Annual Report
October 31, 1997
Franklin Investors Securities Trust
Franklin Global Government Income Fund
Franklin Short-Intermediate
U.S. Government Securities Fund
Franklin Convertible Securities Fund
Franklin Adjustable U.S. Government Securities Fund
Franklin Equity Income Fund
Franklin Adjustable Rate Securities Fund
CONTENTS
Shareholder Letter 1
Fund Reports
Franklin Global Government
Income Fund 4
Franklin Short-Intermediate
U.S. Government
Securities Fund 17
Franklin Convertible
Securities Fund 28
Franklin Adjustable
U.S. Government
Securities Fund 39
Franklin Equity
Income Fund 46
Franklin Adjustable
Rate Securities Fund 57
Financial Highlights &
Statement of Investments 63
Financial Statements 90
Notes to
Financial Statements 99
Report of Independent
Accountants 107
Tax Information 108
CELEBRATING 50 YEARS
This year marks 50 years of business for Franklin Templeton. Over these years,
the mutual fund industry has experienced profound changes in technology,
regulations and customer expectations. As one of the largest mutual fund
families, we're proud to be an innovative industry leader, providing people like
you with an opportunity to invest around the globe. We thank you for your past
support and look forward to serving your investment needs in the years ahead.
(PICTURE OMITTED)
Charles B. Johnson
Chairman
Franklin Investors Securities Trust
SHAREHOLDER LETTER
Dear Shareholder:
It's a pleasure to bring you Franklin Investors Securities Trust's annual
report for the period ended October 31, 1997.
Trick or Treat?
During this one-year reporting period, benign inflation and declining
interest rates led to accelerating economic activity. Many financial assets
rose in value, with returns surpassing historical levels, and the Dow Jones(R)
Industrial Average (the Dow) reveled in its meteoric rise. However, October
is -- historically -- a month of volatility, and this year was no exception.
During Halloween week, the mighty roar of the Asian "Tigers" dwindled to a
sickly meow as most markets experienced severe valuation declines. The effect
was widespread: In the U.S., the Dow tumbled a record 554 points, to 7161.15
on October 27.
The decline probably was enough to keep the Federal Reserve Board from acting
to raise interest rates in the near term, but not enough to deter investors.
The morning after saw the market gain back almost half of its losses.
Although the Dow continued to seesaw throughout the remainder of that week,
it closed at 7442.08 on October 31, 1997 -- an impressive 1400 points above
its level of 6029.38 a year earlier.
The Tale of the Tortoise and the Hare
We can't promise that a positive economic environment will continue. It is
important to remember, then, that markets correct -- in our opinion, it is
desirable for them to do so. Consequently, investor concern about volatility
and the market's direction prompts us to comment on the importance of having
your own long-term investment strategy. And when you consider your investment
strategy, are you a tortoise or a hare?
We all know that familiar story: The tortoise won the race because he had a
plan and stuck to it, not allowing the hare's fast start to distract him.
Much like the tortoise, successful investors historically have achieved good
results through setting goals, diversifying their assets, and having
patience. Smart investors think like the tortoise. They know mutual fund
investments are long term, so daily market fluctuations and short-term
volatility have minimal impact on their overall investment goals. They
understand that patience and discipline are keys to successful investing.
Remember, it's time -- not timing -- that makes the difference.
We encourage you to speak with your investment representative about your
financial goals. He or she can address concerns about volatility and help you
stay focused on the long term and diversify your investments. Mutual funds
offer a level of diversification that is almost impossible for individual
investors to achieve on their own.
Regardless of the market's direction, Franklin Templeton's disciplined
investment strategy remains the same: All of our portfolio managers are
dedicated to providing shareholders like you with careful selection and
constant professional supervision. As always, we appreciate your support,
welcome your questions and comments, and look forward to serving your
investment needs in the years ahead.
Sincerely,
Charles B. Johnson
Chairman
Franklin Investors Securities Trust
FRANKLIN GLOBAL
GOVERNMENT INCOME FUND
Your Fund's 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.1
1. The risks of investing in a non-diversified global fund, such as currency
fluctuation and increased vulnerability to adverse economic, political or
regulatory developments, are described in the fund's prospectus.
We are pleased to bring you this annual report of the Franklin Global
Government Income Fund, which covers the 12 months ended October 31, 1997.
The fund delivered a +4.31% one-year total return, as discussed in the
Performance Summary on page 8.
General Economic Review
Global bond markets finished the reporting period with mixed results after
experiencing severe volatility along the way. For example, 10-year U.S.
Treasury bond yields fell between 6% and 7%, with each 1% rise or fall in
yield resulting in about a 6% to 7% change in bond value. This volatility was
primarily due to fears of inflation and higher interest rates in the U.S.,
the struggle in Europe to establish a common currency, and the appreciation
of the U.S. dollar relative to most other currencies. Toward the end of the
fund's reporting period, the dollar's appreciation became the most
significant cause for volatility in global bond markets, greatly
overshadowing other factors. A loss of confidence in the currencies of
several East Asian countries caused many investors to liquidate their
holdings in these countries and seek safety through U.S. dollar investments
in what was widely termed the "East Asian currency crisis."
Currency Movements
The single largest event in world currency markets over the reporting period
had little direct impact on the fund. Although many East Asian countries
suffered severe currency devaluations against the U.S. dollar, the fund holds
no investments in these countries and avoided many of the effects of this
crisis. In other markets, activity in the U.S. significantly influenced
foreign bond and currency markets. At the beginning of the one-year period,
European interest rates were relatively low, with many markets experiencing
short-term rates considerably lower than U.S. rates. Attracted by higher
rates in the U.S., foreign investors purchased U.S. dollar assets, and the
dollar began a long, steady appreciation against most foreign currencies.
During the period, for example, the U.S. dollar appreciated 13.79% against
the German mark, from 1.5173 to 1.7265 marks to the dollar. This meant that
the value of the fund's German bond holdings declined by 12.12% in U.S.
dollar terms.
However, the decline in many foreign currencies relative to the U.S. dollar
was not exclusively the result of events in the United States. Domestic
conditions in Europe, particularly events surrounding the formation of a
common European currency, also were contributing factors. In attempting to
meet requirements for membership in the European Monetary Union, the French,
Italian, and Spanish governments cut their budgets aggressively, leading to
declines in European interest rates and depreciation of most European
currencies relative to the U.S. dollar. Although prospects for a common
currency generally improved during the period under review, a heightened
sense of uncertainty remained, and many European currencies experienced
significant volatility as the process unfolded.
Portfolio Notes
Responding to what we considered to be buying opportunities, largely in the
German market, we increased the fund's European bond holdings from 38.0% on
October 31, 1996 to 41.8% of total net assets on October 31, 1997, while
selling modest amounts of securities from Denmark, Ireland, Spain, and the
United Kingdom. We also shifted assets into Latin America from other U.S.
dollar-denominated holdings, such as Australia. Our holdings of Latin
American securities increased, during the period, from 12.4% to 19.2% of
total net assets, with the largest increases occurring in our Brazilian and
Venezuela holdings. Our focus on what we believe to be the strong underlying
strengths of the Latin American bond market, enabled us to avoid most of the
ill effects of the East Asian currency crisis, which afflicted many of the
emerging markets in Asia.
The fund's average maturity was 5.9 years at the end of the period, compared
with 5.6 years at the beginning. During the period, we slightly reduced the
average maturity of our holdings from industrial countries, while modestly
increasing the average maturity of Latin American holdings.
In our opinion, the greatest risk to the bond values of those countries the
fund invests in is expanding economic growth. Should this trend continue,
global bond markets could become more volatile over the intermediate term
because such growth could increase the risk of scarcity in certain key
resources, particularly labor, leading to wage and price increases. Because
central banks generally raise interest rates in an effort to slow growth to
non-inflationary levels, such a scenario could result in higher interest
rates and lower bond prices. However, controlled interest rate increases
before inflation occurs could lead to greater long-term, global financial
stability.
Regarding global currencies, we believe that the U.S. dollar's fundamentals
at the end of the reporting period continued to support its value against
currencies of most European countries experiencing high labor costs and high
unemployment. Unless this situation changes, we would expect to maintain our
emphasis on U.S. dollar-denominated assets.
Please remember, this discussion reflects our views and opinions as of
October 31, 1997, the end of the reporting period. However, market and
economic conditions are changing constantly which may affect our strategies
and portfolio holdings. Although historic performance is no guarantee of
future results, these insights may help you understand our investment and
management philosophy.
Sincerely,
Thomas J. Dickson
Portfolio Manager
Franklin Global Government Income Fund
Franklin Global Government Income Fund
Country Distribution
As a Percentage of Total Net Assets
Country 10/31/9610/31/97
United States 24.7% 24.3%
Germany 2.2% 12.3%
Italy 12.4% 11.7%
Canada 11.9% 8.5%
Spain 7.4% 7.0%
Argentina 4.9% 6.0%
Brazil 3.1% 5.8%
Sweden 3.0% 5.7%
Mexico 4.5% 5.0%
Australia 9.5% 4.2%
United Kingdom 7.5% 3.3%
Venezuela 0.0% 2.2%
New Zealand 3.1% 2.0%
Denmark 4.2% 1.8%
Panama 0.0% 0.2%
Irish Republic 1.2% 0.0%
South Africa 0.4% 0.0%
PERFORMANCE SUMMARY
Class I
Franklin Global Government Income Fund - Class I share price, as measured by
net asset value, decreased 24.0 cents, from $8.65 on October 31, 1996, to
$8.41 on October 31, 1997.
During the reporting period, the fund paid distributions of 60.0 cents
($0.60) per share in dividend income, and a special year-end distribution of
2.0 cents ($0.02) per share. Distributions will vary depending on income
earned by the fund and any profits realized from the sale of securities in
the portfolio. Past distributions are not indicative of future trends.
Based on an annualization of October's monthly dividend of 5.0 cents ($0.05)
per share and the maximum offering price of $8.78 on October 31, 1997, your
fund's distribution rate was 6.83%.
The fund reported a cumulative total return of +4.31% for the one-year period
ended October 31, 1997. Cumulative total return measures the change in value
of an investment, assuming reinvestment of all distributions, and does not
include the sales charge.
The graph on page 10 compares the performance of the fund's Class I shares,
since inception, with that of the JP Morgan Global Government Bond Index. As
the graph illustrates, the fund's performance has closely followed that of JP
Morgan's index.
Keep in mind that an unmanaged market index has inherent performance
differentials in comparison with any fund. An index doesn't pay management
fees to cover salaries of security analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need to have cash on hand
to redeem shares. In addition, the performance shown for the fund includes
the maximum initial sales charge, all fund expenses and account fees. If
operating expenses such as Franklin Global Government Income Fund's had been
applied to the index, its performance would have been lower. Please remember
that an index is simply a measure of performance, and one cannot invest in it
directly.
Franklin Global
Government Income Fund
Class I
Dividend Distributions
11/1/96 - 10/31/97
Dividend
Month per Share
November 5.0 cents
December 5.0 cents
January 5.0 cents
February 5.0 cents
March 5.0 cents
April 5.0 cents
May 5.0 cents
June 5.0 cents
July 5.0 cents
August 5.0 cents
September 5.0 cents
October 5.0 cents
Total 60.0 cents
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Global Government Income Fund - Class I
Periods ended 10/31/97
Since
Inception
1-Year 5-Year (3/15/88)
Cumulative Total Return1 4.31% 43.95% 103.15%
Average Annual Total Return2 (0.12)% 6.63% 7.09%
Distribution Rate3 6.83%
30-Day Standardized Yield4 5.43%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value
of an investment over the specified periods and reflects the current, maximum
4.25% initial sales charge.
3. Distribution rate is based on an annualization of October's 5.0 cents per
share monthly dividend and the maximum offering price of $8.78 on October 31,
1997.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended October 31, 1997.
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 would differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which
affects subsequent performance. Past expense reductions by the fund's manager
increased the fund's total return.
All total return calculations assume reinvestment of dividends and any
capital gains at net asset value. Your investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when
you sell your shares.
Class II
Franklin Global Government Income Fund - Class II share price, as measured by
net asset value, decreased 24.0 cents, from $8.65 on October 31, 1996, to
$8.41 on October 31, 1997.
During the reporting period, the fund paid distributions of 55.31 cents
($0.5531) per share in dividend income, and a special year-end distribution
of 2.0 cents ($0.02) per share.
Distributions will vary depending on income earned by the fund and any
profits realized from the sale of securities in the portfolio. Past
distributions are not indicative of future trends.
Based on an annualization of October's monthly dividend of 4.64 cents
($0.0464) per share and the offering price of $8.49 on October 31, 1997, your
fund's distribution rate was 6.56%.
The fund reported a cumulative total return of +3.74% for the one-year period
ended October 31, 1997. Cumulative total return measures the change in value
of an investment, assuming reinvestment of all distributions, and does not
include sales charges.
The graph on page 13 compares the performance of the fund's Class II shares
since inception, with that of the JP Morgan Global Government Bond Index. As
the graph illustrates, the fund's performance has closely followed that of JP
Morgan's index.
Franklin Global
Government Income Fund
Class II
Dividend Distributions
11/1/96 - 10/31/97
Dividend
Month per Share
November 4.68 cents
December 4.68 cents
January 4.58 cents
February 4.58 cents
March 4.58 cents
April 4.58 cents
May 4.58 cents
June 4.58 cents
July 4.61 cents
August 4.61 cents
September 4.61 cents
October 4.64 cents
Total 55.31 cents
Keep in mind that an unmanaged market index has inherent performance
differentials in comparison with any fund. An index doesn't pay management
fees to cover salaries of security analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need to have cash on hand
to redeem shares. In addition, the performance shown for the fund includes
the maximum initial sales charge, all fund expenses and account fees. If
operating expenses such as Franklin Global Government Income Fund's had been
applied to the index, its performance would have been lower. Please remember
that an index is simply a measure of performance, and one cannot invest in it
directly.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Global Government Income Fund - Class II
Periods ended 10/31/97
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 3.74% 23.42%
Average Annual Total Return2 1.64% 8.09%
Distribution Rate3 6.56%
30-Day Standardized Yield4 4.87%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value
of an investment over the specified periods and includes the 1.0% initial
sales charge and 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months of investment.
3. Distribution rate is based on an annualization of October's 4.64 cents per
share monthly dividend and the offering price of $8.49 on October 31, 1997.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended October 31, 1997.
All total return calculations assume reinvestment of dividends and any
capital gains at net asset value. Your investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when
you sell your shares.
Franklin Global Government
Income Fund
Advisor Class
Dividend Distributions
1/2/97 - 10/31/97
Dividend
Month per Share
January 5.07 cents
February 5.07 cents
March 5.07 cents
April 5.07 cents
May 5.07 cents
June 5.07 cents
July 5.07 cents
August 5.07 cents
September 5.07 cents
October 5.07 cents
Total 50.70 cents
Advisor Class
Franklin Global Government Income Fund - Advisor Class share price, as
measured by net asset value, decreased 30.0 cents, from $8.71 on January 2,
1997 (day of commencement of sales), to $8.41 on October 31, 1997.
During the reporting period, the fund paid distributions of 50.70 cents
($0.5070) per share in dividend income. Distributions will vary depending on
income earned by the fund and any profits realized from the sale of
securities in the portfolio. Past distributions are not indicative of future
trends.
Based on an annualization of October's monthly dividend of 5.07 cents
($0.0507) per share and the fund's net asset value price of $8.41 on October
31, 1997, your fund's distribution rate was 7.23%.
The fund reported a cumulative total return of +2.49% for the ten-month
period ended October 31, 1997. Cumulative total return measures the change in
value of an investment, assuming reinvestment of all distributions.
The graph on page 16 compares the performance of the fund's Advisor Class
shares with that of the JP Morgan Global Government Bond Index. For the
periods prior to January 2, 1997, the fund performance is that of the fund's
Class I shares, excluding the initial sales charge, but including Class I
expenses. As the graph illustrates, the fund's performance has closely
followed that of JP Morgan's index.
Keep in mind that an unmanaged market index has inherent performance
differentials in comparison with any fund. An index doesn't pay management
fees to cover salaries of security analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need to have cash on hand
to redeem shares. In addition, the performance shown for the fund includes
the maximum initial sales charge, all fund expenses and account fees. If
operating expenses such as Franklin Global Government Income Fund's had been
applied to the index, its performance would have been lower. Please remember
that an index is simply a measure of performance, and one cannot invest in it
directly.
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Global Government Income Fund - Advisor Class
Periods ended 10/31/97
Since Inception
of the Fund
1-Year* 5-Year* (3/15/88)*
Cumulative Total Return1 4.63% 44.39% 103.78%
Average Annual Total Return1 4.63% 6.69% 7.12%
Distribution Rate2 7.23%
30-Day Standardized Yield3 5.53%
*Effective January 2, 1997, the fund began offering Advisor Class shares to
certain eligible investors as described in its prospectus. This share class
does not have sales charges nor Rule 12b-1 plans. Performance quotations have
been calculated as follows: (a) For periods prior to January 2, 1997, figures
reflect the fund's Class I performance, excluding the effect of the Class I
maximum initial sales charge, but including the effect of Class I expenses,
including Rule 12b-1 fees; and (b) for periods after January 1, 1997, figures
reflect actual Advisor Class performance including the deduction of all
charges and fees applicable only to that class. Since January 2, 1997
(commencement of sales), the cumulative total return of Advisor Class shares
was 2.49%.
1. Cumulative total return measures the change in value of an investment over
the indicated periods. Average annual total return represents the average
annual change in value of an investment over the specified periods.
2. Distribution rate is based on an annualization of October's 5.07 cents per
share monthly dividend and the fund's net asset value price of $8.41 on
October 31, 1997.
3. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended October 31, 1997.
All total return calculations assume reinvestment of dividends and any
capital gains at net asset value. Your investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when
you sell your shares.
FRANKLIN SHORT-INTERMEDIATE
U.S. GOVERNMENT SECURITIES FUND
Your Fund's Objective: Seeks to provide investors with a high level of
current income, while seeking to preserve shareholders' capital, by investing
primarily in U.S. government securities with maturities between two and five
years.
Franklin Short-Intermediate U.S. Government Securities Fund generated a
+5.88% cumulative total return for the 12-month period ended October 31,
1997, as discussed in the Performance Summary on page 20.
During the reporting period, economic conditions in the U.S. were extremely
favorable for investors. Economic growth in the fourth quarter of 1996 began
on a slow note, but by the end of the year and into the first quarter of
1997, it increased. Interest rates -- which had declined between the third and
fourth quarters of 1996 -- reversed course and nudged higher. Investors feared
that a tight labor market, combined with strong growth, would continue to
push up wages, eventually leading to higher prices for consumers. To no one's
surprise, the Federal Reserve Board (the Fed) bumped the federal funds rate
to 5.50% from 5.25% at the Federal Open Market Committee meeting in March,
citing heightened inflation risk for this quarter-point increase. The Fed's
hope to slow economic growth and inflationary pressures occurred as second
quarter growth declined relative to the first quarter's; however, indications
are that the economy is regaining momentum because of strong consumer
spending in the third quarter of 1997.
The fund's total return for the year, however, was below that of the
unmanaged Lehman Brothers Short U.S. Treasury 1-5 Year Index, which ended at
6.83% for the same period.1 Unlike the fund, the Lehman Brothers Index does
not include any management expenses. This fact, coupled with the fund's
conservative investment strategy, led to the relative underperformance.
1. One cannot invest directly in an index.
Overall, the fund's returns for the year are almost exclusively from coupon
income. On October 31, 1997, compared with October 31, 1996, short-term
interest rates, short-term U.S. Treasury note prices and the fund's share
value remained virtually unchanged. However, high volatility throughout the
reporting period caused us to monitor the Fed's activities closely as we
attempted to position the portfolio to avoid interest rate risk. We continue
to maintain the portfolio's weighted average maturity very close to our
minimum of two years.
When the Fed raised the benchmark for the federal funds rate in March, we
already were investing 35% of the fund's assets in overnight investments. We
maintained a relatively high cash position until the summer, when favorable
inflation news and continued improvements with lowering the budget deficit
made it clear the Fed was unlikely to raise rates further. Accordingly, we
reduced the fund's position in overnight investments, from approximately 15%
of total net assets in June, to less than 2% by the end of September.
Although the Fed currently maintains a bias towards tightening monetary
policy, we believe it is unlikely that they will raise interest rates in the
very near term. For this reason, 98% of the portfolio remains invested in
U.S. Treasury notes.
Please remember, this discussion accurately reflects our views and opinions
as of October 31, 1997, the end of the reporting period. However, market and
economic conditions are changing constantly and our strategies and portfolio
holdings may be different at this time. Although historic performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
Looking forward, we remain committed to our disciplined, value-oriented
approach, which has historically produced consistent and favorable long-term
results. We thank you for your participation in the Franklin
Short-Intermediate U.S. Government Securities Fund and look forward to
serving you in the future. Please feel free to contact us with any questions
or comments.
Sincerely,
David Capurro
Portfolio Manager
Franklin Short-Intermediate U.S. Government Securities Fund
PERFORMANCE SUMMARY
Class I
Franklin Short-Intermediate U.S. Government Securities Fund - Class I share
price, as measured by net asset value, increased 1.0 cent, from $10.28 on
October 31, 1996, to $10.29 on October 31, 1997.
During the reporting period, the fund paid distributions of 57.60 cents
($0.5760) per share in dividend income. Dividends will vary, depending on the
fund's income, and past distributions are not indicative of future trends.
Based on an annualization of the current monthly dividend of 4.8 cents
($0.048) per share and the maximum offering price of $10.53 on October 31,
1997, your fund's distribution rate was 5.47%.
The fund reported a cumulative total return of +5.88% for the one-year period
ended October 31, 1997. Cumulative total return measures the change in value
of an investment, assuming reinvestment of all distributions, and does not
include the sales charge.
The graph on page 22 compares the performance of the fund's Class I shares,
for the past 10 years, with that of the Lehman Brothers Short U.S. Treasury
1-5 Year Index** and the Consumer Price Index (CPI). As the graph
illustrates, the fund's performance has exceeded the increase in the CPI,
which means your investment returns have surpassed the rate of inflation, a
primary goal of any investment. The fund also closely followed the benchmark
index.
**The unmanaged Lehman Brothers Short U.S. Treasury 1-5 Year Index invests in
U.S. Government securities and Treasuries with maturities from one to five
years.
Keep in mind that an unmanaged market index has inherent performance
differentials in comparison with any fund. An index doesn't pay management
fees to cover salaries of security analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need to have cash on hand
to redeem shares. In addition, the performance shown for the fund includes
the maximum initial sales charge, all fund expenses and account fees. If
operating expenses such as Franklin Short-Intermediate U.S. Government
Securities Fund's had been applied to the index, its performance would have
been lower. Please remember that an index is simply a measure of performance,
and one cannot invest in it directly.
Franklin Short-Intermediate U.S. Government Securities Fund
Class I
Dividend Distributions
11/1/96 - 10/31/97*
Dividend
Month per Share
November 4.80 cents
December 4.80 cents
January 4.80 cents
February 4.80 cents
March 4.80 cents
April 4.80 cents
May 4.80 cents
June 4.80 cents
July 4.80 cents
August 4.80 cents
September 4.80 cents
October 4.80 cents
Total 57.60 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
day you purchased your shares and any account activity during the month.
Income distributions and total return calculations include all accrued income
earned by the fund during the reporting period.
GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Short-Intermediate
U.S. Government Securities Fund - Class I
Periods ended 10/31/97
Since
Inception
1-Year 5-Year 10-Year (4/15/87)
Cumulative Total Return1 5.88% 29.42 %97.06% 103.80%
Average Annual Total Return2 3.46% 4.82% 6.77% 6.75%
Distribution Rate3 5.47%
30-Day Standardized Yield4 4.97%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value
of an investment over the specified periods and reflects the maximum 2.25%
initial sales charge.
3. Distribution rate is based on an annualization of the current 4.8 cent per
share monthly dividend and the maximum offering price of $10.53 on October
31, 1997.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended October 31, 1997.
Effective May 1, 1994, the fund eliminated the sales charge on reinvested
dividends and implemented a Rule 12b-1 plan, which affects subsequent
performance. Past expense reductions by the fund's manager increased the
fund's total returns.
All total return calculations assume reinvestment of dividends and any
capital gains at net asset value. Your investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when
you sell your shares.
Franklin Short-Intermediate U.S. Government Income Fund
Advisor Class
Dividend Distributions
1/2/97 - 10/31/97*
Dividend
Month per Share
January 4.55 cents
February 4.86 cents
March 4.86 cents
April 4.86 cents
May 4.84 cents
June 4.86 cents
July 4.88 cents
August 4.88 cents
September 4.88 cents
October 4.89 cents
Total 48.36 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
day you purchased your shares and any account activity during the month.
Income distributions and total return calculations include all accrued income
earned by the fund during the reporting period.
Advisor Class
Franklin Short-Intermediate U.S. Government Securities Fund - Advisor Class
share price, as measured by net asset value, increased 6.0 cents, from $10.24
on January 2, 1997 (day of commencement of sales), to $10.30 on October 31,
1997.
During the reporting period, the fund paid distributions of 48.36 cents
($0.4836) per share in dividend income. Dividends will vary, depending on the
fund's income, and past distributions are not indicative of future trends.
Based on an annualization of the current monthly dividend of 4.89 cents
($0.0489) per share and the fund's net asset value price of $10.30 on October
31, 1997, your fund's distribution rate was 5.70%.
The fund reported a cumulative total return of +5.45% for the ten-month
period ended October 31, 1997. Cumulative total return measures the change in
value of an investment, assuming reinvestment of all distributions.
The graph on page 26 compares the performance of the fund's Advisor Class
shares with that of the Lehman Brothers Short U.S. Treasury 1-5 Year Index**
and the Consumer Price Index (CPI). For the periods prior to January 2, 1997,
the fund performance is that of the Fund's Class I shares, excluding the
initial sales charge, but including Class I expenses. As the graph
illustrates, the fund's performance has exceeded the increase in the CPI,
which means your investment returns have surpassed the rate of inflation, a
primary goal of any investment. The fund also closely followed the benchmark
index.
**The unmanaged Lehman Brothers Short U.S. Treasury 1-5 Year Index invests in
U.S. Government securities and Treasuries with maturities from one to five
years.
Keep in mind that an unmanaged market index has inherent performance
differentials in comparison with any fund. An index doesn't pay management
fees to cover salaries of security analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need to have cash on hand
to redeem shares. In addition, the performance shown for the fund includes
the maximum initial sales charge, all fund expenses and account fees. If
operating expenses such as Franklin Short-Intermediate U.S. Government
Securities Fund's had been applied to the index, its performance would have
been lower. Please remember that an index is simply a measure of performance,
and one cannot invest in it directly.
GRAPHIC MATERIAL 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Short-Intermediate
U.S. Government Securities Fund - Advisor Class
Periods ended 10/31/97
Since Inception
of the Fund
1-Year* 5-Year* 10-Year*(4/15/87)*
Cumulative Total Return1 5.92% 29.46% 97.13% 103.87%
Average Annual Total Return1 5.92% 5.30% 7.02% 6.99%
Distribution Rate2 5.70%
30-Day Standardized Yield3 5.17%
*Effective January 2, 1997, the fund began offering Advisor Class shares to
certain eligible investors as described in its prospectus. This share class
does not have sales charges nor Rule 12b-1 plans. Performance quotations have
been calculated as follows: (a) For periods prior to January 2, 1997, figures
reflect the fund's Class I performance, excluding the effect of the Class I
maximum initial sales charge, but including the effect of Class I expenses,
including Rule 12b-1 fees; and (b) for periods after January 1, 1997, figures
reflect actual Advisor Class performance including the deduction of all
charges and fees applicable only to that class. Since January 2, 1997
(commencement of sales), the cumulative total return of Advisor Class shares
was 5.45%.
1. Cumulative total return measures the change in value of an investment over
the indicated periods. Average annual total return represents the average
annual change in value of an investment over the specified periods.
2. Distribution rate is based on an annualization of the current 4.89 cent
per share monthly dividend and the fund's price of $10.30 on October 31, 1997.
3. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended October 31, 1997.
All total return calculations assume reinvestment of dividends and any
capital gains at net asset value. Your investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when
you sell your shares.
FRANKLIN CONVERTIBLE
SECURITIES FUND
Your Fund's Objective: Seeks to maximize total return consistent with
reasonable risk through a portfolio of convertible securities.
Franklin Convertible Securities Fund - Class I produced a +22.47% cumulative
total return for the one-year period ended October 31, 1997, as discussed in
the Performance Summary on page 32.
Our investment strategy is to purchase convertible securities that we believe
have strong total return potential and favorable risk/return profiles. We
look for securities that allow us to capture a significant portion of the
underlying equity's price appreciation while attempting to limit our exposure
to potential price declines. To identify investments that meet our criteria,
we screen the convertible security universe, narrowing our options to those
companies we believe have superior business prospects and attractive
valuation levels.
