SHAREHOLDER LETTER
Dear Shareholder:
It's a pleasure to bring you Franklin Investors Securities Trust's semiannual
report for the period ended April 30, 1999.
The period under review witnessed some subtle, and some not so subtle changes in
the world economies, although nothing compared to the upheaval of third quarter
1998. In the U.S., corporate earnings rebounded in the first quarter of 1999,
reversing a trend that began in early 1998. Value investing showed signs of
life, as investors began to look into some beaten-down sectors, specifically
cyclical companies. Outside of the U.S., some economies started to show signs of
life, or at least stability, while others unexpectedly slowed.
FIRST QUARTER EARNINGS SURPRISE ON THE UPSIDE
With the longest peace-time economic expansion in U.S. history, inflation as
measured by the Consumer Price Index at 1.6% for 1998, and unemployment running
at approximately 4.3% -- the lowest in decades -- the economic scenario appeared
to be ideal for stocks. So, why did U.S. stock markets pull back slightly toward
the end of March?
CONTENTS
Shareholder Letter ...................................................... 1
Fund Reports
Franklin Adjustable
U.S. Government
Securities Fund ........................................................ 7
Franklin Bond Fund ..................................................... 13
Franklin Convertible
Securities Fund ........................................................ 18
Franklin Equity
Income Fund ............................................................ 26
Franklin Global Government Income Fund ................................. 36
Franklin Short-Intermediate
U.S. Government
Securities Fund ........................................................ 44
Financial Highlights &
Statement of Investments ................................................ 50
Financial Statements .................................................... 79
Notes to Financial Statements ........................................... 88
S&P 500
Current Earning Per Share*
(1/1/95 - 3/31/99)
This graph shows the quarterly earnings per share of companies in the S&P
500 from 1/1/95 - 3/31/99.* The graph also contains the following caption below
the graph: S&P 500 company earnings grew beyond expectations in Q1 1999.
Quarter S&P 500 Earnings Per Share
------- --------------------------
1q95 8.88
2q95 9.26
3q95 8.69
4q95 7.13
1q96 8.96
2q96 10.13
3q96 9.78
4q96 9.86
1q97 10.47
2q97 10.44
3q97 9.87
4q97 8.94
1q98 10.29
2q98 9.87
3q98 8.99
4q98 8.56
1q99 11.23
[CHART]
S&P 500 company earnings grew beyond expectations in Q1 1999.
*Source: Standard & Poor's, Zacks Investment Research.
As the first quarter came to a close, investors seemed to anticipate a
continuation of disappointing earnings and consequently, drove down stock
prices. Earnings for companies that make up the Standard & Poor's(R) 500 (S&P
500(R)) Stock Index actually declined 5.1% in 1998, the first yearly decline
since 1991 and a continuation of the downward trend in place since 1995. While
this was acceptable for investors when interest rates were low in the latter
half of 1998 -- thus, the strong stock returns --falling earnings were not
enough to hold up prices as interest rates rose. During the six-month reporting
period, the 30-year Treasury bond yield rose from 5.15% on October 31, 1998, to
5.68% on April 30, 1999.
However, surprising most market analysts, corporate earnings for the first
quarter 1999 were exceptionally strong. Compared with fourth quarter 1998,
earnings for companies in the S&P 500 grew 31% in the quarter, the first
positive number since the first quarter of 1998 and the highest since the third
quarter of 1997. As one might guess, the stock markets reacted positively. The
Dow Jones(R) Industrial
MORGAN STANLEY CYCLICAL INDEX*
Daily Closing Levels
(1/1/99 - 4/30/99)
This chart shows the daily closing levels of the Morgan Stanley Cyclical Index
from 1/1/99 - 4/30/99.* The graph also contains the following caption below the
graph: Cyclical companies caught investors' favor in April, pushing some stocks
more than 40% higher.
Morgan Stanley Cyclical
Date Index
------ ------------------------
1/1/99 476.84
1/4/99 476.56
1/5/99 484.64
1/6/99 498.63
1/7/99 497.09
1/8/99 513.06
1/11/99 509.78
1/12/99 498.94
1/13/99 487.24
1/14/99 475.69
1/15/99 487.11
1/19/99 479.98
1/20/99 479.13
1/21/99 474.51
1/22/99 467.65
1/25/99 473.88
1/26/99 478.42
1/27/99 468.80
1/28/99 467.05
1/29/99 470.20
2/1/99 470.77
2/2/99 470.10
2/3/99 471.22
2/4/99 476.12
2/5/99 484.11
2/8/99 481.98
2/9/99 474.69
2/10/99 472.37
2/11/99 479.11
2/12/99 473.59
2/16/99 470.73
2/17/99 463.28
2/18/99 464.75
2/19/99 469.23
2/22/99 479.17
2/23/99 482.10
2/24/99 481.40
2/25/99 477.97
2/26/99 476.29
3/1/99 477.47
3/2/99 475.70
3/3/99 472.15
3/4/99 478.57
3/5/99 489.44
3/8/99 487.62
3/9/99 482.55
3/10/99 484.68
3/11/99 487.39
3/12/99 483.37
3/15/99 489.59
3/16/99 489.21
3/17/99 489.45
3/18/99 498.35
3/19/99 496.52
3/22/99 495.66
3/23/99 484.79
3/24/99 484.97
3/25/99 494.77
3/26/99 493.51
3/29/99 502.67
3/30/99 497.16
3/31/99 494.95
4/1/99 499.43
4/5/99 507.86
4/6/99 503.71
4/7/99 510.66
4/8/99 514.73
4/9/99 513.10
4/12/99 521.87
4/13/99 530.62
4/14/99 553.77
4/15/99 566.28
4/16/99 573.71
4/19/99 583.79
4/20/99 571.03
4/21/99 572.52
4/22/99 575.95
4/23/99 574.91
4/26/99 574.15
4/27/99 579.94
4/28/99 595.30
4/29/99 605.00
4/30/99 596.74
[CHART]
CYCLICAL COMPANIES CAUGHT INVESTORS' FAVOR IN APRIL, PUSHING SOME STOCKS MORE
THAN 40% HIGHER.
*Source: Morgan Stanley.
Average (the Dow) closed the period at 10789.04, 17.5% higher than on January 1,
1999, while the S&P 500 increased 8.6% and the NASDAQ rose 16.0%.
CYCLICALS RISE TO THE TOP
Meanwhile, investors in the U.S. began to take notice of compelling value in
cyclical companies, such as paper, raw material and heavy machinery companies.
Many of these companies' stocks, long considered value stocks as they were
trading at prices much closer to and for some, below, their asset values, took
off in April. While the strong upward moves in oil and oil service stocks might
have been foreseen, given the 29% increase in the price of a barrel of oil over
the past six months, it was difficult to predict the explosive moves in some
aluminum, chemical, paper and machinery companies. For example, aluminum company
Alcoa Inc.'s stock price increased more than 50% in April alone, while heavy
machinery company Caterpillar Inc. rose more than 40%.
The rise in the value of cyclical company stocks had important implications for
investors. First, it signaled that the U.S. market was broadening, a greater
number of stocks were going up. For much of fourth quarter 1998 and first
quarter 1999, only a handful of large-cap growth stocks rose, while the vast
majority did not participate in the rally or fell. This was a difficult
environment for many investors to make a positive return; however, with cyclical
stocks also rising, positive returns were easier to obtain. Second, the move
into cyclical stocks seems to have indicated that many investors believe the
world economy has bottomed out and stronger growth is likely. Cyclical companies
are often the first to benefit from a cyclical economic expansion, and as the
global economy picks up, they should show improved earnings.
Rising cyclical company profits are also beneficial for their corporate bonds,
convertible securities and stocks with high dividend yields, as enhanced company
financials generally increase the companies' ability to pay interest and
dividends. Such improving company fundamentals, coupled with low global
inflation, provided an attractive environment for these securities during the
six-month reporting period.
WORLD ECONOMY SHOWING SIGNS OF LIFE
Many countries around the world did, indeed, appear to be in better economic
shape. The economies of Southeast Asia and Latin America, troublesome regions
for international investors over the past two years, stabilized and even showed
signs of improvement during the period under review. This was most apparent in
Asia, where Thailand and Korea began to shake off the crisis that had
overwhelmed them for most of the past two years. Even Japan, the perennial
laggard of the '90s, displayed signs of improvement during the six-month period.
After delaying sorely needed, but painful, reforms for much of the decade, the
Japanese government passed legislation meant to shore up the country's shaky
financial system.
In Latin America, Brazil caused the greatest concern when it devalued its
currency, the real, in January and soon after, let it float freely, causing it
to sink further. However, in February, Brazil passed important legislation
designed to improve its financial position and reached an agreement with the
International Monetary Fund (IMF) that allowed the country to borrow money if
and when it was needed. This propelled the Brazilian market, the Bovespa, to its
highest level in 11 months, at the end of the reporting period.
However, things were not rosy everywhere in the world. European countries, which
experienced strong growth throughout 1998, started to falter in 1999. In the
first quarter of 1999, growth in many European countries slowed dramatically,
even raising fears of a continent-wide recession. In late March, the European
Commission, the executive body of the 15-country European Union (EU), cut its
growth forecast for the 1999 EU gross domestic product to 2.2%, from the 2.6% it
projected in October.
Such unpredictable change reinforces the importance of investing for the long
term, so daily market fluctuations and short-term volatility have minimal impact
on overall investment goals. We encourage you to discuss your financial goals
with your investment representative. He or she can address concerns about market
volatility, and help you diversify your investments and stay focused on the long
term.
As always, we appreciate your continued investment in Franklin Investors
Securities Trust and look forward to serving your future investment needs.
Sincerely,
/s/ Charles B. Johnson
Charles B. Johnson
Chairman
Franklin Investors Securities Trust
FRANKLIN ADJUSTABLE
U.S. GOVERNMENT SECURITIES FUND
[PYRAMID GRAPH]
- -------------------------------------------------------------------------------
Your Fund's Goal: Franklin Adjustable U.S. Government Securities Fund 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
- -------------------------------------------------------------------------------
ECONOMIC OVERVIEW
The six months under review saw a return to stability in the financial markets,
after the volatility created by the financial turmoil in summer and fall 1998.
Once the volatility subsided, the flight-to-quality mentality, which drove U.S.
Treasury yields in October to near historical lows, diminished greatly, as
investors regained confidence in equity markets once again. This, coupled with
persistent, strong domestic economic growth, pushed Treasury rates to as high as
5.69% in recent months. At the end of the reporting period, the 30-year Treasury
bond yielded 5.68%, approximately 50 basis points higher than its level at the
end of October.
During the six-month period under review, the vibrant domestic economy showed no
ill effects from the turmoil elsewhere that led to recessions in many other
countries. Much of this strength was led by the consumer sector. With the Dow
Jones Industrial Average (the Dow) breaking through the 10000 milestone and
unemployment at 4.2% in March, consumer confidence was near all-time highs. This
fueled strong retail sales and a vibrant housing sector that was helped by
historically low mortgage rates. For example, the national average 30-year
mortgage rate was below 7.00% on April 30, 1999. Low rates led to a flood of
mortgage refinancings, enabling homeowners to put more money in their pockets
and further boosting consumer spending. Even the manufacturing sector showed
some life toward the end of the reporting period. The recession in some
countries had placed a significant drag on U.S. export activity; however, those
pressures abated in the spring. Leading indicators of manufacturing activity,
which showed a contracting manufacturing sector through March, improved greatly
in April, indicating that the U.S. manufacturing sector was once again
expanding.
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.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 51 of
this report.
PORTFOLIO BREAKDOWN
Franklin Adjustable
U.S. Government Securities Fund
Based on Total Net Assets
4/30/99
FNMA 65.6%
FHLMC 16.0%
GNMA 10.7%
Other 7.7%
[PIECHART]
Inflation, in general, was well-contained and continued to be the principal
reason that bonds are likely to remain in a trading range in the near term.
Broad measures such as the Consumer Price Index increased at only a 1.6%
annualized rate in 1998.2 Despite the strong labor market, wage inflation was
muted, with average hourly earnings growing at only a modest pace.
In light of the combination of strong growth with little sign of inflation, the
Federal Reserve Board (the Fed) maintained a neutral posture concerning interest
rates since last fall, when they lowered rates three times in a seven-week span
to address the financial liquidity crisis. In addition to leaving rates
unchanged, they indicated no bias toward raising or lowering rates between
meetings.
2. Source: Bureau of Economic Analysis.
PORTFOLIO NOTES
For the six-month period under review, Franklin Adjustable U.S. Government
Securities Fund outperformed its benchmark, the Lehman Brothers Short U.S.
Government 1-2 Year Index, with a cumulative total return of +2.24% compared
with +1.47%. As shown on the graph on page 10, the fund's distribution rate
remained competitive with the yield on the one-year constant maturity Treasury
bill, for the year ended April 30, 1999. 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 general, adjustable rate mortgages (ARMs) performed better than comparable
fixed-income investments during the period. As interest rates rose, prepayments
on ARMs declined significantly, because mortgage owners had less incentive to
refinance their ARMs into fixed-rate mortgages. This enhanced the returns on the
portfolio's ARM securities.
There were no major changes to the portfolio's overall mix during the past six
months. Federal National Mortgage Association (FNMA or Fannie Mae) securities
remained the portfolio's largest weighting, at 65.6% of total net assets on
April 30, 1999. We selectively added several seasoned conventional ARMs to our
core holdings and also slightly reduced our Government National Mortgage
Association (GNMA or Ginnie Mae) holdings as that sector became relatively
expensive.
The shape of the yield curve, which shows the yield difference between
short-term and long-term bonds, flattened somewhat in the six months under
review, meaning that short-term rates increased more than long-term rates. On
November 2, 1998, the 30-year Treasury yielded 97 basis points or 0.97% more
than a two-year Treasury. At the end of the reporting period, the spread was
only 60 basis points, 0.60%. Normally, this would be negative for ARMs, as the
situation often leads to higher prepayments, but the higher overall level of
rates outweighed this.
DIVIDEND DISTRIBUTIONS
Franklin Adjustable
U.S. Government Securities Fund
11/1/98 - 4/30/99
DIVIDEND
MONTH PER SHARE
- ----- ---------
November ........................................................ 3.6 cents
December ........................................................ 3.8 cents
January ......................................................... 3.8 cents
February ........................................................ 3.8 cents
March ........................................................... 3.8 cents
April ........................................................... 3.8 cents
----------
TOTAL ........................................................... 22.6 cents
The portfolio employed a conservative strategy of investing in seasoned ARM
securities, which tend to prepay at slower rates than newer-production ARMs that
have not been through previous refinancing cycles. We choose securities using a
value-oriented approach, which emphasizes the bond's fundamental value relative
to comparable securities as well as its historical prepayment performance.
Going forward, we believe the fund is well-positioned to perform solidly in a
less volatile interest-rate environment. In our opinion, all indications are
that the Fed will not raise rates for the foreseeable future, unless economic
conditions dictate otherwise. Continued interest-rate stability will be
beneficial to ARMs, as this typically leads to higher interest rates when
compared with Treasuries. We will maintain our fiscally responsible strategy,
allowing us to produce consistent performance in a variety of interest-rate
environments.
FUND'S DISTRIBUTION RATE VS. TREASURY BILL ANNUALIZED YIELD
Franklin Adjustable U.S. Government Securities Fund vs.
One-Year Constant Maturity T-Bill
(5/1/98-4/30/99)
[LINE GRAPH]
This graph shows the Franklin Adjustable U.S. Government Securities Fund's
Distribution Rate vs. T-Bill Annualized Yield from 5/1/98-4/30/99.*
Adjustable U.S.
Govt. Sec DR 1 Year T-Bill
Date (Based on full offer) (Constant Maturity)
5/01/98 5.60% 5.40%
5/31/98 5.61% 5.42%
6/30/98 5.61% 5.38%
7/31/98 5.49% 5.38%
8/31/98 4.74% 4.95%
9/30/98 4.48% 4.41%
10/31/98 4.51% 4.18%
11/30/98 4.54% 4.53%
12/31/98 4.78% 4.53%
1/31/99 4.78% 4.51%
2/28/99 4.76% 4.88%
3/31/99 4.77% 4.72%
4/30/99 4.77% 4.78%
* Source: Standard and Poor's Micropal (Federal Reserve H15 Report).
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of April 30, 1999. However, market and economic conditions are
changing constantly, which can be expected to affect our strategies and the
fund's portfolio composition. Although historical performance is no guarantee of
future results, these insights may help you understand our investment and
management philosophy.
Sincerely,
/s/ T. Anthony Coffey
T. Anthony Coffey
/s/ Jack Lemein
Jack Lemein
/s/ Roger A. Bayston
Roger A. Bayston
Portfolio Management Team
Franklin Adjustable U.S. Government Securities Fund
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
PERFORMANCE SUMMARY AS OF 4/30/99
Distributions will vary based on earnings of the fund's portfolio and
any profits realized from the sale of the portfolio's securities. Past
distributions are not indicative of future trends. All total returns include
reinvested distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (11/1/98 - 4/30/99)
CLASS A CHANGE 4/30/99 10/31/98
- ------- ------ ------- --------
Net Asset Value -$0.02 $9.34 $9.36
DISTRIBUTIONS
-------------
Dividend Income $0.226
- --------------------------------------------------------------------------------
CLASS A:
Subject to the maximum 2.25% initial sales charge. Past expense reductions by
the fund's manager increased the fund's total returns.
- --------------------------------------------------------------------------------
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR (10/20/87)
- ------- ------- --------- ------ ------- ----------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +2.24% +4.14% +30.79% +73.83% +90.74%
Average Annual Total Return(2) -0.11% +1.77% +5.03% +5.45% +5.55%
Distribution Rate(3) 4.77%
30-Day Standardized Yield(4) 4.73%
</TABLE>
1. Cumulative total return represents 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 periods indicated and includes the maximum initial sales
charge. Six-month return has not been annualized.
3. Distribution rate is based on an annualization of April's 3.8 cent per share
dividend and the maximum offering price of $9.55 on April 30, 1999.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended April 30, 1999.
- --------------------------------------------------------------------------------
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. Since markets can go down as well as up,
investment return and principal value will fluctuate with market conditions, and
you may have a gain or loss when you sell your shares.
- --------------------------------------------------------------------------------
Past performance is not predictive of future results.
[PYRAMID GRAPH]
FRANKLIN BOND FUND
- --------------------------------------------------------------------------------
Your Fund's Goal: Franklin Bond Fund seeks to provide investors with a high
level of income consistent with preservation of capital. Capital appreciation
over the long term is a secondary goal.
- --------------------------------------------------------------------------------
The U.S. economy grew at a rapid pace during the six-month reporting period,
bursting out of the financial market turmoil of early fall 1998. After lowering
the federal funds target rate twice during September and October, the Federal
Reserve Board (the Fed) made one final easing move on November 17, bringing the
federal funds target rate to its current level of 4.75%. By this time, however,
a good deal of liquidity already had returned to the financial system, and
investors began to move back into sectors that they had avoided only weeks
before. Yield spreads, the yield difference between higher- and lower-quality
issues, of the securities in which the fund invests -- mortgage-backed
securities, asset-backed securities and corporate bonds -- began to narrow.
Consumer spending and residential investment were virtually unaffected by the
turmoil, possibly due to the Fed's rapid easing of monetary policy, which
immediately boosted confidence. With consumer spending leading the way, the U.S.
economy powered ahead, with gross domestic product (GDP) growing at annualized
rates of 6.0% during the fourth quarter of 1998 and 4.1% during the first
quarter of 1999. Unemployment and inflation remained low during the reporting
period. In fact, inflation, as measured by the Consumer Price Index, was a mere
1.6% for all of 1998.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 54 of
this report.
PORTFOLIO BREAKDOWN
Franklin Bond Fund
Based on Total Investments
4/30/99
SECTOR 4/30/99 10/31/98
- ------ ------- --------
Mortgage-backed Securities 40.04% 34.51%
Corporate Bonds 20.55% 27.48%
U.S. Treasury Securities 10.47% 18.46%
U.S. Agency Bonds 9.28% 13.34%
Cash, assets and liabilities 19.66% 6.21%
Near the end of 1998, it became apparent that the economy was growing more
rapidly than generally anticipated, and U.S. Treasury security yields began to
rise in response. By mid-February, concerns mounted that tight labor markets and
strong consumer demand might lead the Fed to increase interest rates to prevent
inflationary pressures from developing. This sent Treasury yields higher still,
with the 30-year bond reaching a seven-month high of 5.69% on March 4, 1999.
The rise in interest rates, while unfavorable for holders of U.S. Treasury
securities, was coupled with the positive performance of several other
fixed-income sectors that had suffered during last fall's flight-to-quality.
Investors increasingly became more interested in corporate bonds and
asset-backed securities as expectations of an economic slowdown diminished,
which was one of the reasons for the rise in Treasury yields. In addition, some
mortgage pass-throughs benefited from reduced prepayment expectations at the
higher interest rates. As a result, yield spreads between mortgage
pass-throughs, as well as many corporate and asset-backed securities, and U.S.
Treasuries almost fully returned to their historical norms since last fall. The
fund benefited from the positive performance of these sectors, as investors
steadily moved out of Treasuries and into the higher-yielding securities.
