.92% 3.45%
Jul-93 3.92% 3.53%
Aug-93 3.81% 3.38%
Sep-93 3.34% 3.25%
Oct-93 3.36% 3.47%
Nov-93 3.40% 3.49%
Dec-93 3.17% 3.62%
Jan-94 2.92% 3.53%
Feb-94 2.82% 3.83%
Mar-94 2.60% 4.45%
Apr-94 2.63% 4.72%
May-94 2.87% 5.08%
Jun-94 3.24% 5.22%
Jul-94 3.61% 5.37%
Aug-94 3.75% 5.56%
Sep-94 3.77% 5.96%
Oct-94 4.21% 5.72%
Nov-94 4.61% 6.91%
Dec-94 5.16% 7.20%
Jan-95 5.52% 6.84%
Feb-95 5.62% 6.43%
Mar-95 5.61% 6.09%
</TABLE>
GRAPHIC MATERIAL (3)
This chart shows in pie format the fund's securities breakdown by quality as
a percentage of total net assets.
<TABLE>
<CAPTION>
Portfolio Breakdown on 4/30/95
<S> <C>
GNMA 3.2%
FHLMC 32.7%
FNMA 61.6%
Other 2.5%
</TABLE>
GRAPHIC MATERIAL (4)
The following line graph compares the distribution rate of the Franklin
Adjustable Rate Securities Fund with a one-year Treasury bill between 2/1/92
and 4/30/95.
<TABLE>
<CAPTION>
Period
Ending
<S> <C> <C>
Adj Rate 1 Yr T-bill
Feb-92 7.06% 4.19%
Mar-92 6.10% 4.40%
Apr-92 6.47% 4.11%
May-92 5.45% 4.06%
Jun-92 6.20% 3.94%
Jul-92 5.77% 3.43%
Aug-92 5.95% 3.38%
Sep-92 6.10% 3.04%
Oct-92 5.36% 3.36%
Nov-92 5.23% 3.61%
Dec-92 5.80% 3.49%
Jan-93 5.56% 3.26%
Feb-93 5.62% 3.17%
Mar-93 5.11% 3.16%
Apr-93 4.98% 3.26%
May-93 5.00% 3.39%
Jun-93 5.03% 3.45%
Jul-93 4.61% 3.53%
Aug-93 4.28% 3.38%
Sep-93 4.58% 3.25%
Oct-93 3.82% 3.47%
Nov-93 4.21% 3.49%
Dec-93 4.42% 3.62%
Jan-94 3.64% 3.53%
Feb-94 3.35% 3.83%
Mar-94 3.67% 4.45%
Apr-94 4.41% 4.72%
May-94 3.95% 5.08%
Jun-94 4.52% 5.22%
Jul-94 4.93% 5.37%
Aug-94 5.02% 5.56%
Sep-94 5.37% 5.96%
Oct-94 5.61% 5.72%
Nov-94 5.61% 6.91%
Dec-94 5.11% 7.20%
Jan-95 5.44% 6.84%
Feb-95 7.13% 6.43%
Mar-95 5.43% 6.09%
Apr-95 6.11% 6.32%
</TABLE>