During the one-year reporting period, benign inflation and declining interest
rates led to accelerating economic activity, higher employment, and tighter
capacity utilization, resulting in increased earnings for economically
sensitive companies operating at above-average levels. We purchased the
securities of companies benefiting from this cyclical upswing, including
Roper Industries Inc., Atchison Castings, CNF Transportation Corp.,
International Paper, and Atlantic Coast Airlines.
In addition, we invested in the economically sensitive real estate market,
where a relatively tight supply/demand balance permitted above-average
pricing flexibility. Positions in this sector include FelCor Suites Hotels,
Host Marriott, Sholodge, Hilton Hotels, and Burnham Pacific. We also own the
convertibles of real estate investment trusts (REITs) OMEGA Healthcare
Investors, Inc. and Macerich Co.
In the past, we have held significant positions in technology companies
(14.8% of total net assets on October 31, 1997) whose products allow their
customers to lower costs, reduce inventory, decrease time-to-market, and
improve customer satisfaction. Although the logic seems simple,
implementation has been difficult. For example, Dovatron International Inc.
(DII) Group, our largest position, had problems increasing earnings, but our
patience with this security was rewarded. DII turned in an outstanding
performance during the reporting period, with its stock price rising from the
$90s to over $170 before declining in profit taking.
We also had exposure to a variety of industries in the midst of
consolidation, which resulted in the issuance of many securities that helped
the fund's performance over the fiscal year. For example, companies may
acquire small, inefficient operators in highly fragmented industries and
implement labor-saving technology, centralized purchasing, and reduce
overhead. In doing so, a consolidator can increase its revenues, profit
margins and earnings per share. Some of our positions within the
media/broadcasting and services sectors that benefited from such activity
were Triathlon Broadcasting and Veterinary Centers of America. We found
additional consolidation-based investment opportunities in the oil and energy
sectors, where we own Seacor Holdings Inc., Parker Drilling, McDermott
International Inc., and Halter Marine.
Franklin Convertible Securities Fund
Franklin Convertible
Securities Fund
Portfolio Breakdown
10/31/96 vs. 10/31/97
Portfolio
Sector 10/31/96 10/31/97
Convertible
Bonds 63.0% 57.8%
Convertible
Preferred Stocks 20.5% 23.0%
Corporate Bonds 3.1% 0.0%
Common Stocks
& Warrants 3.0% 10.1%
Cash &
Short-Term
Equivalents 10.4% 9.1%
Franklin Convertible
Securities Fund
Top Five Holdings
10/31/97
Company
(Type of Security) % of Total
INDUSTRY Net Assets
Dovatron (DII) Group
(Convertible Bond)
ELECTRONICS 3.12%
SPACEHAB
(Convertible Bond)
AEROSPACE/DEFENSE 2.03%
WBKSTRYPES
(Convertible Preferred Stock)
FINANCIAL SERVICES 1.91%
Rite Aid
(Convertible Bond)
RETAIL 1.74%
ESCMedical
(Convertible Bond)
HEALTH CARE 1.74%
For a complete list of portfolio holdings, please see page 74 of this report.
Our Argentina-based positions also contributed to the fund's positive
performance, posting strong returns as the Argentine economy continued its
emergence from recession. However, during the 12-month period, we trimmed our
holdings to half of our original allocation as the shares of YPF, Telefonica
de Argentina, and Banco de Galicia, SA experienced price appreciation.
Since many of our holdings rose in price over the reporting period -- and
because we strive to maintain a strong upside/downside profile in the fund --
portfolio turnover was high. We actively took profits and invested in the new
issue marketplace where some of the most attractively valued securities could
be found. We purchased new issues from Costco, Rite Aid, Technomatix, Tower
Automotive, Assisted Living Concepts, and the previously mentioned Halter
Marine, among others.
Most disappointing to us has been the performance of our U.S. Diagnostic
convertible bonds, for which we had high hopes. The company had both legal
and accounting problems that, in turn, interfered with its fundamental
prospects and stock price performance. Still, industry dynamics remain
attractive and we believe U.S. Diagnostic is preparing for renewed growth
after a year of retrenchment.
Please remember, this discussion accurately reflects our views and opinions
as of October 31, 1997, the end of the reporting period. However, market and
economic conditions are changing constantly and our strategies and portfolio
holdings may be diferent at this time. Although historic performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
Looking forward, we see investment potential in the Asian markets that have
been rocked by currency speculation and devaluation, political stonewalling,
and slowing growth. This environment generally breeds opportunity, and we
will be searching for those companies and securities that meet our stringent
investment criteria. We thank you for your participation in the Franklin
Convertible Securities Fund and look forward to serving you in the future.
Please feel free to contact us with any questions or comments.
Sincerely,
Edward B. Jamieson
Portfolio Manager
PERFORMANCE SUMMARY
Class I
Franklin Convertible Securities Fund - Class I share price, as measured by
net asset value, increased $1.29, from $13.45 on October 31, 1996, to $14.74
on October 31, 1997.
During the reporting period, the fund paid distributions of 60.0 cents
($0.60) per share in dividend income and 90.1 cents ($0.901) per share in
capital gains, of which 72.5 cents ($0.725) represented short-term gains and
17.6 cents ($0.176) represented long-term gains.
Distributions will vary depending on income earned by the fund and any
profits realized from the sale of securities in the portfolio. Past
distributions are not indicative of future trends.
Based on an annualization of October's monthly dividend of 5.0 cents ($0.05)
per share and the maximum offering price of $15.43 on October 31, 1997, your
fund's distribution rate was 3.89%.
The fund reported a +22.47% cumulative total return for the one-year period
ended October 31, 1997. Cumulative total return measures the change in value
of an investment, assuming reinvestment of all distributions, and does not
include the sales charge.
The graph on page 34 compares the performance of the fund's Class I shares,
for the past 10 years, with that of the Goldman Sachs Convertible 100 Bond
Index.
Keep in mind that an unmanaged market index has inherent performance
differentials in comparison with any fund. An index doesn't pay management
fees to cover salaries of security analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need to have cash on hand
to redeem shares. In addition, the performance shown for the fund includes
the maximum initial sales charge, all fund expenses and account fees. If
operating expenses such as Franklin Convertible Securities Fund's had been
applied to the index, its performance would have been lower. Please remember
that an index is simply a measure of performance, and one cannot invest in it
directly.
Franklin Convertible
Securities Fund
Class I
Dividend Distributions
11/1/96 - 10/31/97
Dividend
Month per Share
November 5.0 cents
December 5.0 cents
January 5.0 cents
February 5.0 cents
March 5.0 cents
April 5.0 cents
May 5.0 cents
June 5.0 cents
July 5.0 cents
August 5.0 cents
September 5.0 cents
October 5.0 cents
Total 60.0 cents
GRAPHIC MATERIAL 6 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Convertible Securities Fund - Class I
Periods ended 10/31/97
Since
Inception
1-Year 5-Year 10-Year (4/15/87)
Cumulative Total Return1 22.47% 115.74% 275.51% 241.84%
Average Annual Total Return2 16.99% 15.55% 13.62% 11.87%
Distribution Rate3 3.89%
30-Day Standardized Yield4 3.02%
Value of $10,000 Investment5 $11,699 $20,600 $35,850 $32,630
1993 1994 1995 1996 1997
Fiscal Year Total Return6 28.26% 2.17% 15.18% 16.71% 22.47%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value
of an investment over the specified periods and reflects the current, maximum
4.5% initial sales charge.
3. Distribution rate is based on an annualization of October's 5.0 cent per
share monthly dividend and the maximum offering price of $15.43 on October
31, 1997.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended October 31, 1997.
5. These figures represent the value of a hypothetical $10,000 investment in
the fund over the periods indicated and include the initial sales charge.
6. Total return represents the change in value of an investment and exclude
sales charges.
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 would differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which
affects subsequent performance. Past expense reductions by the fund's manager
increased the fund's total return.
All total return calculations assume reinvestment of dividends and any
capital gains at net asset value. Your investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when
you sell your shares.
Franklin Convertible
Securities Fund
Class II
Dividend Distributions
11/1/96 - 10/31/97
Dividend
Month per Share
November 4.32 cents
December 4.32 cents
January 4.13 cents
February 4.13 cents
March 4.13 cents
April 4.22 cents
May 4.22 cents
June 4.22 cents
July 4.23 cents
August 4.23 cents
September 4.23 cents
October 4.08 cents
Total 50.46 cents
Class II
Franklin Convertible Securities Fund - Class II share price, as measured by
net asset value, increased $1.27, from $13.41 on October 31, 1996, to $14.68
on October 31, 1997.
During the reporting period, the fund paid distributions of 50.46 cents
($0.5046) per share in dividend income and 90.1 cents ($0.901) per share in
capital gains, of which 72.5 cents ($0.725) represented short-term gains and
17.6 cents ($0.176) represented long-term gains.
Distributions will vary depending on income earned by the fund and any
profits realized from the sale of securities in the portfolio. Past
distributions are not indicative of future trends.
Based on an annualization of October's monthly dividend of 4.08 cents
($0.0408) per share and the offering price of $14.83 on October 31, 1997,
your fund's distribution rate was 3.30%.
The fund reported a +21.54% cumulative total return for the one-year period
ended October 31, 1997. Cumulative total return measures the change in value
of an investment, assuming reinvestment of all distributions, and does not
include sales charges.
The graph on page 38 compares the performance of the fund's Class II shares,
since inception, with that of the Goldman Sachs Convertible 100 Bond Index.
Keep in mind that an unmanaged market index has inherent performance
differentials in comparison with any fund. An index doesn't pay management
fees to cover salaries of security analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need to have cash on hand
to redeem shares. In addition, the performance shown for the fund includes
the maximum initial sales charge, all fund expenses and account fees. If
operating expenses such as Franklin Convertible Securities Fund's had been
applied to the index, its performance would have been lower. Please remember
that an index is simply a measure of performance, and one cannot invest in it
directly.
GRAPHIC MATERIAL 7 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Convertible Securities Fund - Class II
Periods ended 10/31/97
Since
Inception
1-Year (10/2/95)
Cumulative Total Return1 21.54% 38.03%
Average Annual Total Return2 19.29% 16.20%
Distribution Rate3 3.30%
30-Day Standardized Yield4 2.36%
Value of $10,000 Investment5 $11,929 $13,667
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value
of an investment over the specified periods and reflects the maximum 1.0%
initial sales charge and 1.0% contingent deferred sales charge, applicable to
shares redeemed within 18 months of investment.
3. Distribution rate is based on an annualization of October's 4.08 cent per
share monthly dividend and the offering price of $14.83 on October 31, 1997.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended October 31, 1997.
5. These figures represent the value of a hypothetical $10,000 investment in
the fund over the periods indicated and include the sales charges.
All total return calculations assume reinvestment of dividends and any
capital gains at net asset value. Your investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when
you sell your shares.
FRANKLIN ADJUSTABLE
U.S. GOVERNMENT SECURITIES FUND
Your Fund's 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.1
1. 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. Yield
and share price are not guaranteed and will fluctuate with market conditions.
Franklin Adjustable U.S. Government Securities Fund enjoyed a positive year,
posting a cumulative total return of +7.18% for the 12-month period ended
October 31, 1997, as discussed in the Performance Summary on page 43.
Your fund's underlying portfolio consists primarily of Adjustable Rate
Mortgages (ARMs). It also contains other securities linked to or
collateralized by mortgages issued or guaranteed by the U.S. government, its
agencies or instrumentalities.2 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). Such securities retain high credit
quality.
2. The fund invests a substantial amount of its assets in the U.S. Government
Adjustable Rate Portfolio, whose investment objective is the same as the
fund's. 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 interest and principal.
GRAPHIC MATERIAL 8 OMITTED - SEE APPENDIX AT END OF DOCUMENT
At the close of the period, your fund's distribution rate was 5.69%. As shown
in the graph above, this rate remained competitive, slightly outperforming
the yield of the one-year Treasury bill. Of course, the value and interest
rate of Treasuries, if held to maturity, are fixed, and principal is
guaranteed. In contrast, the investment return and share price of Franklin
Adjustable U.S. Government Securities Fund will fluctuate with market
conditions. In addition, monthly payments of agency mortgage securities
include both principal and interest, while semiannual payments of U.S.
Treasury securities represent interest only.
The fund's fiscal year was characterized by strong economic growth. Concerned
that this growth would cause increased inflation, the Federal Reserve Board
raised the federal funds rate by 25 basis points in March, from 5.25% to
5.50%. However, this increased inflation never materialized, leading to lower
interest rates and higher bond prices.
While interest rates remain at levels similar to a year ago, the differential
between long-term and short-term rates has narrowed. For example, the
difference between 30-year and 2-year Treasuries has contracted by roughly 30
basis points since last fall. Mortgage securities, and adjustable rate
mortgages (ARMs) in particular, benefited from this yield tightening.
ARMs' coupons reset at periodic intervals to reflect current rates, and are
subject to annual caps which limit how much their coupons can change. ARM
price movements in the portfolio remained modest and ARM caps were not in any
danger of being reached. However, after being fairly dormant earlier in the
year, ARM prepayments, which limit the appreciation potential of these
securities, increased with the overall decline in interest rates.
In an effort to reduce the negative impact ARM prepayments can have on the
underlying portfolio, we maintained an overweighting in seasoned,
nonconvertible ARMs, which are less likely to experience high levels of
prepayments. These securities have performed extremely well over the past
year. In addition, our investment choices remained with those securities that
adjust rapidly, such as reflected in the Constant Maturity Treasury Index
(CMT). We remain underweighted in ARMs tied to the Eleventh District Cost of
Funds Index (COFI), which tend to lag market movements.
We anticipate an economy with moderate growth and no sharp inflationary
rises. This should produce stable-to-slightly higher interest rates with
continued low interest-rate volatility. We are attempting to position the
fund to perform well in this environment. At the same time, we are striving
to keep portfolio turnover low to reduce transaction costs. Our main concern
continues to be stability of principal, while maintaining a yield competitive
with other short-term alternatives.
Please remember, this discussion accurately reflects our views and opinions
as of October 31, 1997, the end of the reporting period. However, market and
economic conditions are changing constantly and our strategies and portfolio
holdings may be different at this time. Although historic performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
Looking forward, we remain committed to our disciplined, value-oriented
approach, which has historically produced consistent and favorable long-term
results. We thank you for your participation in the Franklin Adjustable U.S.
Government Securities Fund and look forward to serving you in the future.
Please feel free to contact us with any questions or comments.
Sincerely,
Jack Lemein
Portfolio Manager
Franklin Adjustable U.S. Government Securities Fund
PERFORMANCE SUMMARY
Franklin Adjustable U.S. Government Securities Fund's share price, as
measured by net asset value, increased 11.0 cents, from $9.37 on October 31,
1996, to $9.48 on October 31, 1997.
During the reporting period, the fund paid distributions of 54.3 cents
($0.543) per share in dividend income. Dividends will vary depending on
income earned by the fund, and past distributions are not indicative of
future trends.
Based on an annualization of October's monthly dividend of 4.6 cents ($0.046)
per share and the maximum offering price of $9.70 on October 31, 1997, your
fund's distribution rate was 5.69%.
The fund reported a cumulative total return of +7.18% for the one-year period
ended October 31, 1997. Cumulative total return measures the change in value
of an investment, assuming reinvestment of all distributions, and does not
include the sales charge.
The graph on page 44 compares the performance of the fund's shares, for the
past 10 years, with that of the Lehman Brothers Short U.S. Government 1-2
Year Index and the Payden & Rygel 6-Month CD Index.*
*Six-month certificates of deposit total returns are an average of the top
rates paid by major New York banks. CDs are insured by the FDIC up to
$100,000 and have principal and interest rate guarantees. The unmanaged
Lehman Brothers Short U.S. Government 1-2 Year Index invests in U.S.
government securities with maturities from one to two years.
Franklin Adjustable
U.S. Government
Securities Fund
Dividend Distributions
11/1/96 - 10/31/97
Dividend
Month per Share
November 4.4 cents
December 4.4 cents
January 4.4 cents
February 4.4 cents
March 4.5 cents
April 4.6 cents
May 4.6 cents
June 4.6 cents
July 4.6 cents
August 4.6 cents
September 4.6 cents
October 4.6 cents
Total 54.3 cents
GRAPHIC MATERIAL 9 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Keep in mind that an unmanaged market index has inherent performance
differentials in comparison with any fund. An index doesn't pay management
fees to cover salaries of security analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need to have cash on hand
to redeem shares. In addition, the performance shown for the fund includes
the maximum initial sales charge, all fund expenses and account fees. If
operating expenses such as Franklin Adjustable U.S. Government Securities
Fund's had been applied to the index, its performance would have been lower.
Please remember that an index is simply a measure of performance, and one
cannot invest in it directly.
Franklin Adjustable U.S. Government Securities Fund
Periods ended 10/31/97
Since
Inception
1-Year 5-Year (10/20/87)
Cumulative Total Return1 7.18% 23.09% 78.94%
Average Annual Total Return2 4.72% 3.76% 5.73%
Distribution Rate3 5.69%
30-Day Standardized Yield4 5.53%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value
of an investment over the specified periods and reflects the maximum 2.25%
initial sales charge.
3. Distribution rate is based on an annualization of October's 4.6 cent per
share monthly dividend and the maximum offering price of $9.70 on October 31,
1997.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended October 31, 1997.
Franklin Advisers, Inc., the fund's administrator and the manager of the
fund's underlying portfolio, has agreed in advance to waive a portion of its
fees, which reduces expenses and increases distribution rate, yield, and
total return to shareholders. Without these reductions, the fund's total
return and distribution rate would have been somewhat lower, and the yield
for the period would have been 5.34%. The fee waiver may be discontinued at
any time upon notice to the fund's Board of Trustees.
All total return calculations assume reinvestment of dividends and any
capital gains at net asset value. Your investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when
you sell your shares.
FRANKLIN EQUITY INCOME FUND
Your Fund's 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 past year, the U.S. economy continued its steady course of moderate
growth, with Gross Domestic Product (GDP) growing at just under 3.5%. Despite
the economy's seventh consecutive year of expansion, inflation has remained
surprisingly tame. In fact, the Consumer Price Index (CPI) declined from an
annual growth rate of 3.4% in the fourth quarter of 1996, to a current rate
of 2.2%, the lowest level since 1965.1 Following these economic trends,
corporate profits continued their climb and stock market valuations rose to
the expensive end of their historical ranges.
1. Source: Bloomberg, 10/31/97.
As a result, our search for both attractively valued and above-average
yielding stocks became a somewhat more difficult task. We responded
proactively by seeking investment opportunities in all sectors and markets
that met our investment criteria. Reversing the trend seen through most of
1996, large capitalization stocks modestly outperformed small capitalization
issues, and traditional value stocks registered improved relative performance
compared with growth stocks. The recent performance of the Franklin Equity
Income Fund, which invests in large cap value stocks, reflects this shift.
The fund's Class I shares generated a +24.40% cumulative total return for the
one-year period ended October 31, 1997, as discussed in the Performance
Summary on page 51. We believe this is largely a result of our disciplined,
value-oriented investment philosophy.
The fund seeks to invest in stocks that are selling at attractive prices
according to such measurements as relative dividend yield, book value,
revenues, and normalized earnings. We often find such stocks in companies
that appear to be fundamentally strong, but have experienced temporary
earnings disappointments, or those in industries with uncertain prospects for
near-term earnings growth.
We continue to believe that stocks of various utilities, especially electric
companies, represent an investment opportunity as many companies are selling
at their most attractive relative valuations in over two decades. Lack of
meaningful earnings growth in recent years and uncertainty regarding future
industry deregulation have resulted in the industry's underperformance
against the general stock market averages over the last several years.
Although the fund's electric utility stocks registered disappointing relative
returns during the fiscal year, we took advantage of the sector's weakness by
investing in the stocks of MidAmerica Energy, Northern States Power, Entergy
and the convertible preferred stock of CMS Energy, all of which are
high-quality, low-cost electricity producers. Conversely, we eliminated
investments in weaker-positioned electric utilities that did not meet earlier
expectations. Among those positions sold were PECO Energy, Public Service
Enterprises, and Unicom. Investments in electric utilities represented 11.2%
of the fund's total net assets on October 31, 1997.
Franklin Equity Income Fund
Top 10 Holdings
10/31/97
Company % of Total
INDUSTRY Net Assets
Atlantic Richfield Co.
OIL 2.86%
Penney (J.C.) Co., Inc.
RETAIL 2.14%
Bell Atlantic
TELEPHONE UTILITIES 2.13%
Southern New England
Telecommunications Corp.
TELEPHONE UTILITIES 2.12%
Texaco, Inc.
OIL 1.92%
U.S. West Communications
Group
TELEPHONE UTILITIES 1.77%
Chevron Crop.
OIL 1.77%
FelCor Suite Hotels, Inc.
REIT 1.74%
Equity Residential
Properties Trust
REIT 1.69%
YPF, SA, ADR
OIL 1.65%
For a complete list of portfolio holdings, please see page 84 of this report.
Franklin Equity Income Fund
Top Five Investment Sectors
10/31/96 vs. 10/31/97
10/31/96
Oil Integrated 15.8%
Electric Utilities 14.7%
Telecommunications 10.2%
Financial Services 6.5%
REITs 5.8%
10/31/97
Oil Integrated 14.1%
Electric Utilities 11.2%
Telecommunications 9.3%
Financial Services 8.4%
REITs 7.7%
Stocks of telephone companies also represent a significant portion of the
portfolio, accounting for 9.3% of the fund's total net assets at fiscal year
end. The overall industry weighting did not alter significantly during the
year, but we did make several changes. Most notably, we initiated a position
in AT&T amid price weakness, and realized profits in two of our foreign-based
investments -- Hong Kong Telecom and British Telecom, which had met price
targets.
Energy stocks remain the fund's largest investment sector, at 14.1% of total
net assets on October 31, 1997. The combination of strong cash flows,
attractive current fundamentals, and above-average dividend yields made many
stocks in this industry ideal investment candidates for our portfolio.
Moreover, we believe future prospects are also favorable, as worldwide demand
for oil and gas -- relative to exploration and production activity -- should
lead to strong prices and profit growth for the industry's leaders. Energy
investments represent four of the fund's top 10 positions and include
Atlantic Richfield, Texaco, YPF Sociedad Anonima, and Chevron.
Overall, the weighting of our financial services investments (banks,
insurance and real estate companies) rose during the year, and we found
attractive investments in this sector. New bank positions included Beneficial
Corp. and the convertible preferred stock of National Australia Bank.
Insurance stocks, despite having favorable industry fundamentals and
attractive valuations, have underperformed banks in recent years. Among the
fund's new insurance positions was Mid Ocean Ltd., a Bermuda-based
property/casualty company which offered a 5.6% dividend yield and sold at
less than 10 times 1997 estimated earnings at time of purchase. Investments
in real estate companies, primarily REITs, were up to 7.7% of total net
assets on October 31, 1997, compared with 5.8% a year ago. New investments
and additions to existing positions during the year included industry-leading
REITs such as Equity Office Properties, Equity Residential, FelCor Suites
Hotels, and Simon DeBartolo. On the other hand, we took profits in
foreign-based Christiania Bank and domestic-based savings bank Great Western
Financial, which was subject to an acquisition bid during the year. We also
sold our investment in Catellus Corp., a California-based real estate owner
and developer, as it reached its price target during the period, and
eliminated Oasis, a Las Vegas-based apartment REIT that did not meet
expectations.
Among consumer staple stocks, we continued to realize profits in some of the
pharmaceutical positions we initiated in 1993 and 1994 during uncertainty
over health care reform. We eliminated the fund's holding of American Home
Products and reduced Bristol Myers Squibb in the last six months, both at
gains in excess of 100% of cost. On the other hand, an investment opportunity
in Pharmacia & Upjohn arose as a result of the stock's recent price declines.
The stock had come under pressure as a result of recent earnings
disappointment that we believe will not adversely affect the company's
favorable, long-term growth prospects. Pharmacia & Upjohn is a position we
owned in the past, and we were able to reinvest in the stock at a 25% lower
price than when we sold it in 1996. Investment changes among food and
household products stocks were also made during the reporting period. We
found buying opportunities in Heinz and Cadbury Schweppes based on their
relative valuations and recent restructurings that were designed to lead to
improved share value. Also, we initiated a new position in Amway Asia, which
had declined in price by over 40% from its high earlier in the year. Although
the company is suffering from the effects of currency woes in Indonesia and
Malaysia, not to mention an economic slowdown in China, its longer-term
prospects appear excellent.
Please remember, this discussion accurately reflects our views and opinions
as of October 31, 1997, the end of the reporting period. However, market and
economic conditions are changing constantly and our strategies and portfolio
holdings may be diferent at this time. Although historic performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
Looking forward, we remain committed to our disciplined, value-oriented
approach, which has historically produced consistent and favorable long-term
results. We thank you for your participation in the Franklin Equity Income
Fund and look forward to serving you in the future. Please feel free to
contact us with any questions or comments.
Sincerely,
Frank Felicelli
Portfolio Manager
PERFORMANCE SUMMARY
Class I
Franklin Equity Income Fund - Class I share price, as measured by net asset
value, increased $2.90, from $16.41 on October 31, 1996, to $19.31 on October
31, 1997.
During the reporting period, the fund paid distributions of 62.4 cents
($0.6240) per share in dividend income, a special 1996 year-end distribution
of 2.1 cents ($0.021) per share, and 32.5 cents ($0.325) per share in
long-term capital gains. Distributions will vary depending on income earned
by the fund and any profits realized from the sale of securities in the
portfolio. Past distributions are not indicative of future trends.
Based on an annualization of October's monthly dividend of 5.2 cents ($0.052)
per share, and the maximum offering price of $20.22 on October 31, 1997, your
fund's distribution rate was 3.09%.
The fund reported a +24.40% cumulative total return for the one-year period
ended October 31, 1997. Cumulative total return measures the change in value
of an investment, assuming reinvestment of all distributions, and does not
include the sales charge.
The graph on page 52 compares the performance of the fund's Class I shares,
since inception, with that of the unmanaged Standard and Poor's 500 Stock
Index, and the Consumer Price Index (CPI). As you can see, the fund's
performance exceeded the increase in the CPI, which means your investment
returns have surpassed the rate of inflation, a primary goal of any
investment.
Keep in mind that an unmanaged market index has inherent performance
differentials in comparison with any fund. An index doesn't pay management
fees to cover salaries of security analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need to have cash on hand
to redeem shares. In addition, the performance shown for the fund includes
the maximum initial sales charge, all fund expenses and account fees. If
operating expenses such as Franklin Equity Income Fund's had been applied to
the index, its performance would have been lower. Please remember that an
index is simply a measure of performance, and one cannot invest in it
directly.
Franklin Equity Income Fund
Class I
Dividend Distributions
11/1/96 - 10/31/97
Dividend
Month per Share
November 5.20 cents
December 5.20 cents
January 5.20 cents
February 5.20 cents
March 5.20 cents
April 5.20 cents
May 5.20 cents
June 5.20 cents
July 5.20 cents
August 5.20 cents
September 5.20 cents
October 5.20 cents
Total 62.40 cents
GRAPHIC MATERIAL 10 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Equity Income Fund - Class I
Periods ended 10/31/97
Since
Inception
1-Year 5-Year (3/15/88)
Cumulative Total Return1 24.40% 107.24% 251.79%
Average Annual Total Return2 18.83% 14.64% 13.41%
Distribution Rate3 3.09%
30-Day Standardized Yield4 3.05%
Value of $10,000 Investment5 $11,883 $19,799 $33,601
1993 1994 1995 1996 1997
Fiscal Year Total Return6 24.11% 1.95% 14.17% 15.32% 24.40%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value
of an investment over the specified periods and reflects the current, maximum
4.5% initial sales charge.
3. Distribution rate is based on an annualization of October's 5.2 cent per
share monthly dividend and the maximum offering price of $20.22 on October
31, 1997.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended October 31, 1997.
5. These figures represent the value of a hypothetical $10,000 investment in
the fund over the periods indicated and include the initial sales charge.
6. Total return represents the change in value of an investment and exclude
sales charges.
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 would differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which
affects subsequent performance. Past expense reductions by the fund's manager
increased the fund's total returns.
All total return calculations assume reinvestment of dividends and any
capital gains at net asset value. Your investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when
you sell your shares.
Franklin Equity Income Fund
Class II
Dividend Distributions
11/1/96 - 10/31/97
Dividend
Month per Share
November 4.38 cents
December 4.38 cents
January 4.07 cents
February 4.07 cents
March 4.07 cents
April 4.49 cents
May 4.49 cents
June 4.49 cents
July 4.12 cents
August 4.12 cents
September 4.12 cents
October 3.95 cents
Total 50.75 cents
Class II
Franklin Equity Income Fund - Class II share price, as measured by net asset
value, increased $2.88, from $16.38 on October 31, 1996, to $19.26 on October
31, 1997.