During the reporting period, the fund sought to take advantage of the
historically wide yield spreads to add a number of securities across different
sectors. The fund reduced its exposure to U.S. Treasury and agency securities to
19.75% of the total portfolio on April 30, 1999, from 31.80% on October 31,
1998, while increasing its exposure to mortgage-backed, commercial
mortgage-backed and asset-backed securities. Even though we slightly reduced our
overall exposure to corporate bonds during the period, we increased exposure to
attractively priced high yield bonds within the corporate sector.
Going forward, we expect interest rates to generally remain in a narrow range in
the near term amid continued solid domestic eco- nomic growth. Regardless of the
short-term direction of interest rates, we believe Franklin Bond Fund is
well-positioned to benefit through our diversification in different sectors, as
well as our commitment to maintaining a value-oriented investment approach that
seeks to add to our holdings as relative value opportunities arise.
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of April 30, 1999. However, market and economic conditions are
changing constantly, which can be expected to affect our strategies and the
fund's portfolio composition. Although historical performance is no guarantee of
future results, these insights may help you understand our investment and
management philosophy.
Sincerely,
/s/ Roger A. Bayston
Roger A. Bayston
Portfolio Manager
Franklin Bond Fund
- --------------------------------------------------------------------------------
DIVIDEND DISTRIBUTIONS
FRANKLIN BOND FUND
11/1/98 - 4/30/99
DIVIDEND PER SHARE
-----------------------------
MONTH CLASS A ADVISOR
- ----- ------- -----------
November 4.5 cents 4.71 cents
December 10.45 cents* 10.66 cents*
January 4.5 cents 4.71 cents
February 4.5 cents 4.71 cents
March 4.7 cents 5.11 cents
April 4.7 cents 4.90 cents
----------- -----------
TOTAL 33.35 CENTS 34.80 CENTS
- --------------------------------------------------------------------------------
*Includes an additional 5.95 cent per share distribution to meet excise tax
requirements.
FRANKLIN BOND FUND
PERFORMANCE SUMMARY AS OF 4/30/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (11/1/98 - 4/30/99)
- --------------------------------------------------------------------------------
CLASS A CHANGE 4/30/99 10/31/98
- ------- ------ ------- --------
Net Asset Value -$0.37 $9.99 $10.36
DISTRIBUTIONS
-------------
Dividend Income $0.3335
Long-Term Capital Gain $0.0213
Short-Term Capital Gain $0.0261
TOTAL $0.3809
ADVISOR CLASS CHANGE 4/30/99 10/31/98
- ------- ------ ------- --------
Net Asset Value -$0.37 $10.00 $10.37
DISTRIBUTIONS
-------------
Dividend Income $0.3480
Long-Term Capital Gain $0.0213
Short-Term Capital Gain $0.0261
TOTAL $0.3954
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CLASS A (formerly Class I):
Subject to the maximum 4.25% initial sales charge.*
ADVISOR CLASS:
NO INITIAL SALES CHARGE OR RULE 12b-1 FEES AND ARE AVAILABLE TO A LIMITED CLASS
OF INVESTORS.*
*The fund's manager has agreed in advance to waive a portion of its management
fees, which reduces expenses and increases distribution rate, yield and total
return to share-holders. If the manager had not taken this action, the fund's
distribution rate and total return would have been lower and yield for the
period would have been 4.20% and 4.64% for Class A and Advisor Class shares
respectively. The fee waiver may be discontinued at any time, upon notice to the
fund's Board of Directors.
- --------------------------------------------------------------------------------
Past performance is not predictive of future results.
PERFORMANCE
- --------------------------------------------------------------------------------
INCEPTION
CLASS A 6-MONTH (8/3/98)
- ------- ------- --------
Cumulative Total Return(1) +0.09% +4.15%
Aggregate Total Return(2) -4.16% -0.24%
Distribution Rate(3) 5.41%
30-Day Standardized Yield(4) 4.95%
INCEPTION
ADVISOR CLASS 6-MONTH (8/3/98)
- ------------- ------- --------
Cumulative Total Return(1) +0.23% +4.42%
Aggregate Total Return(2) +0.23% +4.42%
Distribution Rate(3) 5.88%
30-Day Standardized Yield(4) 5.42%
- --------------------------------------------------------------------------------
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Aggregate total return includes the applicable, maximum sales charge for that
class. Since the fund has existed for less than one year, the figures represent
aggregate total return from inception; therefore, average annual total returns
are not provided. Six-month return has not been annualized.
3. Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (net asset value price
for Advisor Class) per share on April 30, 1999.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended April 30, 1999.
- --------------------------------------------------------------------------------
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. Since markets can go down as well as up,
investment return and principal value will fluctuate with market conditions, and
you may have a gain or loss when you sell your shares.
- --------------------------------------------------------------------------------
Past performance is not predictive of future results.
[PYRAMID GRAPH]
FRANKLIN CONVERTIBLE
SECURITIES FUND
- --------------------------------------------------------------------------------
Your Fund's Goal: Franklin Convertible Securities Fund seeks to maximize total
return consistent with reasonable risk through a portfolio of convertible
securities.
- --------------------------------------------------------------------------------
During the reporting period, the U.S. economy performed strongly, driven by
continued mild inflation, low interest rates and low unemployment. Consumer
demand for a host of goods and services kept economic activity levels above
expectations and corporate profits ahead of analysts' estimates. As a result,
financial markets reacted positively and rose appreciably during the period.
Leading the advance were large capitalization technology and telecommunications
companies, given the attractive growth prospects for these sectors. Bonds
remained in a fairly tight trading range during the period, with the yield on
the 30-year U.S. Treasury fluctuating between 4.95% and 5.69%. Interest rates
continued to balance the offsetting pressures of a strong domestic economy and
weak international economic conditions as much of the world struggled with the
slowdown of the past 18-24 months.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 60 of
this report.
Within the convertible securities market, the benchmark Goldman Sachs
Convertible 100 Bond Index increased 17.56% during the period. The Merrill Lynch
All-Convertibles Index, which more closely resembles the fund's composition,
increased 21.66%, with performance driven by large-capitalization companies in
the technology, telecommunications and consumer services sectors.* The
large-capitalization component of the index led the increase, gaining 31.0%. On
the opposite side of the spectrum, the convertibles of small-capitalization
companies declined substantially, falling 3.6%. In addition, the convertible
securities of lower credit quality companies underperformed, as corporate credit
spreads widened, beginning in the fall of 1998. This widening reduced the
investment value of convertible securities as fixed-income instruments,
resulting in greater than expected downside in these securities.
The fund underperformed its benchmark during the period, principally due to a
combination of sector allocation decisions and a larger than usual position in
the convertible securities of smaller-capitalization companies. For the six
months ended April 30, 1999, the fund's Class A shares produced a +7.27%
cumulative total return. Cumulative total return measures the change in value of
an investment, assuming reinvestment of all distributions, and does not include
sales charges. Specifically, performance was negatively impacted by smaller than
usual weightings in the technology and consumer cyclical growth sectors, because
we felt most companies in these sectors were unattractively valued given
concerns about the potential for slowing economic growth. In addition, large
positions in areas of relative value, including the utilities and real estate
investment trust (REIT) sectors, performed poorly, as these sectors continued to
lag the overall market.
*Source: Standard and Poor's Micropal. Indices are unmanaged and include
reinvested dividends. One cannot invest directly in an index.
PORTFOLIO BREAKDOWN
Franklin Convertible Securities Fund
Based on Total Net Assets
4/30/99
Convertible Preferred Stocks: 45.89%
Convertible Bonds: 44.45%
Common Stocks: 3.43%
Cash & Short-Term Equivalents: 6.23%
The fund added positions in several areas, including select issues in
technology, as we sought to identify and capitalize on positive long-term
trends. We purchased EMC Corp. convertible bonds, a leading provider of data
storage solutions to companies worldwide, after the stock pulled back
significantly from its highs. EMC is expected to benefit from the substantial
increase in data storage demand driven in part by the growth of the Internet,
e-mail and e-commerce. Although EMC convertible bonds trade at a significant
premium when valued strictly as a bond, we felt the remaining year of call
protection provided substantial exposure to increases in the underlying common
stock. Another addition to the portfolio included Omnicare Inc., a leading
provider of pharmaceutical services and data management services for skilled
nursing and assisted living facilities. A recent change in the Medicare
reimbursement system sent shock waves through the health care system, providing
a significant buying opportunity for those companies, such as Omnicare, that are
positioned to take advantage of the favorable long-term sector trends for
low-cost managed care. Omnicare convertible bonds received an investment grade
rating from Standard & Poor's, a national credit rating agency, and have more
than 20 months of call protection remaining.
We reduced our exposure within the utilities sector, because of the continued
difficulties companies were having meeting earnings expectations. In particular,
we exited our position in El Paso Energy Capital Trust due to its recent, poor
financial performance and proposed acquisition of Sonat Inc. Similarly, we
reduced our weighting in Texas Utilities Co. to reallocate the proceeds in
securities that we felt offered greater total return potential.
- --------------------------------------------------------------------------------
DIVIDEND DISTRIBUTIONS
FRANKLIN CONVERTIBLE SECURITIES FUND
11/1/98 - 4/30/99
Dividend per Share
------------------
MONTH CLASS A CLASS C
- ----- ------- -----------
November 5.0 cents 4.29 cents
December 9.2 cents* 8.49 cents*
January 5.0 cents 4.29 cents
February 5.0 cents 4.29 cents
March 5.0 cents 4.23 cents
April 5.0 cents 4.23 cents
---------- -----------
Total 34.2 cents 29.82 cents
- --------------------------------------------------------------------------------
*Includes an additional 4.2 cent per share distribution.
- --------------------------------------------------------------------------------
TOP FIVE HOLDINGS
FRANKLIN CONVERTIBLE SECURITIES FUND
4/30/99
COMPANY % OF TOTAL
SECURITY NET ASSETS
- -------- ----------
Omnicare Inc. 3.89%
Convertible Bond
Affiliated
Computer Services 3.85%
Convertible Bond
Sanmina Corp. 3.45%
Convertible Bond
Range Resources Corp. 3.34%
Convertible Bond
Ralston-Ralston
Purina Group/
Interstate Bakeries 2.96%
Convertible Bond
- --------------------------------------------------------------------------------
During the six months under review, we took several actions designed to improve
the portfolio's performance and quality. Foremost, we reduced the number of
holdings from 74 on October 31, 1998, to 57 on April 30, 1999, which enabled us
to concentrate on each company more closely. Furthermore, we improved the
portfolio's quality by focusing on convertible securities of higher-rated,
large-capitalization companies that provide greater liquidity. In our opinion,
this will give the fund a better ability to focus and benefit from core names,
while providing greater flexibility.
Looking forward, we are optimistic about the prospects for the U.S. stock and
bond markets, given the healthy domestic economy and expectations of continued
improvements in growth abroad. This bodes well for the domestic convertible
securities market, and we believe the fund is well-positioned to take advantage
of this favorable outlook. Continued increases in the value of underlying common
stocks should provide attractive upside participation for convertible
securities, while the current income and reduced volatility of the fixed-income
portion of convertible securities should offer some downside protection.
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of April 30, 1999. However, market and economic conditions are
changing constantly, which can be expected to affect our strategies and the
fund's portfolio composition. Although historical performance is no guarantee of
future results, these insights may help you understand our investment and
management philosophy.
Sincerely,
/s/ Edward B. Jamieson
Edward B. Jamieson
Portfolio Manager
Franklin Convertible Securities Fund
PERFORMANCE SUMMARY AS OF 4/30/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
FRANKLIN CONVERTIBLE
SECURITIES FUND
- --------------------------------------------------------------------------------
CLASS A (formerly Class I):
Subject to the current, maximum 5.75% initial sales charge. Prior to August 3,
1998, fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective May 1, 1994, the fund implemented a Rule
12b-1 plan, which affects subsequent performance. Past expense reductions by the
fund's manager increased the fund's total returns.
Class C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
- --------------------------------------------------------------------------------
PRICE AND DISTRIBUTION INFORMATION (11/1/98 - 4/30/99)
- --------------------------------------------------------------------------------
CLASS A CHANGE 4/30/99 10/31/98
- ------- ------ ------- --------
Net Asset Value +$0.50 $12.25 $11.75
DISTRIBUTIONS
-------------
Dividend Income $0.342
CLASS C CHANGE 4/30/99 10/31/98
- ------- ------ ------- --------
Net Asset Value +$0.50 $12.20 $11.70
DISTRIBUTIONS
-------------
Dividend Income $0.2982
- --------------------------------------------------------------------------------
Past performance is not predictive of future results.
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR (4/15/87)
- ------- ------- ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +7.27% -8.32% +66.33% +195.78% +230.27%
Average Annual Total Return(2) +1.08% -13.59% +9.40% +10.80% +9.89%
Value of $10,000 Investment(3) $ 10,108 $ 8,641 $ 15,672 $ 27,889 $ 31,134
Distribution Rate(4) 4.62%
30-Day Standardized Yield(5) 4.61%
4/30/95 4/30/96 4/30/97 4/30/98 4/30/99
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
One-Year Total Return(6) +8.56% +24.02% +10.18% +22.29% -8.32%
INCEPTION
CLASS C 6-MONTH 1-YEAR 3-YEAR (10/2/95)
- ------- ------- ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +6.91% -8.97% +20.69% +31.92%
Average Annual Total Return(2) +4.83% -10.73% +6.12% +7.75%
Value of $10,000 Investment(3) $ 10,483 $ 8,927 $ 11,951 $ 13,061
Distribution Rate(4) 4.12%
30-Day Standardized Yield(5) 4.10%
4/30/97 4/30/98 4/30/99
------- ------- -------
<S> <C> <C> <C>
One-Year Total Return(6) +9.29% +21.31% -8.97%
</TABLE>
1. Cumulative total return represents 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 periods indicated and includes the current, applicable,
maximum sales charge(s) for that class. Six-month return has not been
annualized.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
4. Distribution rate is based on an annualization of the respective class's
April dividend and the maximum offering price per share on April 30, 1999.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended April 30, 1999.
6. One-year total return represents the change in value of an investment over
the one-year periods ended on the specified dates and does not include sales
charges.
- --------------------------------------------------------------------------------
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. Since markets can go down as well as up,
investment return and principal value will fluctuate with market conditions, and
you may have a gain or loss when you sell your shares.
- --------------------------------------------------------------------------------
Past performance is not predictive of future results.
[PYRAMID GRAPH]
FRANKLIN EQUITY INCOME FUND
- --------------------------------------------------------------------------------
Your Fund's Goal: Franklin Equity Income Fund 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.
- --------------------------------------------------------------------------------
The financial markets' performance for the six-month period ended April 30,
1999, in many respects, proved to be a continuation of the trends established in
the past year. Larger capitalization "growth" stocks registered favorable
returns, as reflected by the Standard & Poor's 500 (S&P 500) Stock Index's
22.32% advance, whereas many value and smaller capitalization issues experienced
weaker results for the period.1 Striking investment performance disparities
existed even within the S&P 500 during the six months under review. For example,
the top 25% "growth" stocks in terms of lowest dividend yields outperformed the
top 25% "value" stocks with the highest dividend yields by an average of 19.0%,
according to our calculations.2 The most recent semiannual performance for
Franklin Equity Income Fund, which has a high dividend-yield value focus,
reflected these market trends, and the fund's Class A shares had a cumulative
total return of +8.79% for the six months ended April 30, 1999. Cumulative total
return measures the change in value of an investment, assuming reinvestment of
all distributions and does not include the sales charge.
1. Source: Standard and Poor's Micropal. The unmanaged index includes reinvested
dividends, and one cannot invest directly in an index.
2. Source: Compustat.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 66 of
this report.
Influencing the equity market during the period under review has been a
surprisingly robust U.S. economy, especially considering the widespread weakness
in Asia, Latin America and Europe. The current economic expansion, which
commenced in 1991, is the second longest in history, yet inflation, as measured
by the Consumer Price Index, has fallen in recent years and is currently below
2%. U.S. Treasury bond yields, despite a recent rise, are still near their
lowest levels in 30 years, and the unemployment rate in March was at a 29-year
low of 4.2%.(3) Also, although corporate profits in 1998 were generally level
with the prior year, earnings growth appears to be resuming for many companies
in 1999.
The fund maintains a value-oriented investment philosophy, utilizing a highly
disciplined approach to investing. We seek to invest in stocks that are selling
at attractive prices according to measurements such as relative dividend yield,
book value, revenues and normalized earnings. This generally entails investing
in stocks at temporarily depressed prices while collecting current, steady
investment returns in the form of dividends, which can provide a cushion against
possible further price declines.
- --------------------------------------------------------------------------------
TOP FIVE INVESTMENT SECTORS
FRANKLIN EQUITY INCOME FUND
4/30/99
% OF TOTAL
SECTOR NET ASSETS
- ------ ----------
Energy Minerals 11.8%
Utilities 11.8%
Finance 10.4%
Consumer Non-Durables 8.2%
Telecommunications 8.1%
- --------------------------------------------------------------------------------
3. Bureau of Labor Statistics
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
FRANKLIN EQUITY INCOME FUND
4/30/99
COMPANY % OF TOTAL
SECURITY NET ASSETS
- -------- ----------
Bell Atlantic Corp. 2.9%
Telecommunications
Pharmacia & Upjohn Inc. 2.2%
Health Technology
Texaco Inc. 2.1%
Energy Minerals
GTE Corp. 1.9%
Telecommunications
YPF SA, ADR 1.9%
Energy Minerals
Royal Dutch Petroleum Co. 1.8%
Energy Minerals
Bank One Corp. 1.8%
Finance
Chevron Corp. 1.8%
Energy Minerals
Lincoln National Corp. 1.7%
Insurance
Dana Corp. 1.7%
Producer Manufacturing
- --------------------------------------------------------------------------------
Overall asset allocation remained relatively unchanged during the period. Common
stocks increased slightly to 88.8% of total net assets at the end of the period,
from 86.2% on October 31, 1998, and more defensive convertible stocks and bonds
remained approximately the same, at 6.5%. Short-term investments fell slightly,
from 7.7% of total net assets to 5.0%, during the semiannual period. Stocks of
internationally based companies remained little changed, at 9.76% of total net
assets on April 30, 1999.
Among the fund's investments, energy stocks experienced sizable price swings
during the first quarter 1999, reflecting volatile underlying oil prices. Oil
prices dropped to multi-year lows, stemming from weak demand and large
inventories before rebounding sharply toward the end of the period to more than
$18 per barrel, due to renewed efforts by OPEC to decrease oil production. We
took advantage of the volatility to reposition our existing investments and
initiate a new position in Royal Dutch Petroleum Co., one of the world's largest
oil and gas companies. Among the fund's 10 largest investments at the end of the
period were oil stocks Royal Dutch, Chevron Corp., Texaco Inc. and Argentinian
company YPF SA. In addition, YPF was subject to an acquisition offer from Repsol
SA for $44.78 per share in April, which represented more than a 50% premium to
its price at the beginning of the period. Holdings in this sector represented
11.8% of the fund's total net assets on April 30, 1999.
The fund's banking stocks were generally strong performers over the six-month
period. We initiated an investment position in Bank of America Corp., the
largest full-service bank in the U.S. Its recent merger with NationsBank Corp.
is expected to generate significant cost savings as well as expand its services
across the country. In addition, Fleet Financial Group Inc. agreed to acquire
fund holding BankBoston Corp. The combined bank is expected to command a leading
position in the New England market.
Health care stocks continued to perform well during the period. New investments
in this area included pharmaceutical company American Home Products Corp.,
medical products company Baxter International Inc. and an Omnicare Inc.
convertible bond. American Home Products should benefit from an exciting
pipeline of new drugs next year, and Baxter International, a leader in blood and
renal therapy products, is expected to post solid earnings gains for the
remainder of the year and 2000. Omnicare is a leading institutional pharmacy
company, serving the nursing home industry. Uncertainty over prospective
Medicare reimbursements to the industry provided an opportunity to invest in the
security at a depressed price, with an exceptional yield of nearly 6%.
Telephone stocks, excellent performers in early 1998, had relatively weak
results during the reporting period. Despite rising competition, the industry's
growth prospects remain favorable, in our opinion. Taking advantage of recent
price weakness, we repurchased AT&T Corp. and started a new investment in
Cincinnati Bell Inc. AT&T's recent acquisition of Tele-Communications Inc. (TCI)
presented some exciting opportunities, and Cincinnati Bell's excellent local
telephone and networking operations are expected to grow at a 15% annual rate
over the next few years.
During the period, we determined that our yield requirements were too
restrictive for many technology stocks. Thus we relaxed our criteria a bit to
participate in this exciting sector and initiated a couple of small positions in
stocks that do not have above-market dividend yields. Although many large-cap
technology companies were among the most expensive stocks in the marketplace in
our opinion, we were able to uncover some attractive new investments during the
period. We took positions in Diebold Inc., a leader in the Automated Teller
Machine (ATM) market; Pitney Bowes Inc., a leading postal service company; and
EG&G Inc., a diversified manufacturer of instruments and components for various
technology-based applications. We sold our investment in AMP Inc., which was
acquired by Tyco International Ltd., at an attractive profit.
"The current economic environment in terms of moderate growth, low interest
rates and inflation is, perhaps, the best in decades for stocks."
The fund's investments in gas and electric utilities and real estate investment
trusts (REITs) continued to register disappointing returns during the six months
under review. One of our investment themes for the utility sector was industry
consolidation. Four of the fund's 12 utility holdings announced agreements to
combine their operations during the period -- Dominion Resources Inc. with
Consolidated Natural Gas Co. and New Century Energies Inc. with Northern States
Power Co. Surprisingly, three of the four stocks declined in price despite the
long-term benefits of their expected mergers. Accordingly, we attempted to
reposition the investments in this sector to focus on greater growth potential.
REITs also experienced weak returns despite recent favorable earnings, cash flow
and dividend growth trends. Nonfundamental factors, such as liquidity, largely
contributed to the weak results, in our opinion. We continued to have
comparatively large positions in this sector as both absolute and relative
valuations are at extremely attractive levels and growth prospects appear
favorable.
Looking forward, we anticipate continued high levels of financial market
volatility. The current economic environment in terms of moderate growth, low
interest rates and inflation is, perhaps, the best in decades for stocks.
However, valuations are also at high levels, with the Dow Jones Industrial
Average exceeding the 10000 mark for the first time in March 1999. In addition,
most of the market's recent advance was led by a small number of large-cap
growth stocks, which became more expensive, while the vast majority of stocks
languished. However, in April, many more stocks, including value stocks such as
those in which the fund invests, rose sharply, signaling that investors may be
returning to more of a value-oriented investment philosophy. We believe that our
value investment discipline, which attempts to take advantage of volatility, is
especially well-suited for today's market environment and feel that Franklin
Equity Income Fund should have an improved performance in 1999.
- ----------------------------------------------------------------------------
DIVIDEND DISTRIBUTIONS
FRANKLIN EQUITY INCOME FUND
11/1/98 - 4/30/99
DIVIDEND PER SHARE
-------------------------------------------------
MONTH CLASS A CLASS B** CLASS C
- ----- ------- --------- -----------
November 5.2 cents -- 4.07 cents
December 6.2 cents* -- 5.07 cents*
January 5.2 cents 5.20 cents 4.07 cents
February 5.2 cents 3.98 cents 4.07 cents
March 5.2 cents 3.99 cents 3.98 cents
April 5.2 cents 3.99 cents 3.98 cents
---------- ----------- -----------
TOTAL 32.2 CENTS 17.16 CENTS 25.24 CENTS
- ----------------------------------------------------------------------------
*Includes an additional 1.0 cent per share distribution.
**January 1, 1999, the fund began offering Class B shares to investors. See the
prospectus for details.
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of April 30, 1999. However, market and economic conditions are
changing constantly, which can be expected to affect our strategies and the
fund's portfolio composition. Although historical performance is no guarantee of
future results, these insights may help you understand our investment and
management philosophy.
Sincerely,
/s/ Frank M. Felicelli
Frank M. Felicelli
Portfolio Manager
Franklin Equity Income Fund
PERFORMANCE SUMMARY AS OF 4/30/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
FRANKLIN EQUITY
INCOME FUND
- --------------------------------------------------------------------------------
CLASS A (FORMERLY CLASS I):
Subject to the current, maximum 5.75% initial sales charge. Prior to August 3,
1998, fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective May 1, 1994, the fund implemented a Rule
12b-1 plan, which affects subsequent performance. Past expense reductions by the
fund's manager increased the fund's total returns.
Class B:
Subject to no initial sales charge, but subject to a contingent deferred sales
charge (CDSC) declining from 4% to 0% over six years. These shares have higher
annual fees and expenses than Class A shares.
Class C (formerly Class II):
Subject to 1% initial sales charge and 1% CDSC for shares redeemed within 18
months of investment. These shares have higher annual fees and expenses than
Class A shares.
- --------------------------------------------------------------------------------
PRICE AND DISTRIBUTION INFORMATION (11/1/98 - 4/30/99)
- --------------------------------------------------------------------------------
CLASS A CHANGE 4/30/99 10/31/98
- ------- ------ ------- --------
Net Asset Value +$0.26 $20.19 $19.93
DISTRIBUTIONS
-------------
Dividend Income $0.3220
Long-Term Capital Gain $0.9786
Short-Term Capital Gain $0.0951
TOTAL $1.3957
CLASS B CHANGE 4/30/99 1/1/99
- ------- ------ ------- ------
Net Asset Value +$0.81 $20.18 $19.37
DISTRIBUTIONS
-------------
Dividend Income $0.1716
CLASS C CHANGE 4/30/99 10/31/98
- ------- ------ ------- --------
Net Asset Value +$0.26 $20.14 $19.88
DISTRIBUTIONS
-------------
Dividend Income $0.2524
Long-Term Capital Gain $0.9786
Short-Term Capital Gain $0.0951
TOTAL $1.3261
- --------------------------------------------------------------------------------
Past performance is not predictive of future results.
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR (3/15/88)
- ------- ------- ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +8.79% +4.92% +110.35% +253.57% +324.66%
Average Annual Total Return(2) +2.52% -1.11% +14.67% +12.79% +13.28%
Value of $10,000 Investment(3) $ 10,252 $ 9,889 $ 19,823 $ 33,331 $ 40,025
Distribution Rate(4) 2.91%
30-Day Standardized Yield(5) 2.51%
4/30/95 4/30/96 4/30/97 4/30/98 4/30/99
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
One-Year Total Return(6) +12.79% +18.54% +13.94% +31.61% +4.92%
INCEPTION
CLASS B (1/1/99)
- ------- --------
<S> <C> <C>
Cumulative Total Return(1) +5.12%
Aggregate Total Return(2) +4.18%
Value of $10,000 Investment(3) $10,112
Distribution Rate(4) 2.37%
30-Day Standardized Yield(5) 1.94%
INCEPTION
CLASS C 6-MONTH 1-YEAR 3-YEAR (10/2/95)
- ------- ------- ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +8.42% +4.22% +53.75% +67.68%
Average Annual Total Return(2) +6.35% +2.23% +15.03% +15.23%
Value of $10,000 Investment(3) $ 10,635 $ 10,223 $ 15,223 $ 16,606
Distribution Rate(4) 2.35%
30-Day Standardized Yield(5) 1.92%
4/30/97 4/30/98 4/30/99
------- ------- -------
<S> <C> <C> <C>
One-Year Total Return(6) +13.03% +30.52% +4.22%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
1. Cumulative total return represents 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 periods indicated and includes the current, applicable,
maximum sales charge(s) for that class. Six-month return has not been
annualized. Since Class B shares have existed for less than one year, aggregate
total return for that class represents total return since inception, including
the maximum sales charge.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
4. Distribution rate is based on an annualization of the respective class's
April dividend and the maximum offering price per share on April 30, 1999.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended April 30, 1999.
6. One-year total return represents the change in value of an investment over
the one-year periods ended on the specified dates and does not include sales
charges.
- --------------------------------------------------------------------------------
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
- --------------------------------------------------------------------------------
Past performance is not predictive of future results.
[PYRAMID GRAPH]
FRANKLIN GLOBAL
GOVERNMENT INCOME FUND
Your Fund's Goal: Franklin Global Government Income Fund seeks a high level of
current income consistent with preservation of capital, with capital
appreciation as a secondary consideration, through a portfolio of domestic and
foreign debt securities.
ECONOMIC OVERVIEW
During the six-month period under review, foreign government bonds handily
outperformed U.S. government bonds. The J.P. Morgan Global Government Bond Index
(GGBI) posted a positive return of +1.52% in local currency terms, compared with
the -1.30% return of the J.P. Morgan U.S. Government Bond Index. This difference
in performance was mainly attributable to declining interest rates in Europe and
Japan, as central banks eased monetary policy to support economic activity.
However, a weaker euro and yen offset these gains in U.S. dollar terms, and the
J.P. Morgan GGBI declined by 3.92% in U.S. dollars for the six months ended
April 30, 1999.(1)
The Federal Reserve Board's (the Fed's) decision to lower the federal funds
target rate and discount rates by 0.25% in November elicited mixed responses
from the market. Following the move, senior Fed officials indicated that
concerns about financial market stability had prompted the cuts. Meanwhile,
there was continued evidence of a cooling down of the Euroland economy, the
1. Source: Standard and Poor's Micropal.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 73 of
this report.
11 countries that began using the new European currency -- the euro -- in
January. The latter led to increased expectations of European Central Bank
interest rate cuts. In December, all European bond markets rose sharply as the
Euroland area central banks cut official interest rates to 3.0% in a coordinated
move. In addition, the U.K. Monetary Policy Committee cut rates by 0.5%, and the
Swedish Riksbank eased an additional 0.2%.
In the U.S., interest rates in general increased toward the end of the six
months under review. Short-term interest rates rose more than long-term rates
due to the strong domestic economic performance and reduced likelihood of
further interest rate cuts by the Fed. The upward move in long-term interest
rates correlated with the rise in the Dow Jones Industrials Index. Once global
markets began to stabilize following the Brazilian devaluation, there was a
reversal of the previous cash flows into bonds, the "flight-to-quality"
phenomenon, and investors sold bonds to invest in equity securities. Bond prices
and yields move in opposite directions so that as bond prices fell, yields rose.
As of January, many investors maintained a positive outlook for global bond
markets, given continued low inflation and weak economic growth for the
industrial economies, and thus had priced in further interest rate cuts by
monetary policymakers. In February, this perception changed, as a result of
stronger-than-expected economic data. Investors reduced their expectations of
further monetary policy easing, which resulted in a temporary sell-off in global
bond markets. In March, investors generally regained their optimism despite the
potential negative effect of higher oil prices on inflation.
The positive market outlook resulted from continued economic weakness in Europe,
Japan and some sectors of the U.S. economy, which could lead to further interest
rate cuts. The bond market priced in further interest rate cuts by the Bank of
England, the European Central Bank and the Bank of Canada, further monetary
easing by the Bank of Japan, as well as the Fed's neutral stance. The U.K. and
U.S. bond markets also benefited from "flight-to-quality" inflows as a result of
the war in Yugoslavia.
The U.S. dollar strengthened versus most of the major currencies during the
period. Initially, differences in short-term money market rates continued to
strengthen the U.S. dollar relative to the euro and yen, as did relative growth
rates between the U.S. and the rest of the world. The U.S. dollar strengthened
during November; however, it weakened versus most of the major currencies in
December. Early this year, the U.S. dollar recovered against all major
currencies. The continued strong fundamental data out of the U.S., along with
speculation about a potential Fed tightening, propelled the dollar higher.
By April, the emerging debt markets more than recovered their losses from the
January Brazilian devaluation. The J.P. Morgan Emerging Market Bond Index
increased 15.87% during the period.(2) Bond prices of all countries in the index
rose. Among the fund's holdings, Brazil and Venezuela were the best performers
during the period under review. Brazilian bonds rebounded following that
country's congressional approval of economic measures designed to stabilize the
currency, and Venezuelan debt rose with the price of oil. However, Ecuadorian
bonds rose only slightly as a result of political opposition to measures
necessary to receive financial aid from the International Monetary Fund, while
Bulgarian bonds were affected by the country's proximity to Yugoslavia. The
Russian government met interest payments on its deutsche mark-denominated
Eurobond, which came due in March, despite market expectations of a potential
default.
"By April, the emerging debt markets more than recovered their losses from the
January Brazilian devaluation."
2. Source: J.P. Morgan Emerging Market Bond Index Monitor.
- --------------------------------------------------------------------------------
COUNTRY DISTRIBUTION
FRANKLIN GLOBAL
GOVERNMENT INCOME FUND
BASED ON TOTAL NET ASSETS
COUNTRY 4/30/99 10/31/98
- ------- ------- --------
United States 17.7% 26.4%
Germany 11.4% 11.1%
Italy 9.9% 9.6%
Canada 9.2% 7.8%
Brazil 6.9% 5.1%
Spain 6.6% 6.6%
Mexico 6.5% 4.4%
Australia 5.0% 4.2%
Venezuela 5.0% 2.7%
Argentina 4.9% 6.2%
New Zealand 4.4% 1.8%
United Kingdom 3.5% 4.7%
Turkey 3.2% 2.5%
Sweden 3.1% 2.9%
Denmark 2.1% 2.1%
Panama 0.6% 0.5%
Bulgaria 0.0% 0.9%
Peru 0.0% 0.5%
- --------------------------------------------------------------------------------
PORTFOLIO NOTES
As in prior periods, Franklin Global Government Income Fund attempted to
maximize its return during the period by allocating about 70%-80% of its assets
to intermediate- and long-term bonds in the industrial markets, and about
20%-30% of its assets to the highest quality and most liquid bonds available in
the emerging markets. The management team believed that this combination of
bonds offered a solid opportunity for higher long-term returns at the cost of
modestly higher short-term volatility.
The fund's allocation was relatively stable during the period, with the
exception of North America. We decreased our North American allocation from
approximately 38% of total net assets on October 31, 1998, to 26.9% at the end
of the reporting period, because we felt that bonds there were fully valued. We
reinvested the proceeds from the North America sales in Australia and New
Zealand as well as in emerging market assets, where we felt bonds were
undervalued. The allocation to Australia and New Zealand increased from 6.0% to
9.4% of total net assets during the reporting period, and the emerging market
allocation stood at approximately 27.1% of total net assets on April 30, 1999.
The European allocation remained stable, at approximately 36.6%.
The fund's emerging markets bonds continued to have shorter maturities compared
with the J.P. Morgan Emerging Market Bond Index. We did this to decrease the
volatility of this sector, as shorter-term bonds are less sensitive to interest
rate movements and market uncertainty. Most of the portfolio's bonds were U.S.
dollar-denominated sovereign Eurobonds, which eliminated currency risk, with
fixed coupons issued by countries with strong repayment capacity. We continued
to emphasize Latin America, as we felt many countries in the region still had
strong economic fundamentals and the bonds were unduly punished in the market
sell-off last fall.
MARKET OUTLOOK
Outside of the continued uncertainty in the emerging markets, the critical issue
for global interest rates will remain the balance between global growth and
inflation. We do not see inflation building in countries of the Organization for
Economic Cooperation and Development (OECD), an association of 29 economically
developed countries. Despite rising oil prices, we expect growth to decline
given saturated demand, which will likely result in lower consumption. The Fed
is unlikely to add liquidity in the next few months given strong economic growth
in recent months. Hence, we expect the dollar to strengthen in the short term.
The trend in global economic growth for 1999 is clearly toward a weaker
performance than in the last few years. The extent of the weakness largely
depends on developments in the U.S. where growth in 1999 is likely to be 3.6%.
In turn, the U.S. economy is dependent to a large extent on stability in Latin
America. Problems there would further depress U.S. exports and growth, in
general, which would then have a negative effect on European economic
performance.
- --------------------------------------------------------------------------------
DIVIDEND DISTRIBUTIONS
FRANKLIN GLOBAL GOVERNMENT INCOME FUND
11/1/98 - 4/30/99
DIVIDEND PER SHARE
------------------------------------------
MONTH CLASS A CLASS C ADVISOR
- ----- ------- ------- ----------
November 5 cents 4.65 cents 5.07 cents
December 5 cents 4.65 cents 5.11 cents
January 5 cents 4.65 cents 5.07 cents
February 5 cents 4.65 cents 5.06 cents
March 5 cents 4.64 cents 5.11 cents
April 5 cents 4.64 cents 5.07 cents
-------- ----------- -----------
TOTAL 30 CENTS 27.88 CENTS 30.49 CENTS
- --------------------------------------------------------------------------------
We believe that global inflation will likely be quite tame in the period ahead
and that global economic growth will not decline enough to go into recession. In
this environment, we feel that Franklin Global Government Income Fund is
well-positioned to provide a high level of income for those investors willing to
tolerate greater short-term volatility while seeking a higher long-term return.
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of April 30, 1999. However, market and economic conditions are
changing constantly, which can be expected to affect our strategies and the
fund's portfolio composition. Although historical performance is no guarantee of
future results, these insights may help you understand our investment and
management philosophy.
Sincerely,
/s/ Thomas J. Dickson
Thomas J. Dickson
/s/ Umran Demirors
Umran Demirors
Portfolio Management Team
Franklin Global Government Income Fund
PERFORMANCE SUMMARY AS OF 4/30/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
FRANKLIN GLOBAL
GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior to July 1,
1994, fund shares were offered at a lower initial sales charge; thus actual
total returns may 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.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
ADVISOR CLASS:
No initial sales charge or Rule 12b-1 fees and are available to a limited class
of investors.
- --------------------------------------------------------------------------------
PRICE AND DISTRIBUTION INFORMATION (11/1/98 - 4/30/99)
- --------------------------------------------------------------------------------
CLASS A CHANGE 4/30/99 10/31/98
- ------- ------ ------- --------
Net Asset Value -$0.09 $8.16 $8.25
DISTRIBUTIONS
-------------
Dividend Income $0.30
CLASS C CHANGE 4/30/99 10/31/98
- ------- ------ ------- --------
Net Asset Value -$0.09 $8.17 $8.26
DISTRIBUTIONS
-------------
Dividend Income $0.2788
ADVISOR CLASS CHANGE 4/30/99 10/31/98
- ------------- ------ ------- --------
Net Asset Value -$0.09 $8.17 $8.26
DISTRIBUTIONS
-------------
Dividend Income $0.3049
- --------------------------------------------------------------------------------
Past performance is not predictive of future results.
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR (3/15/88)
- ------- ------- ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +2.61% +4.29% +40.33% +102.77% +120.60%
Average Annual Total Return(2) -1.79% -0.10% +6.09% +6.86% +6.96%
Distribution Rate(3) 7.04%
30-Day Standardized Yield(4) 4.91%
INCEPTION
CLASS C 6-MONTH 1-YEAR 3-YEAR (5/1/95)
- ------- ------- ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +2.35% +3.74% +20.34% +33.09%
Average Annual Total Return(2) +0.38% +1.69% +6.03% +7.15%
Distribution Rate(3) 6.75%
30-Day Standardized Yield(4) 4.49%
INCEPTION
ADVISOR CLASS(5) 6-MONTH 1-YEAR 5-YEAR 10-YEAR (3/15/88)
- --------------- ------- ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +2.68% +4.42% +40.85% +103.52% +121.42%
Average Annual Total Return(2) +2.68% +4.42% +7.09% 7.36% +7.41%
Distribution Rate(3) 7.45%
30-Day Standardized Yield(4) 5.23%
- -------------------------------------------------------------------------------------------
</TABLE>
1. Cumulative total return represents 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 periods indicated and includes the current, applicable,
maximum sales charge(s) for that class. Six-month return is not annualized
3. Distribution rate is based on an annualization of the respective class's
April monthly dividend and the maximum offering price (net asset value price for
Advisor Class) per share on April 30, 1999.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended April 30, 1999.
5. On January 2, 1997, the fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; and (b) for
periods after January 1, 1997, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable only to that class.
Since January 2, 1997 (commencement of sales), the cumulative and average annual
total returns of Advisor Class shares were +11.35% and +4.74% respectively.
- --------------------------------------------------------------------------------
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. Since markets can go down as well as up,
investment return and principal value will fluctuate with market conditions,
currency volatility, and the economic, social and political climates of
countries where the fund invests. Emerging markets involve heightened risks
related to the same factors, in addition to those associated with their
relatively small size and lesser liquidity. You may have a gain or loss when you
sell your shares.
- --------------------------------------------------------------------------------
Past performance is not predictive of future results.
43
- -PAGE-
[PYRAMID GRAPH]
FRANKLIN SHORT-INTERMEDIATE
U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Your Fund's Goal: Franklin Short-Intermediate U.S. Government Securities Fund
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.
- --------------------------------------------------------------------------------
During the six-month period under review, interest rates began to move higher,
principally due to the resiliently strong U.S. economy. Despite economic and
financial troubles overseas, the U.S. domestic economy grew at annualized rates
of 6.0% in fourth quarter 1998 and 4.1% in first quarter 1999.(1) In fact, the
U.S. economy appeared to be the global engine of growth, lifting economies
worldwide. Gains in the world's stock markets indicated a growing confidence in
these foreign economies' abilities to turn around. Consequently, investors that
had favored U.S. Treasuries during last fall's "flight to quality" were once
again investing in riskier assets toward the end of the period. This reduced the
demand for U.S. Treasury securities, driving the yields higher. Bond prices and
yields move in opposite directions so that as bond prices fall, yields rise.
1. Bureau of Economic Analysis.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 78 of
this report.
Although the domestic economy was growing quickly, inflation, as measured by the
Consumer Price Index (CPI), remained under control, at 1.6% in 1998. Employment
costs, which make up two-thirds of the CPI, were up about 3% year-over-year, and
after accounting for productivity gains, unit labor costs were actually down
during the period. This low and stable inflation environment was very favorable
to bond investors. Likewise, the low inflation made it unlikely that the Federal
Reserve Board (the Fed) would change its interest rate targets any time soon. On
April 30, 1999, U.S. Treasury securities with two to five years' maturity were
yielding slightly more than 5%, about 0.4% above the Fed's current target for
federal funds. In our opinion, these levels were attractive given the favorable
inflation outlook.
PORTFOLIO NOTES
For the six months ended April 30, 1999, the fund's Class A shares produced a
+0.39% cumulative total return. Cumulative total return measures the change in
value of an investment, assuming reinvestment of all distributions, and does not
include sales charges. Performance was limited during the six-month period by a
rise in interest rates of approximately 0.80% on the U.S. Treasury 2-year and
5-year notes.
Consistent with our favorable opinion for interest rates, we extended the
average life of the portfolio's bonds from 2.2 years to 2.7 years to obtain
additional yield. We achieved this by purchasing $20 million, approximately 10%
of total net assets, of Federal National Mortgage Association (FNMA or Fannie
Mae) 15-year maturity mortgage-backed securities, our first purchase of
mortgage-backed securities. We initiated this strategy to broaden the fund's
investment parameters, which should result in a more diversified, stable
portfolio.