During the reporting period, the fund paid distributions of 50.75 cents
($0.5075) per share in dividend income, a special 1996 year-end distribution
of .57 cent ($0.0057) per share, and 32.5 cents ($0.325) per share in
long-term capital gains. Distributions will vary depending on income earned
by the fund and any profits realized from the sale of securities in the
portfolio. Past distributions are not indicative of future trends.
Based on an annualization of October's monthly dividend of 3.95 cents
($0.0395) per share, plus a 12b-1 differential adjustment of .06 cents
($0.0006), and the offering price of $19.45 on October 31, 1997, your fund's
distribution rate was 2.47%.
The fund reported a +23.40% cumulative total return for the one-year period
ended October 31, 1997. Cumulative total return measures the change in value
of an investment, assuming reinvestment of all distributions, and does not
include sales charges.
The graph on page 56 compares the performance of the fund's Class II shares,
since inception, with that of the unmanaged Standard and Poor's 500 Stock
Index, and the Consumer Price Index (CPI). As you can see, the fund's
performance exceeded the increase in the CPI, which means your investment
returns have surpassed the rate of inflation, a primary goal of any
investment.
Keep in mind that an unmanaged market index has inherent performance
differentials in comparison with any fund. An index doesn't pay management
fees to cover salaries of security analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need to have cash on hand
to redeem shares. In addition, the performance shown for the fund includes
the maximum initial sales charge, all fund expenses and account fees. If
operating expenses such as Franklin Equity Income Fund's had been applied to
the index, its performance would have been lower. Please remember that an
index is simply a measure of performance, and one cannot invest in it
directly.
GRAPHIC MATERIAL 11 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Equity Income Fund - Class II
Periods ended 10/31/97
Since
Inception
1-Year (10/2/95)
Cumulative Total Return1 23.40% 40.39%
Average Annual Total Return2 21.15% 17.16%
Distribution Rate3 2.47%
30-Day Standardized Yield 42.39%
Value of $10,000 Investment5 $12,115 $13,903
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value
of an investment over the specified periods and reflects the maximum 1.0%
initial sales charge and 1.0% contingent deferred sales charge, applicable to
shares redeemed within 18 months of investment.
3. Distribution rate is based on an annualization of October's 3.95 cent per
share monthly dividend, plus a 12b-1 differential adjustment, and the
offering price of $19.45 on October 31, 1997.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended October 31, 1997.
5. These figures represent the value of a hypothetical $10,000 investment in
the fund over the periods indicated and include sales charges.
All total return calculations assume reinvestment of dividends and any
capital gains at net asset value. Your investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when
you sell your shares.
FRANKLIN ADJUSTABLE
RATE SECURITIES FUND
Your Fund's Objective: Seeks to provide a high level of current income
consistent with lower volatility of principal than a fund that invests in
fixed-rate securities, by investing in a portfolio of adjustable-rate
securities.
Franklin Adjustable Rate Securities Fund enjoyed a positive year, posting a
cumulative total return of +6.75% for the 12-month period ended October 31,
1997, as discussed in the Performance Summary on page 60.
At the close of the period, your fund's distribution rate was 5.68%. As shown
in the graph on page 58, this rate remained competitive, slightly
outperforming the yield of the one-year Treasury bill. Of course, the value
and interest rate of Treasuries, if held to maturity, are fixed, and
principal is guaranteed. In contrast, the investment return and share price
of Franklin Adjustable Rate Securities Fund will fluctuate with market
conditions.
The fund's fiscal year was characterized by strong economic growth. Concerned
that this growth would cause increased inflation, the Federal Reserve Board
raised the federal funds rate by 25 basis points in March, from 5.25% to
5.50%. However, increased inflation never materialized, leading to lower
interest rates and higher bond prices.
While interest rates remain at levels similar to a year ago, the differential
between long-term and short-term rates has narrowed. For example, the
difference between 30-year and 2-year Treasuries has contracted by roughly 30
basis points since last fall. Mortgage securities, and adjustable rate
mortgages (ARMs) in particular, benefited from this yield tightening.
GRAPHIC MATERIAL 12 OMITTED - SEE APPENDIX AT END OF DOCUMENT
ARMs' coupons reset at periodic intervals to reflect current rates, and are
subject to annual caps which limit how much their coupons can change. ARM
price movements in the portfolio remained modest and ARM caps were not in any
danger of being reached. However, after being fairly dormant earlier in the
year, ARM prepayments, which limit the appreciation potential of these
securities, increased with the overall decline in interest rates.
In an effort to reduce the negative impact ARM prepayments can have on the
underlying portfolio, we maintained an overweighting in seasoned,
nonconvertible ARMs, which are less likely to experience high levels of
prepayments. These securities have performed extremely well over the past
year. In addition, our investment choices remained with those securities that
adjust rapidly, such as reflected in the Constant Maturity Treasury Index
(CMT). We remain underweighted in ARMs tied to the Eleventh District Cost of
Funds Index (COFI), which tend to lag market movements.
We anticipate an economy with moderate growth and no sharp inflationary
rises. This should produce stable-to-slightly higher interest rates with
continued low interest-rate volatility. We are attempting to position the
fund to perform well in this environment. At the same time, we are striving
to keep portfolio turnover low to reduce transaction costs. Our main concern
continues to be stability of principal while maintaining a yield competitive
with other short-term alternatives.
Please remember, this discussion accurately reflects our views and opinions
as of October 31, 1997, the end of the reporting period. However, market and
economic conditions are changing constantly and our strategies and portfolio
holdings may be diferent at this time. Although historic performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
Looking forward, we remain committed to our disciplined, value-oriented
approach, which has historically produced consistent and favorable long-term
results. We thank you for your participation in the Franklin Adjustable Rate
Securities Fund and look forward to serving you in the future. Please feel
free to contact us with any questions or comments.
Sincerely,
Jack Lemein
Portfolio Manager
Franklin Adjustable Rate Securities Fund
PERFORMANCE SUMMARY
Franklin Adjustable Rate Securities Fund's share price, as measured by net
asset value, increased 9.0 cents, from $9.87 on October 31, 1996, to $9.96 on
October 31, 1997.
During the reporting period, the fund paid distributions of 55.8605 cents
($0.558605) per share in dividend income. Dividends will vary depending on
income earned by the fund, and past distributions are not indicative of
future trends.
Based on an annualization of the current monthly dividend of 4.9423 cents
($0.049423) per share and the maximum offering price of $10.19 on October 31,
1997, your fund's distribution rate was 5.68%.
The fund reported a cumulative total return of +6.75% for the one-year period
ended October 31, 1997. Cumulative total return measures the change in value
of an investment, assuming reinvestment of all distributions, and does not
include the sales charge.
Franklin Adjustable
Rate Securities Fund
Dividend Distributions
11/1/96 - 10/31/97*
Dividend
Month per Share
November 4.6403 cents
December 5.0142 cents
January 4.4881 cents
February 4.5415 cents
March 4.6330 cents
April 4.4653 cents
May 3.9798 cents
June 4.6550 cents
July 4.8916 cents
August 4.4980 cents
September 5.1114 cents
October 4.9423 cents
Total 55.8605 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
day you purchased your shares and any account activity during the month.
Income distributions and total return calculations include all accrued income
earned by the fund during the reporting period.
The graph on page 62 compares the performance of the fund's shares, since
inception, with that of the Lehman Brothers Short U.S. Government 1-2 Year
Index and the Payden & Rygel 6-Month CD Index.** As you can see, though the
fund underperformed the Lehman Brother's Index, it slightly outperformed the
Payden & Rygel Index.
**Six-month certificates of deposit total returns are an average of the top
rates paid by major New York banks. CDs are insured by the FDIC up to
$100,000 and have principal and interest rate guarantees. The unmanaged
Lehman Brothers Short U.S. Government 1-2 Year Index invests in U.S.
government securities with maturities from one to two years.
Keep in mind that an unmanaged market index has inherent performance
differentials in comparison with any fund. An index doesn't pay management
fees to cover salaries of security analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need to have cash on hand
to redeem shares. In addition, the performance shown for the fund includes
the maximum initial sales charge, all fund expenses and account fees. If
operating expenses such as Franklin Adjustable Rate Securities Fund's had
been applied to the index, its performance would have been lower. Please
remember that an index is simply a measure of performance, and one cannot
invest in it directly.
GRAPHIC MATERIAL 13 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Adjustable Rate Securities Fund
Periods ended 10/31/97
Since
Inception
1-Year 5-Year (12/26/91)
Cumulative Total Return1 6.75% 29.89% 36.19%
Average Annual Total Return2 4.32% 4.89% 5.02%
Distribution Rate3 5.68%
30-Day Standardized Yield4 5.68%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value
of an investment over the specified periods and reflects the maximum 2.25%
initial sales charge.
3. Distribution rate is based on an annualization of the 4.9423 cent per
share monthly dividend and the maximum offering price of $10.19 on October
31, 1997.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended October 31, 1997.
Franklin Advisers, Inc., the fund's administrator and the manager of the
fund's underlying portfolio, has agreed in advance to waive a portion of its
fees, which reduces expenses and increases distribution rate, yield, and
total return to shareholders. Without these reductions, the fund's total
return and distribution rate would have been somewhat lower, and the yield
for the period would have been 5.62%. The fee waiver may be discontinued at
any time upon notice to the fund's Board of Trustees.
All total return calculations assume reinvestment of dividends and any
capital gains at net asset value. Your investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when
you sell your shares.
FRANKLIN INVESTORS SECURITIES TRUST
Financial Highlights
<TABLE>
<CAPTION>
Franklin Global Government Income Fund
Class I
--------------------------------------------------------
Year Ended October 31,
--------------------------------------------------------
1997 1996 1995 1994 1993***
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year ................ $8.65 $8.31 $8.06 $9.33 $8.61
--------------------------------------------------------
Income from investment operations:
Net investment income ............................ .60 .61 .67 1.30 .58
Net realized and unrealized gain (loss) .......... (.22) .33 .29 (1.81) .72
--------------------------------------------------------
Total from investment operations .................. .38 .94 .96 (.51) 1.30
--------------------------------------------------------
Less distributions from:
Net investment income ............................ (.61) (.60) (.64) (.08) (.58)
In excess of net investment income ............... (.01) -- -- -- --
Net realized gains ............................... -- -- -- (.08) --
Tax return of capital ............................ -- -- (.07) (.60) --
--------------------------------------------------------
Total distributions ............................... (.62) (.60) (.71) (.76) (.58)
--------------------------------------------------------
Net asset value, end of year ...................... $8.41 $8.65 $8.31 $8.06 $9.33
========================================================
Total return* ..................................... 4.31% 11.80% 12.65% (5.72%) 15.14%
Ratios/supplemental data
Net assets, end of year (000's) ................... $118,348 $137,626 $164,970 $187,204 $195,627
Ratios to average net assets:
Expenses ......................................... .90% .85% .96% .89% .77%**
Net investment income ............................ 6.97% 7.68% 8.29% 8.54% 6.74%**
Portfolio turnover rate ........................... 193.30% 139.71% 103.49% 80.69% 67.36%
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
**Annualized.
***For the nine months ended October 31, 1993.
Class II
--------------------------------------
Year Ended October 31,
--------------------------------------
1997 1996 1995***
--------------------------------------
<S> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................................... $8.65 $8.31 $8.03
--------------------------------------
Income from investment operations:
Net investment income .................................................. .55 .56 .31
Net realized and unrealized gain (loss) ................................ (.22) .33 .30
--------------------------------------
Total from investment operations ........................................ .33 .89 .61
--------------------------------------
Less distributions from:
Net investment income .................................................. (.56) (.55) (.30)
In excess of net investment income ..................................... (.01) -- --
Tax return of capital .................................................. -- -- (.03)
--------------------------------------
Total distributions ..................................................... (.57) (.55) (.33)
--------------------------------------
Net asset value, end of year ............................................ $8.41 $8.65 $8.31
======================================
Total return* ........................................................... 3.74% 11.19% 7.09%
Ratios/supplemental data
Net assets, end of year (000's) ......................................... $4,473 $3,700 $1,193
Ratios to average net assets:
Expenses ............................................................... 1.46% 1.40% 1.54%**
Net investment income .................................................. 6.43% 7.17% 7.41%**
Portfolio turnover rate ................................................. 193.30% 139.71% 103.49%
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized.
**Annualized.
***For the period May 1, 1995 (effective date) to October 31, 1995.
Advisor Class
-----------------
1997***
-----------------
<S> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period ......................................................... $8.71
-----------------
Income from investment operations:
Net investment income ....................................................................... .49
Net realized and unrealized (loss) .......................................................... (.28)
-----------------
Total from investment operations ............................................................. .21
-----------------
Less distributions from:
Net investment income ....................................................................... (.49)
-----------------
In excess of net investment income .......................................................... (.02)
Total distributions .......................................................................... (.51)
-----------------
Net asset value, end of period ............................................................... $8.41
=================
Total return* ................................................................................ 2.49%
Ratios/supplemental data
Net assets, end of period (000's) ............................................................ $741
Ratios to average net assets:
Expenses** .................................................................................. .82%
Net investment income** ..................................................................... 7.08%
Portfolio turnover rate ...................................................................... 193.30%
*Total return is not annualized.
**Annualized.
***For the period January 2, 1997 (effective date) to October 31, 1997.
FRANKLIN INVESTORS SECURITIES TRUST
Statement of Investments, October 31, 1997
PRINCIPAL
Franklin Global Government Income Fund AMOUNT* VALUE
<S> <C> <C>
Government Bonds 95.9%
Argentina 6.0%
Republic of Argentina
10.95%, 11/01/99 ...................................................... $ 3,215,000 $ 3,335,563
8.75%, 5/09/02 ........................................................ 3,100,000 2,821,000
8.375%, 12/20/03 ...................................................... 510,000 458,363
11.375%, 1/30/17 ...................................................... 325,000 321,344
9.75%, 9/19/27 ........................................................ 600,000 513,750
-------------
7,450,020
-------------
Australia 4.2%
Government of Australia, 9.50%, 8/15/03 ............................... 6,255,000 AUD 5,219,164
-------------
Brazil 5.8%
Brazil C-Bond, 8.00%, 4/15/14 ......................................... 3,044,498 2,138,978
Government of Brazil
6.938%, 4/15/09 ....................................................... 3,950,000 2,848,938
10.125%, 5/15/27 ...................................................... 1,700,000 1,348,100
Series L, cvt., FRN, 6.938%, 4/15/12 .................................. 1,250,000 871,875
-------------
7,207,891
-------------
Canada 8.5%
Government of Canada
10.50%, 7/01/00 ....................................................... 4,675,000 CAD 3,784,516
10.50%, 3/01/01 ....................................................... 5,000,000 CAD 4,149,892
10.00%, 5/01/02 ....................................................... 3,005,000 CAD 2,553,616
-------------
10,488,024
-------------
Denmark 1.9%
Kingdom of Denmark
9.00%, 11/15/00 ....................................................... 3,385,000 DKK 570,987
8.00%, 5/15/03 ........................................................ 10,065,000 DKK 1,707,602
-------------
2,278,589
-------------
Germany 12.3%
Federal Republic of Germany
7.75%, 2/21/00 ........................................................ 14,310,000 DEM 8,875,056
8.00%, 7/22/02 ........................................................ 9,735,000 DEM 6,333,567
-------------
15,208,623
-------------
Italy 11.7%
Buoni Poliennali Del Tes
12.00%, 1/17/99 ....................................................... 1,925,000,000 ITL 1,211,624
10.00%, 8/01/03 ....................................................... 1,780,000,000 ITL 1,255,147
Government of Italy
10.50%, 7/15/00 .......................................................13,995,000,000 ITL 9,245,132
10.50%, 4/28/14 ....................................................... 1,200,000 GBP 2,683,743
-------------
14,395,646
-------------
Mexico 5.0%
United Mexican States
9.75%, 2/06/01 ........................................................ $ 2,425,000 $ 2,506,844
9.875%, 1/15/07 ....................................................... 1,375,000 1,390,469
11.375%, 9/15/16 ...................................................... 1,115,000 1,186,081
Series A, with warrants, 6.25%, 12/31/19............................... 1,450,000 1,150,937
-------------
6,234,331
-------------
New Zealand 2.0%
Government of New Zealand, 6.50%, 2/15/00 ............................. 3,995,000 NZD 2,468,455
-------------
Panama .2%
Republic of Panama, 8.875%, 9/30/27 ................................... 325,000 283,562
-------------
Spain 7.0%
Government of Spain
12.25%, 3/25/00 ....................................................... 609,440,000 ESP 4,851,389
10.10%, 2/28/01 ....................................................... 323,900,000 ESP 2,554,105
10.90%, 8/30/03 ....................................................... 139,140,000 ESP 1,202,303
-------------
8,607,797
-------------
Sweden 5.7%
Kingdom of Sweden
13.00%, 6/15/01 ....................................................... 7,800,000 SEK 1,281,508
10.25%, 5/05/03 ....................................................... 28,100,000 SEK 4,484,336
8.00%, 8/15/07 ........................................................ 8,500,000 SEK 1,267,311
-------------
7,033,155
-------------
United Kingdom 3.3%
United Kingdom, 8.00%, 12/07/00 ....................................... 2,350,000 GBP 4,072,060
-------------
United States 20.1%
U.S. Treasury Bond, 6.375%, 8/15/02 ................................... 3,620,000 3,713,895
U.S. Treasury Note
6.25%, 8/31/00 ........................................................ 5,775,000 5,858,021
6.625%, 4/30/02 ....................................................... 7,875,000 8,140,789
7.25%, 8/15/04 ........................................................ 6,564,000 7,074,764
-------------
24,787,469
-------------
Venezuela 2.2%
Republic of Venezuela
9.125%, 6/18/07, 144A.................................................. 1,220,000 1,109,930
9.25%, 9/15/27 ........................................................ 1,930,000 1,660,283
-------------
2,770,213
-------------
cRepurchase Agreement 2.3%
Aubrey G. Lanston & Co., 5.66%, 11/03/97 (Maturity Value $2,786,314)
(Cost $2,785,000) ......................................................... 2,785,000 2,785,000
-------------
Collateralized by U.S. Treasury Notes
Total Investments (Cost $124,273,516) 98.2% ........................... 121,289,999
Other Assets, less Liabilities 1.6% ................................... 2,272,915
-------------
Net Assets 100.0%...................................................... $123,562,944
=============
</TABLE>
PORTFOLIO ABBREVIATIONS:
FRN - Floating Rate Notes
CURRENCY ABBREVIATIONS:
AUD - Australia
CAD - Canada
DEM - Germany
DKK - Denmark
ESP - Spain
GBP - United Kingdom
ITL - Italy
NZD - New Zealand
SEK - Sweden
*Securities traded in U.S. dollars unless otherwise indicated.
cAt 10/31/97, all repurchase agreements held by the Fund had been entered into
on that date.
FRANKLIN INVESTORS SECURITIES TRUST
Financial Highlights
<TABLE>
<CAPTION>
Franklin Short-Intermediate U.S. Government Securities Fund
Class I
------------------------------------------------------
Year Ended October 31,
------------------------------------------------------
1997 1996 1995 1994 1993***
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year ................ $10.28 $10.35 $10.03 $10.80 $10.57
------------------------------------------------------
Income from investment operations:
Net investment income ............................ .57 .58 .56 .49 .38
Net realized and unrealized gain (loss) .......... .02 (.08) .31 (.70) .25
------------------------------------------------------
Total from investment operations .................. .59 .50 .87 (.21) .63
------------------------------------------------------
Less distributions from:
Net investment income ............................ (.58) (.57) (.55) (.47) (.39)
Net realized gains ............................... -- -- -- (.09) (.01)
------------------------------------------------------
Total distributions ............................... (.58) (.57) (.55) (.56) (.40)
------------------------------------------------------
Net asset value, end of year ...................... $10.29 $10.28 $10.35 $10.03 $10.80
======================================================
Total return* ..................................... 5.88% 4.97% 8.90% (1.99%) 5.90%
Ratios/supplemental data
Net assets, end of year (000's) ................... $192,051 $196,042 $208,057 $225,352 $273,678
Ratios to average net assets:
Expenses ......................................... .78% .74% .73% .65% .55%**
Expenses excluding waiver and payments by affiliate -- -- -- .68% .63%**
Net investment income ............................ 5.51% 5.64% 5.42% 4.75% 4.75%**
Portfolio turnover rate ........................... 40.56% 72.62% 56.34% 99.09% 31.71%
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
**Annualized.
***For the nine months ended October 31, 1993.
Advisor Class
-------------
1997***
-------------
<S> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period ......................................................... $10.24
-------------
Income from investment operations:
Net investment income ....................................................................... .47
Net realized and unrealized gain ............................................................ .07
-------------
Total from investment operations ............................................................. .54
Less distributions from net investment income ................................................ (.48)
-------------
Net asset value, end of period ............................................................... $10.30
=============
Total return* ................................................................................ 5.45%
Ratios/supplemental data
Net assets, end of period (000's) ............................................................ $385
Ratios to average net assets:
Expenses** .................................................................................. .70%
Net investment income** ..................................................................... 5.35%
Portfolio turnover rate ...................................................................... 40.56%
*Total return is not annualized.
**Annualized.
***For the period January 2, 1997 (effective date) to October 31, 1997.
FRANKLIN INVESTORS SECURITIES TRUST
Statement of Investments, October 31, 1997
PRINCIPAL
Franklin Short-Intermediate U.S. Government Securities Fund AMOUNT VALUE
<S> <C> <C>
U.S. Government Securities 98.1%
U.S. Treasury Notes, 7.50%, 11/15/01 ........................................... $25,000,000 $ 26,554,700
U.S. Treasury Notes, 5.875%, 6/30/00 ........................................... 36,000,000 36,202,536
U.S. Treasury Notes, 6.00%, 8/15/99 ............................................ 51,000,000 51,318,801
U.S. Treasury Notes, 6.375%, 5/15/99 ........................................... 20,000,000 20,218,760
U.S. Treasury Notes, 6.50%, 4/30/99 ............................................ 11,000,000 11,140,943
U.S. Treasury Notes, 6.375%, 1/15/99 ........................................... 23,000,000 23,208,449
U.S. Treasury Notes, 5.875%, 10/31/98 .......................................... 20,000,000 20,062,520
-------------
Total U.S. Government Securities (Cost $186,175,200) ........................... 188,706,709
-------------
bRepurchase Agreements 1.0%
Joint Repurchase Agreement, 5.671%, 11/03/97 (Maturity Value $1,951,747)
(Cost $1,950,825) ............................................................... 1,950,825 1,950,825
-------------
Aubrey G. Lanston & Co., Inc.
B.A. Securities, Inc.
Barclays de Zoete Wedd Securities, Inc.
Bear, Stearns & Co., Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson North America, L.L.C.
Fuji Securities, Inc.
Lehman Brothers, Inc.
Sanwa Securities (USA) Co., L.P.
SBC Warburg, Inc.
UBS Securities, L.L.C.
Collateralized by U.S. Treasury Bills & Notes
Total Investments (Cost $188,126,025) 99.1%..................................... 190,657,534
Other Assets, less Liabilities .9% ............................................. 1,777,641
-------------
Net Assets 100.0% .............................................................. $192,435,175
=============
</TABLE>
bInvestment is through participation in a joint account with other funds managed
by the investment advisor. At 10/31/97, all repurchase agreements held by the
fund had been entered into on that date.
FRANKLIN INVESTORS SECURITIES TRUST
Financial Highlights
<TABLE>
<CAPTION>
Franklin Convertible Securities Fund
Class I
------------------------------------------------------
Year Ended October 31,
------------------------------------------------------
1997 1996 1995 1994 1993****
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year ................ $13.45 $12.73 $12.34 $12.79 $11.44
------------------------------------------------------
Income from investment operations:
Net investment income ............................ .64 .61 .58 .59 .45
Net realized and unrealized gain (loss) .......... 2.15 1.39 1.10 (.33) 1.41
------------------------------------------------------
Total from investment operations .................. 2.79 2.00 1.68 .26 1.86
------------------------------------------------------
Less distributions from:
Net investment income ............................ (.60) (.60) (.59) (.59) (.51)
Net realized gains ............................... (.90) (.68) (.70) (.12) --
------------------------------------------------------
Total distributions ............................... (1.50) (1.28) (1.29) (.71) (.51)
------------------------------------------------------
Net asset value, end of year ...................... $14.74 $13.45 $12.73 $12.34 $12.79
======================================================
Total return* ..................................... 22.47% 16.71% 15.18% 2.07% 16.50%
Ratios/supplemental data
Net assets, end of year (000's) ................... $212,631 $130,951 $83,523 $66,869 $47,440
Ratios to average net assets:
Expenses ......................................... 1.01% 1.02% 1.03% .84% .25%**
Expenses excluding waiver and payments by affiliate -- -- -- .92% .86%**
Net investment income ............................ 4.81% 4.79% 4.82% 4.84% 5.25%**
Portfolio turnover rate ........................... 141.49% 129.83% 108.64% 68.39% 31.05%
Average commission rate paid*** ................... $.0534 $.0495 -- -- --
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
**Annualized.
***Relates to purchases and sales of equity securities. Prior to October 31,
1996, disclosure of average commission rate was not required.
****For the nine months ended October 31, 1993.
Class II
-----------------------------------
Year Ended October 31,
-----------------------------------
1997 1996 1995****
-----------------------------------
<S> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................................... $13.41 $12.71 $13.06
-----------------------------------
Income from investment operations:
Net investment income .................................................. .54 .51 .07
Net realized and unrealized gain (loss) ................................ 2.13 1.40 (.37)
-----------------------------------
Total from investment operations ........................................ 2.67 1.91 (.30)
-----------------------------------
Less distributions from:
Net investment income .................................................. (.50) (.53) (.05)
Net realized gains ..................................................... (.90) (.68) --
-----------------------------------
Total distributions ..................................................... (1.40) (1.21) (.05)
-----------------------------------
Net asset value, end of year ............................................ $14.68 $13.41 $12.71
===================================
Total return* ........................................................... 21.54% 15.92% (2.33%)
Ratios/supplemental data
Net assets, end of year (000's) ......................................... $35,282 $10,861 $209
Ratios to average net assets:
Expenses ............................................................... 1.74% 1.79% 1.60%**
Net investment income .................................................. 4.04% 4.00% 3.64%**
Portfolio turnover rate ................................................. 141.49% 129.83% 108.64%
Average commission rate paid*** ......................................... $.0534 $.0495 --
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized.
**Annualized.
***Relates to purchases and sales of equity securities. Prior to October 31,
1996, disclosure of average commission rate was not required.