Looking forward, we feel the fund is well-positioned for the current
interest-rate environment. We anticipate adding more mortgaged-backed securities
as well as other U.S. government agency securities to the fund. In doing so, the
average life of the portfolio may increase or decrease dependent on our outlook
for interest rates and not the composition of the portfolio's holdings, as in
the past.
- --------------------------------------------------------------------------------
DIVIDEND DISTRIBUTIONS
FRANKLIN SHORT-INTERMEDIATE
U.S. GOVERNMENT SECURITIES FUND
11/1/98 - 4/30/99
DIVIDEND PER SHARE
-------------------------
MONTH CLASS A ADVISOR
- ----- --------- ----------
November 4.5 cents 4.56 cents
December 4.1 cents 4.16 cents
January 4.1 cents 4.20 cents
February 4.1 cents 4.22 cents
March 4.1 cents 4.26 cents
April 4.1 cents 4.19 cents
---------- -----------
TOTAL 25.0 CENTS 25.59 CENTS
- --------------------------------------------------------------------------------
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of April 30, 1999. However, market and economic conditions are
changing constantly, which can be expected to affect our strategies and the
fund's portfolio composition. Although historical performance is no guarantee of
future results, these insights may help you understand our investment and
management philosophy.
Sincerely,
/s/ David Capurro
David Capurro
Portfolio Manager
Franklin Short-Intermediate U.S. Government Securities Fund
PERFORMANCE SUMMARY AS OF 4/30/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
FRANKLIN
SHORT-INTERMEDIATE
U.S. GOVERNMENT
SECURITIES FUND
- --------------------------------------------------------------------------------
CLASS A (formerly Class I):
Subject to the maximum 2.25% initial sales charge. 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.
ADVISOR CLASS:
No initial sales charge or Rule 12b-1 fees and are available to a limited class
of investors.
- --------------------------------------------------------------------------------
PRICE AND DISTRIBUTION INFORMATION (11/1/98 - 4/30/99)
- --------------------------------------------------------------------------------
CLASS A CHANGE 4/30/99 10/31/98
- ------- ------ ------- --------
Net Asset Value -$0.21 $10.25 $10.46
DISTRIBUTIONS
-------------
Dividend Income $0.25
ADVISOR CLASS CHANGE 4/30/99 10/31/98
- ------------- ------ ------- --------
Net Asset Value -$0.21 $10.24 $10.45
DISTRIBUTIONS
-------------
Dividend Income $0.2559
- --------------------------------------------------------------------------------
Past performance is not predictive of future results.
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR (4/15/87)
- ------- ------- ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +0.39% +5.04% +31.68% +93.16% +119.69%
Average Annual Total Return(2) -1.86% +2.64% +5.19% +6.57% +6.55%
Distribution Rate(3) 4.69%
30-Day Standardized Yield(4) 4.11%
INCEPTION
ADVISOR CLASS(5) 6-MONTH 1-YEAR 5-YEAR 10-YEAR (4/15/87)
- ---------------- ------- ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +0.45% +5.14% +31.84% +93.39% +119.95%
Average Annual Total Return(2) +0.45% +5.14% +5.68% +6.82% +6.77%
Distribution Rate(3) 4.99%
30-Day Standardized Yield(4) 4.29%
</TABLE>
1. Cumulative total return represents 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 periods indicated and includes the current, applicable,
maximum sales charge(s) for that class. Six-month return has not been
annualized.
3. Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (net asset value price
for Advisor Class) per share on April 30, 1999.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended April 30, 1999.
5. On January 2, 1997, the fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; and (b) for
periods after January 1, 1997, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable only to that class.
Since January 2, 1997 (commencement of sales), the cumulative and average annual
total returns of Advisor Class shares were +13.62% and +5.65% respectively.
- --------------------------------------------------------------------------------
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. Since markets can go down as well as up,
investment return and principal value will fluctuate with market conditions, and
you may have a gain or loss when you sell your shares.
- --------------------------------------------------------------------------------
Past performance is not predictive of future results.
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1999 -----------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $ 9.36 $ 9.48 $ 9.37 $ 9.34 $ 9.20 $ 9.77
--------- --------- ---------- --------- --------- ---------
Income from investment operations:
Net investment income .23 .51 .55 .56 .54 .35
Net realized and unrealized gains (losses) (.02) (.12) .10 .03 .14 (.61)
--------- --------- ---------- --------- --------- ---------
Total from investment operations .21 .39 .65 .59 .68 (.26)
--------- --------- ---------- --------- --------- ---------
Less distributions from net investment income (.23) (.51) (.54) (.56) (.54) (.31)
--------- --------- ---------- --------- --------- ---------
Net asset value, end of period $ 9.34 $ 9.36 $ 9.48 $ 9.37 $ 9.34 $ 9.20
--------- --------- ---------- --------- --------- ---------
Total return* 2.24% 4.26% 7.18% 6.54% 7.57% (2.65%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $ 274,749 $ 298,298 $ 334,990 $ 397,078 $ 509,371 $ 700,617
Ratios to average net assets:
Expenses++ .96%** .76% .75% .69% .61% .42%
Expenses excluding waiver and payments
by affiliate++ .96%** .93% .93% .86% .86% .82%
Net investment income 4.84%** 5.38% 5.81% 5.87% 5.76% 3.67%
Portfolio turnover rate 7.63% 38.92% 20.84% 24.63% 20.16% 56.43%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior to May
1, 1994, dividends from net investment income were reinvested at the offering
price.
**Annualized
++The expense ratio includes the Fund's share of the Portfolio's allocated
expenses.
See notes to financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND SHARES VALUE
- --------------------------------------------------- ------ -----
<S> <C> <C>
MUTUAL FUNDS 100.4%
U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO (NOTE 1) (COST $296,616,096)... 29,495,626 $275,784,107
OTHER ASSETS, LESS LIABILITIES (.4%).............................................. (1,034,829)
-----------
NET ASSETS 100.0%................................................................. 274,749,278
===========
</TABLE>
See notes to financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
FRANKLIN BOND FUND
<TABLE>
<CAPTION>
CLASS A
----------------------------------
SIX MONTHS ENDED
APRIL 30, 1999 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1998***
--------------- -------------------
<S> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period ..................... $ 10.37 $ 10.00
--------- ---------
Income from investment operations:
Net investment income ................................... .29 .12
Net realized and unrealized gains (losses) .............. (.29) .30
--------- ---------
Total from investment operations ......................... -- .42
--------- ---------
Less distributions from:
Net investment income ................................... (.33) (.05)
Net realized gains ...................................... (.05) --
--------- ---------
Total distributions ...................................... (.38) (.05)
--------- ---------
Net asset value, end of period ........................... $ 9.99 $ 10.37
Total return* ............................................ .09% 4.05%
--------- ---------
Ratios/supplemental data
Net assets, end of period (000's) ........................ $ 6,715 $ 4,232
Ratios to average net assets:
Expenses ................................................ .50%** .50%**
Expenses excluding waiver and payments by affiliate ..... 1.12%** 1.29%**
Net investment income ................................... 5.78%** 5.21%**
Portfolio turnover rate .................................. 64.09% 23.19%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
**Annualized
***For the period August 3, 1998 (effective date) to October 31, 1998. Based on
average weighted shares outstanding.
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN BOND FUND (CONT.)
<TABLE>
<CAPTION>
ADVISOR CLASS
-----------------------------------
SIX MONTHS ENDED
APRIL 30, 1999 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1998***
----------------- -------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................... $ 10.38 $ 10.00
---------- ----------
Income from investment operations:
Net investment income ................................. .30 .12
Net realized and unrealized gains (losses) ............ (.28) .31
Total from investment operations ....................... .02 .43
---------- ----------
Less distributions from:
Net investment income ................................. (.35) (.05)
Net realized gains .................................... (.05) --
---------- ----------
Total distributions .................................... (.40) (.05)
---------- ----------
Net asset value, end of period ......................... $ 10.00 $ 10.38
========== ==========
Total return* .......................................... .23% 4.27%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ...................... $ 28,645 $ 31,588
Ratios to average net assets:
Expenses .............................................. .25%** .25%**
Expenses excluding waiver and payments by affiliate.... .87%** 1.04%**
Net investment income ................................. 6.05%** 5.46%**
Portfolio turnover rate ................................ 64.09% 23.19%
</TABLE>
*Total return is not annualized for periods less than one year.
**Annualized
***For the period August 3, 1998 (effective date) to October 31, 1998. Based on
average weighted shares outstanding.
See notes to financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN BOND FUND AMOUNT VALUE
- ------------------ ------ -----
<S> <C> <C>
LONG TERM INVESTMENTS 111.8%
CORPORATE BONDS 44.6%
ADJUSTABLE RATE MORTGAGE SECURITIES 2.4%
RYMS, 1991-B1-1, 6.785%, 3/25/20 .............................. $ 350,021 $ 355,819
RYMS, 1992-3 A2, 6.899%, 6/25/20 .............................. 161,294 161,588
Saxon Mortgage Securities Corp., 8.03%, 5/25/24 ............... 317,247 321,708
---------
839,115
---------
AEROSPACE/DEFENSE 1.7%
Lockheed Corp., 9.375%, 10/15/99 .............................. 101,000 102,698
Raytheon Co., senior note, 6.50%, 7/15/05 ..................... 500,000 508,503
---------
611,201
---------
ASSET BACKED SECURITIES 10.8%
Delta Home Equity, 6.37%, 7/15/28 ............................. 1,000,000 994,055
Green Tree Financial Corp., 6.92%, 12/01/30 ................... 1,000,000 990,000
Prudential Home Mortgage Securities, 7.818%, 7/25/18 .......... 857,660 860,876
Saxon Asset Security Trust, 6.365%, 10/25/13 .................. 834,195 834,262
Saxon Asset Security Trust, 6.93%, 1/25/30 .................... 150,000 145,656
---------
3,824,849
---------
COMMERCIAL MORTGAGE BACKED SECURITIES 3.6%
BSCMS, 1998-C1 A2, 6.44%, 6/18/08 ............................. 360,000 359,100
BSCMS, 1998-C1 CL A1, 6.34%, 10/16/07 ......................... 406,897 408,423
MLMI, 1998-C2 A2, 6.39%, 2/15/30 .............................. 500,000 499,938
---------
1,267,461
---------
CONSUMER NON-DURABLES .9%
Grand Metropolitan Investment, 7.125%, 9/15/04 ................ 200,000 209,809
Outdoor Systems Inc., senior sub. note, 8.875%, 6/15/07 ....... 100,000 107,500
---------
317,309
---------
CONSUMER SERVICES 2.9%
Chancellor Media Corp., 144A, 9.00%, 10/01/08 ................. 100,000 107,250
CSC Holdings Inc., senior note, 7.25%, 7/15/08 ................ 100,000 101,719
Harrah's Operating Co. Inc., senior sub. note, 7.875%, 12/15/05 100,000 101,000
Hollinger International Inc., senior sub. note, 9.25%, 2/01/06 100,000 105,125
Sun International Hotels, senior sub. note, 9.00%, 3/15/07 .... 100,000 104,750
TCI Communications Inc., senior note, 6.875%, 2/15/06 ......... 500,000 518,610
---------
1,038,454
---------
ENERGY .6%
P&L Coal Holdings Corp., senior note, B, 8.875%, 5/15/08 ...... 100,000 104,250
RBF Finance Co., senior secured note, 144A, 11.375%, 3/15/09 .. 100,000 105,500
---------
209,750
---------
FINANCE 8.1%
American General Corp., senior note, 7.75%, 4/01/05 ........... 500,000 537,383
Chase Manhattan Corp., sub. deb., 7.875%, 7/15/06 ............. 200,000 216,649
Chase Manhattan Corp., sub. note, 7.875%, 8/01/04 ............. 400,000 398,830
First Chicago NBD Corp., sub. note, 7.625%, 1/15/03 ........... 291,000 307,060
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 1999 (UNAUDITED)(CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN BOND FUND AMOUNT VALUE
- ------------------ ---------- ----------
<S> <C> <C>
LONG TERM INVESTMENTS (cont.)
BONDS (CONT.)
FINANCE (CONT.)
HMH Properties Inc., senior secured note, B, 7.875%, 8/01/08 ......... $ 100,000 $ 97,500
Lincoln National Corp., senior unsecured note, 7.125%, 7/15/99 ....... 550,000 551,762
Paine Webber Group Inc., senior note, 6.55%, 4/15/08 ................. 150,000 147,234
Salomon Inc., senior note, 7.00%, 5/15/99 ............................ 300,000 300,139
Societe Generale-New York, sub. note, 7.40%, 6/01/06 ................. 300,000 314,521
---------
2,871,078
---------
HEALTH CARE 1.5%
American Home Products, 7.90%, 2/15/05 ............................... 500,000 545,747
---------
HEALTH SERVICES .3%
Tenet Healthcare Corp., senior note, 144A, 7.625%, 6/01/08 ........... 100,000 97,750
---------
INDUSTRIAL SERVICES 3.1%
Allied Waste North America Inc., senior note, B, 7.875%, 1/01/09 ..... 100,000 99,250
Browning-Ferris Industries Inc., senior note, 6.08%, 1/18/00 ......... 1,000,000 992,011
---------
1,091,261
---------
PROCESS INDUSTRIES .6%
Owens-Illinois Inc., senior note, 7.35%, 5/15/08 ..................... 100,000 98,788
Westpoint Stevens Inc., senior note, 7.875%, 6/15/05 ................. 100,000 102,875
----------
201,663
----------
PRODUCER MANUFACTURING .6%
American Standard Cos. Inc., senior unsecured note, 7.375%, 2/01/08 .. 100,000 99,000
Hayes Wheels International Inc., senior sub. note, B, 9.125%, 7/15/07 100,000 105,250
----------
204,250
----------
RETAIL TRADE 1.8%
Dayton Hudson Corp., senior unsecured note, 7.25%, 9/01/04 ........... 500,000 526,865
Penney (JC) Co. Inc., 6.875%, 6/15/99 ................................ 115,000 115,104
----------
641,969
----------
TRANSPORTATION 1.7%
Gearbulk Holding Ltd., senior note, 11.25%, 12/01/04 (Bermuda) ....... 100,000 103,250
Hertz Corp., senior note, 6.625%, 5/15/08 ............................ 500,000 503,083
----------
606,333
----------
UTILITIES 4.0%
CMS Energy Corp., senior note, 7.50%, 1/15/09 ........................ 100,000 100,500
Duquesne Light Co., senior unsecured note, 6.625%, 6/15/04 ........... 300,000 302,397
United Utilities, 6.45%, 4/01/08 (United Kingdom) .................... 500,000 494,025
U.S. West Capital Funding Inc., senior unsecured note, 6.375%, 7/15/08 500,000 499,744
----------
1,396,666
----------
TOTAL CORPORATE BONDS (COST $15,926,202) ............................. 15,764,856
----------
OTHER GOVERNMENT & AGENCY SECURITIES 3.7%
Tennessee Valley Authority, 5.28%, 9/14/01 (COST $1,303,705) ......... 1,300,000 1,295,563
----------
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 1999 (UNAUDITED)(CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN BOND FUND AMOUNT VALUE
- ------------------ ---------- ----------
<S> <C> <C>
LONG TERM INVESTMENTS (cont.)
U.S. GOVERNMENT SECURITIES 60.6%
(d)FHLMC, 7.50%, 5/01/29 ........................................ $ 836,200 $ 859,718
FHLMC, ARM, 6.984%, 10/01/29 ................................... 853,124 870,936
FNMA, 5.625%, 3/15/01 .......................................... 1,150,000 1,156,958
FNMA, 5.75%, 4/15/03 ........................................... 700,000 704,168
FNMA, 5.75%, 6/15/05 ........................................... 500,000 502,322
(d)FNMA, 5.50%, 5/01/14 ......................................... 483,733 469,674
(d)FNMA, 6.00%, 5/01/29 ......................................... 1,978,100 1,918,756
(d)FNMA, 6.50%, 5/01/29 ......................................... 1,494,000 1,485,595
(d)FNMA, 7.00%, 5/01/29 ......................................... 1,410,000 1,429,388
FNMA, ARM, 7.039%, 12/01/17 .................................... 202,647 207,626
FNMA, ARM, 6.621%, 4/01/18 ..................................... 542,697 559,922
FNMA, ARM, 7.360%, 8/01/20 ..................................... 784,717 805,722
GNMA, ARM, 6.125%, 10/20/26 .................................... 75,569 76,832
GNMA, ARM, 6.125%, 10/20/26 .................................... 43,388 44,113
GNMA, ARM, 6.125%, 11/20/26 .................................... 80,772 82,115
(d)GNMA, SF, 7.00%, 5/01/14 ..................................... 429,796 440,810
GNMA, SF, 8.00%, 9/15/26 ....................................... 27,038 28,233
GNMA, SF, 8.00%, 12/15/26 ...................................... 373,249 389,742
(d)GNMA, SF, 6.50%, 5/01/29 ..................................... 2,502,000 2,487,925
(d)GNMA, SF, 7.50%, 5/01/29 ..................................... 430,000 443,034
(d)GNMA, SF, 8.00%, 5/01/29 ..................................... 853,000 888,986
GNMA II, 6.00%, 3/20/28 ........................................ 488,431 471,846
U.S. Treasury Note, 5.375%, 7/31/00 ............................ 1,000,000 1,004,688
U.S. Treasury Note, 6.375%, 9/30/01 ............................ 2,500,000 2,570,312
U.S. Treasury Note, 5.75%, 11/30/02 ............................ 1,500,000 1,523,906
----------
TOTAL U.S. GOVERNMENT SECURITIES (COST $21,498,601) ............ 21,423,327
----------
ZERO COUPON/STEP-UP BONDS 2.9%
FICO, D, Strip, 8/03/16 ........................................ 2,900,000 952,383
Niagara Mohawk Power Corp., senior disc. note, H,
zero coupon to 7/01/03, 8.50%, thereafter, 7/01/10 ............ 100,000 76,500
----------
TOTAL ZERO COUPON/STEP-UP BONDS (COST $1,036,068) .............. 1,028,883
----------
TOTAL LONG TERM INVESTMENTS (COST $39,764,576) ................. 39,512,629
----------
SHORT TERM INVESTMENTS 1.1%
FINANCE .8%
American Express Credit Corp., disc. note, 5.35%, 5/24/99 ...... 150,000 149,519
Deutsche Bank AG, 5.685%, 6/03/99 .............................. 150,000 150,083
----------
299,602
----------
U.S. GOVERNMENT SECURITIES .3%
U.S. Treasury Bill, 4.285%, 7/01/99 ............................ 100,000 99,279
----------
TOTAL SHORT TERM INVESTMENTS (COST $398,869) ................... 398,881
----------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST $40,163,445) 39,911,510
----------
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 1999 (UNAUDITED)(CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN BOND FUND AMOUNT VALUE
- ------------------ ---------- ----------
<S> <C> <C>
(6)REPURCHASE AGREEMENT 27.6%
Joint Repurchase Agreement, 4.862%, 5/03/99
(Maturity Value $9,771,073) (COST $9,767,116) .......................... $9,767,116 $ 9,767,116
Barclays Capital Inc. (Maturity Value $1,009,059)
Bear, Stearns & Co. (Maturity Value $550,404)
Chase Securities Inc. (Maturity Value $1,009,059)
CIBC Oppenheimer Corp. (Maturity Value $1,009,059)
Deutsche Bank Securities Inc. (Market Value $139,138)
Donaldson, Lufkin & Jenrette Securities Corp. (Market Value $1,009,059)
Dresdner Kleinwort Benson, North America, LLC (Market Value $1,009,059)
Lehman Brothers Inc. (Maturity Value $1,009,059)
Paine Webber Inc. (Maturity Value $1,009,059)
Paribas Corp. (Maturity Value $1,009,059)
UBS Securities, LLC (Maturity Value $1,009,059)
Collateralized by U.S. Treasury Bills & Notes
------------
TOTAL INVESTMENTS (COST $49,930,561) 140.5% .............................. 49,678,626
------------
OTHER ASSETS, LESS LIABILITIES (40.5%) ................................... (14,318,762)
------------
NET ASSETS 100.0% ........................................................ $ 35,359,864
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
ARM - Adjustable Rate Mortgage
BSCMS - Bear Sterns Commercial Mortgage Securities
CMT - 1 Year Constant Maturity Treasury Index
FHLMC - Federal Home Loan Mortgage Corporation
FICO - Financing Corporation
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
MLMI - Merrill Lynch Mortgage Investors Inc.
RYMS - Ryland Mortgage Securities Corporation
SF - Single Family
TB - Treasury Bill Rate
(b) See Note 1(c) regarding joint repurchase agreement.
(c) On deposit with broker for initial margin on futures contracts (Note 1(d)).
(d) Sufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
See notes to financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
FRANKLIN CONVERTIBLE SECURITIES FUND
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1999 --------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
----------- -------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 11.75 $ 14.74 $ 13.45 $ 12.73 $ 12.34 $ 12.79
--------- --------- --------- --------- -------- --------
Income from investment operations:
Net investment income ........................ .31 .62 .64 .61 .58 .59
Net realized and unrealized gains (losses) ... .53 (1.92) 2.15 1.39 1.10 (.33)
--------- --------- --------- --------- -------- --------
Total from investment operations .............. .84 (1.30) 2.79 2.00 1.68 .26
--------- --------- --------- --------- -------- --------
Less distributions from:
Net investment income ........................ (.34) (.65) (.60) (.60) (.59) (.59)
Net realized gains ........................... -- (1.04) (.90) (.68) (.70) (.12)
--------- --------- --------- --------- -------- --------
Total distributions ........................... (.34) (1.69) (1.50) (1.28) (1.29) (.71)
--------- --------- --------- --------- -------- --------
Net asset value, end of period ................ $ 12.25 $ 11.75 $ 14.74 $ 13.45 $ 12.73 $ 12.34
========= ========= ========= ========= ======== ========
Total return* ................................. 7.27% (9.93%) 22.47% 16.71% 15.18% 2.07%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 140,424 $ 170,569 $ 212,631 $ 130,951 $ 83,523 $ 66,869
Ratios to average net assets:
Expenses ..................................... 1.04%** .98% 1.01% 1.02% 1.03% .84%
Expenses excluding waiver and payments
by affiliate ................................. 1.04%** .98% 1.01% 1.02% 1.03% .92%
Net investment income ........................ 5.00%** 4.63% 4.81% 4.79% 4.82% 4.84%
Portfolio turnover rate ....................... 65.80% 79.17% 141.49% 129.83% 108.64% 68.39%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods of less than one year. Prior to
May 1, 1994, dividends from net investment income were reinvested at the
offering price.
**Annualized
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN CONVERTIBLE SECURITIES FUND (CONT.)
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1999 ------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995***
----------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 11.70 $ 14.68 $ 13.41 $ 12.71 $ 13.06
---------- -------- ---------- ---------- ----------
Income from investment operations:
Net investment income ........................ .25 .51 .54 .51 .07
Net realized and unrealized gains (losses) ... .55 (1.91) 2.13 1.40 (.37)
---------- -------- ---------- ---------- ----------
Total from investment operations .............. .80 (1.40) 2.67 1.91 (.30)
---------- -------- ---------- ---------- ----------
Less distributions from:
Net investment income ........................ (.30) (.54) (.50) (.53) (.05)
Net realized gains ........................... -- (1.04) (.90) (.68) --
---------- -------- ---------- ---------- ----------
Total distributions ........................... (.30) (1.58) (1.40) (1.21) (.05)
---------- -------- ---------- ---------- ----------
Net asset value, end of period ................ $ 12.20 $ 11.70 $ 14.68 $ 13.41 $ 12.71
========== ======== ========== ========== ==========
Total return* ................................. 6.91% (10.61%) 21.54% 15.92% (2.33%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 33,350 $ 41,533 $ 35,282 $ 10,861 $ 209
Ratios to average net assets:
Expenses ..................................... 1.78%** 1.73% 1.74% 1.79% 1.60%**
Net investment income ........................ 4.25%** 3.93% 4.04% 4.00% 3.64%**
Portfolio turnover rate ....................... 65.80% 79.17% 141.49% 129.83% 108.64%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
**Annualized
***For the period October 1, 1995 (effective date) to October 31, 1995.
See notes to financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN CONVERTIBLE SECURITIES FUND SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 3.4%
CONSUMER SERVICES 2.0%
(a)AT&T Corp. - Liberty Media Group, A ......................................... 53,112 $ 3,392,529
-----------
ENERGY MINERALS 1.4%
Enron Oil & Gas Co. ......................................................... 135,000 2,565,000
-----------
TOTAL COMMON STOCKS (COST $5,048,694) ....................................... 5,957,529
-----------
CONVERTIBLE PREFERRED STOCKS 45.9%
COMMERCIAL SERVICES 2.0%
United Rentals Trust I, 6.50%, cvt. pfd., 144A .............................. 74,500 3,389,750
-----------
CONSUMER NON-DURABLES 3.0%
Ralston-Ralston Purina Group/Interstate Bakeries, 7.00%, cvt. pfd ........... 110,500 5,138,250
-----------
CONSUMER SERVICES 8.8%
Chancellor Media Corp., 7.00%, cvt. pfd ..................................... 22,000 3,393,500
Host Marriott Corp., 6.75%, cvt. pfd ........................................ 100,000 4,593,750
MediaOne Group Inc., 6.25%, cvt. pfd ........................................ 49,100 3,934,138
Triathlon Broadcasting Co., 9.00%, cvt. pfd ................................. 315,300 3,448,594
-----------
15,369,982
-----------
ELECTRONIC TECHNOLOGY 4.0%
DECS Trust IV, 7.00%, cvt. pfd .............................................. 350,000 2,406,250
Loral Space & Communication, 6.00%, cvt. pfd., C (Bermuda) .................. 60,000 3,255,000
QUALCOMM Financial Trust, 5.75%, cvt. pfd ................................... 9,000 1,330,875
-----------
6,992,125
-----------
ENERGY MINERALS 2.0%
Devon Financing Trust, $3.25, cvt. pfd ...................................... 60,000 3,555,000
-----------
FINANCE 8.6%
American Heritage Corp., 8.50%, cvt. pfd .................................... 39,300 2,534,850
Apartment Investment & Management Co., 8.00%, cvt. pfd., K .................. 200,000 5,100,000
Equity Office Properties Trust, 5.25%, cvt. pfd., B ......................... 75,000 3,124,223
Protective Life Capital Trust II, 6.50%, cvt. pfd ........................... 65,700 4,213,013
-----------
14,972,086
-----------
HEALTH SERVICES 1.1%
McKesson Financing Trust, 5.00%, cvt. pfd ................................... 34,000 1,763,750
-----------
INDUSTRIAL SERVICES 1.7%
Weatherford International Inc., 5.00%, cvt. pfd ............................. 25,000 890,625
Weatherford International Inc., 5.00%, cvt. pfd., 144A ...................... 60,000 2,137,500
-----------
3,028,125
-----------
PROCESS INDUSTRIES 3.2%
IMC Global/Merrill Lynch, 6.25%, cvt. pfd., IGL ............................. 125,000 3,343,750
Owens-Illinois Inc., 4.75%, cvt. pfd ........................................ 55,000 2,227,500
-----------
5,571,250
-----------
TRANSPORTATION 1.3%
Union Pacific Capital Trust, 6.25%, cvt. pfd ................................ 40,000 2,180,000
-----------
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 1999 (UNAUDITED)(CONT.)
<TABLE>
<CAPTION>
FRANKLIN CONVERTIBLE SECURITIES FUND SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (CONT.)
UTILITIES 10.2%
AES Trust II, 5.50%, cvt. pfd., B ........................................... 48,400 $ 2,534,950
CMS Energy Trust I, 7.75%, cvt. pfd ......................................... 73,000 4,124,500
K N Energy Inc., 8.25%, cvt. pfd ............................................ 102,000 3,519,000
NiSource Inc., 7.75%, cvt. pfd .............................................. 60,000 3,060,000
Salomon Smith Barney Holdings Inc., 6.25%, cvt. pfd ......................... 30,000 2,100,000
Texas Utilities Co., 9.25%, cvt. pfd ........................................ 47,500 2,443,281
-----------
17,781,731
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $80,985,973) ....................... 79,742,049
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
------
<S> <C> <C>
CONVERTIBLE BONDS 44.5%
COMMERCIAL SERVICES 1.4%
Data Processing Resources Corp., cvt. sub. note, 5.25%, 4/01/05 ............. $ 1,000,000 705,000
Data Processing Resources Corp., cvt. sub. note, 144A, 5.25%, 4/01/05 ....... 2,500,000 1,762,500
-------------
2,467,500
-------------
ELECTRONIC TECHNOLOGY 14.1%
Advanced Micro Devices, cvt. sub. note, 6.00%, 5/15/05 ...................... 2,000,000 1,455,000
Aspect Telecommunications Corp., cvt. sub. deb., 144A, zero cpn., 8/10/18 ... 4,500,000 888,750
Aspect Telecommunications Corp., cvt. sub. deb., zero cpn., 8/10/18 ......... 8,500,000 1,678,750
Comverse Technology Inc., cvt. sub. deb., 4.50%, 7/01/05 .................... 500,000 826,250
Comverse Technology Inc., cvt. sub. deb., 144A, 4.50%, 7/01/05 .............. 2,500,000 4,131,250
Cymer Inc., cvt. sub. note, 144A, 3.50% to 8/05/00, 7.25% thereafter, 8/06/04 1,750,000 1,415,313
LSI Logic Corp., cvt. sub. note, 144A, 4.25%, 3/15/04 ....................... 2,000,000 2,595,000
Motorola Inc., cvt. sub. deb., zero cpn., 9/07/09 ........................... 2,000,000 2,937,500
Sanmina Corp., cvt. sub. note, 144A, 4.25%, 5/01/04 ......................... 6,000,000 6,000,000
Western Digital Corp., cvt., zero cpn., 2/18/18 ............................. 12,000,000 2,595,000
-------------
24,522,813
-------------
ENERGY MINERALS 3.3%
Range Resources Corp., cvt. sub. deb., 6.00%, 2/01/07 ....................... 11,340,000 5,811,750
-------------
FINANCE 1.1%
Macerich Co., cvt. sub. deb., 144A, 7.25%, 12/15/02 ......................... 2,000,000 1,870,000
-------------
HEALTH SERVICES 3.9%
Omnicare Inc., cvt. sub. deb., 5.00%, 12/01/07 .............................. 7,400,000 6,752,870
-------------
HEALTH TECHNOLOGY 2.6%
Alza Corp., cvt. sub. note, zero cpn., 7/14/14 .............................. 5,000,000 2,487,500
IDEC Pharmaceuticals Corp., cvt. sub. note, 144A, zero cpn., 2/16/19 ........ 5,000,000 1,937,500
-------------
4,425,000
-------------
INDUSTRIAL SERVICES 4.9%
Diamond Offshore Drilling, cvt. sub. note, 3.75%, 2/15/07 ................... 2,300,000 2,481,125
Parker Drilling Co., cvt. sub. note, 5.50%, 8/01/04 ......................... 3,000,000 1,950,000
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 1999 (UNAUDITED)(CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN CONVERTIBLE SECURITIES FUND AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BONDS (CONT.)
INDUSTRIAL SERVICES (CONT.)
Waste Management Inc., cvt. sub. note, 4.00%, 2/01/02 ....................... $ 3,000,000 $ 4,061,250
-------------
8,492,375
-------------
PRODUCER MANUFACTURING 2.9%
Tower Automotive Inc., cvt. sub. note, 5.00%, 8/01/04 ....................... 3,750,000 3,970,313
Tower Automotive Inc., cvt. sub. note, 144A, 5.00%, 8/01/04 ................. 1,000,000 1,058,750
-------------
5,029,063
-------------
TECHNOLOGY SERVICES 7.8%
Affiliated Computer Services, cvt. sub. note, 4.00%, 3/15/05 ................ 6,000,000 6,697,500
Citrix Systems Inc., cvt. sub. deb., 144A, zero cpn., 3/22/19 ............... 6,500,000 2,486,250
CNET Inc., cvt. sub. note, 144A, 5.00%, 3/01/06 ............................. 1,000,000 1,867,500
EMC Corp., cvt. sub. note, 3.25%, 3/15/02 ................................... 400,000 1,934,091
Mindspring Enterprises Inc., cvt. sub. note, 5.00%, 4/15/06 ................. 500,000 524,374
-------------
13,509,715
-------------
UTILITIES 2.5%
Global Telesystems Group Inc., cvt., 5.75%, 7/01/10 (Luxembourg) ............ 2,000,000 2,665,000
Natwest Enron Corp. Nets, cvt., 144A, 3.50%, 9/01/04 ........................ 1,000,000 1,690,000
-------------
4,355,000
-------------
TOTAL CONVERTIBLE BONDS (COST $75,710,143) .................................. 77,236,086
-------------
TOTAL LONG TERM INVESTMENTS (COST $161,744,810) ............................. 162,935,664
-------------
(b)REPURCHASE AGREEMENT 6.4%
Joint Repurchase Agreement, 4.862%, 5/03/99 (Maturity Value $11,169,006)
(Cost $11,164,483) ........................................................ 11,164,483 11,164,483
Barclays Capital Inc. (Maturity Value $1,153,423)
Bear, Stearns & Co. (Maturity Value $629,152)
Chase Securities Inc. (Maturity Value $1,153,423)
CIBC Oppenheimer Corp. (Maturity Value $1,153,423)
Deutsche Bank Securities Inc. (Maturity Value $159,047)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $1,153,423)
Dresdner Kleinwort Benson, North America LLC (Maturity Value $1,153,423)
Lehman Brothers Inc. (Maturity Value $1,153,423)
Paine Webber Inc. (Maturity Value $1,153,423)
Paribas Corp. (Maturity Value $1,153,423)
UBS Securities LLC (Maturity Value $1,153,423)
Collateralized by U.S. Treasury Bills & Notes
-------------
TOTAL INVESTMENTS (COST $172,909,293) 100.2% ................................ 174,100,147
-------------
OTHER ASSETS, LESS LIABILITIES (.2%) ........................................ (325,561)
-------------
NET ASSETS 100.0% ........................................................... $ 173,774,586
=============
</TABLE>
(a) Non-income producing
(b) See Note 1(c) regarding joint repurchase agreement
SEE NOTES TO FINANCIAL STATEMENTS.
FRANKLIN INVESTORS SECURITIES TRUST
Financial Highlights
FRANKLIN EQUITY INCOME FUND
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1999 -----------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 19.93 $ 19.31 $ 16.41 $ 15.19 $ 14.14 $ 14.91
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income ........................ .30 .64 .64 .64 .63 .62
Net realized and unrealized gains (losses) ... 1.35 1.42 3.23 1.63 1.27 (.36)
----------------------------------------------------------------------------------
Total from investment operations .............. 1.65 2.06 3.87 2.27 1.90 .26
----------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (.32) (.65) (.64) (.65) (.61) (.72)
Net realized gains ........................... (1.07) (.79) (.33) (.40) (.24) (.31)
----------------------------------------------------------------------------------
Total distributions ........................... (1.39) (1.44) (.97) (1.05) (.85) (1.03)
----------------------------------------------------------------------------------
Net asset value, end of period ................ $ 20.19 $ 19.93 $ 19.31 $ 16.41 $ 15.19 $ 14.14
==================================================================================
Total return* ................................. 8.79% 10.96% 24.40% 15.39% 14.10% 1.83%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 439,819 $ 428,228 $ 352,555 $ 246,952 $ 168,897 $ 92,763
Ratios to average net assets:
Expenses ..................................... .93%** .94% .97% .98% 1.00% .77%
Expenses excluding waiver and payments
by affiliate ................................. .93%** .94% .97% .98% 1.02% .95%
Net investment income ........................ 3.13%** 3.20% 3.62% 4.11% 4.44% 4.53%
Portfolio turnover rate ....................... 26.73% 30.65% 29.04% 24.15% 27.86% 39.51%
</TABLE>
* Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior
to May 1, 1994, dividends from net investment income were reinvested at
the offering price.
** Annualized
FRANKLIN INVESTORS SECURITIES TRUST
Financial Highlights (continued)
FRANKLIN EQUITY INCOME FUND (CONT.)
<TABLE>
<CAPTION>
CLASS B***
PERIOD ENDED
APRIL 30, 1999
(UNAUDITED)
<S> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 19.37
-------
Income from investment operations:
Net investment income ........................ .16
Net realized and unrealized gains ............ .81
-------
Total from investment operations .............. .97
-------
Less distributions from investment income ..... (.17)
-------
Net asset value, end of period ................ $ 20.17
=======
Total return* ................................. 5.12%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 964
Ratios to average net assets:
Expenses ..................................... 1.67%**
Net investment income ........................ 2.17%**
Portfolio turnover rate ....................... 26.73%
</TABLE>
* Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
** Annualized
*** For the period January 1, 1999 (effective date) to April 30, 1999.
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS (continued)
FRANKLIN EQUITY INCOME FUND (CONT.)
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1999 -------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995***
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 19.88 $ 19.26 $ 16.38 $ 15.19 $ 15.38
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income ........................ .23 .50 .50 .52 .05
Net realized and unrealized gains (losses) ... 1.34 1.41 3.22 1.63 (.19)
---------------------------------------------------------------------------------
Total from investment operations .............. 1.57 1.91 3.72 2.15 (.14)
---------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (.25) (.50) (.51) (.56) (.05)
Net realized gains ........................... (1.07) (.79) (.33) (.40) --
---------------------------------------------------------------------------------
Total distributions ........................... (1.32) (1.29) (.84) (.96) (.05)
---------------------------------------------------------------------------------
Net asset value, end of period ................ $ 20.13 $ 19.88 $ 19.26 $ 16.38 $ 15.19
=================================================================================
Total return* ................................. 8.42% 10.16% 23.40% 14.53% (.93%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 88,274 $ 81,078 $ 45,277 $ 18,227 $ 386
Ratios to average net assets:
Expenses ..................................... 1.68%** 1.69% 1.72% 1.73% 1.99%**
Net investment income ........................ 2.38%** 2.45% 2.78% 3.33% 3.57%**
Portfolio turnover rate ....................... 26.73% 30.65% 29.04% 24.15% 27.86%
</TABLE>
* Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
** Annualized
*** For the period October 1, 1995 (effective date) to October 31, 1995.
See notes to financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN EQUITY INCOME FUND SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 88.8%
COMMERCIAL SERVICES .7%
Dun & Bradstreet Corp. ...................................................... 104,200 $ 3,829,350
-----------
CONSUMER DURABLES 4.2%
Eastman Kodak Co. ........................................................... 111,000 8,283,375
Ford Motor Co. .............................................................. 130,500 8,343,844
General Motors Corp. ........................................................ 61,000 5,425,188
-----------
22,052,407
-----------
CONSUMER NON-DURABLES 8.2%
Anheuser-Busch Cos. Inc. .................................................... 100,300 7,334,438
Fortune Brands Inc. ......................................................... 121,500 4,799,250
General Mills Inc. .......................................................... 112,500 8,226,563
H.J. Heinz Co. .............................................................. 137,000 6,396,188
Kellogg Co. ................................................................. 105,000 3,885,000
Philip Morris Cos. Inc. ..................................................... 176,200 6,178,013
UST Inc. .................................................................... 237,000 6,606,375
-----------
43,425,827
-----------
ELECTRONIC TECHNOLOGY 1.0%
EG&G Inc. ................................................................... 83,000 2,593,750
Motorola Inc. ............................................................... 35,000 2,804,375
-----------
5,398,125
-----------
ENERGY MINERALS 11.8%
Atlantic Richfield Co. ...................................................... 89,400 7,504,013
Chevron Corp. ............................................................... 93,900 9,366,525
Exxon Corp. ................................................................. 64,400 5,349,225
Mobil Corp. ................................................................. 55,600 5,824,100
Royal Dutch Petroleum Co. N.Y. shs. (Netherlands) ........................... 165,000 9,683,438
Texaco Inc. ................................................................. 180,000 11,295,000
Ultramar Diamond Shamrock Corp. ............................................. 157,400 3,630,038
YPF SA, ADR (Argentina) ..................................................... 234,200 9,836,400
-----------
62,488,739
-----------
FINANCE 9.3%
Bank of America Corp. ....................................................... 82,000 5,904,000
Bank One Corp. .............................................................. 159,180 9,391,620
BankBoston Corp. ............................................................ 136,800 6,703,200
J.P. Morgan & Co. Inc. ...................................................... 53,000 7,141,750
Mercantile Bancorporation Inc. .............................................. 115,526 6,584,982
National City Corp. ......................................................... 96,700 6,938,225
PNC Bank Corp. .............................................................. 115,300 6,672,988
-----------
49,336,765
-----------
HEALTH TECHNOLOGY 5.6%
American Home Products Corp. ................................................ 80,000 4,880,000
Baxter International Inc. ................................................... 85,000 5,355,000
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 1999 (UNAUDITED)(CONT.)
<TABLE>
<CAPTION>
FRANKLIN EQUITY INCOME FUND SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
HEALTH TECHNOLOGY (CONT.)
Glaxo Wellcome PLC, ADR (United Kingdom) .................................... 125,200 $ 7,292,900
Pharmacia & Upjohn Inc. ..................................................... 212,000 11,872,000
-----------
29,399,900
-----------
INDUSTRIAL SERVICES 1.6%
Browning-Ferris Industries Inc. ............................................. 211,100 8,417,613
-----------
INSURANCE 7.5%
Arthur J. Gallagher & Co. ................................................... 151,900 7,215,250
IPC Holdings Ltd. (Bermuda) ................................................. 165,000 2,908,125
Lincoln National Corp. ...................................................... 93,500 8,981,844
SAFECO Corp. ................................................................ 185,000 7,353,750
St. Paul Cos. Inc. .......................................................... 270,700 7,765,706
XL Capital Ltd., A (Bermuda) ................................................ 89,176 5,411,869
-----------
39,636,544
-----------
NON-ENERGY MINERALS 3.5%
British Steel PLC, ADR (United Kingdom) ..................................... 179,500 4,150,938
De Beers Consolidated Mines AG, ADR (South Africa) .......................... 242,000 5,929,000
Weyerhaeuser Co. ............................................................ 122,000 8,189,250
-----------
18,269,188
-----------
PROCESS INDUSTRIES 4.3%
Dow Chemical Co. ............................................................ 52,500 6,887,344
E.I. du Pont de Nemours and Co. ............................................. 65,000 4,590,625
Imperial Chemical Industries PLC, ADR (United Kingdom) ...................... 149,200 6,424,925
Pall Corp. .................................................................. 274,000 5,051,875
-----------
22,954,769
-----------
PRODUCER MANUFACTURING 5.4%
Dana Corp. .................................................................. 185,400 8,736,975
Diebold Inc. ................................................................ 155,000 3,729,688
Federal Signal Corp. ........................................................ 237,000 5,865,750
Minnesota Mining & Manufacturing Co. ........................................ 72,500 6,452,500
Pitney Bowes Inc. ........................................................... 54,200 3,790,613
-----------
28,575,526
-----------
REAL ESTATE INVESTMENT TRUST 6.1%
Arden Realty Inc. ........................................................... 305,000 7,625,000
Equity Residential Properties Trust ......................................... 161,300 7,460,125
FelCor Lodging Trust Inc. ................................................... 208,900 5,000,543
MeriStar Hospitality Corp. .................................................. 250,000 5,750,000
Simon Property Group Inc. ................................................... 229,400 6,580,912
-----------
32,416,580
-----------
RETAIL TRADE 1.2%
J.C. Penney Co. Inc. ........................................................ 135,000 6,159,375
-----------
TECHNOLOGY SERVICES .5%
Automatic Data Processing Inc. .............................................. 60,000 2,670,000
-----------
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 1999 (UNAUDITED)(CONT.)