****For the period October 1, 1995 (effective date) to October 31, 1995.
FRANKLIN INVESTORS SECURITIES TRUST
Statement of Investments, October 31, 1997
<TABLE>
<CAPTION>
SHARES/
Franklin Convertible Securities Fund WARRANTS VALUE
<S> <C> <C>
Common Stocks and Warrants 10.1%
Computers .7%
aJetFax, Inc. .................................................................... 130,000 $ 1,056,250
aVanstar Corp. ................................................................... 50,000 653,125
-------------
1,709,375
-------------
Conglomerates .7%
Sovereign Bancorp, Inc. ......................................................... 90,000 1,597,500
-------------
Energy 2.1%
Duke Energy Corp. ............................................................... 30,000 1,447,500
Enron Corp. ..................................................................... 50,000 1,900,000
aNRG Generating (U.S.), Inc. ..................................................... 24,700 481,650
Southern Co. .................................................................... 58,600 1,344,138
-------------
5,173,288
-------------
Financial Services .6%
Banco de Galicia y Buenos Aires, SA de CV (Argentina) ........................... 10,873 67,453
Banco de Galicia y Buenos Aires, SA de CV, Sponsored ADR (Argentina) ............ 57,282 1,388,214
-------------
1,455,667
-------------
Health Care
aCrescendo Pharmaceuticals Corp. ................................................. 1,404 15,883
-------------
Industrial Services .7%
aMagneTek, Inc. .................................................................. 25,000 507,813
Roper Industries, Inc. .......................................................... 42,700 1,139,556
-------------
1,647,369
-------------
Lodging .2%
aShoLodge, Inc. .................................................................. 32,500 530,156
-------------
Metals & Mining .4%
aAtchison Casting Corp. .......................................................... 50,000 1,028,125
-------------
Oil & Gas .8%
YPF, SA, Sponsored ADR (Argentina) .............................................. 60,000 1,920,000
-------------
Real Estate Investment Trusts .3%
Burnham Pacific Properties, Inc. ................................................ 50,000 731,250
aSecurity Capital Group, Class B, warrants ....................................... 3,439 16,554
-------------
747,804
-------------
Telecommunications 1.0%
Telefonica de Argentina, SA, Sponsored ADR (Argentina) .......................... 90,000 2,531,250
-------------
Tobacco 1.8%
Philip Morris Cos., Inc. ........................................................ 45,000 1,783,125
RJR Nabisco Holdings Corp. ...................................................... 86,000 2,725,125
-------------
4,508,250
-------------
Transportation .8%
Airborne Freight Corp. .......................................................... 15,000 $ 950,625
aFritz Cos., Inc. ................................................................ 80,000 1,105,000
-------------
2,055,625
-------------
Total Common Stocks & Warrants (Cost $23,454,930) ............................... 24,920,292
-------------
Convertible Preferred Stocks 23.0%
Construction .2%
Owens Corning Capital, L.L.C., 6.50% cvt. pfd., 144A............................. 10,000 497,500
-------------
Energy 5.3%
AES Corp., 5.50% cvt. pfd., 144A ................................................ 60,000 3,000,000
eCMS Energy Trust I, 7.75% cvt. pfd. ............................................. 73,000 3,918,414
Enron Corp., 6.25% cvt. pfd. .................................................... 85,000 1,832,813
McDermott International Inc., $2.875 cvt. pfd., Series C, 144A .................. 45,000 2,497,500
Nuevo Financing I, 5.75% cvt. pfd., Series A .................................... 38,100 1,924,050
-------------
13,172,777
-------------
Financial Services 3.9%
Bank One Corp., $3.50 cvt. pfd., Series C ....................................... 20,000 2,008,750
Finova Finance Trust, 5.50% cvt. pfd. ........................................... 28,000 1,764,000
National Australia Bank, 7.875% cvt. pfd. (Australia) ........................... 42,900 1,193,156
WBK STRYPES Trust, 10.00% cvt. pfd. ............................................. 153,100 4,746,100
-------------
9,712,006
-------------
Food & Beverages 1.3%
Ralston Purina/Interstate Bakeries Corp., 7.00% cvt. pfd. ....................... 50,400 3,175,200
-------------
Industrial Services .6%
Elsag Bailey Process Automation, NV, 5.50% cvt. pfd. (Netherlands) .............. 35,000 1,500,625
-------------
Insurance .4%
American Heritage Life Investment Corp., 8.50% cvt. pfd. ........................ 18,300 1,033,950
-------------
Lodging 1.6%
Hilton Hotels Corp., 8.00% cvt. pfd. ............................................ 48,100 1,418,950
Host Marriott Corp., 6.75% cvt. pfd., 144A ...................................... 40,000 2,580,000
-------------
3,998,950
Media & Broadcasting 1.3%
fTriathlon Broadcasting, 9.00% cvt. pfd. ........................................ 315,200 3,152,000
-------------
Metals & Mining 1.3%
Armco, Inc., $3.625 cvt. pfd., Series A ......................................... 13,100 650,088
Titanium Metals, 6.625% cvt. pfd., 144A ......................................... 10,000 527,500
WHX Corp., 6.50% cvt. pfd., Series A ............................................ 41,000 2,019,250
-------------
3,196,838
-------------
Paper & Forest Products .4%
International Paper Co., 5.25% cvt. pfd. ........................................ 20,000 1,010,000
-------------
Real Estate Investment Trusts 1.3%
FelCor Suite Hotels, Inc., $1.95 cvt. pfd., Series A ............................ 60,000 $ 1,732,500
Security Capital Industrial Trust, 7.00% cvt. pfd. .............................. 22,000 695,750
Security Capital Pacific Trust, $1.75 cvt. pfd., Series A ....................... 30,000 918,750
-------------
3,347,000
-------------
Telecommunications 2.7%
AirTouch Communications, Inc., 6.00% cvt. pfd., Series B ........................ 40,000 1,397,500
Nortel Inversora, SA, 10.00% cvt. pfd., MEDS (Argentina) ........................ 77,600 3,608,400
Salomon, Inc., 6.25%, cvt. pfd. ................................................. 30,000 1,620,000
-------------
6,625,900
-------------
Textiles & Apparel .7%
Designer Holdings, Ltd., 5.00% cvt. pfd. ........................................ 38,000 1,617,375
-------------
Tobacco .8%
DIMON, Inc., 8.50% cvt. pfd. .................................................... 77,200 1,949,300
-------------
Transportation 1.2%
CNF Transportation, Inc., 5.00% cvt. pfd., Series A ............................. 45,700 2,901,950
-------------
Total Convertible Preferred Stocks (Cost $53,386,185) 56,891,371
-------------
PRINCIPAL
AMOUNT
<S> <C> <C>
Convertible Bonds 57.8%
Aerospace/Defense 2.2%
DRS Technologies, Inc., cvt. senior sub. deb., 9.00%, 10/01/03 .................. $ 375,000 562,500
SPACEHAB, Inc., cvt. sub. notes, 144A, 8.00%, 10/15/07 .......................... 5,000,000 5,025,000
-------------
5,587,500
-------------
Business Services 1.0%
CORESTAFF, Inc., cvt. sub. notes, 2.94%, 8/15/04 ................................ 1,250,000 1,012,500
Personnel Group of America, Inc., cvt. sub. notes, 144A, 5.75%, 7/01/04 ......... 1,250,000 1,456,250
-------------
2,468,750
-------------
Electronics 10.2%
Adaptec, Inc., cvt. sub. notes, 144A, 4.75%, 2/01/04 ............................ 2,000,000 2,335,000
Bay Networks, Inc., cvt. sub. deb., 144A, 5.25%, 5/15/03 ........................ 3,500,000 3,408,125
Cymer, Inc., cvt. sub. deb., 144A, 3.50% coupon to 8/06/00, 7.25%
thereafter, 8/06/04 ............................................................ 2,000,000 1,722,500
Dovatron International, Inc., cvt. sub. notes, 144A, 6.00%, 10/15/02 ............ 5,500,000 7,727,500
Itron, Inc., cvt. sub. notes, 6.75%, 3/31/04 .................................... 500,000 555,000
Itron, Inc., cvt. sub. notes, 144A, 6.75%, 3/31/04 .............................. 1,000,000 1,110,000
Level One Communications, Inc., cvt. sub. notes, 144A, 4.00%, 9/01/04 ........... 500,000 635,625
National Semiconductor Corp., cvt. deb., 144A, 6.50%, 10/01/02 .................. 1,000,000 1,091,250
Park Electrochemical Corp., cvt. sub. notes, 5.50%, 3/01/06 ..................... 1,500,000 1,443,750
Reptron Electronics, Inc., cvt. sub. notes, 6.75%, 8/01/04 ...................... 1,300,000 1,157,000
VLSI Technology, Inc., cvt. sub. notes, 8.25%, 10/01/05 ......................... 1,200,000 1,227,000
Xilinx, Inc., cvt. sub. notes, 144A, 5.25%, 11/01/02 ............................ 3,000,000 2,928,750
-------------
25,341,500
-------------
Environmental Services 1.3%
USA Waste Systems, Inc., cvt. sub. notes, 4.00%, 2/01/02 $3,000,000 $ 3,210,000
-------------
Financial Services 3.2%
Leasing Solutions, Inc., cvt. sub. notes, 6.875%, 10/01/03 ...................... 1,000,000 965,000
Meditrust, cvt. sub. deb., 6.875%, 11/15/98 ..................................... 3,500,000 4,060,000
PIV Investment Finance, cvt. company guaranteed, 144A, 4.50%, 12/01/00 .......... 1,000,000 730,000
PIV Investment Finance, cvt. company guaranteed, 4.50%, 12/01/00 ................ 3,000,000 2,190,000
-------------
7,945,000
-------------
Food & Beverages .8%
Grand Metropolitan, Plc., cvt. unsub. senior notes, 144A, 6.50%, 1/31/00 ........ 1,500,000 1,950,000
-------------
Health Care 5.7%
Alza Corp., cvt. sub. notes, 0.00%, 7/14/14 ..................................... 4,000,000 1,720,000
Assisted Living Concepts, Inc., cvt. sub. deb., 6.00%, 11/01/02 ................. 1,600,000 1,708,000
ESC Medical Systems, Ltd., cvt. sub. notes, 144A, 6.00%, 9/01/02 ................ 4,000,000 4,305,000
Sun Healthcare Group, Inc., sub. notes, 144A, 6.00%, 3/01/04 .................... 3,500,000 3,718,750
Tenet Healthcare Corp., cvt. sub. notes, 6.00%, 12/01/05 ......................... 500,000 499,375
U.S. Diagnostic Labs, Inc., cvt. sub. deb., 144A, 9.00%, 3/31/03 ................ 2,175,000 2,196,750
-------------
14,147,875
-------------
Industrial Services 1.9%
Exide Corp., cvt. sub. notes, 144A, 2.90%, 12/15/05 ............................. 1,400,000 910,000
Mark IV Industries, Inc., cvt. sub. notes, 144A, 4.75%, 11/01/04 ................ 3,000,000 2,891,250
Tower Automotive, Inc., cvt. sub. notes, 144A, 5.00%, 8/01/04 ................... 1,000,000 1,025,000
-------------
4,826,250
-------------
Lodging 2.4%
CapStar Hotel Co., cvt. sub. notes, 4.75%, 10/15/04 ............................. 3,400,000 3,434,000
ShoLodge, Inc., cvt. sub. deb., 7.50%, 5/01/04 .................................. 2,500,000 2,490,625
-------------
5,924,625
-------------
Metals & Mining .8%
Quanex Corp., cvt. sub. deb., 6.88%, 6/30/07 .................................... 2,000,000 2,085,000
-------------
Oil & Gas 5.0%
Consolidated Natural Gas Co., cvt. sub. deb., 7.25%, 12/15/15 ................... 2,000,000 2,177,500
Halter Marine Group, Inc., cvt. sub. notes, 144A, 4.50%, 9/15/04 ................ 1,500,000 1,897,500
Parker Drilling Co., cvt. sub. notes, 5.50%, 8/01/04 ............................ 1,500,000 1,794,375
Pogo Producing Co., cvt. sub. notes, 5.50%, 6/15/06 ............................. 2,000,000 2,127,500
Seacor Holdings, Inc., cvt. sub. notes, 5.375%, 11/15/06 ........................ 1,900,000 2,251,500
Swift Energy Co., cvt. sub. notes, 6.25%, 11/15/06 .............................. 2,000,000 2,105,000
-------------
12,353,375
-------------
Paper & Forest Products 1.3%
APP Global Finance V, Ltd., 144A, 2.00%, 7/25/00 (Cayman Islands) ............... 1,200,000 1,134,000
Metsa-Serla Oyj, cvt. sub. deb., 144A, 4.38%, 10/15/02 (Finland) ................ 2,000,000 1,995,000
-------------
3,129,000
-------------
Pharmaceuticals .5%
Dura Pharmaceuticals, Inc., cvt. sub. notes, 3.50%, 7/15/02 ..................... 1,000,000 1,142,500
-------------
Real Estate Investment Trusts 3.0%
OMEGA Healthcare Investors, Inc., cvt. sub. deb., 8.50%, 2/01/01 ................ $2,750,000 $ 3,509,688
The Macerich Co., cvt. sub. deb., 144A, 7.25%, 12/15/02 ......................... 4,000,000 3,880,000
-------------
7,389,688
-------------
Retail 7.4%
Costco Cos., Inc., cvt. sub. notes, 144A, 0.00%, 8/19/17 ........................ 8,000,000 4,300,000
Home Depot, Inc., cvt. sub. notes, 3.25%, 10/01/01 .............................. 450,000 579,938
Men's Wearhouse, Inc., cvt. sub. notes, 5.25%, 3/01/03 .......................... 500,000 620,625
Michaels Stores, Inc., cvt. sub. notes, 6.75%, 1/15/03 .......................... 3,200,000 3,264,000
Pep Boys, cvt. sub. notes, 144A, 0.00%, 9/20/11 ................................. 4,000,000 2,100,000
Rent-Way, Inc., cvt. sub. deb., 144A, 7.00%, 2/01/07 ............................ 2,200,000 3,146,000
Rite Aid Corp., cvt. sub. notes, 144A, 5.25%, 9/15/02 ........................... 4,000,000 4,310,000
-------------
18,320,563
-------------
Savings & Loans .6%
BankAtlantic Bancorp, Inc., cvt. sub. deb., 6.75%, 7/01/06 ...................... 800,000 1,423,000
-------------
Technology Services 3.9%
HMT Technology Corp., cvt. sub. notes, 5.75%, 1/15/04 ........................... 2,200,000 2,128,500
Read-Rite Corp., cvt. sub. notes, 6.50%, 9/01/04 ................................ 2,000,000 1,800,000
System Software Associates, Inc., cvt. sub. notes, 7.00%, 9/15/02 ............... 1,000,000 995,000
Tecnomatix Technologies, Ltd., cvt. sub. notes, 144A, 5.25%, 8/15/04 ............ 3,500,000 3,390,624
Vantive Corp., cvt. sub. notes, 144A, 4.75%, 9/01/02 ............................ 1,000,000 930,000
Wind River Systems, Inc., cvt. sub. notes, 144A, 5.00%, 8/01/02 ................. 300,000 316,500
-------------
9,560,624
-------------
Telecommunications 2.7%
DSC Communications Corp., cvt. sub. notes, 144A, 7.00%, 8/01/04 ................. 2,500,000 2,378,124
Tel-Save Holdings, Inc., cvt. sub. notes, 144A, 4.50%, 9/15/02 .................. 2,000,000 2,192,500
U.S. Cellular Corp., cvt. notes, 0.00%, 6/15/15 ................................. 6,000,000 2,152,500
-------------
6,723,124
-------------
Transportation 1.0%
Atlantic Coast Airlines, Inc., cvt. sub. notes, 144A, 7.00%, 7/01/04 ............ 2,000,000 2,590,000
-------------
Utilities 1.5%
Huaneng Power International, Inc., Sponsored ADR, cvt. bonds,
144A, 1.75%, 5/21/04 (China)..................................................... 4,000,000 3,760,000
-------------
Veterinary Services 1.4%
Veterinary Centers of America, Inc., cvt. sub. deb., 144A, 5.25%, 5/01/06 ....... 4,500,000 3,532,500
-------------
Total Convertible Bonds (Cost $135,355,130) 143,410,874
-------------
bRepurchase Agreements 6.1%
Joint Repurchase Agreement, 5.671%, 11/03/97 (Maturity Value $15,177,775)
(Cost $15,170,606) ...............................................................$15,170,606 $ 15,170,606
-------------
Aubrey G. Lanston & Co., Inc.
B.A. Securities, Inc.
Barclays de Zoete Wedd Securities, Inc.
Bear, Stearns & Co., Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson North America, L.L.C.
Fuji Securities, Inc.
Lehman Brothers, Inc.
Sanwa Securities (USA) Co., L.P.
SBC Warburg, Inc.
UBS Securities, L.L.C.
Collateralized by U.S. Treasury Bills & Notes
Total Investments (Cost $227,366,851) 97.0% ..................................... 240,393,143
Other Assets, less Liabilities 3.0% ............................................. 7,520,353
-------------
Net Assets 100.0% ............................................................... $247,913,496
=============
</TABLE>
aNon-income producing.
bInvestment is through participation in a joint account with other funds managed
by the investment advisor. At 10/31/97, all repurchase agreements held by the
Fund had been entered into on that date.
eSee Note 7 regarding restricted securities.
fThe Investment Company Act of 1940 defines "affiliated companies" as
investments in portfolio companies in which the Fund owns 5% or more of the
outstanding voting securities. Investments in "affiliated companies" at 10/31/97
were $3,152,000.
FRANKLIN INVESTORS SECURITIES TRUST
Financial Highlights
<TABLE>
<CAPTION>
Franklin Adjustable U.S. Government Securities Fund
Class I
------------------------------------------------------
Year Ended October 31,
------------------------------------------------------
1997 1996 1995 1994 1993***
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year ................ $9.37 $9.34 $9.20 $9.77 $9.86
------------------------------------------------------
Income from investment operations:
Net investment income ............................ .55 .56 .54 .35 .28
Net realized and unrealized gain (loss) .......... .10 .03 .14 (.61) (.09)
------------------------------------------------------
Total from investment operations .................. .65 .59 .68 (.26) .19
Less distributions from net investment income ..... (.54) (.56) (.54) (.31) (.28)
------------------------------------------------------
Net asset value, end of year ...................... $9.48 $9.37 $9.34 $9.20 $9.77
======================================================
Total return* ..................................... 7.18% 6.54% 7.57% (2.65%) 1.99%
Ratios/supplemental data
Net assets, end of year (000's) ................... $334,990 $397,078 $509,371 $700,617 $1,813,504
Ratios to average net assets:
Expenses**** ..................................... .75% .69% .61% .42% .65%**
Expenses excluding waiver and payments by affiliate**** .93% .86% .86% .82% .79%**
Net investment income ............................ 5.81% 5.87% 5.76% 3.67% 3.92%**
Portfolio turnover rate ........................... 43.68% 23.52% 17.81% 5.99% 6.97%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
**Annualized.
***For the nine months ended October 31, 1993.
****Includes the Funds' share of the Portfolios' allocated expenses.
FRANKLIN INVESTORS SECURITIES TRUST
Statement of Investments, October 31, 1997
<TABLE>
<CAPTION>
Franklin Adjustable U.S. Government Securities Fund SHARES VALUE
Mutual Funds 100.4%
<S> <C> <C>
U.S. Government Adjustable Rate Mortgage Portfolio (Note 1) ..................... 35,474,557$336,298,798
-------------
Total Investments (Cost $356,924,519) 100.4% .................................... 336,298,798
Other Assets, less Liabilities (.4)% ............................................ (1,308,337)
-------------
Net Assets 100.0% ............................................................... $334,990,461
=============
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
Financial Highlights
<TABLE>
<CAPTION>
Franklin Equity Income Fund
Class I
------------------------------------------------------
Year Ended October 31,
------------------------------------------------------
1997 1996 1995 1994 1993****
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year ................ $16.41 $15.19 $14.14 $14.91 $13.46
------------------------------------------------------
Income from investment operations:
Net investment income ............................ .64 .64 .63 .62 .60
Net realized and unrealized gain (loss) .......... 3.23 1.63 1.27 (.36) 1.44
------------------------------------------------------
Total from investment operations .................. 3.87 2.27 1.90 .26 2.04
------------------------------------------------------
Less distributions from:
Net investment income ............................ (.64) (.65) (.61) (.72) (.50)
Net realized gains ............................... (.33) (.40) (.24) (.31) (.09)
------------------------------------------------------
Total distributions ............................... (.97) (1.05) (.85) (1.03) (.59)
------------------------------------------------------
Net asset value, end of year ...................... $19.31 $16.41 $15.19 $14.14 $14.91
======================================================
Total return* ..................................... 24.40% 15.39% 14.10% 1.83% 15.27%
Ratios/supplemental data
Net assets, end of year (000's) ................... $352,555 $246,952 $168,897 $92,763 $42,177
Ratios to average net assets:
Expenses ......................................... .97% .98% 1.00% .77% .25%**
Expenses excluding waiver and payments by affiliate -- -- 1.02% .95% .87%**
Net investment income ............................ 3.62% 4.11% 4.44% 4.53% 5.86%**
Portfolio turnover rate ........................... 29.04% 24.15% 27.86% 39.51% 19.33%
Average commission rate paid*** ................... $.0488 $.0514 -- -- --
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
**Annualized.
***Relates to purchases and sales of equity securities. Prior to October 31,
1996, disclosure of average commission rate was not required.
****For the nine months ended October 31, 1993.
<TABLE>
<CAPTION>
Class II
--------------------------------
Year Ended October 31,
--------------------------------
1997 1996 1995****
--------------------------------
<S> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................................... $16.38 $15.19 $15.38
--------------------------------
Income from investment operations:
Net investment income .................................................. .50 .52 .05
Net realized and unrealized gain (loss) ................................ 3.22 1.63 (.19)
--------------------------------
Total from investment operations ........................................ 3.72 2.15 (.14)
--------------------------------
Less distributions from:
Net investment income .................................................. (.51) (.56) (.05)
Net realized gains ..................................................... (.33) (.40) --
--------------------------------
Total distributions ..................................................... (.84) (.96) (.05)
--------------------------------
Net asset value, end of year ............................................ $19.26 $16.38 $15.19
================================
Total return* ........................................................... 23.40% 14.53% (.93%)
Ratios/supplemental data
Net assets, end of year (000's) ......................................... $45,277 $18,227 $386
Ratios to average net assets:
Expenses ............................................................... 1.72% 1.73% 1.99%**
Net investment income .................................................. 2.78% 3.33% 3.57%**
Portfolio turnover rate ................................................. 29.04% 24.15% 27.86%
Average commission rate paid*** ......................................... $.0488 $.0514 --
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized.
**Annualized.
***Relates to purchases and sales of equity securities. Prior to October 31,
1996, disclosure of average commission rate was not required.
****For the period October 1, 1995 (effective date) to October 31, 1995.
FRANKLIN INVESTORS SECURITIES TRUST
Statement of Investments, October 31, 1997
<TABLE>
<CAPTION>
Franklin Equity Income Fund SHARES VALUE
<S> <C> <C>
Common Stocks 89.5%
Chemicals 5.3%
ARCO Chemical Co. .............................................................. 45,000 $ 2,199,375
Chemed Corp. ................................................................... 80,000 3,240,000
Dow Chemical Co. ............................................................... 65,000 5,898,750
Imperial Chemical Industries, Plc., Sponsored ADR (United Kingdom) ............. 94,000 5,628,250
Millennium Chemicals, Inc. ..................................................... 170,549 4,007,902
-------------
20,974,277
-------------
Consumer Products 1.1%
Amway Asia Pacific, Ltd . ...................................................... 50,000 1,187,500
Fortune Brands, Inc. ........................................................... 91,500 3,025,219
-------------
4,212,719
-------------
Financial Services 8.4%
Banc One Corp. ................................................................. 71,800 3,742,575
BankBoston Corp. ............................................................... 28,400 2,302,175
Beneficial Corp. ............................................................... 67,000 5,138,063
Mercantile Bancorp., Inc. ...................................................... 62,226 3,021,850
Morgan (J.P.) & Co., Inc. ...................................................... 30,500 3,347,375
National City Corp. ............................................................ 88,700 5,299,825
Nordbanken AB, Sponsored ADR, 144A (Sweden)...................................... 31,000 1,945,287
PNC Bank Corp. ................................................................. 98,300 4,669,250
dWestpac Banking Corp., Ltd. (Australia) ........................................ 686,015 3,994,602
-------------
33,461,002
-------------
Food & Beverage 2.1%
Cadbury Schweppes, Plc. (United Kingdom) ....................................... 400,000 4,009,798
Heinz (H.J.) Co. ............................................................... 92,000 4,272,250
-------------
8,282,048
-------------
Industrial Services .9%
Cooper Industries, Inc. ........................................................ 71,700 3,737,363
-------------
Insurance 5.1%
Gallagher (Arthur J.) & Co. .................................................... 120,000 4,200,000
IPC Holdings, Ltd. ............................................................. 65,000 2,002,813
Lincoln National Corp. ......................................................... 85,500 5,878,125
Mid Ocean, Ltd. ................................................................ 70,300 4,560,713
Scor, SA (France)............................................................... 80,500 3,738,734
-------------
20,380,385
-------------
Metals & Mining .9%
Freeport-McMoRan Copper & Gold, Inc., Class B .................................. 150,000 3,581,250
-------------
Oil 14.1%
Amoco Corp. .................................................................... 68,000 6,234,750
Atlantic Richfield Co. ......................................................... 138,000 11,359,125
Chevron Corp. .................................................................. 81,900 6,792,581
Exxon Corp. .................................................................... 99,400 6,106,888
Mobil Corp. .................................................................... 77,600 5,650,250
Occidental Petroleum Corp. ..................................................... 109,900 3,063,463
Oil (cont.)
Texaco, Inc. ................................................................... 127,000 $ 7,231,063
Ultramar Corp. ................................................................. 105,000 3,241,875
YPF, SA, Sponsored ADR (Argentina) ............................................. 205,200 6,566,400
-------------
56,246,395
-------------
Paper & Forest Products 3.8%
Portucel Industrial, SA, 144A (Portugal) ....................................... 245,000 1,843,258
Potlatch Corp. ................................................................. 88,000 4,389,000
Union Camp Corp. ............................................................... 86,000 4,660,125
Weyerhaeuser Co. ............................................................... 87,000 4,154,250
-------------
15,046,633
-------------
Pharmaceuticals 4.3%
Bristol-Myers Squibb Co. ....................................................... 71,600 6,282,900
Glaxo Wellcome, Plc., Sponsored ADR (United Kingdom)............................ 126,200 5,402,938
Pharmacia & Upjohn, Inc. ....................................................... 167,000 5,302,250
-------------
16,988,088
-------------
Publishing .7%
Dun & Bradstreet Corp. ......................................................... 93,900 2,682,019
-------------
Real Estate Investment Trusts 7.7%
Arden Realty Group, Inc. ....................................................... 175,200 5,343,600
Equity Office Properties Trust ................................................. 35,800 1,094,138
Equity Residential Properties Trust ............................................ 133,300 6,731,650
FelCor Suite Hotels, Inc. ...................................................... 189,000 6,922,125
Highwoods Properties, Inc . .................................................... 144,000 4,968,000
Simon DeBartolo Group, Inc. .................................................... 182,800 5,655,375
-------------
30,714,888
-------------
Retail 2.1%
Penney (J.C.) Co., Inc. ........................................................ 145,000 8,509,688
-------------
Steel 2.1%
British Steel, Plc., Sponsored ADR (United Kingdom) ............................ 119,500 3,241,438
Carpenter Technology Corp. ..................................................... 110,000 5,321,250
-------------
8,562,688
-------------
Telecommunications 9.3%
AT&T Corp. ..................................................................... 112,000 5,481,000
Bell Atlantic Corp. ............................................................ 106,060 8,471,543
France Telecom, SA (France) .................................................... 34,700 1,313,225
GTE Corp. ...................................................................... 146,500 6,217,094
Southern New England Telecommunications Corp. .................................. 196,800 8,437,800
US West Communications Group ................................................... 176,800 7,038,850
-------------
36,959,512
-------------
Tobacco 4.8%
Imperial Tobacco Group, Plc. (United Kingdom) .................................. 328,000 2,016,845
Imperial Tobacco Group, Plc., ADR (United Kingdom) ............................. 197,075 2,423,587
Tobacco (cont.)
Philip Morris Cos., Inc. ....................................................... 94,600 $ 3,748,525
RJR Nabisco Holdings Corp. ..................................................... 149,000 4,721,436
UST, Inc. ...................................................................... 202,000 6,047,375
-------------
18,957,768
-------------
Transportation 1.5%
Chrysler Corp. ................................................................. 168,000 5,922,000
-------------
Utilities - Electric 11.2%
Central & South West Corp. ..................................................... 40,800 879,750
CINergy Corp. .................................................................. 136,800 4,514,400
Dominion Resources, Inc. ....................................................... 155,000 5,764,062
Enova Corp. .................................................................... 163,000 3,962,938
Entergy Corp. .................................................................. 231,000 5,645,062
MidAmerican Energy Holdings Co. ................................................ 218,600 3,907,475
New Century Energies, Inc. ..................................................... 90,000 3,757,500
Northern States Power Co. ...................................................... 101,000 5,087,875
OGE Energy Corp. ............................................................... 109,000 5,279,687
PacifiCorp. .................................................................... 130,000 2,819,375
PG&E Corp. ..................................................................... 123,100 3,146,741
-------------
44,764,865
-------------
Utilities - Natural Gas 4.1%
Consolidated Natural Gas Co. ................................................... 81,300 4,395,281
National Fuel Gas Co. .......................................................... 129,600 5,718,600
Pacific Enterprises ............................................................ 115,200 3,765,600
Transportadora de Gas del Sur, SA, Sponsored ADR (Argentina) ................... 250,000 2,359,375
-------------
16,238,856
-------------
Total Common Stocks (Cost $291,719,099) ........................................ 356,222,444
-------------
Convertible Preferred Stocks 4.1%
Browning-Ferris Industries, Inc., 7.25% cvt. pfd., ACES (Argentina) ............ 111,100 3,555,200
eCMS Energy Trust 1, 7.75% cvt. pfd. ............................................ 80,000 4,294,152
National Australia Bank, 7.875% cvt. pfd. ...................................... 170,100 4,730,906
Nortel Inversora, SA, 10.00% cvt. pfd., MEDS (Argentina) ....................... 76,900 3,575,850
-------------
Total Convertible Preferred Stocks (Cost $14,787,226) 16,156,108
-------------
bRepurchase Agreements 6.1%
Joint Repurchase Agreement, 5.671%, 11/03/97 (Maturity Value $24,407,260)
(Cost $24,395,731) .............................................................. $24,395,731 $ 24,395,731
-------------
Aubrey G. Lanston & Co., Inc.
B.A. Securities, Inc.
Barclays de Zoete Wedd Securities, Inc.
Bear, Stearns & Co., Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson North America, L.L.C.
Fuji Securities, Inc.
Lehman Brothers, Inc.
Sanwa Securities (USA) Co., L.P.
SBC Warburg, Inc.
UBS Securities, L.L.C.
Collateralized by U.S. Treasury Bills & Notes
Total Investments (Cost $330,902,056) 99.7% .................................... 396,774,283
Other Assets, less Liabilities .3% ............................................. 1,057,368
-------------
Net Assets 100.0% .............................................................. $397,831,651
=============
</TABLE>
PORTFOLIO ABBREVIATIONS:
ACES - Adjustable Convertible Exempt Securities
MEDS - Mandatorially Exchangeable Debt Security
bInvestment is through participation in a joint account with other funds managed
by the investment advisor. At 10/31/97, all repurchase agreements held by the
Fund had been entered into on that date.
dSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
eSee Note 7 regarding restricted securities.
FRANKLIN INVESTORS SECURITIES TRUST
Financial Highlights
<TABLE>
<CAPTION>
Franklin Adjustable Rate Securities Fund
Class I
------------------------------------------------------
Year Ended October 31,
------------------------------------------------------
1997 1996 1995 1994 1993***
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year ................ $9.87 $9.82 $9.70 $10.04 $10.03
------------------------------------------------------
Income from investment operations:
Net investment income ............................ .56 .54 .58 .45 .37
Net realized and unrealized gain (loss) .......... .09 .06 .12 (.34) .01
------------------------------------------------------
Total from investment operations .................. .65 .60 .70 .11 .38
------------------------------------------------------
Less distributions from:
Net investment income ............................ (.56) (.55) (.58) (.45) (.37)
------------------------------------------------------
Total distributions ............................... (.56) (.55) (.58) (.45) (.37)
------------------------------------------------------
Net asset value, end of year ...................... $9.96 $9.87 $9.82 $9.70 $10.04
======================================================
Total return* ..................................... 6.75% 6.23% 7.57% 1.11% 3.83%
Ratios/supplemental data
Net assets, end of year (000's) ................... $21,137 $15,707 $17,014 $24,564 $37,809
Ratios to average net assets:
Expenses**** ..................................... .81% .90% .70% .45% .11%**
Expenses excluding waiver and payments by affiliate**** 1.00% 1.12% .99% .85% 1.01%**
Net investment income ............................ 5.64% 5.54% 5.82% 4.45% 4.69%**
Portfolio turnover rate ........................... 86.71% 41.67% 53.30% 84.67% 49.11%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
**Annualized.
***For the nine months ended October 31, 1993.
****Includes the Funds' share of the Portfolios' allocated expenses.
FRANKLIN INVESTORS SECURITIES TRUST
Statement of Investments, October 31, 1997
<TABLE>
<CAPTION>
Franklin Adjustable Rate Securities Fund SHARES VALUE
<S> <C> <C>
Mutual Funds 100.3%
Adjustable Rate Securities Portfolio (Note 1) ..................................... 2,131,679 $21,210,207
-------------
Total Investments (Cost $21,083,576) 100.3% ....................................... 21,210,207
Other Assets, less Liabilities (.3)% .............................................. (72,868)
-------------
Net Assets 100.0% ................................................................. $21,137,339
=============
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
Financial Statements
<TABLE>
<CAPTION>
Statements of Assets and Liabilities
October 31, 1997
Franklin Franklin
Global Short-Intermediate Franklin
Government U.S. Government Convertible
Income Fund Securities FundSecurities Fund
------------------------------------------------------
<S> <C> <C> <C>
Assets:
Investments in securities:
Cost ....................................................... $124,273,516 $188,126,025 $227,366,851
=======================================================
Value ...................................................... 121,289,999 190,657,534 240,393,143
Cash ........................................................ 2,233 -- 1,199,335
Receivables:
Investment securities sold ................................. -- -- 5,110,665
Capital shares sold ........................................ 368,727 482,352 732,156
Dividends and interest ..................................... 3,432,188 3,255,931 1,935,948
Unrealized gain on forward currency contracts (Note 2) ...... 950,736 -- --
------------------------------------------------------
Total assets .......................................... 126,043,883 194,395,817 249,371,247
------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ............................ 1,231,549 -- 840,588
Capital shares redeemed .................................... 277,790 1,246,241 110,923
Affiliates ................................................. 123,246 140,530 328,548
Shareholders ............................................... -- 183,882 178
Distributions to shareholders ............................... 337 372,091 152,377
Unrealized loss on forward exchange contracts (Note 2) ...... 634,295 -- --
Other liabilities ........................................... 213,722 17,898 25,137
------------------------------------------------------
Total liabilities ..................................... 2,480,939 1,960,642 1,457,751
------------------------------------------------------
Net assets, at value ................................. $123,562,944 $192,435,175 $247,913,496
=======================================================
Net assets consist of:
Undistributed net investment income ........................ $ -- $ 497,544 $ 1,287,973
Accumulated distributions in excess of net investment income (184,646) ----
Net unrealized appreciation (depreciation) ................. (2,650,048) 2,531,509 13,026,292
Accumulated net realized gain (loss) ....................... (2,971,285) (6,200,783) 18,108,020
Capital shares ............................................. 129,368,923 195,606,905 215,491,211
------------------------------------------------------
Net assets, at value .................................. $123,562,944 $192,435,175 $247,913,496
=======================================================
Franklin Franklin
Global Short-Intermediate Franklin
Government U.S. Government Convertible
Income Fund Securities FundSecurities Fund
<S> <C> <C> <C>
Class I:
Net assets, at value ....................................... $118,348,186 $192,050,661 $212,631,347
=======================================================
Shares outstanding ......................................... 14,074,297 18,665,327 14,427,760
=======================================================
Net asset value per share* ................................. $8.41 $10.29 $14.74
=======================================================
Maximum offering price per share
(net asset value / 95.75%, 97.75%, 95.50%, respectively) ... $8.78 $10.53 $15.43
=======================================================
Class II:
Net assets, at value ....................................... $ 4,473,447 -- $ 35,282,149
=======================================================
Shares outstanding ......................................... 531,824 -- 2,402,672
=======================================================
Net asset value per share* ................................. $8.41 -- $14.68
=======================================================
Maximum offering price per share (net asset value / 99%) ... $8.49 -- $14.83
=======================================================
Advisor Class:
Net assets, at value ....................................... $ 741,311 $ 384,514 --
=======================================================
Shares outstanding ......................................... 88,115 37,349 --
=======================================================
Net asset value and maximum offering price per share ....... $8.41 $10.30 --
=======================================================
*Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
Franklin
Adjustable Franklin Franklin
U.S. Government Equity Adjustable Rate
Securities Fund Income Fund Securities Fund
<S> <C> <C> <C>
Assets:
Investments in securities:
Cost ....................................................... $356,924,519 $330,902,056 $21,083,576
=======================================================
Value ...................................................... 336,298,798 396,774,283 21,210,207
Cash ........................................................ 39,075 592,793 --
Receivables:
Investment securities sold ................................. -- 771,875 --
Capital shares sold ........................................ 78,248 418,183 18,736
Dividends and interest ..................................... -- 1,111,975 --
------------------------------------------------------
Total assets .......................................... 336,416,121 399,669,109 21,228,943
------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ............................ -- 878,812 --
Capital shares redeemed .................................... 452,024 197,632 6,598
Affiliates ................................................. 265,000 523,000 15,163
Shareholders ............................................... 689,260 203,904 35,290
Distributions to shareholders ............................... 146 -- 5,752
Funds advanced by custodian ................................. -- -- 5,942
Other liabilities ........................................... 19,230 34,110 22,859
------------------------------------------------------
Total liabilities ..................................... 1,425,660 1,837,458 91,604
------------------------------------------------------
Net assets, at value ................................. $334,990,461 $397,831,651 $21,137,339
=======================================================
Net assets consist of:
Undistributed net investment income ........................ $ 955,056 $ 603,756 $--
Net unrealized appreciation (depreciation) ................ (20,625,721) 65,873,329 126,631
Accumulated net realized gain (loss) ....................... (82,967,418) 16,986,141 (930,245)
Capital shares ............................................. 437,628,544 314,368,425 21,940,953
------------------------------------------------------
Net assets, at value .................................. $334,990,461 $397,831,651 $21,137,339
=======================================================
Franklin
Adjustable Franklin Franklin
U.S. Government Equity Adjustable Rate
Securities Fund Income Fund Securities Fund
<S> <C> <C> <C>
Class I:
Net assets, at value ....................................... $334,990,461 $352,554,955 $21,137,339
=======================================================
Shares outstanding ......................................... 35,328,183 18,260,314 2,122,079
=======================================================
Net asset value per share* ................................. $9.48 $19.31 $ 9.96
=======================================================
Maximum offering price per share
(net asset value / 97.75%, 95.50%, 97.75%, respectively).. $9.70 $20.22 $10.19
=======================================================
Class II:
Net assets, at value ....................................... -- $ 45,276,696 --
=======================================================
Shares outstanding ......................................... -- 2,350,676 --
=======================================================
Net asset value per share* ................................. -- $19.26 --
=======================================================
Maximum offering price per share (net asset value / 99%) ... -- $19.45 --
=======================================================
*Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
FRANKLIN INVESTORS SECURITIES TRUST
Financial Statements (continued)
Statements of Operations
for the year ended October 31, 1997
Franklin Franklin
Global Short-Intermediate Franklin
Government U.S. Government Convertible
Income Fund Securities FundSecurities Fund
---------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividends .................................................... $ 15,206 $-- $ 3,625,422
Interest ..................................................... 10,392,152 11,986,846 7,253,933
---------------------------------------------
Total investment income ................................. 10,407,358 11,986,846 10,879,355
---------------------------------------------
Expenses:
Management fees (Note 6) ..................................... 785,629 1,076,296 1,075,628
Distribution fees (Note 6)
Class I ..................................................... 127,737 161,539 428,603
Class II .................................................... 24,866 -- 210,683
Transfer agent fees (Note 6) ................................. 143,700 107,367 187,576
Custodian fees ............................................... 32,800 1,747 4,988
Reports to shareholders ...................................... 59,778 51,452 71,019
Registration and filing fees ................................. 23,800 37,953 25,613
Professional fees ............................................ 4,500 9,486 11,419
Trustees' fees and expenses .................................. 13,000 19,417 18,188
Other ........................................................ 135 15,978 6,052
---------------------------------------------
Total expenses .......................................... 1,215,945 1,481,235 2,039,769
---------------------------------------------
Net investment income .................................. 9,191,413 10,505,611 8,839,586
---------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ................................................. (3,072,458) 98,482 18,354,800
Foreign currency transactions ............................... 3,072,382 -- --
---------------------------------------------
Net realized gain (loss) ................................ (76) 98,482 18,354,800
Net unrealized appreciation (depreciation) on:
Investments ................................................. (3,990,314) 229,386 9,072,653
Translation of assets and liabilities
denominated in foreign currencies ............................ 660,415 -- --
---------------------------------------------
Net unrealized appreciation (depreciation) .............. (3,329,899) 229,386 9,072,653
---------------------------------------------
Net realized and unrealized gain (loss) ....................... (3,329,975) 327,868 27,427,453
---------------------------------------------
Net increase in net assets resulting from operations .......... $ 5,861,438 $10,833,479 $36,267,039
=============================================
Franklin
Adjustable Franklin Franklin
U.S. Government Equity Adjustable Rate
Securities FundIncome Fund Securities Fund
---------------------------------------------
<S> <C> <C> <C>
Investment income:*
Dividends .................................................... $22,969,711 $14,097,622 $1,239,654
Interest ..................................................... -- 1,172,968 --
---------------------------------------------
Total investment income ................................. 22,969,711 15,270,590 1,239,654
---------------------------------------------
Expenses:
Management fees (Note 6) ..................................... -- 1,783,336 --
Administrative fees (Note 6) ................................. 363,663 -- 19,960
Distribution fees (Note 6)
Class I ..................................................... 899,571 757,490 48,558
Class II .................................................... -- 310,656 --
Transfer agent fees (Note 6) ................................. 315,879 362,289 16,093
Custodian fees ............................................... -- 8,572 --
Reports to shareholders ...................................... 142,102 134,726 6,235
Registration and filing fees ................................. 29,961 41,141 13,005
Professional fees ............................................ 18,709 20,110 5,791
Trustees' fees and expenses .................................. 37,321 32,885 1,989
Other ........................................................ 18,624 7,748 863
---------------------------------------------
Total expenses .......................................... 1,825,830 3,458,953 112,494
---------------------------------------------
Net investment income .................................. 21,143,881 11,811,637 1,127,160
---------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ................................................. (4,382,996) 17,033,346 (144,543)
Foreign currency transactions ............................... -- (34,049) --
---------------------------------------------
Net realized gain (loss) ................................ (4,382,996) 16,999,297 (144,543)
Net unrealized appreciation on:
Investments ................................................. 8,545,202 41,582,753 369,436
Translation of assets and liabilities
denominated in foreign currencies ............................ -- 1,103 --
---------------------------------------------
Net unrealized appreciation ............................. 8,545,202 41,583,856 369,436
---------------------------------------------
Net realized and unrealized gain .............................. 4,162,206 58,583,153 224,893
---------------------------------------------
Net increase in net assets resulting from operations .......... $25,306,087 $70,394,790 $1,352,053
=============================================
*net of foreign taxes of $205,169 for the Equity Income Fund.
FRANKLIN INVESTORS SECURITIES TRUST
Financial Statements (continued)
Statements of Changes in Net Assets
for the years ended October 31, 1997 and 1996
Franklin Global Franklin Short-Intermediate
Government Income Fund U.S. Government Securities Fund
----------------------------------------------------------------
1997 1996 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................... $ 9,191,413 $ 11,369,376 $ 10,505,611 $ 11,482,507
Net realized gain (loss) from investments
and foreign currency transactions ........ (76) 962,741 98,482 (300,618)
Net unrealized appreciation (depreciation) on
investments and translation of assets and
liabilities denominated in foreign currencies (3,329,899) 4,017,050 229,386 (1,357,852)
----------------------------------------------------------------
Net increase in net assets resulting from
operations ............................... 5,861,438 16,349,167 10,833,479 9,824,037
Distributions to shareholders from:
Net investment income:
Class I ................................ (9,275,930) (10,401,793) (10,697,486) (11,299,126)
Class II ............................... (254,743) (159,145) -- --
Advisor Class .......................... (40,774) -- (12,468) --
----------------------------------------------------------------
Total distributions to shareholders ...... (9,571,447) (10,560,938) (10,709,954) (11,299,126)
Capital share transactions (Note 3)
Class I ................................. (15,684,110) (33,016,472) (4,111,244) (10,540,555)
Class II ................................ 869,332 2,391,036 -- --
Advisor Class ........................... 762,031 -- 381,098 --
----------------------------------------------------------------
Total capital share transactions ......... (14,052,747) (30,625,436) (3,730,146) (10,540,555)
----------------------------------------------------------------
Net decrease in net assets .......... (17,762,756) (24,837,207) (3,606,621) (12,015,644)
Net assets:
Beginning of year ........................ 141,325,700 166,162,907 196,041,796 208,057,440
----------------------------------------------------------------
End of year .............................. $123,562,944 $141,325,700 $192,435,175 $196,041,796
================================================================
Undistributed net investment income (Accumulated
distributions in excess of net investment income)
included in net assets:
End of year ............................. $ (184,646) $ 259,884 $ 497,544 $ 701,887
================================================================
Franklin Convertible Franklin Adjustable
Securities Fund U.S. Government Securities Fund
----------------------------------------------------------------
1997 1996 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................... $ 8,839,586 $ 5,369,753 $ 21,143,881 $ 27,128,106
Net realized gain (loss) from investments and
foreign currency transactions ............ 18,354,800 9,634,023 (4,382,996) (8,331,753)
Net unrealized appreciation on investments and
translation of assets and liabilities denominated
in foreign currencies .................... 9,072,653 1,567,232 8,545,202 10,070,322
----------------------------------------------------------------
Net increase in net assets resulting from
operations............................... 36,267,039 16,571,008 25,306,087 28,866,675
Distributions to shareholders from:
Net investment income:
Class I ................................ (7,148,153) (5,000,306) (20,946,338) (27,723,298)
Class II ............................... (764,202) (174,577) -- --
Net realized gains:
Class I ................................ (9,004,822) (4,634,096)
Class II ............................... (857,185) (30,571) -- --
----------------------------------------------------------------
Total distributions to shareholders ...... (17,774,362) (9,839,550) (20,946,338) (27,723,298)
Capital share transactions (Note 3)
Class I ................................. 65,369,154 41,026,026 (66,447,672) (113,435,575)
Class II ................................ 22,239,207 10,322,156 -- --
----------------------------------------------------------------
Total capital share transactions ......... 87,608,361 51,348,182 (66,447,672) (113,435,575)
----------------------------------------------------------------
Net increase (decrease) in net assets 106,101,038 58,079,640 (62,087,923) (112,292,198)
Net assets:
Beginning of year ........................ 141,812,458 83,732,818 397,078,384 509,370,582
----------------------------------------------------------------
End of year .............................. $247,913,496 $141,812,458 $334,990,461 $397,078,384
================================================================
Undistributed net investment income included
in net assets:
End of year ............................. $ 1,287,973 $ 360,742 $ 955,056 $ 757,513
================================================================
Franklin Equity Franklin Adjustable
Income Fund Rate Securities Fund
----------------------------------------------------------------
1997 1996 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................... $ 11,811,637 $ 9,016,420 $ 1,127,160 $ 851,994
Net realized gain (loss) from investments and
foreign currency transactions ............ 16,999,297 5,500,551 (144,543) (67,763)
Net unrealized appreciation on investments and
translation of assets and liabilities denominated
in foreign currencies.................... 41,583,856 15,107,182 369,436 163,341
----------------------------------------------------------------
Net increase in net assets resulting
from operations.......................... 70,394,790 29,624,153 1,352,053 947,572
Distributions to shareholders from:
Net investment income:
Class I ................................ (10,821,047) (8,653,540) (1,127,160) (851,994)
Class II ............................... (874,988) (244,243) -- --
Net realized gains:
Class I ................................ (5,098,255) (4,623,214) -- --
Class II ............................... (396,739) (30,854) -- --
----------------------------------------------------------------
Total distributions to shareholders ...... (17,191,029) (13,551,851) (1,127,160) (851,994)
Capital share transactions (Note 3)
Class I ................................. 57,149,819 62,463,113 5,205,073 (1,401,961)
Class II ................................ 22,298,986 17,359,834 -- --
----------------------------------------------------------------
Total capital share transactions ......... 79,448,805 79,822,947 5,205,073 (1,401,961)
----------------------------------------------------------------
Net increase (decrease) in net assets 132,652,566 95,895,249 5,429,966 (1,306,383)
Net assets:
Beginning of year ........................ 265,179,085 169,283,836 15,707,373 17,013,756
----------------------------------------------------------------
End of year .............................. $397,831,651 $265,179,085 $21,137,339 $15,707,373
================================================================
Undistributed net investment income included
in net assets:
End of year ............................. $ 603,756 $ 522,203 $-- $--
================================================================
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Investors Securities Trust (the Trust) is registered under the
Investment Company Act of 1940 as an open-end investment company, consisting of
six separate series (the Funds). All Funds are diversified except Franklin
Global Government Income Fund (the Global Fund). The Funds and their investment
policies are:
Global Income Growth and Income Income
- ------------------------------------------------------------------------
Global Fund Convertible Fund Short-Intermediate Fund
Equity Income Fund Adjustable U.S. Government Fund
Adjustable Rate Fund
The Adjustable U.S. Government Fund and the Adjustable Rate Fund invest
substantially all of their assets in the U.S. Government Adjustable Rate
Mortgage Portfolio and the Adjustable Rate Securities Portfolio, respectively.
The Trust is registered under the Investment Company Act of 1940 as a
diversified, open end investment company having the same investment objectives
as the Funds. The financial statements of the Trust, including the Statement of
Investments, are included elsewhere in this report and should be read in
conjunction with the Funds financial statements.
The following summarizes the Funds' significant accounting policies.
a. Security Valuation:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Restricted securities and securities for
which market quotations are not readily available are valued at fair value as
determined by management in accordance with procedures established by the Board
of Trustees.
The values of the Adjustable U.S. Government Fund and the Adjustable Rate Fund
reflect their proportionate interest in the net assets of the U.S. Government
Adjustable Rate Mortgage Portfolio and the Adjustable Rate Securities Portfolio,
respectively. At October 31, 1997, the Adjustable U.S. Government Fund owns 98%
of the U.S. Government Adjustable Rate Mortgage Portfolio and the Adjustable
Rate Fund owns 94% of the Adjustable Rate Securities Portfolio. The Portfolios'
shares held by the Funds are valued at the net asset value of the Portfolios.
b. Income Taxes:
No provision has been made for income taxes because each Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.
c. Security Transactions, Investment Income, Expenses and Distributions:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Bond discount is
amortized on an income tax basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (cont.)
c. Security Transactions, Investment Income, Expenses and Distributions: (cont.)
Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of net assets of each Fund to the combined net assets. Other expenses are
charged to each Fund on a specific identification basis.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
Distributions received by the Trust from securities may be a return of capital
(ROC). Such distributions reduce the cost basis of the securities, and any
distributions in excess of the cost basis are recognized as capital gains.
d. Accounting Estimates:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
e. Foreign Currency Translation:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
f. Forward Exchange Contract:
The Global Fund may enter into forward exchange contracts to hedge against
foreign exchange risks. These contracts are valued daily and the Fund's equity
therein is included in the Statement of Assets and Liabilities. Realized and
unrealized gains and losses are included in the Statement of Operations.
2. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Global Fund has been a party to financial instruments with off-balance-sheet
risk, primarily forward exchange contracts in order to minimize the impact of
the Fund from adverse changes in the relationship between the U.S. dollar and
foreign currencies and interest rates. These instruments involve market risk in
excess of the amount recognized on the Statement of Assets and Liabilities. Some
of these risks have been minimized by offsetting contracts. Risks arise from the
possible inability of counterparties to meet the terms of their contracts,
future movement in currency values and interest rates and contract positions
that are not exact offsets. The contract amount indicates the extent of the
Fund's involvement in such contracts.
A forward exchange contract is an agreement between two parties to exchange
different currencies at a specific rate at an agreed future date. At 10/31/97,
the Fund has outstanding forward exchange contracts for the sale of currencies
as set out below. The contracts are reported in the financial statements at the
Fund's net equity, as measured by the difference between the forward exchange
rates at the reporting date and the forward exchange rates at the day of entry
into the contract.
<TABLE>
<CAPTION>
In Settlement Unrealized
Contracts to Sell Exchange for Date Gain/(Loss)
<S> <C> <C> <C>
300,000 Australian dollars U.S. $208,000 12/02/97U.S. $ (3,116)
210,000 New Zealand dollars 129,644 12/15/97 (749)
----------------------------------
U.S. $337,644 (3,865)
----------
Net unrealized loss on offsetting forward exchange contracts (630,430)
-------------
Unrealized loss on forward exchange contracts (634,295)
-------------
Net unrealized gain on offsetting forward exchange contracts 950,736
-------------
Net unrealized gain on forward exchange contracts U.S. $316,441
=============
</TABLE>
3. TRUST SHARES
Effective January 2, 1997, the Short-Intermediate Fund and the Global Fund
offered Advisor Class shares to qualified investors. The shares have the same
rights except for their initial sales load, distribution fees, voting rights on
matters affecting a single class and the exchange privilege of each class. All
of the the Short-Intermediate Fund's outstanding shares before that date were
designated as Class I shares.
3. TRUST SHARES (cont.)
At October 31, 1997, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Funds' shares were as follows:
<TABLE>
<CAPTION>
Global Government Short-Intermediate Convertible
Income Fund U.S. Government Securities Fund Securities Fund
Shares Amount Shares Amount Shares Amount
Class I Shares:
1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold 2,472,734 $20,945,795 9,455,984 $ 96,723,865 7,074,889 $98,888,262
Shares issued in reinvestment
of distributions 576,140 4,904,638 610,793 6,250,094 916,933 12,136,488
Shares redeemed (4,879,312) (41,534,543) (10,469,896) (107,085,203) (3,302,613) (45,655,596)
------------------------------------------------------------------------------------
Net increase (decrease)(1,830,438)$(15,684,110) (403,119) $ (4,111,244) 4,689,209 $65,369,154
====================================================================================
1996
Shares sold 4,025,707 $33,831,552 7,187,123 $ 73,976,114 4,365,828 $56,759,465
Shares issued in reinvestment
of distributions 627,075 5,249,077 656,342 6,749,593 544,756 6,898,946
Shares redeemed (8,597,709) (72,097,101) (8,876,550) (91,266,262) (1,733,409) (22,632,385)
------------------------------------------------------------------------------------
Net increase (decrease)(3,944,927 $(33,016,472) (1,033,085) $(10,540,555) 3,177,175 $41,026,026
====================================================================================
Class II Shares:
1997
Shares sold 314,368 $ 2,666,891 1,693,202 $23,703,881
Shares issued in reinvestment
of distributions 18,565 157,895 96,754 1,282,945
Shares redeemed (228,727) (1,955,454) (197,081) (2,747,619)
------------------------------------------------------------------------------------
Net increase 104,206 $ 869,332 1,592,875 $22,239,207
====================================================================================
1996
Shares sold 346,306 $ 2,915,042 804,020 $10,462,164
Shares issued in reinvestment
of distributions 11,601 97,238 12,211 157,571
Shares redeemed (73,846) (621,244) (22,905) (297,579)
------------------------------------------------------------------------------------
Net increase 284,061 $ 2,391,036 793,326 $ 10,322,156
====================================================================================
Advisor Class Shares:
1997+
Shares sold 102,752 $885,499 37,960 $ 387,372
Shares issued in reinvestment
of distributions 4,741 40,043 393 4,015
Shares redeemed (19,378) (163,511) (1,004) (10,289)
---------------------------------------------------------
Net increase 88,115 $ 762,031 37,349 $ 381,098
=========================================================
</TABLE>
+For the period January 2, 1997 (effective date) to October 31, 1997 for the
Advisor Class of shares.
<TABLE>
<CAPTION>
3. TRUST SHARES (cont.)
Adjustable U.S. Government Adjustable Rate
Securities Fund Equity Income Fund Securities Fund
------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------------
Class I Shares:
1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold 19,504,396 $183,679,079 6,936,844 $125,149,684 2,515,583 $24,890,014
Shares issued in reinvestment
of distributions 1,309,703 12,299,705 762,734 13,249,367 91,780 910,284
Shares redeemed (27,867,699) (262,426,456) (4,489,818) (81,249,232) (2,076,570) (20,595,225)
------------------------------------------------------------------------------------
Net increase
(decrease) (7,053,600)$ (66,447,672) 3,209,760 $ 57,149,819 530,793 $ 5,205,073
====================================================================================
1996
Shares sold 14,565,477 $136,048,405 6,911,802 $110,237,707 686,370 $ 6,733,448
Shares issued in reinvestment
of distributions 1,655,133 15,418,849 674,366 10,650,968 65,447 642,723
Shares redeemed (28,356,704) (264,902,829) (3,657,228) (58,425,562) (892,821) (8,778,132)
------------------------------------------------------------------------------------
Net increase
(decrease) (12,136,094)$(113,435,575) 3,928,940 $ 62,463,113 (141,004)$ (1,401,961)
====================================================================================
Class II Shares:
1997
Shares sold 1,537,907 $ 27,820,253
Shares issued in reinvestment
of distributions 64,902 1,133,280
Shares redeemed (364,896) (6,654,547)
-----------------------
Net increase 1,237,913 $ 22,298,986
=======================
1996
Shares sold 1,133,269 $ 18,099,689
Shares issued in reinvestment
of distributions 15,808 251,793
Shares redeemed (61,758) (991,648)
-----------------------
Net increase 1,087,319 $ 17,359,834
=======================
</TABLE>
4. INCOME TAXES
At October 31, 1997, the Funds had tax basis capital losses, which may be
carried over to offset future capital gains. Such losses expire as follows:
<TABLE>
<CAPTION>
Global Short-Intermediate Adjustable
Government U.S. Government U.S. Government Adjustable Rate
Income Fund Securities Fund Securities Fund Securities Fund
----------------------------------------------------------------
Capital loss carryovers expiring in:
<S> <C> <C> <C> <C>
2000 ........................................... $-- $-- $ 1,925,614 $ --
2001 ........................................... -- -- 7,701,615 --
2002 ........................................... -- 2,335,397 41,867,757 414,821
2003 ........................................... 2,971,284 3,564,637 18,176,270 286,740
2004 ........................................... -- 300,618 8,741,194 66,100
2005 ........................................... -- -- 4,484,844 95,706
----------------------------------------------------------------
$2,971,284 $6,200,652 $82,897,294 $863,367
================================================================
</TABLE>
At October 31, 1997, the net unrealized appreciation (depreciation) based on the
cost of investments for income tax purposes were as follows:
<TABLE>
<CAPTION>
Global Short-Intermediate Adjustable
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>
Investment at cost $124,273,516 $188,126,025 $227,475,851 $356,994,643 $330,902,056 $21,083,576
==========================================================================================
Unrealized appreciation 1,335,596 2,531,509 17,269,741 -- 69,217,601 58,899
Unrealized depreciation (3,985,644) -- (4,352,449) (20,695,845) (3,345,374) --
------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) $ (2,650,048) $ 2,531,509 $ 12,917,292 $ (20,695,845) $ 65,872,227 $ 58,899
==========================================================================================
</TABLE>
Net realized capital gains (losses) differ for financial statement and tax
purposes primarily due to differing treatments of wash sales and foreign
currency transactions.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended October 31, 1997 were as follows:
<TABLE>
<CAPTION>
Global Short-Intermediate Adjustable
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>
Purchases $231,487,584 $69,964,454 $310,201,915 $159,111,678 $157,548,391 $22,512,317
Sales $241,711,937 $75,025,911 $240,338,095 $224,454,213 $ 90,811,485 $17,267,124
</TABLE>
6. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors of
Franklin Advisers, Inc. (Advisers), Franklin/Templeton Distributors, Inc.