<TABLE>
<CAPTION>
FRANKLIN EQUITY INCOME FUND SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS(CONT.)
TELECOMMUNICATION 8.1%
AT&T Corp. .................................................................. 113,750 $ 5,744,375
Bell Atlantic Corp. ......................................................... 267,120 15,392,790
Cincinnati Bell Inc. ........................................................ 255,000 5,769,375
GTE Corp. ................................................................... 151,500 10,141,030
U.S. West Inc. .............................................................. 110,800 5,796,225
-----------
42,843,795
-----------
UTILITIES 9.8%
Baltimore Gas & Electric Co. ................................................ 246,000 6,918,750
Cinergy Corp. ............................................................... 216,000 6,439,500
Consolidated Natural Gas Co. ................................................ 70,300 4,182,850
Dominion Resources Inc. ..................................................... 127,100 5,226,987
MCN Energy Group Inc. ....................................................... 325,000 6,479,687
National Fuel Gas Co. ....................................................... 124,600 5,451,250
New Century Energies Inc. ................................................... 111,000 3,885,000
Northern States Power Co. ................................................... 200,000 4,825,000
OGE Energy Corp. ............................................................ 182,300 4,318,230
Sempra Energy ............................................................... 199,909 4,148,111
-----------
51,875,365
-----------
TOTAL COMMON STOCKS (COST $385,806,238) ..................................... 469,749,868
-----------
CONVERTIBLE PREFERRED STOCKS 5.3%
FINANCE 1.1%
Glenborough Realty Trust, 7.75%, cvt. pfd., A ............................... 324,200 5,855,862
-----------
RETAIL TRADE .8%
Kmart Financing I, 7.75%, cvt. pfd .......................................... 75,000 4,214,062
-----------
TRANSPORTATION 1.4%
Union Pacific Capital Trust, 6.25%, cvt. pfd ................................ 138,300 7,537,350
-----------
UTILITIES 2.0%
CMS Energy Trust I, 7.75%, cvt. pfd ......................................... 80,000 4,520,000
Texas Utilities Co., 9.25%, cvt. pfd ........................................ 117,100 6,023,330
-----------
10,543,330
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $28,721,954) ....................... 28,150,604
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
------
<S> <C> <C>
CONVERTIBLE BONDS 1.2%
Comverse Technology Inc., cvt. sub. deb., 4.50%, 7/01/05 .................... $ 2,250,000 3,718,125
Omnicare Inc., cvt. sub. deb., 5.00%, 12/01/07 .............................. 3,000,000 2,737,650
-----------
TOTAL CONVERTIBLE BONDS (COST $5,988,649) ................................... 6,455,775
-----------
TOTAL LONG TERM INVESTMENTS (COST $420,516,841) ............................. 504,356,247
-----------
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN EQUITY INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENTS 1.9%
FHLMC disc. note, 4.78%, 6/04/99 (Cost $9,954,856) .......................... $ 10,000,000 $ 9,958,400
-------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST $430,471,697) ........... 514,314,647
-------------
(b)REPURCHASE AGREEMENT 3.1%
Joint Repurchase Agreement, 4.862%, 5/03/99 (Maturity Value $16,475,267)
(COST $16,468,594) ........................................................ 16,468,594 16,468,594
Barclays Capital Inc. (Maturity Value $1,701,401)
Bear, Stearns & Co. (Maturity Value $928,050)
Chase Securities Inc. (Maturity Value $1,701,401)
CIBC Oppenheimer Corp. (Maturity Value $1,701,401)
Deutsche Bank Securities Inc. (Maturity Value $234,608)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $1,701,401)
Dresdner Kleinwort Benson, North America LLC (Maturity Value $1,701,401)
Lehman Brothers Inc. (Maturity Value $1,701,401)
Paine Webber Inc. (Maturity Value $1,701,401)
Paribas Corp. (Maturity Value $1,701,401)
UBS Securities LLC (Maturity Value $1,701,401)
Collateralized by U.S. Treasury Bills & Notes .............................
-------------
TOTAL INVESTMENTS (COST $446,940,291) 100.3% ................................ 530,783,241
-------------
OTHER ASSETS, LESS LIABILITIES (.3%) ........................................ (1,725,582)
-------------
NET ASSETS 100.0% ........................................................... $ 529,057,659
=============
</TABLE>
(b) See Note 1(c) regarding joint repurchase agreement.
SEE NOTES TO FINANCIAL STATEMENTS.
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
FRANKLIN GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1999 ----------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ...... $ 8.25 $ 8.41 $ 8.65 $ 8.31 $ 8.06 $ 9.33
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income .................... .42 .62 .60 .61 .67 1.30
Net realized and unrealized gains (losses) (.21) (.17) (.22) .33 .29 (1.81)
----------------------------------------------------------------------------------
Total from investment operations .......... .21 .45 .38 .94 .96 (.51)
----------------------------------------------------------------------------------
Less distributions from:
Net investment income .................... (.30) (.57) (.61) (.60) (.64) (.08)
In excess of net investment income ....... -- (.04) (.01) -- -- --
Tax return of capital .................... -- -- -- -- (.07) (.60)
Net realized gains ....................... -- -- -- -- -- (.08)
----------------------------------------------------------------------------------
Total distributions ....................... (.30) (.61) (.62) (.60) (.71) (.76)
----------------------------------------------------------------------------------
Net asset value, end of period ............ $ 8.16 $ 8.25 $ 8.41 $ 8.65 $ 8.31 $ 8.06
==================================================================================
Total return* ............................. 2.61% 5.57% 4.31% 11.80% 12.65% (5.72%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ......... $ 97,714 $110,876 $118,348 $137,626 $164,970 $187,204
Ratios to average net assets:
Expenses ................................. 1.10%** .96% .90% .85% .96% .89%
Net investment income .................... 7.45%** 7.49% 6.97% 7.68% 8.29% 8.54%
Portfolio turnover rate ................... 41.60% 49.93% 193.30% 139.71% 103.49% 80.69%
</TABLE>
* Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior to
May 1, 1994, dividends from net investment income were reinvested at the
offering price.
**Annualized
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN GLOBAL GOVERNMENT INCOME FUND (CONT.)
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1999 ---------------------------------------------------------
(UNAUDITED) 1998+ 1997 1996 1995***
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 8.26 $ 8.41 $ 8.65 $ 8.31 $ 8.03
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income ........................ .38 .58 .55 .56 .31
Net realized and unrealized gains (losses) ... (.19) (.17) (.22) .33 .30
-----------------------------------------------------------------------------
Total from investment operations .............. .19 .41 .33 .89 .61
-----------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (.28) (.52) (.56) (.55) (.30)
In excess of net investment income ........... -- (.04) (.01) -- --
Tax return of capital ........................ -- -- -- -- (.03)
-----------------------------------------------------------------------------
Total distributions ........................... (.28) (.56) (.57) (.55) (.33)
-----------------------------------------------------------------------------
Net asset value, end of period ................ $ 8.17 $ 8.26 $ 8.41 $ 8.65 $ 8.31
-----------------------------------------------------------------------------
Total return* ................................. 2.35% 5.12% 3.74% 11.19% 7.09%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 5,539 $ 5,710 $ 4,473 $ 3,700 $ 1,193
Ratios to average net assets:
Expenses ..................................... 1.63%** 1.49% 1.46% 1.40% 1.54%**
Net investment income ........................ 6.91%** 6.96% 6.43% 7.17% 7.41%**
Portfolio turnover rate ....................... 41.60% 49.93% 193.30% 139.71% 103.49%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
**Annualized
***For the period May 1, 1995 (effective date) to October 31, 1995.
+Based on average weighted shares outstanding.
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN GLOBAL GOVERNMENT INCOME FUND (CONT.)
<TABLE>
<CAPTION>
ADVISOR CLASS
-----------------------------------------------
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1999 ---------------------------
(UNAUDITED) 1998+ 1997***
-----------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 8.26 $ 8.41 $ 8.71
-----------------------------------------------
Income from investment operations:
Net investment income ........................ .43 .63 .49
Net realized and unrealized losses ........... (.21) (.16) (.28)
-----------------------------------------------
Total from investment operations .............. .22 .47 .21
-----------------------------------------------
Less distributions from:
Net investment income ........................ (.31) (.58) (.49)
In excess of net investment income ........... -- (.04) (.02)
-----------------------------------------------
Total distributions ........................... (.31) (.62) (.51)
-----------------------------------------------
Net asset value, end of period ................ $ 8.17 $ 8.26 $ 8.41
===============================================
Total return* ................................. 2.68% 5.81% 2.49%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 762 $ 829 $ 741
Ratios to average net assets:
Expenses ..................................... .98%** .85% .82%**
Net investment income ........................ 7.57%** 7.62% 7.08%**
Portfolio turnover rate ....................... 41.60% 49.93% 193.30%
</TABLE>
*Total return is not annualized for periods less than one year.
**Annualized
***For the period January 2, 1997 (effective date) to October 31, 1997.
+Based on average weighted shares outstanding.
See notes to financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN GLOBAL GOVERNMENT INCOME FUND AMOUNT* VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 95.6%
ARGENTINA 4.9%
Republic of Argentina
10.95%, 11/01/99 ..................................... $ 3,215,000 $ 3,279,300
8.75%, 5/09/02 ....................................... 1,100,000 1,051,050
11.00%, 10/09/06 ..................................... 250,000 249,375
9.75%, 9/19/27 ....................................... 600,000 525,000
------------
5,104,725
------------
AUSTRALIA 5.0%
Government of Australia, 7.50%, 7/15/05 ................. 7,037,000 AUD 5,200,354
------------
BRAZIL 6.9%
Government of Brazil
8.00%, 4/15/14 ....................................... 3,191,409 2,223,562
10.125%, 5/15/27 ..................................... 1,700,000 1,361,700
FRN, 6.188%, 4/15/09 ................................. 3,950,000 2,831,656
Series L, FRN, cvt., 5.938%, 4/15/12 ................. 1,250,000 801,563
------------
7,218,481
------------
CANADA 9.2%
Government of Canada
10.50%, 7/01/00 ...................................... 4,675,000 CAD 3,415,803
10.50%, 3/01/01 ...................................... 5,000,000 CAD 3,767,768
10.00%, 5/01/02 ...................................... 3,005,000 CAD 2,349,050
------------
9,532,621
------------
DENMARK 2.1%
Kingdom of Denmark
9.00%, 11/15/00 ...................................... 3,385,000 DKK 524,186
8.00%, 3/15/06 ....................................... 9,357,000 DKK 1,652,153
------------
2,176,339
------------
GERMANY 11.4%
Federal Republic of Germany
7.75%, 2/21/00 ....................................... 3,067,751 EUR 3,376,987
6.00%, 1/04/07 ....................................... 4,080,109 EUR 4,973,985
Series 96, 6.00%, 1/05/06 ............................ 2,914,364 EUR 3,530,030
------------
11,881,002
------------
ITALY 9.9%
Buoni Poliennali Del Tesoro
10.50% 7/15/00 ....................................... 2,065,824 EUR 2,380,936
10.50%, 4/01/05 ...................................... 2,763,040 EUR 3,992,759
6.75%, 7/01/07 ....................................... 825,000 EUR 1,041,702
10.50%, 4/28/14 ...................................... 1,200,000 GBP 2,889,552
------------
10,304,949
------------
MEXICO 6.5%
United Mexican States
9.75%, 2/06/01 ....................................... 1,950,000 2,033,363
9.75%, 4/06/05 ....................................... 1,200,000 1,246,500
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN GLOBAL GOVERNMENT INCOME FUND AMOUNT* VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
MEXICO (CONT.)
United Mexican States (cont.)
9.875%, 1/15/07 ...................................... $ 1,375,000 $ 1,446,156
11.375%, 9/15/16 ..................................... 1,115,000 1,273,888
6.25%, 12/31/19 ...................................... 1,000,000 794,375
------------
6,794,282
------------
NEW ZEALAND 4.4%
Government of New Zealand
6.50%, 2/15/00 .......................................... 3,995,000 NZD 2,277,859
8.00%, 11/15/06 ......................................... 3,623,000 NZD 2,317,785
------------
4,595,644
------------
PANAMA .6%
Republic of Panama, 8.875%, 9/30/27 ..................... 650,000 614,250
------------
SPAIN 6.6%
Bonos Y Oblig Del Estado, 8.80%, 4/30/06 ................ 1,932,855 EUR 2,670,195
Government of Spain, 12.25%, 3/25/00 .................... 3,662,808 EUR 4,196,717
------------
6,866,912
------------
SWEDEN 3.1%
Kingdom of Sweden , 10.25%, 5/05/03 ..................... 21,500,000 SEK 3,215,619
TURKEY 3.2%
Cellco Finance NV, 144A, 15.00%, 8/01/05, ............... 1,250,000 1,238,750
Republic of Turkey
144A, 10.00%, 9/19/07 ................................ 170,000 160,990
Reg S, 9.875%, 2/23/05 ............................... 1,040,000 984,960
Reg S, 10.00%, 9/19/07 ............................... 1,010,000 956,470
------------
3,341,170
------------
UNITED KINGDOM 3.5%
United Kingdom
8.00%, 12/07/00 ...................................... 1,000,000 GBP 1,677,669
8.50%, 7/16/07 ....................................... 1,005,000 GBP 2,012,913
------------
3,690,582
------------
UNITED STATES 13.3%
Fannie Mae, 5.25%, 1/15/09 .............................. 3,609,000 3,444,246
U.S. Treasury Bond, 5.25%, 11/15/28 ..................... 8,000,000 7,395,000
U.S. Treasury Note, 7.25%, 8/15/04 ...................... 2,714,000 2,953,171
------------
13,792,417
------------
VENEZUELA 5.0%
Republic of Venezuela
9.25%, 9/15/27 ....................................... 5,775,000 4,219,359
144A, 9.125%, 6/18/07 ................................ 1,220,000 945,500
------------
5,164,859
------------
TOTAL LONG TERM INVESTMENTS (COST $108,153,959) ......... 99,494,206
------------
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN GLOBAL GOVERNMENT INCOME FUND AMOUNT* VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENTS
U.S. Treasury Bill, 4.32%, 6/03/99 (Cost $492,921) .5% .. $ 495,000 $ 493,147
TOTAL INVESTMENTS (COST $108,646,880) 96.1% ............. 99,987,353
NET EQUITY IN FORWARD CONTRACTS ......................... 10,762
OTHER ASSETS, LESS LIABILITIES 3.9% ..................... 4,015,825
------------
TOTAL NET ASSETS 100.0% ................................. $104,013,940
------------
</TABLE>
CURRENCY ABBREVIATIONS:
AUD -Australian Dollar
CAD -Canadian Dollar
DKK -Danish Krone
EUR -Euro
GBP -British Pound
NZD -New Zealand Dollar
SEK -Swedish Krone
PORTFOLIO ABBREVIATIONS:
FRN -Floating Rate Note
*Securities traded in U.S. dollars unless otherwise indicated.
See notes to financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
FRANKLIN SHORT-INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1999 --------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 10.46 $ 10.29 $ 10.28 $ 10.35 $ 10.03 $ 10.80
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income ........................ .26 .54 .57 .58 .56 .49
Net realized and unrealized gains (losses) ... (.22) .19 .02 (.08) .31 (.70)
---------------------------------------------------------------------------------
Total from investment operations .............. .04 .73 .59 .50 .87 (.21)
---------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (.25) (.56) (.58) (.57) (.55) (.47)
Net realized gains ........................... -- -- -- -- -- (.09)
---------------------------------------------------------------------------------
Total distributions ........................... (.25) (.56) (.58) (.57) (.55) (.56)
---------------------------------------------------------------------------------
Net asset value, end of period ................ $ 10.25 $ 10.46 $ 10.29 $ 10.28 $ 10.35 $ 10.03
---------------------------------------------------------------------------------
Total return* ................................. .39% 7.38% 5.88% 4.97% 8.90% (1.99%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $205,792 $224,132 $192,051 $196,042 $208,057 $225,352
Ratios to average net assets:
Expenses ..................................... .78%** .78% .78% .74% .73% .65%
Expenses excluding waiver and payments
by affiliate ................................. .78%** .78% .78% .74% .73% .68%
Net investment income ........................ 5.05%** 5.24% 5.51% 5.64% 5.42% 4.75%
Portfolio turnover rate ....................... 21.66% 37.70% 40.56% 72.62% 56.34% 99.09%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior to May
1, 1994, dividends from net investment income were reinvested at the offering
price.
**Annualized
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN SHORT-INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND (CONT.)
<TABLE>
<CAPTION>
ADVISOR CLASS
----------------------------------------------
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1999 -------------------------
(UNAUDITED) 1998 1997***
----------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 10.45 $ 10.30 $ 10.24
----------------------------------------------
Income from investment operations:
Net investment income ........................ .27 .57 .47
Net realized and unrealized gains (losses) ... (.22) .16 .07
----------------------------------------------
Total from investment operations .............. .05 .73 .54
----------------------------------------------
Less distributions from net investment income . (.26) (.58) (.48)
----------------------------------------------
Net asset value, end of period ................ $ 10.24 $ 10.45 $ 10.30
==============================================
Total return* ................................. .45% 7.38% 5.45%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 2,413 $ 3,644 $ 385
Ratios to average net assets:
Expenses ..................................... .68%** .69% .70%**
Net investment income ........................ 5.14%** 5.28% 5.35%**
Portfolio turnover rate ....................... 21.66% 37.70% 40.56%
</TABLE>
*Total return is not annualized for periods less than one year.
**Annualized
***For the period January 2, 1997 (effective date) to October 31, 1997.
See notes to financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN SHORT-INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
MORTGAGE BACKED SECURITIES 9.8%
<S> <C> <C>
(d)FNMA, 6.50%, 5/01/14 (COST $20,414,625) ................................................... $ 20,200,000 $ 20,376,750
-------------
U.S. GOVERNMENT SECURITIES 94.3%
U.S. Treasury Note, 6.375%, 5/15/99 ......................................................... 20,000,000 20,012,500
U.S. Treasury Note, 6.00%, 8/15/99 .......................................................... 5,000,000 5,019,800
U.S. Treasury Note, 5.875%, 6/30/00 ......................................................... 36,000,000 36,371,268
U.S. Treasury Note, 5.625%, 2/28/01 ......................................................... 25,000,000 25,250,000
U.S. Treasury Note, 7.50%, 11/15/01 ......................................................... 25,000,000 26,390,625
U.S. Treasury Note, 5.875%, 11/30/01 ........................................................ 20,000,000 20,356,260
U.S. Treasury Note, 5.875%, 9/30/02 ......................................................... 34,000,000 34,669,392
U.S. Treasury Note, 5.50%, 1/31/03 .......................................................... 28,000,000 28,236,264
-------------
TOTAL U.S. GOVERNMENT SECURITIES (COST $195,275,362) ........................................ 196,306,109
-------------
TOTAL LONG TERM INVESTMENTS (COST $215,689,987) ............................................. 216,682,859
-------------
(b)REPURCHASE AGREEMENT 2.4%
Joint Repurchase Agreement, 4.862%, 5/03/99 (Maturity Value $4,990,764) (COST $4,988,743).... 4,988,743 4,988,743
Barclays Capital Inc. (Maturity Value $515,396)
Bear, Stearns & Co. (Maturity Value $281,131)
Chase Securities Inc. (Maturity Value $515,396)
CIBC Oppenheimer Corp. (Maturity Value $515,396)
Deutsche Bank Securities Inc. (Maturity Value $71,069)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $515,396)
Dresdner Kleinwort Benson, North America LLC (Maturity Value $515,396)
Lehman Brothers Inc. (Maturity Value $515,396)
Paine Webber Inc. (Maturity Value $515,396)
Paribas Corp. (Maturity Value $515,396)
UBS Securities LLC (Maturity Value $515,396)
Collateralized by U.S. Treasury Bills & Notes
-------------
TOTAL INVESTMENTS (COST $220,678,730) 106.5% ................................................ 221,671,602
-------------
OTHER ASSETS, LESS LIABILITIES (6.5%) ....................................................... (13,466,982)
-------------
NET ASSETS 100.0% ........................................................................... $ 208,204,620
=============
</TABLE>
PORTFOLIO ABBREVIATION
FNMA -Federal National Mortgage Association
(b)See Note 1(c) regarding joint repurchase agreement.