(Distributors), Franklin Templeton Services, Inc. (FT Services), Templeton
Investment Counsel, Inc. (TICI), Franklin/Templeton Investor Services, Inc.
(Investor Services), and of the Securities Portfolio and the Mortgage Portfolio,
the Trust's investment manager, principal underwriter, administrative managers,
transfer agent, and the Funds in which the Adjustable US Government Fund and the
Adjustable Rate Fund invest, respectively.
Under an agreement with Advisers, FT Services provides administrative services
to the Global Fund, the Short-Intermediate Fund, the Convertible Fund and the
Equity Income Fund. The fee is paid by Advisers based on average daily net
assets, and is not an additional expense of the funds.
Under a subadvisory agreement, Templeton Investment Counsel, Inc. (Investment
Counsel) provides subadvisory services to the Global Fund and receives from
Advisers fees based on the month end net assets of the Fund.
The Funds pay an investment management fee to Advisers based on the average net
assets of the Funds, except Adjustable U.S. Government Fund and the Adjustable
Rate Fund, as follows:
Annualized
Fee Rate Month End Net Assets
0.625% First $100 million
0.500% Over $100 million, up to and including $250 million
0.450% Over $250 million
The Adjustable U.S. Government Fund and the Adjustable Rate Fund pay an
administrative fee to Advisers based on the average net assets of the Funds, as
follows:
Annualized
Fee Rate Average Daily Net Assets
0.10% First $5 billion
0.09% Over $5 billion, up to and including $10 billion
0.08% Over $10 billion
The Adjustable U.S. Government Fund and the Adjustable Rate Fund reimburse
Distributors up to 0.25% per year of its average daily net assets, the
Short-Intermediate Fund reimburses Distributors up to 0.10% per year of its
average daily net assets, the Global Fund reimburses Distributors up to 0.15%
and 0.65% per year of the average daily net assets of Class I and Class II,
respectively, and the Convertible Fund and Equity Income Fund reimburse
Distributors up to 0.25% and 1.00% per year of the average daily net assets of
Class I and Class II, respectively, for costs incurred in marketing the Funds'
shares.
6. TRANSACTIONS WITH AFFILIATES (cont.)
Distributors received (paid) net commissions on sales of the Funds shares, and
received contingent deferred sales charges for the year as follows:
<TABLE>
<CAPTION>
Global Short-Intermediate Adjustable
Government U.S. Government Convertible U.S. Government Equity Adjustable Rate
Income Fund Securities Fund Securities Fund Securities Fund Income Fund Securities Fund
------------------------------------------------------------------------------------------
Net Commissions
<S> <C> <C> <C> <C> <C> <C>
received (paid) $16,188 $(63,996) $(156,389) $(434) $(239,155) $9,218
Contingent Deferred
Sales Charge $ 3,054 $ -- $ 8,497 $ -- $ 13,137 $ --
</TABLE>
The Trust paid shareholder servicing fees of $1,132,904, of which $1,072,924 was
paid to Investor Services.
7. RESTRICTED SECURITIES
The Funds may purchase securities through a private offering that generally
cannot be sold to the public without prior registration under the Securities Act
of 1933. The costs of registering such securities are paid by the issuer.
Restricted securities held at October 31, 1997 are as follows:
<TABLE>
<CAPTION>
Shares/
Warrants Issuer Acquisition Date Cost Value
------------------------------------------------------------------------------------------
Convertible Fund
<S> <C> <C> <C>
73,000 CMS Energy Trust I, 7.75%, cvt. pfd. (1.58% of Net Assets) 6/18/97 $3,650,000 $3,918,414
Equity Income Fund
80,000 CMS Energy Trust I, 7.75%, cvt. pfd. (1.08% of Net Assets) 6/18/97 4,000,000 4,294,152
</TABLE>
8. CREDIT RISK
The Convertible Fund has 66.7% of its portfolio invested in lower rated and
comparable quality unrated high yield securities, which 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.
The Convertible Fund has investments in excess of 10% of its total net assets in
the Electronics industry. Such concentration may subject the Fund more
significantly to economic changes occurring within that industry.
FRANKLIN INVESTORS SECURITIES TRUST
Report of Independent Accountants
To the Shareholders and Board of Trustees
of Franklin Investors Securities Trust:
We have audited the accompanying statements of assets and liabilities of the six
Funds comprising the Franklin Investors Securities Trust, including each Fund's
statement of investments, as of October 31, 1997, and the related statements of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods presented. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
six Funds comprising the Franklin Investor Securities Trust, as of October 31,
1997, the results of their operations for the year then ended, the changes in
their net assets for each of the two years in the period then ended, and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
December 5, 1997
FRANKLIN INVESTORS SECURITIES TRUST
Tax Information
Under Section 854(b)(2) of the Internal Revenue Code, the Funds hereby designate
the ordinary income dividends as income qualifying the dividends received
deduction for the fiscal year ended October 31, 1997 as follows:
Convertible Fund 17.50% Equity Fund 91.92%
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Financial Highlights
<TABLE>
<CAPTION>
U.S. Government Adjustable Rate Mortgage Portfolio
Year ended October 31,
----------------------------------------------------------
1997 1996 1995 1994 19931
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year ............ $9.37 $9.33 $9.19 $9.82 $9.91
----------------------------------------------------------
Income from investment operations:
Net investment income ........................ .593 .589 .572 .415 .313
Net realized and unrealized gain (loss) ...... .110 .040 .140 (.630) (.090)
----------------------------------------------------------
Total from investment operations .............. .703 .629 .712 (.215) .223
Less distributions from net investment income . (.593) (.589) (.572) (.415) (.313)
----------------------------------------------------------
Net asset value, end of year .................. $9.48 $9.37 $9.33 $9.19 $9.82
==========================================================
Total return* ................................. 7.74% 6.95% 7.99% (2.22)% 2.28%
Ratios/supplemental data
Net assets, end of year (000's) ............... $342,541 $406,431 $522,802 $747,471 $2,130,229
Ratio of average net assets:
Expenses ..................................... .25% .25% .18% .02% .27%**
Expenses excluding waiver and payments by affiliate .43% .42% .43% .42% .41%**
Net investment income ....................... 6.31% 6.31% 6.17% 4.01% 4.15%**
Portfolio turnover rate ....................... 20.84% 24.63% 20.16% 56.43% 76.55%
1For the nine months ended October 31, 1993
*Total return is not annualized
**Annualized
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Statement of Investments, October 31, 1997
PRINCIPAL
U.S. Government Adjustable Rate Mortgage Portfolio AMOUNT VALUE
<S> <C> <C>
Adjustable Rate Mortgage Securities 97.2%
Federal Home Loan Mortgage Corp. (FHLMC) 19.8%
FHLMC, Cap 11.253%, Margin 1.75% + CMT, Resets Annually, 7.625%, 11/01/16 ..... $ 4,718,503 $ 4,969,670
FHLMC, Cap 12.723%, Margin 2.189% + CMT, Resets Annually, 7.853%, 4/01/19 ..... 2,117,740 2,225,491
FHLMC, Cap 12.744%, Margin 2.00% + CMT, Resets Annually, 7.685%, 7/01/18 ...... 4,267,699 4,428,848
FHLMC, Cap 12.806%, Margin 2.23% + CMT, Resets Annually, 7.847%, 4/01/18 ...... 6,712,722 7,098,301
FHLMC, Cap 13.006%, Margin 2.00% + CMT, Resets Annually, 7.654%, 9/01/19 ...... 5,388,451 5,675,171
FHLMC, Cap 13.156%, Margin 1.915% + CMT, Resets Annually, 7.644%, 12/01/16 .... 2,637,333 2,776,901
FHLMC, Cap 13.246%, Margin 2.175% + CMT, Resets Annually, 7.831%, 10/01/18 .... 2,528,652 2,664,694
FHLMC, Cap 13.292%, Margin 2.115% + CMT, Resets Annually, 7.762%, 3/01/19 ..... 2,164,913 2,281,234
FHLMC, Cap 13.366%, Margin 2.102% + CMT, Resets Annually, 7.62%, 3/01/18 ...... 4,072,207 4,288,319
FHLMC, Cap 13.37%, Margin 2.04% + CMT, Resets Annually, 7.665%, 4/01/19 ....... 8,453,614 8,881,030
FHLMC, Cap 13.65%, Margin 2.249% + CMT, Resets Annually, 7.994%, 7/01/20 ...... 6,081,007 6,401,842
FHLMC, Cap 13.793%, Margin 2.214% + CMT, Resets Annually, 7.944%, 11/01/19 .... 2,733,821 2,875,488
FHLMC, Cap 13.879%, Margin 2.089% + CMT, Resets Annually, 7.746%, 4/01/18 ..... 7,879,212 8,285,070
FHLMC, Cap 14.307%, Margin 1.957% + 3CMT, Resets Every 3 Years, 8.751%, 12/01/21 1,847,307 1,940,153
FHLMC, Cap 14.90%, Margin 2.546% + CMT, Resets Annually, 8.096%, 2/01/19 ...... 2,959,606 3,174,947
-------------
Total Federal Home Loan Mortgage Corp. (Cost $66,725,193) ..................... 67,967,159
-------------
Federal National Mortgage Association (FNMA) 68.0%
FNMA, Cap 12.00%, Margin 1.25% + COFI, Resets Monthly, 6.112%, 11/01/35 ....... 9,394,906 9,401,953
FNMA, Cap 12.605%, Margin 2.536% + 6 Month DR,
Resets Semi-Annually, 7.673%, 11/01/18 ................................... 2,264,248 2,363,898
FNMA, Cap 12.637%, Margin 2.00% + NCI, Resets Annually, 6.913%, 11/01/17 ...... 15,260,761 15,507,986
FNMA, Cap 12.64%, Margin 2.00% + CMT, Resets Annually, 7.686%, 3/01/19 ........ 3,993,972 4,179,732
FNMA, Cap 12.66%, Margin 1.75% + 6 Month DR,
Resets Semi-Annually, 6.929%, 1/01/19 ......................................... 10,589,417 10,916,418
FNMA, Cap 12.662%, Margin 1.25% + COFI, Resets Monthly, 6.888%, 1/01/19 ....... 2,967,682 2,985,132
FNMA, Cap 12.705%, Margin 1.25% + COFI, Resets Monthly, 6.103%, 9/01/18 ....... 11,214,476 11,133,284
FNMA, Cap 12.787%, Margin 1.25% + COFI, Resets Monthly, 7.477%, 1/01/19 ....... 2,903,508 2,992,297
FNMA, Cap 12.788%, Margin 2.11% + CMT, Resets Annually, 7.821%, 11/01/20 ...... 3,739,582 3,952,066
FNMA, Cap 12.804%, Margin 1.75% + CMT, Resets Annually, 7.426%, 5/01/19 ....... 4,860,978 5,107,430
FNMA, Cap 12.84%, Margin 2.762% + 6 Month DR, Resets Semi-Annually,
7.85%, 6/01/17................................................................ 3,007,607 3,163,462
FNMA, Cap 12.85%, Margin 2.078% + 5CMT, Resets Every 5 Years, 8.257%, 10/01/17 4,798,997 4,983,183
FNMA, Cap 12.89%, Margin 2.125% + 6 Month DR,
Resets Semi-Annually, 7.280%, 7/01/17........................................ 6,765,613 7,063,369
FNMA, Cap 12.938%, Margin 1.25% + COFI, Resets Monthly, 6.103%, 2/01/19 ....... 7,059,067 7,005,771
FNMA, Cap 12.993%, Margin 2.092% + CMT, Resets Annually, 7.745%, 12/01/19 ..... 3,268,174 3,456,454
FNMA, Cap 13.005%, Margin 1.97% + 3CMT, Resets Every 3 Years, 8.167%, 11/01/17 4,936,608 5,146,167
FNMA, Cap 13.01%, Margin 2.10% + CMT, Resets Annually, 7.733%, 6/01/19 ........ 4,872,351 5,152,804
FNMA, Cap 13.03%, Margin 1.25% + COFI, Resets Monthly, 6.917%, 2/01/20 ........ 8,468,598 8,518,393
FNMA, Cap 13.03%, Margin 1.75% + 6 Month TB, Resets Semi-Annually,
7.158%, 12/01/20 .............................................................. 5,205,039 5,372,278
FNMA, Cap 13.063%, Margin 2.175% + CMT, Resets Annually, 7.749%, 4/01/19 ...... 5,414,705 5,729,138
FNMA, Cap 13.083%, Margin 2.005% + CMT, Resets Annually, 7.635%, 6/01/19 ...... 4,708,480 4,977,241
FNMA, Cap 13.147%, Margin 1.895% + CMT, Resets Annually, 7.584%, 4/01/19 ...... 4,364,388 4,612,504
FNMA, Cap 13.202%, Margin 2.478% + 6 Month DR,
Resets Semi-Annually, 7.683%, 11/01/26 ........................................ 2,536,223 2,672,418
FNMA, Cap 13.249%, Margin 2.00% + CMT, Resets Annually, 7.636%, 6/01/19 2,893,430 3,025,284
FNMA, Cap 13.281%, Margin 2.00% + CMT, Resets Annually, 7.637%, 10/01/19 ...... 7,435,748 7,860,181
FNMA, Cap 13.32%, Margin 1.25% + COFI, Resets Monthly, 7.434%, 4/01/03 ........ 6,372,700 6,460,007
FNMA, Cap 13.452%, Margin 2.148% + CMT, Resets Annually, 7.84%, 9/01/22 ....... 11,322,763 11,927,173
FNMA, Cap 13.457%, Margin 1.903% + CMT, Resets Annually, 7.601%, 6/01/18 ...... 5,587,954 5,905,686
FNMA, Cap 13.662%, Margin 2.177% + CMT, Resets Annually, 7.86%, 3/01/21 ....... 4,946,037 5,233,996
FNMA, Cap 13.791%, Margin 2.143% + CMT, Resets Annually, 7.916%, 12/01/20 $ 7,701,866 $ 8,153,889
FNMA, Cap 13.797%, Margin 2.20% + CMT, Resets Annually, 7.747%, 3/01/19 ....... 2,392,531 2,517,278
FNMA, Cap 13.80%, Margin 0.94% + 6 Month DR, Resets Semi-Annually, 6.794%, 7/01/245,287,705 5,287,441
FNMA, Cap 13.887%, Margin 2.25% + CMT, Resets Annually, 7.775%, 2/01/19 ....... 3,659,439 3,855,915
FNMA, Cap 13.896%, Margin 2.25% + CMT, Resets Annually, 7.989%, 12/01/18 2,866,026 3,034,148
FNMA, Cap 14.069%, Margin 2.089% + CMT, Resets Annually, 7.755%, 1/01/19 ...... 6,096,910 6,448,397
FNMA, Cap 14.142%, Margin 2.118% + CMT, Resets Annually, 7.77%, 3/01/21 ....... 1,906,283 2,005,067
FNMA, Cap 14.354%, Margin 2.07% + 5CMT, Resets Every 5 Years, 8.168%, 5/01/21 . 9,771,483 10,140,454
FNMA, Cap 14.42%, Margin 2.099% + CMT, Resets Annually, 7.799%, 3/01/20 ....... 3,044,716 3,221,492
FNMA, Cap 14.887%, Margin 1.72% + CMT, Resets Annually, 7.421%, 1/01/16 ....... 7,983,277 8,267,243
FNMA, Cap 14.952%, Margin 2.523% + CMT, Resets Annually, 8.356%, 5/01/19 ...... 2,885,536 3,098,172
-------------
Total Federal National Mortgage Association (Cost $231,376,068) ............... 232,835,201
-------------
Government National Mortgage Association (GNMA) 9.4%
GNMA, Cap 10.00%, Margin 1.50% + CMT, Resets Annually, 7.00%, 1/20/24 6,821,605 7,014,589
dGNMA, Cap 10.50%, Margin 1.50% + CMT, Resets Annually, 5.50%, 12/01/27 ........ 9,000,000 8,980,313
dGNMA, Cap 11.00%, Margin 1.50% + CMT, Resets Annually, 6.00%, 12/01/27 ........ 10,000,000 10,078,125
GNMA, Cap 11.00%, Margin 2.50% + CMT, Resets Annually, 7.00%, 7/20/25 ......... 5,959,124 6,249,333
-------------
Total Government National Mortgage Association (Cost $31,957,224) ............. 32,322,360
-------------
bRepurchase Agreements 8.0%
Joint Repurchase Agreement, 5.671%, 11/03/97, (Maturity Value $27,393,124)
(Cost $27,380,185) ............................................................. 27,380,185 27,380,185
-------------
Aubrey G. Lanston & Co., Inc.
B.A. Securities, Inc.
Barclays de Zoete Wedd Securities, Inc.
Bear, Stearns & Co., Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson North America, L.L.C.
Fuji Securities, Inc.
Lehman Brothers, Inc.
Sanwa Securities (USA) Co., L.P.
SBC Warburg, Inc.
UBS Securities, L.L.C.
Collateralized by U.S. Treasury Bills and Notes
Total Investments (Cost $357,438,670) 105.2% .................................. 360,504,905
Other Assets, less Liabilities (5.2%) ......................................... (17,963,815)
-------------
Net Assets 100.0% ............................................................. $342,541,090
=============
PORTFOLIO ABBREVIATIONS:
3CMT - 3 Year Constant Maturity Treasury Index
5CMT - 5 Year Constant Maturity Treasury Index
CMT - 1 Year Constant Maturity Treasury Index
COFI - Eleventh District Cost of Funds Index
DR - Discount Rate
NCI - National Median Cost of Funds Index
TB - Treasury Bill Rate
</TABLE>
bInvestment is through participation in a joint account with other funds managed
by the investment advisor. At October 31, 1997, all repurchase agreements held
by the Portfolio had been entered into on that date.
dSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Financial Highlights
<TABLE>
<CAPTION>
Adjustable Rate Securities Portfolio
Year ended October 31,
----------------------------------------------------
1997 1996 1995 1994 19931
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year ............ $9.86 $9.81 $9.69 $10.03 $10.02
----------------------------------------------------
Income from investment operations:
Net investment income ........................ .616 .607 .625 .469 .368
Net realized and unrealized gain (loss) ...... .090 .050 .120 (.340) .010
----------------------------------------------------
Total from investment operations .............. .706 .657 .745 .129 .378
Less distributions from net investment income . (.616) (.607) (.625) (.469) (.368)
----------------------------------------------------
Net asset value, end of year .................. $9.95 $9.86 $9.81 $9.69 $10.03
====================================================
Total return* ................................. 7.38% 6.91% 7.94% 1.32% 3.83%
Ratios/supplemental data
Net assets, end of period (000's) ............. $22,540 $20,534 $27,079 $41,619 $124,309
Ratio of average net assets:
Expenses ..................................... .25% .25% .25% .25% .11%**
Expenses excluding waiver and payments by affiliate .44% .47% .47% .43% .47%**
Net investment income ........................ 6.20% 6.19% 6.36% 4.55% 4.76%**
Portfolio turnover rate ....................... 138.32% 46.78% 50.29% 192.06% 158.70%
</TABLE>
1For the nine months ended October 31, 1993.
*Total return is not annualized
**Annualized
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Statement of Investments, October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
Adjustable Rate Securities Portfolio AMOUNT VALUE
Adjustable Rate Mortgage Securities 80.1%
<S> <C> <C>
FNMA, Cap 12.65%, Margin 1.75% + NCI, Resets Monthly, 6.625%, 10/01/28 .......... $ 837,463 $ 842,388
FNMA, Cap 13.86%, Margin 1.84% + CMT, Resets Annually, 7.490%, 8/01/16 .......... 375,448 394,318
FNMA, Cap 14.68%, Margin 2.125% + 3CMT, Resets Every 3 Years, 8.627%, 8/01/22 ... 1,844,163 1,959,885
dGNMA, Cap 10.50%, Margin 1.50% + CMT, Resets Annually, 5.50%, 12/01/27 .......... 1,000,000 997,813
Homeowners Federal Savings, Cap 13.00%, Margin 1.75% + CMT,
Resets Annually, 7.407%, 1/25/18 ................................................ 887,457 902,710
PHMS, Cap 11.67%, Margin 2.67% + CMT, Resets Annually, 8.359%, 7/25/22 .......... 1,152,236 1,177,442
PHMS, Cap 12.02%, Margin 2.55% + CMT, Resets Annually, 8.144%, 4/25/22 .......... 598,746 602,676
RFC, Cap 10.00%, Margin 0.85% + COFI, Resets Monthly, 5.713%, 2/25/22 ........... 846,607 844,169
RFC, Cap 11.46%, Margin 2.25% + CMT, Resets Annually, 7.705%, 11/25/22 .......... 1,184,262 1,225,982
RTC, Cap 12.39%, Margin 1.61% + 6 Month DR, Resets Semi-Annually, 6.868%, 1/25/25 1,166,767 1,166,767
RTC, Cap 13.82%, Margin 0.92% + 3CMT, Resets Every 3 Years, 7.099%, 4/25/22 ..... 1,235,919 1,239,009
RTC, Cap 14.69%, Margin 1.55% + 3CMT, Resets Every 3 Years, 7.582%, 6/25/22 ..... 1,483,767 1,438,790
RTC, Cap 16.48%, Margin NACR - 0.15%, Resets Annually, 7.549%, 7/25/20 .......... 1,059,548 1,064,846
Salomon Brothers Mortgage Securities, Cap 14.00%, Margin 0.96% + NACR,
Resets Annually, 8.121%, 10/25/16 ............................................... 1,408,400 1,407,961
Saxon Mortgage Securities Corp., Cap 10.78%, Margin 2.78% + 6 Month LIBOR,
Resets Semi-Annually, 8.683%, 5/25/24 .......................................... 517,538 536,725
Saxon Mortgage Securities Corp., Cap 11.68%, Margin 2.13% + 6 Month LIBOR,
Resets Semi-Annually, 8.128%, 2/25/23 .......................................... 1,138,876 1,141,723
Travelers Mortgage Services, Inc., Cap 13.95%, Margin 2.25% + CMT,
Resets Annually, 7.902%, 12/25/18 ............................................... 757,017 758,674
Western Federal Savings and Loan Association, Cap 13.00%,
Margin 1.80% + COFI, Resets Monthly, 6.664%, 3/25/19 ........................... 335,058 342,938
-------------
Total Adjustable Rate Mortgage Securities (Cost $18,203,747) .................... 18,044,816
-------------
Fixed Rate Mortgage Securities 4.1%
Countrywide Mortgage-Backed Securities, Inc., Series 1994-I,
Class A8, 6.25%, 7/25/09 (Cost $917,871) ........................................ 943,825 931,160
-------------
Other Adjustable Rate Securities 4.3%
SBA, Cap 12.625%, Margin -0.125% + Prime, Resets Quarterly,
8.375%, 8/25/20 (Cost $975,901) ................................................. 905,183 971,941
-------------
U.S. Government Securities 8.9%
U.S. Treasury Notes, 5.75%, 9/30/99 (Cost $1,998,945) ........................... 2,000,000 2,005,002
-------------
bRepurchase Agreements 6.9%
Joint Repurchase Agreement, 5.671%, 11/03/97, (Maturity Value $1,547,322)
(Cost $1,546,591) ................................................................ 1,546,591 1,546,591
-------------
Aubrey G. Lanston & Co., Inc.
B.A. Securities, Inc.
Barclays de Zoete Wedd Securities, Inc.
Bear, Stearns & Co., Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson North America, L.L.C.
Fuji Securities, Inc.
Lehman Brothers, Inc.
Sanwa Securities (USA) Co., L.P.
SBC Warburg, Inc.
UBS Securities, L.L.C.
Collateralized by U.S. Treasury Bills and Notes
Total Investments (Cost $23,643,055) 104.3% ..................................... 23,499,510
Other Assets, less Liabilities (4.3%) ........................................... (959,648)
-------------
Net Assets 100.0% ............................................................... $22,539,862
=============
</TABLE>
PORTFOLIO ABBREVIATIONS
3CMT - 3 Year Constant Maturity Treasury Index
CMT - 1 Year Constant Maturity Treasury Index
COFI - Eleventh District Cost of Funds Index
DR - Discount Rate
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
LIBOR - London Interbank Offered Rate
NACR - National Average Contract Rate
NCI - National Median Cost of Funds Index
PHMS - Prudential Home Mortgage Securities
RFC - Residential Finance Corp.
RTC - Resolution Trust Corp.
SBA - Small Business Administration
bInvestment is through participation in a joint account with other funds managed
by the investment advisor. At October 31, 1997, all repurchase agreements held
by the Portfolio had been entered into on that date.
dSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Financial Statements
<TABLE>
<CAPTION>
Statements of Assets and Liabilities
October 31, 1997
U.S. Government
Adjustable Rate Adjustable Rate
Mortgage PortfolioSecurities Portfolio
---------------------------------------
<S> <C> <C>
Assets:
Investments in securities:
Cost ................................................................... $357,438,670 $23,643,055
======================================
Value .................................................................. 360,504,905 23,499,510
Cash .................................................................... -- 7,274
Receivables:
Investment securities sold ............................................. 821,558 1,105
Interest ............................................................... 2,373,126 135,508
---------------------------------------
Total assets ...................................................... 363,699,589 23,643,397
---------------------------------------
Liabilities:
Payables:
Investment securities purchased ........................................ 19,129,729 999,924
Capital shares redeemed ................................................ 1,946,394 93,797
Affiliates ............................................................. 68,239 4,009
Other liabilities ....................................................... 14,137 5,805
---------------------------------------
Total liabilities ................................................. 21,158,499 1,103,535
---------------------------------------
Net assets, at value ............................................. $342,541,090 $22,539,862
======================================
Net assets consist of:
Net unrealized appreciation (depreciation) ............................. $ 3,066,235 $ (143,545)
Accumulated net realized loss .......................................... (137,126,881) (2,729,247)
Capital shares ......................................................... 476,601,736 25,412,654
---------------------------------------
Net assets, at value .................................................... $342,541,090 $22,539,862
======================================
Shares outstanding ...................................................... 36,140,971 2,265,903
======================================
Net asset value and maximum offering price per share .................... $9.48 $9.95
======================================
</TABLE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Financial Statements (continued)
<TABLE>
<CAPTION>
Statements of Operations
for the year ended October 31, 1997
U.S. Government
Adjustable Rate Adjustable Rate
Mortgage PortfolioSecurities Portfolio
---------------------------------------
<S> <C> <C>
Investment income:
Interest ............................................................... $24,396,969 $1,562,033
---------------------------------------
Expenses:
Management fees (Note 5) ............................................... 1,487,256 96,727
Custodian fees ......................................................... 3,641 205
Reports to shareholders ................................................ 906 689
Professional fees ...................................................... 53,470 4,455
Trustees' fees and expenses ............................................ 6,531 387
Other .................................................................. 37,399 4,233
---------------------------------------
Total expenses .................................................... 1,589,203 106,696
Expenses waived/paid by affiliate (Note 5) ........................ (656,658) (45,274)
---------------------------------------
Net expenses ..................................................... 932,545 61,422
---------------------------------------
Net investment income ........................................... 23,464,424 1,500,611
---------------------------------------
Realized and unrealized gain:
Net realized gain from investments ..................................... 693,708 14,469
Net unrealized appreciation on investments ............................. 3,675,679 260,606
---------------------------------------
Net realized and unrealized gain ........................................ 4,369,387 275,075
---------------------------------------
Net increase in net assets resulting from operations .................... $27,833,811 $1,775,686
======================================
</TABLE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Financial Statements (continued)
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
for the years ended October 31, 1997 and 1996
U.S. Government Adjustable Rate
Adjustable Rate Mortgage Portfolio Securities Portfolio
--------------------------------------------------------------
1997 1996 1997 1996
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 23,464,424 $ 29,813,817 $ 1,500,611 $ 1,391,109
Net realized gain (loss) from investments 693,708 (419,303) 14,469 (37,828)
Net unrealized appreciation on investments 3,675,679 2,011,283 260,606 139,862
--------------------------------------------------------------
Net increase in net assets resulting
from operations 27,833,811 31,405,797 1,775,686 1,493,143
Distributions to shareholders from:
Net investment income (23,464,424) (29,813,817) (1,500,611) (1,391,109)
Capital share transactions (Note 2) (68,259,294) (117,962,940) 1,730,540 (6,646,687)
--------------------------------------------------------------
Net increase (decrease) in net assets (63,889,907) (116,370,960) 2,005,615 (6,544,653)
Net assets (there is no undistributed net investment
income at beginning or end of year):
Beginning of year 406,430,997 522,801,957 20,534,247 27,078,900
--------------------------------------------------------------
End of year $342,541,090 $406,430,997 $22,539,862 $20,534,247
==============================================================
</TABLE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Adjustable Rate Securities Portfolios (the Trust) is registered under the
Investment Company Act of 1940 as an open-end, diversified investment company,
consisting of two separate portfolios (the Portfolios) 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 investment objective of each Portfolio is to seek current
income.
The following summarizes the Portfolios' significant accounting policies.
a. Security Valuation:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Trustees.
b. Income Taxes:
No provision has been made for income taxes because each Portfolio's policy is
to qualify as a regulated investment company under the Internal Revenue Code and
distribute all of its taxable income.
c. Security Transactions, Investment Income, Expenses and Distributions:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Dividends from net
investment income are normally declared daily and distributed monthly to
shareholders.
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. Other
expenses are charged to each Portfolio on a specific identification basis.
d. Accounting Estimates:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. TRUST SHARES:
At October 31, 1997, there were an unlimited number of shares authorized ($0.01
par value). Transactions in each of the Portfolios' shares were as follow:
<TABLE>
<CAPTION>
U.S. Government Adjustable Adjustable Rate
Rate Mortgage Portfolio Securities Portfolio
------------------------------------------------------
Shares Amount Shares Amount
------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Shares sold ....................................... 14,468,647 $136,195,699 2,195,631 $21,698,569
Shares issued in reinvestment of distributions .... 2,492,654 23,464,406 151,507 1,500,610
Shares redeemed ...................................(24,217,403) (227,919,399) (2,164,571) (21,468,639)
------------------------------------------------------
Net Increase (decrease) ...................... (7,256,102)$ (68,259,294) 182,567 $ 1,730,540
======================================================
1996
Shares sold ....................................... 8,516,434 $ 79,504,622 741,450 $ 7,267,077
Shares issued in reinvestment of distributions .... 3,196,067 29,832,645 141,790 1,391,107
Shares redeemed ...................................(24,351,072) (227,300,207) (1,560,875) (15,304,871)
------------------------------------------------------
Net Decrease .................................(12,638,571)$(117,962,940) (677,635)$ (6,646,687)
======================================================
</TABLE>
3. INCOME TAXES
At October 31, 1997, the Portfolios had tax basis capital losses which may be
carried over to offset future capital gains. Such losses expire as follows:
U.S. Government
Adjustable Rate Adjustable Rate
Mortgage Portfolio Securities Portfolio
Capital loss carryovers
Expiring in:
2000 $ 44,745,908 $ 42,138
2001 17,182,002 50,908
2002 67,102,060 1,987,888
2003 7,677,608 609,391
2004 419,303 37,828
----------------------------
$137,126,881 $2,728,153
----------------------------
3. INCOME TAXES (cont.)
The cost of securities for income tax purposes is the same as that shown in the
investment portfolio.
At October 31, 1997, the net unrealized appreciation (depreciation) based on the
cost of investments for income tax purposes were as follows:
U.S. Government
Adjustable Rate Adjustable Rate
Mortgage Portfolio Securities Portfolio
---------------------------------------
Investments
at cost $357,438,670 $23,643,055
---------------------------------------
Unrealized
appreciation $ 4,622,271 98,232
Unrealized
depreciation (1,556,036) (241,777)
---------------------------------------
Net unrealized
appreciation
(depreciation) $ 3,066,235 $ (143,545)
---------------------------------------
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended October 31, 1997 were as follows:
U.S. Government
Adjustable Rate Adjustable Rate
Mortgage Portfolio Securities Portfolio
---------------------------------------
Purchases $ 74,103,904 $35,649,657
Sales $124,530,053 $32,484,549
5. TRANSACTIONS WITH AFFILIATES
Certain officers and directors of the Trust are also officers and/or directors
of Franklin Advisers, Inc. (Advisers), the Portfolios' investment manager (a
wholly-owned subsidiary of Franklin Resources, Inc.) and of Franklin Investors
Securities Trust and Institutional Fiduciary Trust.
The Portfolios pay an investment management fee to Advisers based on the average
net assets of the Portfolios as follows:
Annualized
Fee Rate Month End Net Assets
0.400% First $5 billion
0.350% Over $5 billion, up to and including $10 billion
0.330% Over $10 billion, up to and including $15 billion
Fees are further reduced on net assets over $15 billion.
Advisers agreed in advance to waive management fees as noted in the Statement of
Operations.
5. TRANSACTIONS WITH AFFILIATES (cont.)
<TABLE>
<CAPTION>
At October 31, 1997, 36,140,971 shares of the Mortgage Portfolio were owned by
the following:
Shares Percentage of
Name Owned Outstanding Shares
<S> <C> <C>
Franklin Adjustable U.S. Government Securities Fund ......................... 35,474,557 98%
Franklin Institutional Adjustable U.S. Government Securities Fund ........... 666,414 2%
At October 31, 1997, 2,265,903 shares of the Securities Portfolio were owned by the following:
Shares Percentage of
Name Owned Outstanding Shares
<S> <C> <C>
Franklin Adjustable Rate Securities Fund .................................... 2,131,679 94%
Franklin Institutional Adjustable Rate Securities Fund ...................... 132,707 6%
Franklin Resources, Inc. .................................................... 1,517 --
</TABLE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Report of Independent Accountants
To the Shareholders and Board of Trustees
of Adjustable Rate Securities Portfolios:
We have audited the accompanying statements of assets and liabilities of the two
Portfolios comprising the Adjustable Rate Securities Portfolios (the Trust),
including each Portfolio's statement of investments, as of October 31, 1997, and
the related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
two Portfolios comprising the Adjustable Rate Securities Portfolios as of
October 31, 1997, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and the financial highlights for each of the periods presented, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
December 5, 1997
Franklin Investors Securities Trust Annual Report October 31, 1997
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING (PURSUANT TO ITEM
304(a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
The following line graph hypothetically compares the performance of the
Franklin Global Government Income Fund - Class I Shares to that of the JP
Morgan Global Government Bond Index, based on a $10,000 investment from
3/15/88 to 10/31/97.
Period Ending Fund Index
3/15/1988 $9,579 $10,000
3/31/1988 $9,607 $10,041
4/30/1988 $9,626 $9,995
5/31/1988 $9,799 $9,888
6/30/1988 $9,866 $9,800
7/31/1988 $9,933 $9,724
8/31/1988 $9,868 $9,654
9/30/1988 $9,949 $9,895
10/31/1988 $10,245 $10,284
11/30/1988 $10,425 $10,374
12/31/1988 $10,351 $10,312
1/31/1989 $10,513 $10,210
2/28/1989 $10,364 $10,193
3/31/1989 $10,366 $10,107
4/30/1989 $10,421 $10,274
5/31/1989 $10,268 $10,162
6/30/1989 $10,608 $10,394
7/31/1989 $10,823 $10,808
8/31/1989 $10,880 $10,489
9/30/1989 $10,764 $10,654
10/31/1989 $10,658 $10,791
11/30/1989 $10,761 $10,887
12/31/1989 $10,931 $11,013
1/31/1990 $10,844 $10,849
2/28/1990 $10,689 $10,732
3/31/1990 $10,819 $10,667
4/30/1990 $10,752 $10,625
5/31/1990 $10,978 $10,965
6/30/1990 $11,312 $11,163
7/31/1990 $11,602 $11,492
8/31/1990 $11,449 $11,402
9/30/1990 $11,415 $11,508
10/31/1990 $11,468 $11,963
11/30/1990 $11,670 $12,174
12/31/1990 $11,761 $12,310
1/31/1991 $11,905 $12,589
2/28/1991 $12,241 $12,600
3/31/1991 $12,013 $12,206
4/30/1991 $12,199 $12,354
5/31/1991 $12,347 $12,365
6/30/1991 $12,246 $12,200
7/31/1991 $12,491 $12,459
8/31/1991 $12,564 $12,717
9/30/1991 $12,898 $13,181
10/31/1991 $13,076 $13,310
11/30/1991 $13,058 $13,527
12/31/1991 $13,435 $14,210
1/31/1992 $13,403 $13,932
2/29/1992 $13,415 $13,891
3/31/1992 $13,399 $13,763
4/30/1992 $13,527 $13,878
5/31/1992 $13,817 $14,272
6/30/1992 $13,799 $14,661
7/31/1992 $13,916 $14,984
8/31/1992 $13,819 $15,383
9/30/1992 $13,193 $15,367
10/31/1992 $13,434 $14,983
11/30/1992 $13,162 $14,718
12/31/1992 $13,402 $14,858
1/31/1993 $13,597 $15,109
2/28/1993 $13,856 $15,352
3/31/1993 $14,357 $15,588
4/30/1993 $14,780 $15,872
5/31/1993 $15,013 $15,974
6/30/1993 $14,954 $15,986
7/31/1993 $14,910 $15,993
8/31/1993 $15,280 $16,466
9/30/1993 $15,254 $16,641
10/31/1993 $15,695 $16,633
11/30/1993 $15,331 $16,511
12/31/1993 $15,899 $16,679
1/31/1994 $16,213 $16,836
2/28/1994 $15,720 $16,651
3/31/1994 $15,067 $16,574
4/30/1994 $15,058 $16,561
5/31/1994 $15,169 $16,425
6/30/1994 $14,414 $16,619
7/31/1994 $14,618 $16,775
8/31/1994 $14,770 $16,732
9/30/1994 $14,742 $16,816
10/31/1994 $14,814 $17,068
11/30/1994 $14,797 $16,853
12/31/1994 $14,665 $16,891
1/31/1995 $14,573 $17,233
2/28/1995 $14,781 $17,677
3/31/1995 $15,085 $18,577
4/30/1995 $15,449 $18,874
5/31/1995 $15,855 $19,401
6/30/1995 $15,913 $19,521
7/31/1995 $16,049 $19,613
8/31/1995 $16,090 $19,068
9/30/1995 $16,448 $19,499
10/31/1995 $16,688 $19,690
11/30/1995 $16,950 $19,908
12/31/1995 $17,316 $20,155
1/31/1996 $17,356 $19,950
2/29/1996 $17,068 $19,832
3/31/1996 $17,131 $19,802
4/30/1996 $17,318 $19,729
5/31/1996 $17,443 $19,749
6/30/1996 $17,696 $19,922
7/31/1996 $17,717 $20,289
8/31/1996 $17,993 $20,374
9/30/1996 $18,314 $20,486
10/31/1996 $18,658 $20,892
11/30/1996 $19,133 $21,191
12/31/1996 $19,178 $21,042
1/31/1997 $18,937 $20,516
2/28/1997 $18,847 $20,375
3/31/1997 $18,759 $20,220
4/30/1997 $18,804 $20,106
5/31/1997 $18,960 $20,581
6/30/1997 $19,186 $20,816
7/31/1997 $19,277 $20,739
8/31/1997 $19,232 $20,714
9/30/1997 $19,623 $21,174
10/31/1997 $19,506 $21,622
GRAPHIC MATERIAL (2)
The following line graph hypothetically compares the performance of the
Franklin Global Government Income Fund - Class II Shares to that of the JP
Morgan Global Government Bond Index, based on a $10,000 investment from
5/1/95 to 10/31/97.
Period Ending Fund Index
5/1/1995 $9,901 $10,000
5/31/1995 $10,171 $10,279
6/30/1995 $10,204 $10,343
7/31/1995 $10,273 $10,391
8/31/1995 $10,294 $10,102
9/30/1995 $10,518 $10,331
10/31/1995 $10,670 $10,432
11/30/1995 $10,834 $10,548
12/31/1995 $11,063 $10,679
1/31/1996 $11,084 $10,570
2/29/1996 $10,895 $10,507
3/31/1996 $10,929 $10,492
4/30/1996 $11,029 $10,453
5/31/1996 $11,117 $10,463
6/30/1996 $11,272 $10,555
7/31/1996 $11,280 $10,749
8/31/1996 $11,451 $10,795
9/30/1996 $11,650 $10,854
10/31/1996 $11,864 $11,069
11/30/1996 $12,163 $11,227
12/31/1996 $12,187 $11,149
1/31/1997 $12,027 $10,870
2/28/1997 $11,979 $10,795
3/31/1997 $11,903 $10,713
4/30/1997 $11,925 $10,653
5/31/1997 $12,033 $10,904
6/30/1997 $12,170 $11,029
7/31/1997 $12,222 $10,988
8/31/1997 $12,188 $10,975
9/30/1997 $12,415 $11,218
10/31/1997 $12,336 $11,456
GRAPHIC MATERIAL (3)
The following line graph hypothetically compares the performance of the
Franklin Global Government Income Fund - Advisor Class Shares to that of the
JP Morgan Global Government Bond Index, based on a $10,000 investment from
3/15/88 to 10/31/97.
Period Ending Fund Index
3/15/1988 $10,000 $10,000
3/31/1988 $10,030 $10,041
4/30/1988 $10,050 $9,995
5/31/1988 $10,230 $9,888
6/30/1988 $10,300 $9,800
7/31/1988 $10,370 $9,724
8/31/1988 $10,303 $9,654
9/30/1988 $10,387 $9,895
10/31/1988 $10,696 $10,284
11/30/1988 $10,884 $10,374
12/31/1988 $10,807 $10,312
1/31/1989 $10,976 $10,210
2/28/1989 $10,820 $10,193
3/31/1989 $10,823 $10,107
4/30/1989 $10,880 $10,274
5/31/1989 $10,720 $10,162
6/30/1989 $11,074 $10,394
7/31/1989 $11,300 $10,808
8/31/1989 $11,359 $10,489
9/30/1989 $11,238 $10,654
10/31/1989 $11,127 $10,791
11/30/1989 $11,234 $10,887
12/31/1989 $11,412 $11,013
1/31/1990 $11,321 $10,849
2/28/1990 $11,159 $10,732
3/31/1990 $11,295 $10,667
4/30/1990 $11,225 $10,625
5/31/1990 $11,461 $10,965
6/30/1990 $11,810 $11,163
7/31/1990 $12,113 $11,492
8/31/1990 $11,952 $11,402
9/30/1990 $11,917 $11,508
10/31/1990 $11,973 $11,963
11/30/1990 $12,183 $12,174
12/31/1990 $12,279 $12,310
1/31/1991 $12,429 $12,589
2/28/1991 $12,780 $12,600
3/31/1991 $12,541 $12,206
4/30/1991 $12,736 $12,354
5/31/1991 $12,891 $12,365
6/30/1991 $12,785 $12,200
7/31/1991 $13,041 $12,459
8/31/1991 $13,117 $12,717
9/30/1991 $13,466 $13,181
10/31/1991 $13,651 $13,310
11/30/1991 $13,632 $13,527
12/31/1991 $14,026 $14,210
1/31/1992 $13,993 $13,932
2/29/1992 $14,005 $13,891
3/31/1992 $13,988 $13,763
4/30/1992 $14,122 $13,878
5/31/1992 $14,425 $14,272
6/30/1992 $14,406 $14,661
7/31/1992 $14,528 $14,984
8/31/1992 $14,427 $15,383
9/30/1992 $13,773 $15,367
10/31/1992 $14,025 $14,983
11/30/1992 $13,741 $14,718
12/31/1992 $13,992 $14,858
1/31/1993 $14,195 $15,109
2/28/1993 $14,466 $15,352
3/31/1993 $14,989 $15,588
4/30/1993 $15,431 $15,872
5/31/1993 $15,674 $15,974
6/30/1993 $15,612 $15,986
7/31/1993 $15,567 $15,993
8/31/1993 $15,952 $16,466
9/30/1993 $15,925 $16,641
10/31/1993 $16,386 $16,633
11/30/1993 $16,006 $16,511
12/31/1993 $16,599 $16,679
1/31/1994 $16,927 $16,836
2/28/1994 $16,412 $16,651
3/31/1994 $15,730 $16,574
4/30/1994 $15,720 $16,561
5/31/1994 $15,837 $16,425
6/30/1994 $15,049 $16,619
7/31/1994 $15,261 $16,775
8/31/1994 $15,420 $16,732
9/30/1994 $15,390 $16,816
10/31/1994 $15,466 $17,068
11/30/1994 $15,448 $16,853
12/31/1994 $15,310 $16,891
1/31/1995 $15,214 $17,233
2/28/1995 $15,431 $17,677
3/31/1995 $15,749 $18,577
4/30/1995 $16,129 $18,874
5/31/1995 $16,552 $19,401
6/30/1995 $16,613 $19,521
7/31/1995 $16,755 $19,613
8/31/1995 $16,798 $19,068
9/30/1995 $17,171 $19,499
10/31/1995 $17,422 $19,690
11/30/1995 $17,696 $19,908
12/31/1995 $18,077 $20,155
1/31/1996 $18,119 $19,950
2/29/1996 $17,819 $19,832
3/31/1996 $17,885 $19,802
4/30/1996 $18,080 $19,729
5/31/1996 $18,210 $19,749
6/30/1996 $18,474 $19,922
7/31/1996 $18,496 $20,289
8/31/1996 $18,784 $20,374
9/30/1996 $19,119 $20,486
10/31/1996 $19,478 $20,892
11/30/1996 $19,975 $21,191
12/31/1996 $20,022 $21,042
1/31/1997 $19,772 $20,516
2/28/1997 $19,703 $20,375
3/31/1997 $19,589 $20,220
4/30/1997 $19,661 $20,106
5/31/1997 $19,826 $20,581
6/30/1997 $20,063 $20,816
7/31/1997 $20,160 $20,739
8/31/1997 $20,115 $20,714
9/30/1997 $20,501 $21,174
10/31/1997 $20,381 $21,622
GRAPHIC MATERIAL (4)
The following line graph hypothetically compares the performance of the
Franklin Short-Intermediate U.S. Government Securities Fund - Class I Shares
to that of the Lehman Brothers Short U.S. Treasury 1-5 Year Index and the
CPI, based on a $10,000 investment from 11/1/87 to 10/31/97.
Period Ending Fund Index Index
11/1/1987 9,772 $10,000 $10,000
Nov-87 9,820 $10,065 $10,009
Dec-87 9,888 $10,143 $10,009
Jan-88 10,053 $10,331 $10,035
Feb-88 10,132 $10,426 $10,061
Mar-88 10,143 $10,422 $10,104
Apr-88 10,144 $10,424 $10,157
May-88 10,135 $10,399 $10,191
Jun-88 10,235 $10,525 $10,235
Jul-88 10,236 $10,517 $10,278
Aug-88 10,247 $10,528 $10,321
Sep-88 10,370 $10,672 $10,391
Oct-88 10,474 $10,795 $10,425
Nov-88 10,437 $10,739 $10,433
Dec-88 10,461 $10,752 $10,451
Jan-89 10,536 $10,841 $10,503
Feb-89 10,539 $10,823 $10,546
Mar-89 10,584 $10,869 $10,607
Apr-89 10,746 $11,070 $10,676
May-89 10,876 $11,243 $10,737
Jun-89 11,049 $11,488 $10,763
Jul-89 11,192 $11,690 $10,789
Aug-89 11,097 $11,576 $10,806
Sep-89 11,153 $11,636 $10,841
Oct-89 11,343 $11,846 $10,893
Nov-89 11,433 $11,955 $10,919
Dec-89 11,469 $11,998 $10,936
Jan-90 11,482 $11,973 $11,049
Feb-90 11,553 $12,027 $11,101
Mar-90 11,578 $12,051 $11,162
Apr-90 11,580 $12,052 $11,180
May-90 11,767 $12,268 $11,206
Jun-90 11,898 $12,412 $11,266
Jul-90 12,030 $12,578 $11,309
Aug-90 12,056 $12,592 $11,413
Sep-90 12,165 $12,699 $11,509
Oct-90 12,300 $12,858 $11,578
Nov-90 12,423 $13,005 $11,603
Dec-90 12,576 $13,173 $11,603
Jan-91 12,676 $13,302 $11,673
Feb-91 12,753 $13,382 $11,690
Mar-91 12,830 $13,465 $11,708
Apr-91 12,945 $13,602 $11,726
May-91 13,011 $13,683 $11,761
Jun-91 13,042 $13,716 $11,795
Jul-91 13,151 $13,853 $11,812
Aug-91 13,337 $14,081 $11,847
Sep-91 13,486 $14,273 $11,899
Oct-91 13,635 $14,440 $11,917
Nov-91 13,760 $14,603 $11,951
Dec-91 14,092 $14,885 $11,960
Jan-92 13,897 $14,809 $11,978
Feb-92 13,930 $14,847 $12,021
Mar-92 13,863 $14,812 $12,082
Apr-92 13,984 $14,955 $12,099
May-92 14,188 $15,138 $12,116
Jun-92 14,407 $15,335 $12,159
Jul-92 14,711 $15,574 $12,185
Aug-92 14,863 $15,731 $12,219
Sep-92 15,123 $15,922 $12,253
Oct-92 14,879 $15,762 $12,296
Nov-92 14,789 $15,709 $12,313
Dec-92 15,027 $15,885 $12,305
Jan-93 15,307 $16,136 $12,365
Feb-93 15,574 $16,324 $12,408
Mar-93 15,638 $16,380 $12,452
Apr-93 15,731 $16,504 $12,487
May-93 15,678 $16,448 $12,504
Jun-93 15,883 $16,626 $12,522
Jul-93 15,903 $16,656 $12,522
Aug-93 16,147 $16,856 $12,557
Sep-93 16,197 $16,911 $12,583
Oct-93 16,224 $16,952 $12,635
Nov-93 16,131 $16,915 $12,644
Dec-93 16,192 $16,982 $12,644
Jan-94 16,357 $17,123 $12,678
Feb-94 16,109 $16,949 $12,721
Mar-94 15,890 $16,783 $12,764
Apr-94 15,764 $16,685 $12,782
May-94 15,776 $16,704 $12,791
Jun-94 15,773 $16,729 $12,834
Jul-94 15,960 $16,911 $12,869
Aug-94 15,995 $16,963 $12,920
Sep-94 15,888 $16,872 $12,955
Oct-94 15,910 $16,894 $12,964
Nov-94 15,821 $16,809 $12,981
Dec-94 15,844 $16,848 $12,981
Jan-95 16,074 $17,104 $13,033
Feb-95 16,322 $17,393 $13,085
Mar-95 16,409 $17,490 $13,129
Apr-95 16,550 $17,671 $13,172
May-95 16,871 $18,077 $13,198
Jun-95 16,964 $18,185 $13,225
Jul-95 17,008 $18,225 $13,225
Aug-95 17,102 $18,349 $13,259
Sep-95 17,180 $18,452 $13,285
Oct-95 17,325 $18,631 $13,329
Nov-95 17,471 $18,825 $13,320
Dec-95 17,601 $18,989 $13,311
Jan-96 17,714 $19,161 $13,389
Feb-96 17,641 $19,029 $13,432
Mar-96 17,602 $18,968 $13,502
Apr-96 17,596 $18,951 $13,555
May-96 17,610 $18,965 $13,580
Jun-96 17,745 $19,126 $13,588
Jul-96 17,794 $19,193 $13,614
Aug-96 17,842 $19,243 $13,640
Sep-96 17,997 $19,450 $13,684
Oct-96 18,187 $19,717 $13,728
Nov-96 18,343 $19,900 $13,754
Dec-96 18,303 $19,850 $13,754
Jan-97 18,371 $19,938 $13,798
Feb-97 18,404 $19,974 $13,840
Mar-97 18,364 $19,912 $13,875
Apr-97 18,505 $20,103 $13,892
May-97 18,629 $20,248 $13,883
Jun-97 18,753 $20,404 $13,900
Jul-97 18,970 $20,704 $13,917
Aug-97 18,966 $20,677 $13,943
Sep-97 19,111 $20,865 $13,978
Oct-97 19,256 $21,063 $14,013
TOTAL RETURN 92.56% 110.63% 40.13%
GRAPHIC MATERIAL (5)
The following line graph hypothetically compares the performance of the
Franklin Short-Intermediate U.S. Government Securities Fund - Advisor Class
Shares to that of the Lehman Brothers Short U.S. Treasury 1-5 Year Index and
the CPI, based on a $10,000 investment from 11/1/87 to 10/31/97.
Period Ending Fund Index Index
11/1/1987 10,000 $10,000 $10,000
Nov-87 10,050 $10,065 $10,009
Dec-87 10,119 $10,143 $10,009
Jan-88 10,288 $10,331 $10,035
Feb-88 10,369 $10,426 $10,061
Mar-88 10,380 $10,422 $10,104
Apr-88 10,381 $10,424 $10,157
May-88 10,372 $10,399 $10,191
Jun-88 10,474 $10,525 $10,235
Jul-88 10,475 $10,517 $10,278
Aug-88 10,487 $10,528 $10,321
Sep-88 10,612 $10,672 $10,391
Oct-88 10,719 $10,795 $10,425
Nov-88 10,681 $10,739 $10,433
Dec-88 10,705 $10,752 $10,451
Jan-89 10,782 $10,841 $10,503
Feb-89 10,786 $10,823 $10,546
Mar-89 10,832 $10,869 $10,607
Apr-89 10,997 $11,070 $10,676
May-89 11,130 $11,243 $10,737
Jun-89 11,308 $11,488 $10,763
Jul-89 11,453 $11,690 $10,789
Aug-89 11,356 $11,576 $10,806
Sep-89 11,414 $11,636 $10,841
Oct-89 11,608 $11,846 $10,893
Nov-89 11,701 $11,955 $10,919
Dec-89 11,737 $11,998 $10,936
Jan-90 11,751 $11,973 $11,049
Feb-90 11,823 $12,027 $11,101
Mar-90 11,849 $12,051 $11,162
Apr-90 11,851 $12,052 $11,180
May-90 12,042 $12,268 $11,206
Jun-90 12,176 $12,412 $11,266
Jul-90 12,311 $12,578 $11,309
Aug-90 12,338 $12,592 $11,413
Sep-90 12,450 $12,699 $11,509
Oct-90 12,587 $12,858 $11,578
Nov-90 12,713 $13,005 $11,603
Dec-90 12,870 $13,173 $11,603
Jan-91 12,973 $13,302 $11,673
Feb-91 13,051 $13,382 $11,690
Mar-91 13,130 $13,465 $11,708
Apr-91 13,248 $13,602 $11,726
May-91 13,315 $13,683 $11,761
Jun-91 13,347 $13,716 $11,795
Jul-91 13,458 $13,853 $11,812
Aug-91 13,649 $14,081 $11,847
Sep-91 13,801 $14,273 $11,899
Oct-91 13,954 $14,440 $11,917
Nov-91 14,081 $14,603 $11,951
Dec-91 14,421 $14,885 $11,960
Jan-92 14,222 $14,809 $11,978
Feb-92 14,255 $14,847 $12,021
Mar-92 14,187 $14,812 $12,082
Apr-92 14,311 $14,955 $12,099
May-92 14,520 $15,138 $12,116
Jun-92 14,744 $15,335 $12,159
Jul-92 15,055 $15,574 $12,185
Aug-92 15,211 $15,731 $12,219
Sep-92 15,476 $15,922 $12,253
Oct-92 15,227 $15,762 $12,296
Nov-92 15,135 $15,709 $12,313
Dec-92 15,379 $15,885 $12,305
Jan-93 15,665 $16,136 $12,365
Feb-93 15,938 $16,324 $12,408
Mar-93 16,003 $16,380 $12,452
Apr-93 16,099 $16,504 $12,487
May-93 16,045 $16,448 $12,504
Jun-93 16,254 $16,626 $12,522
Jul-93 16,275 $16,656 $12,522
Aug-93 16,524 $16,856 $12,557
Sep-93 16,576 $16,911 $12,583
Oct-93 16,604 $16,952 $12,635
Nov-93 16,508 $16,915 $12,644
Dec-93 16,570 $16,982 $12,644
Jan-94 16,739 $17,123 $12,678
Feb-94 16,485 $16,949 $12,721
Mar-94 16,262 $16,783 $12,764
Apr-94 16,132 $16,685 $12,782
May-94 16,145 $16,704 $12,791
Jun-94 16,142 $16,729 $12,834
Jul-94 16,333 $16,911 $12,869
Aug-94 16,369 $16,963 $12,920
Sep-94 16,259 $16,872 $12,955
Oct-94 16,282 $16,894 $12,964
Nov-94 16,191 $16,809 $12,981
Dec-94 16,214 $16,848 $12,981
Jan-95 16,450 $17,104 $13,033
Feb-95 16,703 $17,393 $13,085
Mar-95 16,792 $17,490 $13,129
Apr-95 16,937 $17,671 $13,172
May-95 17,265 $18,077 $13,198
Jun-95 17,360 $18,185 $13,225
Jul-95 17,406 $18,225 $13,225
Aug-95 17,502 $18,349 $13,259
Sep-95 17,582 $18,452 $13,285
Oct-95 17,730 $18,631 $13,329
Nov-95 17,879 $18,825 $13,320
Dec-95 18,012 $18,989 $13,311
Jan-96 18,128 $19,161 $13,389
Feb-96 18,053 $19,029 $13,432
Mar-96 18,013 $18,968 $13,502
Apr-96 18,008 $18,951 $13,555
May-96 18,022 $18,965 $13,580
Jun-96 18,160 $19,126 $13,588
Jul-96 18,209 $19,193 $13,614
Aug-96 18,259 $19,243 $13,640
Sep-96 18,417 $19,450 $13,684
Oct-96 18,612 $19,717 $13,728
Nov-96 18,771 $19,900 $13,754
Dec-96 18,731 $19,850 $13,754
Jan-97 18,796 $19,938 $13,798
Feb-97 18,830 $19,974 $13,840
Mar-97 18,791 $19,912 $13,875
Apr-97 18,936 $20,103 $13,892
May-97 19,064 $20,248 $13,883
Jun-97 19,191 $20,404 $13,900
Jul-97 19,414 $20,704 $13,917
Aug-97 19,412 $20,677 $13,943
Sep-97 19,561 $20,865 $13,978
Oct-97 19,712 $21,063 $14,013
TOTAL RETURN 97.12% 110.63% 40.13%
GRAPHIC MATERIAL (6)
The following line graph hypothetically compares the performance of the
Franklin Convertible Securities Fund - Class I Shares to that of the Goldman
Sachs Convertible 100 Bond Index, based on a $10,000 investment from 11/1/87
to 10/31/97.