(d)Sufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
See notes to financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN
ADJUSTABLE FRANKLIN
U.S. GOVERNMENT FRANKLIN CONVERTIBLE
SECURITIES FUND BOND FUND SECURITIES FUND
-----------------------------------------------------
<S> <C> <C> <C>
Assets:
Investments in securities:
Cost ........................................ $ 296,616,096 $ 40,163,445 $ 161,744,810
=====================================================
Value ....................................... 275,784,107 39,911,510 162,935,664
Repurchase agreements, at value and cost ... -- 9,767,116 11,164,483
Receivables:
Investment securities sold ................ -- 2,448,852 8,534,623
Capital shares sold ....................... 2,840,573 87,395 98,364
Dividends and interest .................... -- 379,067 1,362,402
Offering costs ............................. -- 19,804 --
-----------------------------------------------------
Total assets ................................ 278,624,680 52,613,744 184,095,536
Liabilities:
Payables:
Investment securities purchased ........... 2,592,105 10,504,006 8,268,277
Capital shares redeemed ................... 379,432 6,610,000 1,240,782
Affiliates ................................ 223,645 4,437 311,290
Shareholders .............................. 659,397 149 477,069
Variation margin (Note 1) ................. -- 37,063 --
Distributions to shareholders .............. -- 28,974 --
Other liabilities .......................... 20,823 69,251 23,532
-----------------------------------------------------
Total liabilities ....................... 3,875,402 17,253,880 10,320,950
-----------------------------------------------------
Net assets, at value .................... $ 274,749,278 $ 35,359,864 $ 173,774,586
=====================================================
Net assets consist of:
Undistributed net investment income ........ $ 690,168 $ 10,525 $ 221,674
Net unrealized appreciation (depreciation).. (20,831,989) (273,309) 1,190,854
Accumulated net realized loss .............. (87,158,078) (539,010) (16,159,903)
Capital shares ............................. 382,049,177 36,161,658 188,521,961
-----------------------------------------------------
Net assets, at value .................... $ 274,749,278 $ 35,359,864 $ 173,774,586
=====================================================
</TABLE>
See notes to financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN
ADJUSTABLE FRANKLIN
U.S. GOVERNMENT FRANKLIN CONVERTIBLE
SECURITIES FUND BOND FUND SECURITIES FUND
--------------------------------------------------
<S> <C> <C> <C>
CLASS A:
Net assets, at value ................................................ $ 274,749,278 $ 6,714,555 $ 140,424,246
==================================================
Shares outstanding .................................................. 29,405,390 672,176 11,463,244
==================================================
Net asset value per share* .......................................... $ 9.34 $ 9.99 $ 12.25
==================================================
Maximum offering price per share (net asset value per share / 97.75%,
95.75%, 94.25%, respectively) ..................................... $ 9.55 $ 10.43 $ 13.00
==================================================
CLASS C:
Net assets, at value ................................................ -- -- $ 33,350,340
==================================================
Shares outstanding .................................................. -- -- 2,733,039
==================================================
Net asset value per share* .......................................... -- -- $ 12.20
==================================================
Maximum offering price per share (net asset value per share / 99.00%) -- -- $ 12.32
==================================================
ADVISOR CLASS:
Net assets, at value ................................................ -- $ 28,645,309 --
==================================================
Shares outstanding .................................................. -- 2,864,994 --
==================================================
Net asset value per share and maximum offering price per share ...... -- $ 10.00 --
==================================================
</TABLE>
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
FRANKLIN GLOBAL SHORT-INTERMEDIATE
EQUITY GOVERNMENT U.S. GOVERNMENT
INCOME FUND INCOME FUND SECURITIES FUND
----------------------------------------------------
<S> <C> <C> <C>
Assets:
Investments in securities:
Cost ............................................................ $430,471,697 $ 108,646,880 $ 215,689,987
====================================================
Value ........................................................... 514,314,647 99,987,353 216,682,859
Repurchase agreements, at value and cost ........................... 16,468,594 -- 4,988,743
Cash ............................................................... -- 198,496 --
Receivables:
Investment securities sold .......................................... 3,323,015 1,987,583 --
Capital shares sold ................................................. 981,572 934,802 5,627,126
Dividends and interest .............................................. 1,217,578 2,332,180 3,571,218
Net unrealized gain on forward exchange contracts (Note 6) .......... -- 10,762 --
----------------------------------------------------
Total assets .................................................. 536,305,406 105,451,176 230,869,946
----------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ................................. 3,956,536 -- 20,483,922
Capital shares redeemed ......................................... 1,460,443 1,065,191 1,360,147
Affiliates ...................................................... 745,504 120,876 159,452
Shareholders .................................................... 1,039,256 200,706 386,212
Distributions to shareholders ...................................... -- 964 261,865
Other liabilities .................................................. 46,008 49,499 13,728
----------------------------------------------------
Total liabilities ............................................. 7,247,747 1,437,236 22,665,326
----------------------------------------------------
Net assets, at value ............................................... $529,057,659 $ 104,013,940 $ 208,204,620
====================================================
Net assets consist of:
Undistributed net investment income ................................ $ 143,279 $ -- $ 252,865
Accumulated distributions in excess of net investment income ....... -- (776,231) --
Net unrealized appreciation (depreciation) ......................... 83,842,950 (8,662,157) 992,872
Accumulated net realized gain (loss) ............................... 18,497,863 57,614 (5,362,447)
Capital shares ..................................................... 426,573,567 113,394,714 212,321,330
----------------------------------------------------
Net assets, at value ......................................... $529,057,659 $ 104,013,940 $ 208,204,620
====================================================
</TABLE>
See notes to financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
FRANKLIN GLOBAL SHORT-INTERMEDIATE
EQUITY GOVERNMENT U.S. GOVERNMENT
INCOME FUND INCOME FUND SECURITIES FUND.
--------------------------------------------------
<S> <C> <C> <C>
CLASS A:
Net assets, at value ................................................ $439,819,142 $97,713,628 $205,791,775
--------------------------------------------------
Shares outstanding .................................................. 21,782,428 11,969,145 20,077,807
--------------------------------------------------
Net asset value per share* .......................................... $ 20.19 $ 8.16 $ 10.25
--------------------------------------------------
Maximum offering price per share (net asset value per share / 94.25%,
95.75%, 97.75%, respectively) ....................................... $ 21.42 $ 8.52 $ 10.49
--------------------------------------------------
CLASS B:
Net assets, at value ................................................ $ 964,032 -- --
--------------------------------------------------
Shares outstanding .................................................. 47,784 -- --
--------------------------------------------------
Net asset value and maximum offering price per share* ............... $ 20.17 -- --
--------------------------------------------------
CLASS C:
Net assets, at value ................................................ $ 88,274,485 $ 5,538,711 --
--------------------------------------------------
Shares outstanding .................................................. 4,384,324 677,953 --
--------------------------------------------------
Net asset value per share* .......................................... $ 20.13 $ 8.17 --
--------------------------------------------------
Maximum offering price per share (net asset value per share / 99.00%) $ 20.33 $ 8.25 --
--------------------------------------------------
ADVISOR CLASS:
Net assets, at value ................................................ -- $ 761,601 $ 2,412,845
--------------------------------------------------
Shares outstanding .................................................. -- 93,232 235,617
--------------------------------------------------
Net asset value and maximum offering price per share ................ -- $ 8.17 $ 10.24
--------------------------------------------------
</TABLE>
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charge. See notes to financial statements.
See notes to financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN
ADJUSTABLE FRANKLIN
U.S. GOVERNMENT FRANKLIN CONVERTIBLE
SECURITIES FUND BOND FUND SECURITIES FUND
-------------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividends .................................................... $ 7,577,842 $ -- $ 3,258,845
Interest ..................................................... -- 1,247,864 2,751,716
-------------------------------------------------
Total investment income ................................. 7,577,842 1,247,864 6,010,561
-------------------------------------------------
Expenses:
Management fees (Note 3) ..................................... -- 84,063 552,121
Administrative fees (Note 3) ................................. 141,550 39,559 --
Distribution fees (Note 3)
Class A ................................................... 351,216 6,829 199,531
Class C ................................................... -- -- 193,162
Transfer agent fees (Note 3) ................................. 164,230 1,730 162,046
Custodian fees ............................................... -- 247 2,158
Reports to shareholders ...................................... 41,757 250 38,506
Registration and filing fees ................................. 6,754 2,650 16,730
Professional fees ............................................ 8,112 4,516 6,008
Trustees' fees and expenses .................................. 9,386 -- 7,037
Amortization of offering costs (Note 1) ...................... -- 39,600 --
Other ........................................................ 2,949 865 6,163
-------------------------------------------------
Total expenses .......................................... 725,954 180,309 1,183,462
Expenses waived/paid by affiliate (Note 3) .............. -- (121,378) --
-------------------------------------------------
Net expenses ......................................... 725,954 58,931 1,183,462
-------------------------------------------------
Net investment income ................................ 6,851,888 1,188,933 4,827,099
-------------------------------------------------
Realized and unrealized gains (losses):
Net realized loss from:
Investments ............................................... (1,679,467) (142,555) (7,507,331)
Financial futures contracts ............................... -- (390,092) --
-------------------------------------------------
Net realized loss .................................... (1,679,467) (532,647) (7,507,331)
Net unrealized appreciation (depreciation) from investments .. 995,539 (579,226) 16,595,248
-------------------------------------------------
Net realized and unrealized gain (loss) ....................... (683,928) (1,111,873) 9,087,917
-------------------------------------------------
Net increase in net assets resulting from operations .......... $ 6,167,960 $ 77,060 $ 13,915,016
=================================================
</TABLE>
See notes to financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
FRANKLIN GLOBAL SHORT-INTERMEDIATE
EQUITY GOVERNMENT U.S. GOVERNMENT
INCOME FUND INCOME FUND SECURITIES FUND
-------------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividends ............................................................ $ 9,698,288 $ -- $ --
Interest ............................................................. 838,039 4,686,246 6,296,951
-------------------------------------------------
Total investment income ........................................ 10,536,327 4,686,246 6,296,951
-------------------------------------------------
Expenses:
Management fees (Note 3) ............................................. 1,292,714 336,245 599,331
Distribution fees (Note 3)
Class A ............................................................. 525,238 61,325 95,997
Class B ............................................................. 1,499 -- --
Class C ............................................................. 422,163 18,318 --
Transfer agent fees (Note 3) ......................................... 343,118 114,200 81,803
Custodian fees ....................................................... 6,775 25,300 1,129
Reports to shareholders .............................................. 76,171 12,400 20,902
Registration and filing fees ......................................... 41,840 42,400 30,278
Professional fees .................................................... 11,865 2,300 5,191
Trustees' fees and expenses .......................................... 14,778 2,500 6,228
Other ................................................................ 4,717 675 2,832
-------------------------------------------------
Total expenses ................................................. 2,740,878 615,663 843,691
-------------------------------------------------
Net investment income ........................................ 7,795,449 4,070,583 5,453,260
-------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ........................................................ 18,591,546 1,937,153 291,626
Foreign currency transactions ..................................... (80,814) 81,866 --
-------------------------------------------------
Net realized gain ................................................ 18,510,732 2,019,019 291,626
Net unrealized appreciation (depreciation) on:
Investments ........................................................ 16,373,437 (3,328,296) (4,923,832)
Translation of assets and liabilities denominated in
foreign currencies ................................................ -- (28,754) --
-------------------------------------------------
Net unrealized appreciation (depreciation) ....................... 16,373,437 (3,357,050) (4,923,832)
-------------------------------------------------
Net realized and unrealized gain (loss) ............................... 34,884,169 (1,338,031) (4,632,206)
-------------------------------------------------
Net increase in net assets resulting from operations .................. $ 42,679,618 $ 2,732,552 $ 821,054
=================================================
</TABLE>
See notes to financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
AND THE YEAR ENDED OCTOBER 31, 1998
<TABLE>
<CAPTION>
FRANKLIN ADJUSTABLE
U.S. GOVERNMENT FRANKLIN
SECURITIES FUND BOND FUND
---------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
APRIL 30, 1999 OCTOBER 31, 1998 APRIL 30, 1999 OCTOBER 31, 1998
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................................. $ 6,851,888 $ 16,875,320 $ 1,188,933 $ 317,372
Net realized gain (loss) from investments .............. (1,679,467) (2,511,193) (532,647) 175,522
Net unrealized appreciation (depreciation)
on investments ........................................ 995,539 (1,201,807) (579,226) 305,917
---------------------------------------------------------------------
Net increase in net assets resulting
from operations ................................... 6,167,960 13,162,320 77,060 798,811
Distributions to shareholders from:
Net investment income:
Class A .............................................. (6,848,995) (17,143,101) (176,757) (17,709)
Advisor Class ........................................ -- -- (1,174,534) (140,700)
Net realized gains:
Class A .............................................. -- -- (23,840) --
Advisor Class ........................................ -- -- (158,045) --
---------------------------------------------------------------------
Total distributions to shareholders ...................... (6,848,995) (17,143,101) (1,533,176) (158,409)
Capital share transactions: (Note 2)
Class A .............................................. (22,867,278) (32,712,089) 2,689,926 4,124,727
Advisor Class ........................................ -- -- (1,694,532) 31,055,457
---------------------------------------------------------------------
Total capital share transactions ......................... (22,867,278) (32,712,089) 995,394 35,180,184
Net increase (decrease) in net assets .............. (23,548,313) (36,692,870) (460,722) 35,820,586
Net assets:
Beginning of period ...................................... 298,297,591 334,990,461 35,820,586 --
---------------------------------------------------------------------
End of period ............................................ $ 274,749,278 $ 298,297,591 $ 35,359,864 $ 35,820,586
=====================================================================
Undistributed net investment income included in net assets:
End of period ............................................ $ 690,168 $ 687,275 $ 10,525 $ 172,883
=====================================================================
</TABLE>
See notes to financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
AND THE YEAR ENDED OCTOBER 31, 1998
<TABLE>
<CAPTION>
FRANKLIN CONVERTIBLE FRANKLIN EQUITY
SECURITIES FUND INCOME FUND
----------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
APRIL 30, 1999 OCTOBER 31, 1998 APRIL 30, 1999 OCTOBER 31, 1998
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................................. $ 4,827,099 $ 11,332,883 $ 7,795,449 $ 14,888,936
Net realized gain (loss) from investments and foreign
currency transactions ................................. (7,507,331) (8,538,539) 18,510,732 27,859,622
Net unrealized appreciation (depreciation) on
investments and translation of assets and liabilities
denominated in foreign currencies ..................... 16,595,248 (28,430,686) 16,373,437 1,596,184
----------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ................................... 13,915,016 (25,636,342) 42,679,618 44,344,742
Distributions to shareholders from:
Net investment income:
Class A ............................................... (4,543,565) (9,877,888) (7,125,624) (13,224,776)
Class B ............................................... -- -- (4,039) --
Class C ............................................... (978,348) (1,820,566) (1,103,758) (1,678,440)
Net realized gains:
Class A ............................................... -- (15,493,732) (23,373,175) (15,051,100)
Class C ............................................... -- (2,734,235) (4,503,651) (1,938,931)
----------------------------------------------------------------------
Total distributions to shareholders ...................... (5,521,913) (29,926,421) (36,110,247) (31,893,247)
Capital share transactions: (Note 2)
Class A ............................................... (36,891,086) 3,266,565 6,239,892 64,638,393
Class B ............................................... -- -- 910,328 --
Class C ............................................... (9,829,209) 16,484,480 6,031,943 34,384,586
----------------------------------------------------------------------
Total capital share transactions ......................... (46,720,295) 19,751,045 13,182,163 99,022,979
Net increase (decrease) in net assets .............. (38,327,192) (35,811,718) 19,751,534 111,474,474
Net assets:
Beginning of period ...................................... 212,101,778 247,913,496 509,306,125 397,831,651
----------------------------------------------------------------------
End of period ............................................ $ 173,774,586 $ 212,101,778 $ 529,057,659 $ 509,306,125
====================================================================
Undistributed net investment income included in net assets:
End of period ............................................ $ 221,674 $ 916,488 $ 143,279 $ 581,251
====================================================================
</TABLE>
See notes to financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
AND THE YEAR ENDED OCTOBER 31, 1998
<TABLE>
<CAPTION>
FRANKLIN GLOBAL GOVERNMENT FRANKLIN SHORT-INTERMEDIATE
INCOME FUND U.S. GOVERNMENT SECURITIES FUND
-------------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
APRIL 30, 1999 OCTOBER 31, 1998 APRIL 30, 1999 OCTOBER 31, 1998
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................ $ 4,070,583 $ 8,918,456 $ 5,453,260 $ 10,382,045
Net realized gain from investments and foreign
currency transactions ............................... 2,019,019 225,201 291,626 546,710
Net unrealized appreciation (depreciation) on
investments and translation of assets and liabilities
denominated in foreign currencies ................... (3,357,050) (2,655,059) (4,923,832) 3,385,195
-------------------------------------------------------------------------
Net increase in net assets resulting
from operations .................................... 2,732,552 6,488,598 821,054 14,313,950
Distributions to shareholders from:
Net investment income:
Class A ........................................... (3,830,684) (7,742,300) (5,146,567) (10,749,725)
Class C ........................................... (193,084) (339,885) -- --
Advisor Class ..................................... (30,543) (51,592) (65,199) (118,627)
In excess of net investment income:
Class A ........................................... -- (578,601) -- --
Class C ........................................... -- (25,400) -- --
Advisor Class ..................................... -- (3,856) -- --
-------------------------------------------------------------------------
Total distributions to shareholders ................. (4,054,311) (8,741,634) (5,211,766) (10,868,352)
Capital share transactions: (Note 2)
Class A ........................................... (11,911,199) (5,329,387) (13,997,979) 28,693,996
Class C ........................................... (110,603) 1,335,288 -- --
Advisor Class ..................................... (58,191) 99,883 (1,182,947) 3,201,489
-------------------------------------------------------------------------
Total capital share transactions .................... (12,079,993) (3,894,216) (15,180,926) 31,895,485
Net increase (decrease) in net assets ................ (13,401,752) (6,147,252) (19,571,638) 35,341,083
Net assets:
Beginning of period ................................. 117,415,692 123,562,944 227,776,258 192,435,175
-------------------------------------------------------------------------
End of period ....................................... $ 104,013,940 $ 117,415,692 $ 208,204,620 $ 227,776,258
=========================================================================
Undistributed net investment income (accumulated
distributions in excess of net investment income)
included in net assets:
End of period ........................................ $ (776,231) $ (792,503) $ 252,865 $ 11,371
=========================================================================
</TABLE>
See notes to financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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
seven separate series (the Funds). All Funds included in this report are
diversified except Franklin Global Government Income Fund. The investment
objective of the Funds included in this report are:
<TABLE>
<CAPTION>
GLOBAL INCOME GROWTH AND INCOME INCOME
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Global Government Income Fund Franklin Convertible Securities Fund Franklin Adjustable U.S. Government Securities Fund
Franklin Equity Income Fund Franklin Bond Fund
Franklin Short-Intermediate U.S. Government Securities
Fund
</TABLE>
The Franklin Adjustable U.S. Government Securities Fund invests substantially
all of its assets in the U.S. Government Adjustable Rate Mortgage Portfolio (the
Portfolio), which is registered under the Investment Company Act of 1940 as a
diversified, open end investment company having the same investment objectives
as the Fund. The financial statements of the Portfolio, including the Statements
of Investments, are included elsewhere in this report and should be read in
conjunction with the Funds' financial statements.
On April 9, 1999, shareholders of the Franklin Adjustable Rate Securities Fund
approved its merger into the Franklin Adjustable U.S. Government Securities
Fund. The merger was effective May 6, 1999.
On May 18, 1999 the Board of Trustees for the Franklin Investors Securities
Trust approved a proposal to merge the Franklin Global Government Fund into the
Templeton Global Bond Fund, subject to shareholder approval.
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. 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 Franklin Adjustable U.S. Government Securities Fund holds portfolio shares
that are valued at its proportionate interest in the net asset value of the U.S.
Government Adjustable Rate Mortgage Portfolio. At April 30, 1999, the Franklin
Adjustable U.S. Government Securities Fund owned 100% of the U.S. Government
Adjustable Rate Mortgage Portfolio.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date.
The Funds do not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
b. FOREIGN CURRENCY TRANSLATION: (CONT.)
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.
c. JOINT REPURCHASE AGREEMENT:
The Funds, except the Franklin Adjustable U.S. Government Securities Fund, may
enter into a joint repurchase agreement whereby their uninvested cash balances
are deposited into a joint cash account to be used to invest in one or more
repurchase agreements. The value and face amount of the joint repurchase
agreement are allocated to the Funds based on their pro-rata interest. A
repurchase agreement is accounted for as a loan by the Fund to the seller,
collateralized by securities which are delivered to the Fund's custodian. The
market value, including accrued interest, of the initial collateralization is
required to be at least 102% of the dollar amount invested by the Funds, with
the value of the underlying securities marked to market daily to maintain
coverage of at least 100%. At April 30, 1999, all outstanding repurchase
agreements had been entered into on that date.
d. FUTURES CONTRACT:
The Franklin Bond Fund may enter into futures contracts and options on futures
contracts to hedge the risk of changes in interest rates. Required initial
margin deposits of cash or securities are maintained by the Fund's custodian in
segregated accounts as disclosed in the Statement of Investments. Subsequent
payments, known as variation margin, are made or received by the Fund depending
on the daily fluctuations in the value of the underlying securities. Such
variation margin is accounted for as unrealized gains or losses until the
contract is closed, at which time the gains or losses are reclassified to
realized. Realized and unrealized gains and losses are included in the Statement
of Operations.
e. FORWARD EXCHANGE CONTRACT:
The Franklin Global Government Income 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.
f. 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 substantially all of its taxable income.
g. 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.