Period Ending Fund Index
11/1/1987 $9,547 $10,000
11/30/1987 $9,418 $9,761
12/31/1987 $9,738 $10,187
1/31/1988 $9,997 $10,705
2/29/1988 $10,412 $11,143
3/31/1988 $10,530 $11,243
4/30/1988 $10,660 $11,370
5/31/1988 $10,590 $11,291
6/30/1988 $11,003 $11,731
7/31/1988 $10,852 $11,553
8/31/1988 $10,701 $11,309
9/30/1988 $10,778 $11,406
10/31/1988 $10,958 $11,591
11/30/1988 $10,862 $11,358
12/31/1988 $10,836 $11,549
1/31/1989 $11,338 $12,117
2/28/1989 $11,370 $12,157
3/31/1989 $11,307 $12,240
4/30/1989 $11,710 $12,569
5/31/1989 $11,959 $12,722
6/30/1989 $11,918 $12,591
7/31/1989 $12,183 $12,760
8/31/1989 $12,461 $13,034
9/30/1989 $12,359 $12,791
10/31/1989 $11,908 $12,270
11/30/1989 $12,043 $12,429
12/31/1989 $12,154 $12,408
1/31/1990 $11,808 $11,768
2/28/1990 $11,881 $11,853
3/31/1990 $12,158 $12,036
4/30/1990 $11,883 $11,614
5/31/1990 $12,422 $12,339
6/30/1990 $12,614 $12,308
7/31/1990 $12,439 $12,172
8/31/1990 $11,658 $11,496
9/30/1990 $11,029 $10,855
10/31/1990 $10,478 $10,269
11/30/1990 $10,959 $10,844
12/31/1990 $11,454 $11,133
1/31/1991 $11,897 $11,739
2/28/1991 $12,632 $12,445
3/31/1991 $13,107 $12,723
4/30/1991 $13,413 $12,846
5/31/1991 $13,923 $13,316
6/30/1991 $13,460 $12,901
7/31/1991 $14,031 $13,252
8/31/1991 $14,534 $13,680
9/30/1991 $14,559 $13,643
10/31/1991 $14,702 $13,913
11/30/1991 $14,521 $13,548
12/31/1991 $15,305 $14,216
1/31/1992 $15,688 $14,903
2/29/1992 $15,938 $15,246
3/31/1992 $15,721 $15,069
4/30/1992 $15,778 $15,079
5/31/1992 $16,078 $15,406
6/30/1992 $15,814 $15,251
7/31/1992 $16,380 $15,785
8/31/1992 $16,174 $15,777
9/30/1992 $16,418 $16,099
10/31/1992 $16,617 $16,129
11/30/1992 $17,320 $16,502
12/31/1992 $17,791 $16,726
1/31/1993 $18,264 $17,106
2/28/1993 $18,196 $17,304
3/31/1993 $18,914 $17,887
4/30/1993 $18,877 $17,855
5/31/1993 $19,391 $18,302
6/30/1993 $19,599 $18,578
7/31/1993 $19,824 $18,532
8/31/1993 $20,543 $19,047
9/30/1993 $20,870 $19,070
10/31/1993 $21,313 $19,361
11/30/1993 $20,918 $19,292
12/31/1993 $21,445 $19,591
1/31/1994 $22,027 $20,073
2/28/1994 $21,947 $19,982
3/31/1994 $21,145 $19,385
4/30/1994 $20,824 $19,036
5/31/1994 $20,904 $19,093
6/30/1994 $20,879 $18,906
7/31/1994 $21,341 $19,299
8/31/1994 $21,860 $19,843
9/30/1994 $21,765 $19,552
10/31/1994 $21,776 $19,460
11/30/1994 $21,150 $18,777
12/31/1994 $21,094 $18,640
1/31/1995 $20,962 $19,009
2/28/1995 $21,399 $19,638
3/31/1995 $22,011 $20,217
4/30/1995 $22,606 $20,705
5/31/1995 $23,280 $21,299
6/30/1995 $23,957 $22,012
7/31/1995 $24,928 $22,688
8/31/1995 $25,163 $22,972
9/30/1995 $25,631 $23,240
10/31/1995 $25,080 $22,734
11/30/1995 $25,732 $23,641
12/31/1995 $26,197 $23,771
1/31/1996 $26,682 $24,448
2/29/1996 $27,102 $24,866
3/31/1996 $27,378 $25,210
4/30/1996 $28,037 $25,444
5/31/1996 $28,612 $25,899
6/30/1996 $28,162 $25,721
7/31/1996 $27,134 $24,864
8/31/1996 $28,104 $25,657
9/30/1996 $29,208 $26,494
10/31/1996 $29,272 $26,348
11/30/1996 $30,340 $27,236
12/31/1996 $30,476 $27,029
1/31/1997 $31,839 $27,513
2/28/1997 $31,508 $27,606
3/31/1997 $30,820 $27,394
4/30/1997 $30,893 $27,780
5/31/1997 $32,443 $29,080
6/30/1997 $33,496 $29,941
7/31/1997 $35,251 $31,719
8/31/1997 $35,517 $31,482
9/30/1997 $37,018 $33,062
10/31/1997 $35,850 $32,295
GRAPHIC MATERIAL (7)
The following line graph hypothetically compares the performance of the
Franklin Convertible Securities Fund - Class II Shares to that of the Goldman
Sachs Convertible 100 Bond Index, based on a $10,000 investment from 10/2/95
to 10/31/97.
Period Ending Fund Index
10/2/1995 $9,901 $10,000
10/31/1995 $9,708 $9,782
11/30/1995 $9,964 $10,172
12/31/1995 $10,125 $10,228
1/31/1996 $10,317 $10,520
2/29/1996 $10,468 $10,700
3/31/1996 $10,571 $10,847
4/30/1996 $10,822 $10,948
5/31/1996 $11,032 $11,144
6/30/1996 $10,854 $11,067
7/31/1996 $10,451 $10,699
8/31/1996 $10,812 $11,040
9/30/1996 $11,232 $11,400
10/31/1996 $11,245 $11,337
11/30/1996 $11,659 $11,719
12/31/1996 $11,697 $11,630
1/31/1997 $12,214 $11,838
2/28/1997 $12,079 $11,879
3/31/1997 $11,807 $11,787
4/30/1997 $11,827 $11,953
5/31/1997 $12,416 $12,513
6/30/1997 $12,803 $12,883
7/31/1997 $13,469 $13,648
8/31/1997 $13,564 $13,546
9/30/1997 $14,123 $14,226
10/31/1997 $13,667 $13,896
GRAPHIC MATERIAL (8)
The following line graph compares the Franklin Adjustable U.S. Governemnt
Income Fund's distribution rate to the one-year constant maturity t-bill
annualized yield from 11/1/96 to 10/31/97.
Period Ending Fund Index
11/1/1996 5.51% 5.46%
11/30/1996 5.51% 5.38%
12/31/1996 5.51% 5.51%
1/31/1997 5.49% 5.58%
2/28/1997 5.49% 5.67%
3/31/1997 5.63% 6.02%
4/30/1997 5.73% 5.90%
5/31/1997 5.73% 5.78%
6/30/1997 5.71% 5.67%
7/31/1997 5.68% 5.45%
8/31/1997 5.71% 5.59%
9/30/1997 5.70% 5.47%
10/31/1997 5.69% 5.36%
GRAPHIC MATERIAL (9)
The following line graph hypothetically compares the performance of the
Franklin Adjustable U.S. Government Securities Fund to that of the Lehman
Brothers Short U.S. Government 1-2 Year Index and the Payden & Rygel 6-month
CD Index, based on a $10,000 investment from 11/1/87 to 10/31/97.
Period Ending Fund Index Index
11/1/1987 $ 9,775 $10,000 $10,000
Nov-87 $ 9,775 $10,061 $10,051
Dec-87 $ 9,834 $10,123 $10,135
Jan-88 $ 9,941 $10,264 $10,214
Feb-88 $ 10,020 $10,345 $10,272
Mar-88 $ 10,078 $10,375 $10,320
Apr-88 $ 10,097 $10,396 $10,360
May-88 $ 10,076 $10,395 $10,404
Jun-88 $ 10,164 $10,491 $10,469
Jul-88 $ 10,183 $10,508 $10,510
Aug-88 $ 10,203 $10,534 $10,569
Sep-88 $ 10,283 $10,646 $10,652
Oct-88 $ 10,384 $10,747 $10,732
Nov-88 $ 10,424 $10,732 $10,773
Dec-88 $ 10,464 $10,762 $10,853
Jan-89 $ 10,537 $10,844 $10,933
Feb-89 $ 10,558 $10,850 $10,966
Mar-89 $ 10,605 $10,901 $11,051
Apr-89 $ 10,726 $11,032 $11,174
May-89 $ 10,816 $11,179 $11,284
Jun-89 $ 10,925 $11,364 $11,391
Jul-89 $ 11,004 $11,518 $11,505
Aug-89 $ 11,085 $11,470 $11,560
Sep-89 $ 11,187 $11,540 $11,634
Oct-89 $ 11,325 $11,692 $11,748
Nov-89 $ 11,429 $11,796 $11,834
Dec-89 $ 11,546 $11,841 $11,913
Jan-90 $ 11,607 $11,869 $11,987
Feb-90 $ 11,692 $11,933 $12,061
Mar-90 $ 11,786 $11,976 $12,132
Apr-90 $ 11,866 $12,015 $12,204
May-90 $ 11,972 $12,186 $12,313
Jun-90 $ 12,063 $12,305 $12,399
Jul-90 $ 12,175 $12,440 $12,504
Aug-90 $ 12,261 $12,493 $12,579
Sep-90 $ 12,359 $12,585 $12,652
Oct-90 $ 12,446 $12,717 $12,751
Nov-90 $ 12,534 $12,831 $12,822
Dec-90 $ 12,647 $12,974 $12,947
Jan-91 $ 12,758 $13,093 $13,055
Feb-91 $ 12,866 $13,180 $13,134
Mar-91 $ 12,973 $13,270 $13,226
Apr-91 $ 13,055 $13,385 $13,313
May-91 $ 13,134 $13,460 $13,377
Jun-91 $ 13,184 $13,520 $13,425
Jul-91 $ 13,323 $13,625 $13,507
Aug-91 $ 13,422 $13,795 $13,604
Sep-91 $ 13,544 $13,920 $13,678
Oct-91 $ 13,626 $14,056 $13,760
Nov-91 $ 13,665 $14,196 $13,839
Dec-91 $ 13,743 $14,381 $13,924
Jan-92 $ 13,773 $14,382 $13,981
Feb-92 $ 13,844 $14,424 $14,022
Mar-92 $ 13,900 $14,439 $14,062
Apr-92 $ 13,939 $14,563 $14,131
May-92 $ 14,030 $14,685 $14,183
Jun-92 $ 14,122 $14,811 $14,233
Jul-92 $ 14,133 $14,964 $14,311
Aug-92 $ 14,193 $15,070 $14,354
Sep-92 $ 14,251 $15,195 $14,413
Oct-92 $ 14,210 $15,125 $14,438
Nov-92 $ 14,239 $15,111 $14,452
Dec-92 $ 14,294 $15,240 $14,520
Jan-93 $ 14,346 $15,379 $14,575
Feb-93 $ 14,411 $15,487 $14,614
Mar-93 $ 14,430 $15,529 $14,654
Apr-93 $ 14,505 $15,614 $14,698
May-93 $ 14,507 $15,581 $14,723
Jun-93 $ 14,585 $15,678 $14,763
Jul-93 $ 14,634 $15,715 $14,805
Aug-93 $ 14,681 $15,825 $14,853
Sep-93 $ 14,664 $15,874 $14,894
Oct-93 $ 14,631 $15,908 $14,932
Nov-93 $ 14,523 $15,922 $14,967
Dec-93 $ 14,487 $15,978 $15,012
Jan-94 $ 14,538 $16,069 $15,062
Feb-94 $ 14,452 $15,998 $15,060
Mar-94 $ 14,348 $15,956 $15,095
Apr-94 $ 14,255 $15,913 $15,118
May-94 $ 14,321 $15,940 $15,157
Jun-94 $ 14,360 $15,984 $15,204
Jul-94 $ 14,420 $16,112 $15,271
Aug-94 $ 14,420 $16,167 $15,330
Sep-94 $ 14,405 $16,154 $15,369
Oct-94 $ 14,240 $16,199 $15,429
Nov-94 $ 14,233 $16,147 $15,463
Dec-94 $ 14,202 $16,186 $15,523
Jan-95 $ 14,316 $16,384 $15,632
Feb-95 $ 14,480 $16,579 $15,727
Mar-95 $ 14,565 $16,673 $15,804
Apr-95 $ 14,700 $16,808 $15,896
May-95 $ 15,011 $17,042 $16,001
Jun-95 $ 14,958 $17,132 $16,081
Jul-95 $ 15,051 $17,213 $16,169
Aug-95 $ 15,177 $17,307 $16,247
Sep-95 $ 15,255 $17,385 $16,320
Oct-95 $ 15,317 $17,514 $16,406
Nov-95 $ 15,462 $17,644 $16,493
Dec-95 $ 15,505 $17,767 $16,586
Jan-96 $ 15,615 $17,907 $16,675
Feb-96 $ 15,624 $17,868 $16,740
Mar-96 $ 15,718 $17,879 $16,799
Apr-96 $ 15,732 $17,913 $16,871
May-96 $ 15,796 $17,966 $16,942
Jun-96 $ 15,946 $18,087 $17,008
Jul-96 $ 15,994 $18,159 $17,081
Aug-96 $ 16,042 $18,234 $17,172
Sep-96 $ 16,156 $18,379 $17,256
Oct-96 $ 16,320 $18,563 $17,345
Nov-96 $ 16,396 $18,682 $17,429
Dec-96 $ 16,474 $18,712 $17,507
Jan-97 $ 16,587 $18,800 $17,584
Feb-97 $ 16,682 $18,854 $17,655
Mar-97 $ 16,727 $18,862 $17,715
Apr-97 $ 16,862 $19,003 $17,798
May-97 $ 16,963 $19,131 $17,890
Jun-97 $ 17,082 $19,251 $17,980
Jul-97 $ 17,256 $19,426 $18,077
Aug-97 $ 17,267 $19,465 $18,158
Sep-97 $ 17,388 $19,598 $18,242
Oct-97 $ 17,492 $19,727 $18,331
Total Return 74.92% 97.27% 83.31%
GRAPHIC MATERIAL (10)
The following line graph hypothetically compares the performance of the
Franklin Equity Income Fund - Class I Shares to that of the S&P 500 Stock
Index and the CPI, based on a $10,000 investment from 3/15/88 to 10/31/97.
Period Ending Fund Index Index
3/15/1988 $9,551 $10,000 $10,000
3/31/1988 $9,561 $9,841 $10,022
4/30/1988 $9,532 $9,950 $10,074
5/31/1988 $9,694 $10,036 $10,108
6/30/1988 $10,029 $10,496 $10,152
7/31/1988 $10,057 $10,457 $10,194
8/31/1988 $9,943 $10,101 $10,237
9/30/1988 $10,251 $10,531 $10,306
10/31/1988 $10,445 $10,824 $10,340
11/30/1988 $10,313 $10,669 $10,348
12/31/1988 $10,384 $10,856 $10,366
1/31/1989 $10,962 $11,651 $10,418
2/28/1989 $10,824 $11,361 $10,460
3/31/1989 $11,057 $11,625 $10,521
4/30/1989 $11,472 $12,229 $10,589
5/31/1989 $11,817 $12,724 $10,650
6/30/1989 $11,860 $12,651 $10,675
7/31/1989 $12,660 $13,794 $10,701
8/31/1989 $12,819 $14,064 $10,718
9/30/1989 $12,813 $14,007 $10,752
10/31/1989 $12,455 $13,682 $10,804
11/30/1989 $12,637 $13,961 $10,830
12/31/1989 $12,872 $14,296 $10,847
1/31/1990 $12,242 $13,336 $10,959
2/28/1990 $12,438 $13,509 $11,010
3/31/1990 $12,516 $13,866 $11,071
4/30/1990 $12,091 $13,521 $11,089
5/31/1990 $12,882 $14,840 $11,114
6/30/1990 $12,747 $14,740 $11,174
7/31/1990 $12,479 $14,693 $11,217
8/31/1990 $11,528 $13,365 $11,320
9/30/1990 $11,002 $12,714 $11,415
10/31/1990 $10,907 $12,659 $11,483
11/30/1990 $11,605 $13,477 $11,509
12/31/1990 $11,734 $13,853 $11,509
1/31/1991 $12,162 $14,457 $11,578
2/28/1991 $12,911 $15,491 $11,595
3/31/1991 $13,079 $15,865 $11,613
4/30/1991 $13,176 $15,904 $11,630
5/31/1991 $13,718 $16,589 $11,665
6/30/1991 $13,152 $15,829 $11,699
7/31/1991 $13,686 $16,567 $11,716
8/31/1991 $14,092 $16,960 $11,750
9/30/1991 $14,122 $16,676 $11,802
10/31/1991 $14,354 $16,900 $11,820
11/30/1991 $14,050 $16,219 $11,854
12/31/1991 $15,044 $18,074 $11,862
1/31/1992 $14,965 $17,738 $11,880
2/29/1992 $15,178 $17,967 $11,923
3/31/1992 $14,988 $17,616 $11,984
4/30/1992 $15,706 $18,134 $12,000
5/31/1992 $15,861 $18,223 $12,017
6/30/1992 $15,979 $17,952 $12,060
7/31/1992 $16,732 $18,686 $12,086
8/31/1992 $16,464 $18,303 $12,120
9/30/1992 $16,370 $18,517 $12,153
10/31/1992 $16,213 $18,580 $12,196
11/30/1992 $16,663 $19,212 $12,213
12/31/1992 $17,037 $19,448 $12,205
1/31/1993 $17,431 $19,611 $12,264
2/28/1993 $17,944 $19,878 $12,307
3/31/1993 $18,419 $20,297 $12,350
4/30/1993 $18,385 $19,806 $12,385
5/31/1993 $18,655 $20,335 $12,402
6/30/1993 $18,809 $20,394 $12,420
7/31/1993 $19,002 $20,312 $12,420
8/31/1993 $19,690 $21,082 $12,454
9/30/1993 $19,818 $20,920 $12,481
10/31/1993 $20,121 $21,353 $12,532
11/30/1993 $19,912 $21,150 $12,540
12/31/1993 $20,074 $21,406 $12,540
1/31/1994 $20,543 $22,134 $12,574
2/28/1994 $19,975 $21,534 $12,617
3/31/1994 $19,133 $20,595 $12,660
4/30/1994 $19,282 $20,859 $12,678
5/31/1994 $19,524 $21,201 $12,687
6/30/1994 $19,480 $20,681 $12,730
7/31/1994 $19,996 $21,360 $12,764
8/31/1994 $20,787 $22,236 $12,815
9/30/1994 $20,383 $21,693 $12,850
10/31/1994 $20,514 $22,181 $12,859
11/30/1994 $19,934 $21,374 $12,875
12/31/1994 $20,009 $21,690 $12,875
1/31/1995 $20,576 $22,252 $12,927
2/28/1995 $20,980 $23,120 $12,979
3/31/1995 $21,281 $23,802 $13,021
4/30/1995 $21,748 $24,501 $13,064
5/31/1995 $22,201 $25,481 $13,091
6/30/1995 $22,322 $26,073 $13,117
7/31/1995 $22,612 $26,938 $13,117
8/31/1995 $22,826 $27,006 $13,151
9/30/1995 $23,622 $28,145 $13,177
10/31/1995 $23,422 $28,044 $13,221
11/30/1995 $24,212 $29,275 $13,211
12/31/1995 $25,157 $29,840 $13,202
1/31/1996 $25,752 $30,855 $13,280
2/29/1996 $25,514 $31,142 $13,323
3/31/1996 $25,711 $31,441 $13,392
4/30/1996 $25,779 $31,903 $13,444
5/31/1996 $25,976 $32,726 $13,470
6/30/1996 $26,385 $32,850 $13,478
7/31/1996 $25,429 $31,398 $13,503
8/31/1996 $25,840 $32,061 $13,529
9/30/1996 $26,464 $33,866 $13,572
10/31/1996 $27,009 $34,800 $13,616
11/30/1996 $28,248 $37,431 $13,642
12/31/1996 $28,361 $36,690 $13,642
1/31/1997 $29,108 $38,980 $13,685
2/28/1997 $29,688 $39,288 $13,728
3/31/1997 $29,178 $37,677 $13,762
4/30/1997 $29,372 $39,922 $13,778
5/31/1997 $30,917 $42,350 $13,770
6/30/1997 $31,829 $44,247 $13,787
7/31/1997 $33,350 $47,764 $13,803
8/31/1997 $32,836 $45,090 $13,829
9/30/1997 $34,520 $47,556 $13,864
10/31/1997 $33,601 $45,968 $13,899
GRAPHIC MATERIAL (11)
The following line graph hypothetically compares the performance of the
Franklin Equity Income Fund - Class II Shares to that of the S&P 500 Stock
Index and the CPI, based on a $10,000 investment from 10/2/95 to 10/31/97.
Period Ending Fund Index Index
10/2/1995 $9,903 $10,000 $10,000
10/31/1995 $9,843 $9,964 $10,033
11/30/1995 $10,184 $10,401 $10,026
12/31/1995 $10,548 $10,602 $10,019
1/31/1996 $10,800 $10,963 $10,078
2/29/1996 $10,697 $11,065 $10,110
3/31/1996 $10,775 $11,171 $10,163
4/30/1996 $10,800 $11,335 $10,203
5/31/1996 $10,872 $11,627 $10,222
6/30/1996 $11,040 $11,672 $10,228
7/31/1996 $10,634 $11,156 $10,247
8/31/1996 $10,794 $11,391 $10,267
9/30/1996 $11,049 $12,032 $10,300
10/31/1996 $11,266 $12,365 $10,333
11/30/1996 $11,771 $13,299 $10,352
12/31/1996 $11,815 $13,036 $10,352
1/31/1997 $12,119 $13,849 $10,386
2/28/1997 $12,352 $13,959 $10,418
3/31/1997 $12,140 $13,387 $10,444
4/30/1997 $12,208 $14,184 $10,456
5/31/1997 $12,839 $15,047 $10,450
6/30/1997 $13,206 $15,721 $10,463
7/31/1997 $13,830 $16,971 $10,475
8/31/1997 $13,602 $16,020 $10,495
9/30/1997 $14,301 $16,897 $10,521
10/31/1997 $13,903 $16,332 $10,548
GRAPHIC MATERIAL (12)
The following line graph compares the Franklin Adjustable Rate Securities
Fund's distribution rate to the one-year constant maturity t-bill annualized
yield from 11/1/96 to 10/31/97.
Period Ending Fund Index
11/1/1996 5.58% 5.46%
11/30/1996 5.80% 5.38%
12/31/1996 5.64% 5.51%
1/31/1997 5.24% 5.58%
2/28/1997 5.73% 5.67%
3/31/1997 5.40% 6.02%
4/30/1997 5.37% 5.90%
5/31/1997 4.78% 5.78%
6/30/1997 5.37% 5.67%
7/31/1997 5.65% 5.45%
8/31/1997 5.61% 5.59%
9/30/1997 5.75% 5.47%
10/31/1997 5.68% 5.36%
GRAPHIC MATERIAL (13)
The following line graph hypothetically compares the performance of the
Franklin Adjustable Rate Securities Fund to that of the Lehman Brothers Short
U.S. Government 1-2 Year Index and the Payden & Rygel 6-month CD Index, based
on a $10,000 investment from 12/26/91 to 10/31/97.
Period Ending Fund Index Index
12/26/1991 9775 $10,000 $10,000
12/31/1991 9,775 $10,021 $10,010
1/31/1992 9,775 $10,022 $10,051
2/29/1992 9,804 $10,051 $10,080
3/31/1992 9,847 $10,062 $10,109
4/30/1992 9,933 $10,148 $10,159
5/31/1992 9,981 $10,233 $10,196
6/30/1992 10,065 $10,321 $10,232
7/31/1992 10,097 $10,427 $10,288
8/31/1992 10,165 $10,501 $10,319
9/30/1992 10,232 $10,588 $10,362
10/31/1992 10,249 $10,540 $10,379
11/30/1992 10,284 $10,529 $10,390
12/31/1992 10,362 $10,620 $10,438
1/31/1993 10,409 $10,716 $10,478
2/28/1993 10,486 $10,792 $10,506
3/31/1993 10,547 $10,821 $10,535
4/30/1993 10,602 $10,880 $10,566
5/31/1993 10,622 $10,857 $10,584
6/30/1993 10,661 $10,924 $10,613
7/31/1993 10,713 $10,951 $10,644
8/31/1993 10,754 $11,027 $10,678
9/30/1993 10,785 $11,061 $10,708
10/31/1993 10,807 $11,085 $10,734
11/30/1993 10,826 $11,095 $10,760
12/31/1993 10,868 $11,134 $10,792
1/31/1994 10,891 $11,197 $10,828
2/28/1994 10,865 $11,147 $10,827
3/31/1994 10,768 $11,119 $10,852
4/30/1994 10,763 $11,089 $10,868
5/31/1994 10,802 $11,107 $10,896
6/30/1994 10,821 $11,138 $10,930
7/31/1994 10,864 $11,227 $10,978
8/31/1994 10,926 $11,265 $11,021
9/30/1994 10,897 $11,256 $11,049
10/31/1994 10,927 $11,288 $11,092
11/30/1994 10,934 $11,252 $11,116
12/31/1994 10,981 $11,279 $11,159
1/31/1995 11,034 $11,416 $11,238
2/28/1995 11,131 $11,552 $11,306
3/31/1995 11,183 $11,618 $11,361
4/30/1995 11,272 $11,712 $11,427
5/31/1995 11,403 $11,875 $11,503
6/30/1995 11,477 $11,938 $11,560
7/31/1995 11,497 $11,994 $11,624
8/31/1995 11,602 $12,060 $11,680
9/30/1995 11,657 $12,114 $11,732
10/31/1995 11,740 $12,204 $11,794
11/30/1995 11,809 $12,294 $11,857
12/31/1995 11,910 $12,380 $11,923
1/31/1996 11,961 $12,478 $11,988
2/29/1996 11,958 $12,451 $12,034
3/31/1996 12,001 $12,458 $12,077
4/30/1996 12,046 $12,482 $12,129
5/31/1996 12,061 $12,519 $12,179
6/30/1996 12,148 $12,603 $12,227
7/31/1996 12,195 $12,654 $12,280
8/31/1996 12,238 $12,705 $12,345
9/30/1996 12,324 $12,807 $12,405
10/31/1996 12,472 $12,935 $12,470
11/30/1996 12,543 $13,018 $12,529
12/31/1996 12,568 $13,039 $12,586
1/31/1997 12,626 $13,100 $12,641
2/28/1997 12,671 $13,138 $12,692
3/31/1997 12,769 $13,143 $12,735
4/30/1997 12,853 $13,242 $12,795
5/31/1997 12,931 $13,331 $12,861
6/30/1997 13,031 $13,415 $12,926
7/31/1997 13,160 $13,537 $12,995
8/31/1997 13,180 $13,564 $13,054
9/30/1997 13,274 $13,656 $13,114
10/31/1997 13,313 $13,746 $13,178
Total Return 33.13% 37.46% 31.78%