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
g. 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.
Distributions received by the Funds 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.
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.
h. OFFERING COSTS:
Offering costs are amortized on a straight-line basis over twelve months.
i. 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. SHARES OF BENEFICIAL INTEREST
The classes of shares offered within each of the Funds are indicated below.
Effective January 1, 1999, Class I and Class II were renamed Class A and Class
C, respectively, and the Franklin Equity Income Fund began offering a new class
of shares, Class B. Each class of shares differ by its initial sales load,
distribution fees, voting rights on matters affecting a single class and its
exchange privilege.
<TABLE>
<CAPTION>
FUND CLASS
- --------------------------------------------------------------------------------
<S> <C>
Franklin Adjustable U.S. Government Securities Fund A
Franklin Bond Fund A & Advisor
Franklin Convertible Securities Fund A & C
Franklin Equity Income Fund A, B & C
Franklin Global Government Income Fund A, C & Advisor
Franklin Short-Intermediate U.S. Government Securities Fund A & Advisor
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
At April 30, 1999, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Funds' shares were as follows:
<TABLE>
<CAPTION>
FRANKLIN ADJUSTABLE FRANKLIN
U.S. GOVERNMENT FRANKLIN CONVERTIBLE
SECURITIES FUND BOND FUND SECURITIES FUND
-----------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
Six months ended April 30, 1999
Shares sold .................. 5,056,267 $ 47,206,698 341,680 $ 3,479,468 683,145 $ 8,266,213
Shares issued in reinvestment
of distributions ............. 449,493 4,181,125 7,842 79,534 282,084 3,375,533
Shares redeemed .............. (7,955,146) (85,630) (869,076) (4,021,781)
-----------------------------------------------------------------------------------------------
Net increase (decrease) ...... (2,449,386) $ (22,867,278) 263,892 $ 2,689,926 (3,056,552) $(36,891,086)
===============================================================================================
Year ended October 31, 1998*
Shares sold .................. 17,728,448 $ 167,216,987 428,859 $ 4,337,530 4,772,514 $ 64,822,630
Shares issued in reinvestment
of distributions ............. 1,090,772 10,268,136 545 5,651 1,402,784 18,865,612
Shares redeemed .............. (22,292,627) (210,197,212) (21,120) (218,454) (6,083,262)
-----------------------------------------------------------------------------------------------
Net increase (decrease) ...... (3,473,407) $ (32,712,089) 408,284 $ 4,124,727 92,036 $ 3,266,565
===============================================================================================
CLASS C SHARES:
Six months ended April 30, 1999
Shares sold ...................................................................................... 206,711 $ 2,488,112
Shares issued in reinvestment
of distributions ................................................................................. 62,502 744,856
Shares redeemed .................................................................................. (1,085,914) (13,062,177)
------------------------------
Net decrease ..................................................................................... (816,701) $ (9,829,209)
==============================
Year ended October 31, 1998
Shares sold ...................................................................................... 1,925,827 $ 26,217,204
Shares issued in reinvestment
of distributions ................................................................................. 267,020 3,567,903
Shares redeemed .................................................................................. (1,045,779) (13,300,627)
------------------------------
Net increase ..................................................................................... 1,147,068 $ 16,484,480
==============================
ADVISOR CLASS:
Six months ended April 30, 1999
Shares sold ...................................................... 730,129 $ 7,454,216
Shares issued in reinvestment
of distributions ................................................. 121,249 1,233,711
Shares redeemed .................................................. (1,029,526) (10,382,459)
--------------------------
Net decrease ..................................................... (178,148) $(1,694,532)
==========================
Year ended October 31, 1998*
Shares sold ...................................................... 3,061,438 $31,245,247
Shares issued in reinvestment
of distributions ................................................. 12,432 128,923
Shares redeemed .................................................. (30,728) (318,713)
--------------------------
Net increase ..................................................... 3,043,142 $31,055,457
===========================
</TABLE>
*For the period August 3, 1998 (effective date) to October 31, 1998 for the
Franklin Bond Fund.
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN FRANKLIN SHORT-INTERMEDIATE
EQUITY GLOBAL GOVERNMENT U.S. GOVERNMENT
INCOME FUND INCOME FUND SECURITIES FUND
----------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
Six months ended April 30, 1999
Shares sold .................... 3,619,429 $ 70,208,645 1,774,353 $ 14,480,028 14,002,387 $ 144,610,473
Shares issued in reinvestment
of distributions ............... 1,402,201 26,791,260 270,414 2,199,630 328,638 3,391,551
Shares redeemed ................ (4,724,244) (90,760,013) (3,512,116) (28,590,857) (15,683,356) (162,000,003)
----------------------------------------------------------------------------------------------
Net increase (decrease) ........ 297,386 $ 6,239,892 (1,467,349) $(11,911,199) (1,352,331) $ (13,997,979)
==============================================================================================
Year ended October 31, 1998
Shares sold .................... 9,015,338 $ 180,490,789 2,683,291 $ 22,280,584 21,448,883 $ 221,708,093
Shares issued in reinvestment
of distributions ............... 1,236,040 24,317,467 556,177 4,608,867 627,776 6,477,086
Shares redeemed ................ (7,026,650) (140,169,863) (3,877,271) (32,218,838) (19,311,848) (199,491,183)
----------------------------------------------------------------------------------------------
Net increase (decrease) ........ 3,224,728 $ 64,638,393 (637,803) $ (5,329,387) 2,764,811 $ 28,693,996
==============================================================================================
CLASS B SHARES:
Six months ended April 30, 1999**
Shares sold .................... 47,625 $ 907,298
Shares issued in reinvestment
of distributions ............... 182 3,479
Shares redeemed ................ (23) (449)
-------------------------------
Net increase ................... 47,784 $ 910,328
===============================
CLASS C SHARES:
Six months ended April 30, 1999
Shares sold .................... 876,470 $ 17,002,427 88,524 $ 721,917
Shares issued in reinvestment
of distributions ............... 270,748 5,160,133 15,417 125,502
Shares redeemed ................ (841,222) (16,130,617) (117,509) (958,022)
---------------------------------------------------------------
Net increase (decrease) ........ 305,996 $ 6,031,943 (13,568) $ (110,603)
===============================================================
Year ended October 31, 1998
Shares sold .................... 2,664,562 $ 53,316,585 405,491 $ 3,372,424
Shares issued in reinvestment
of distributions ............... 166,092 3,261,574 27,768 229,929
Shares redeemed ................ (1,103,002) (273,562) (2,267,065)
---------------------------------------------------------------
Net increase ................... 1,727,652 $ 34,384,586 159,697 $ 1,335,288
===============================================================
</TABLE>
**For the period January 1, 1999 (effective date) to April 30, 1999.
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN SHORT-INTERMEDIATE
GLOBAL GOVERNMENT U.S. GOVERNMENT
INCOME FUND SECURITIES FUND
------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------
<S> <C> <C> <C> <C>
ADVISOR CLASS:
Six months ended April 30, 1999
Shares sold ................. 13,312 $ 108,882 106,824 $ 1,096,178
Shares issued in reinvestment
of distributions ............ 3,624 29,493 3,174 32,694
Shares redeemed ............. (24,181) (196,566) (222,936) (2,311,819)
------------------------------------------------------
Net decrease ................ (7,245) $ (58,191) (112,938) $(1,182,947)
------------------------------------------------------
Year ended October 31, 1998
Shares sold ................. 30,190 $ 249,021 312,657 $ 3,216,468
Shares issued in reinvestment
of distributions ............ 6,299 52,063 10,199 105,389
Shares redeemed ............. (24,127) (201,201) (11,650) (120,368)
------------------------------------------------------
Net increase ................ 12,362 $ 99,883 311,206 $ 3,201,489
------------------------------------------------------
</TABLE>
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Funds are also officers and/or directors of
the following entities:
<TABLE>
<CAPTION>
ENTITY AFFILIATION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Franklin Advisers Inc. (Advisers) Investment manager
Franklin Templeton Services Inc. (FT Services) Administrative manager
Franklin/Templeton Investor Services Inc. (Investor Services) Transfer agent
Franklin/Templeton Distributors Inc. (Distributors) Principal underwriter
Templeton Investment Counsel Inc. (TICI) Investment manager
The U.S. Government Adjustable Rate Mortgage Portfolio The fund in which the Franklin Adjustable U.S. Government Securities
Fund invests
</TABLE>
The Franklin Convertible Securities Fund, the Franklin Equity Income Fund, the
Franklin Global Government Income Fund and the Franklin Short-Intermediate U.S.
Government Securities Fund pay an investment management fee to Advisers based on
the average net assets of the Funds, as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE MONTH END NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
.625% First $100 million
.500% Over $100 million, up to and including $250 million
.450% Over $250 million
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONT.)
The Franklin Bond Fund pays an investment management fee to Advisers of .425% of
the first $500 million of the Fund's average daily net assets. Fees are further
reduced on net assets over $500 million.
Under a subadvisory agreement, TICI provides subadvisory services to the
Franklin Global Government Income Fund and receives from Advisers fees based on
the daily net assets of the Fund.
The Franklin Bond Fund pays an administrative fee to FT Services of .20% per
year of the Fund's average daily net assets.
The Franklin Adjustable U.S. Government Securities Fund pays an administrative
fee to Advisers based on the average net assets of the Fund, as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE DAILY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
.10% First $5 billion
.09% Over $5 billion, up to and including $10 billion
.08% Over $10 billion
</TABLE>
Under an agreement with Advisers, FT Services provides administrative services
to the Franklin Convertible Securities Fund, the Franklin Equity Income Fund,
the Franklin Global Government Income Fund and the Franklin Short -Intermediate
U.S Government Securities Fund. The fee is paid by Advisers based on average
daily net assets, and is not an additional expense of the Funds.
Advisers agreed in advance to waive management fees and assume payment of other
expenses for the Franklin Bond Fund as noted in the Statement of Operations.
The Funds reimburse Distributors based on their daily average net assets for
costs incurred in marketing the Funds' shares as follows:
<TABLE>
<CAPTION>
FUND CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Franklin Adjustable U.S. Government Securities Fund .25% -- --
Franklin Bond Fund .25% -- --
Franklin Convertible Securities Fund .25% -- 1.00%
Franklin Equity Income Fund .25% 1.00% 1.00%
Franklin Global Government Income Fund .15% -- .65%
Franklin Short-Intermediate U.S. Government Securities Fund .10% -- --
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONT.)
Distributors received (paid) net commissions on sales of the Funds' shares, and
received contingent deferred sales charges for the period as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
ADJUSTABLE FRANKLIN FRANKLIN GLOBAL SHORT-INTERMEDIATE
U.S. GOVERNMENT FRANKLIN CONVERTIBLE EQUITY GOVERNMENT U.S. GOVERNMENT
SECURITIES FUND BOND FUND SECURITIES FUND INCOME FUND INCOME FUND SECURITIES FUND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net commissions received (paid) ..... $(104,295) $2,946 $ (9,028) $(165,135) $60,248 $(389,216)
Contingent deferred sales charges ... $ 9,913 $ -- $ 26,261 $ 47,386 $ 1,345 $ 12,697
</TABLE>
At April 30, 1999, the following Franklin Templeton Funds were shareholders of
the Franklin Bond Fund:
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME SHARES OWNED OUTSTANDING SHARES
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Templeton Conservative Target Fund 619,300 17.5%
Franklin Templeton Moderate Target Fund 1,306,207 36.9%
Franklin Templeton Growth Target Fund 1,329,041 37.6%
</TABLE>
4. INCOME TAXES
At October 31, 1998, the Funds had tax basis capital losses, which may be
carried over to offset future capital gains. Such losses expire as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
ADJUSTABLE FRANKLIN GLOBAL SHORT-INTERMEDIATE
U.S. GOVERNMENT CONVERTIBLE GOVERNMENT U.S. GOVERNMENT
SECURITIES FUND SECURITIES FUND INCOME FUND SECURITIES FUND
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital loss carryovers expiring in:
2000 $ 1,925,614 $ -- $ -- $ --
2001 7,701,615 -- -- --
2002 41,867,757 -- -- 1,788,818
2003 18,176,270 -- 1,959,011 3,564,637
2004 8,741,194 -- -- 300,618
2005 4,484,844 -- -- --
2006 2,564,334 8,652,572 -- --
-------------------------------------------------------------------
$85,461,628 $8,652,572 $1,959,011 $ 5,654,073
-------------------------------------------------------------------
</TABLE>
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions.
Net realized capital gain (losses) differ for financial statement and tax
purposes primarily due to differing treatments of wash sales and foreign
currency transactions.
FRANKLIN INVESTORS SECURITIES TRUST
Notes to Financial Statements (unaudited) (continued)
4. INCOME TAXES (CONT.)
At April 30, 1999, the net unrealized appreciation (depreciation) based on the
cost of investments for income tax purposes was as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
ADJUSTABLE FRANKLIN FRANKLIN GLOBAL SHORT-INTERMEDIATE
U.S. GOVERNMENT FRANKLIN CONVERTIBLE EQUITY GOVERNMENT U.S. GOVERNMENT
SECURITIES FUND BOND FUND SECURITIES FUND INCOME FUND INCOME FUND SECURITIES FUND
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investments at cost .......... $296,633,079 $49,930,561 $172,909,293 $446,951,771 $108,646,880 $220,678,730
===================================================================================================
Unrealized appreciation ...... -- 83,921 12,333,856 95,394,021 946,753 1,698,380
Unrealized depreciation ...... (20,848,972) (335,856) (11,143,002) (11,562,551) (9,606,280) (705,508)
---------------------------------------------------------------------------------------------------
Net unrealized
appreciation (depreciation) .. $(20,848,972) $ (251,935) $ 1,190,854 $ 83,831,470 $ (8,659,527) $ 992,872
===================================================================================================
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended April 30, 1999 were as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
ADJUSTABLE FRANKLIN FRANKLIN GLOBAL SHORT-INTERMEDIATE
U.S. GOVERNMENT FRANKLIN CONVERTIBLE EQUITY GOVERNMENT U.S. GOVERNMENT
SECURITIES FUND BOND FUND SECURITIES FUND INCOME FUND INCOME FUND SECURITIES FUND
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Purchases ................. $31,017,464 $43,564,435 $117,253,544 $131,174,075 $43,961,512 $46,192,750
Sales ..................... $54,004,674 $36,885,990 $145,988,466 $132,591,314 $51,936,038 $48,353,008
</TABLE>
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Franklin Global Government Income Fund and the Franklin Bond Fund have been
parties to financial instruments with off-balance-sheet risk, primarily forward
exchange contracts and futures contracts in order to minimize the impact on the
Funds from adverse changes in the relationship between the U.S. dollar and
foreign currencies and in interest rates. These instruments involve market risk
in excess of the amount recognized on the Statements of Assets and Liabilities.
A forward exchange contract is an agreement between two parties to exchange
different currencies at a specific rate at an agreed future date. Some of the
market risks associated with forward exchange contracts are minimized by
offsetting contracts. Risks arise from the possible inability of counterparties
to meet the terms of their contracts, future movement in currency values,
interest rates and contract positions that are not exact offsets. 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.
As of April 30, 1999, all forward exchange contracts in the Franklin Global
Government Income Fund were offset.
A financial futures contract is an agreement between two parties to buy or sell
a security for a set price on a future date. The use of futures transactions
involves risk of imperfect correlation in movements in the price of futures
contracts, interest rates, and the underlying hedged assets.
FRANKLIN INVESTORS SECURITIES TRUST
Notes to Financial Statements (unaudited) (continued)
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
As of April 30, 1999, the Franklin Bond Fund had the following futures contracts
outstanding:
<TABLE>
<CAPTION>
NUMBER OF DELIVERY UNREALIZED
CONTRACTS TO BUY CONTRACTS DATES GAIN/(LOSS)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Long Bond (CBT) Jun99 .................................. 23 6/1/99 - 6/30/99 ($21,374)
</TABLE>
7. CREDIT RISK
The Franklin Convertible Securities Fund has 53.1% 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 Franklin Convertible Securities Fund has investments in excess of 10% of its
total net assets in the Electronic Technology Industry. Such concentration may
subject the Fund more significantly to economic changes occurring within that
industry.
The Franklin Global Government Income Fund has investments in excess of 10% of
its total assets in the nation of Germany. Such concentration may subject the
Fund more significantly to economic changes occurring within that nation.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Financial Highlights
U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30,1999 --------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 9.37 $ 9.48 $ 9.37 $ 9.33 $ 9.19 $ 9.82
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income ........................ .249 .553 .593 .589 .572 .415
Net realized and unrealized gain (loss) ...... (.020) (.110) .110 .040 .140 (.630)
--------------------------------------------------------------------------------
Total from investment operations .............. .229 .443 .703 .629 .712 (.215)
Less distributions from net investment income . (.249) (.553) (.593) (.589) (.572) (.415)
--------------------------------------------------------------------------------
Net asset value, end of period ................ $ 9.35 $ 9.37 $ 9.48 $ 9.37 $ 9.33 $ 9.19
================================================================================
Total return* ................................. 2.48% 4.80% 7.74% 6.95% 7.99% (2.22)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $275,883 $302,434 $342,541 $406,431 $522,802 $747,471
Ratios to average net assets:
Expenses ..................................... .44%** .26% .25% .25% .18% .02%
Expenses excluding waiver and payments
by affiliate ................................. .44%** .43% .43% .42% .43% .42%
Net investment income ........................ 5.34%** 5.88% 6.31% 6.31% 6.17% 4.01%
Portfolio turnover rate ....................... 7.63% 38.92% 20.84% 24.63% 20.16% 56.43%
</TABLE>
*Total return is not annualized for periods less than one year.
**Annualized
See notes to financial statements.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
STATEMENT OF INVESTMENTS, APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES 92.3%
FEDERAL HOME LOAN MORTGAGE CORP. (FHMLC) 16.0%
FHLMC, Cap 11.253%, Margin 1.75% + CMT, Resets Annually, 6.500%, 11/01/16............... $ 3,243,509 $ 3,314,962
FHLMC, Cap 12.744%, Margin 2.00% + CMT, Resets Annually, 7.312%, 7/01/18 ............... 2,571,742 2,616,963
FHLMC, Cap 12.806%, Margin 2.23% + CMT, Resets Annually, 7.157%, 4/01/18 ............... 4,731,815 4,869,802
FHLMC, Cap 13.006%, Margin 2.00% + CMT, Resets Annually, 7.062%, 9/01/19 ............... 3,776,502 3,865,688
FHLMC, Cap 13.156%, Margin 1.915% + CMT, Resets Annually, 6.659%, 12/01/16 ............. 1,891,066 1,938,350
FHLMC, Cap 13.175%, Margin 2.233% + CMT, Resets Annually, 7.285%, 5/01/25 .............. 3,566,429 3,676,963
FHLMC, Cap 13.246%, Margin 2.175% + CMT, Resets Annually, 7.504%, 10/01/18 ............. 1,348,483 1,382,820
FHLMC, Cap 13.292%, Margin 2.115% + CMT, Resets Annually, 7.035%, 3/01/19 .............. 1,706,562 1,750,340
FHLMC, Cap 13.366%, Margin 2.102% + CMT, Resets Annually, 6.645%, 3/01/18 .............. 2,898,435 2,987,911
FHLMC, Cap 13.37%, Margin 2.04% + CMT, Resets Annually, 6.977%, 4/01/19 ................ 6,158,993 6,317,993
FHLMC, Cap 13.65%, Margin 2.249% + CMT, Resets Annually, 7.369%, 7/01/20 ............... 3,798,087 3,897,442
FHLMC, Cap 13.793%, Margin 2.214% + CMT, Resets Annually, 7.451%, 11/01/19 ............. 2,056,174 2,109,630
FHLMC, Cap 13.948%, Margin 2.133% + CMT, Resets Annually, 7.332%, 11/01/19 ............. 2,565,859 2,637,810
FHLMC, Cap 14.307%, Margin 1.957% + 3CMT, Resets Every 3 Years, 7.819%, 12/01/21 ....... 1,117,359 1,135,037
FHLMC, Cap 14.90%, Margin 2.546% + CMT, Resets Annually, 7.117%, 2/01/19 ............... 1,555,532 1,615,816
-----------
TOTAL FEDERAL HOME LOAN MORTGAGE CORP. (COST $44,410,796) .............................. 44,117,527
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) 65.6%
FNMA, Cap 11.884%, Margin 2.211% + CMT, Resets Annually, 7.137%, 2/01/25 ............... 3,552,806 3,629,564
FNMA, Cap 12.097%, Margin 2.135% + CMT, Resets Annually, 7.34%, 11/01/23 ............... 8,780,602 8,976,829
FNMA, Cap 12.233%, Margin 1.702% + COFI, Resets Monthly, 6.571%, 1/01/19 ............... 6,536,432 6,642,176
FNMA, Cap 12.605%, Margin 2.536% + 6 Month DR, Resets Semi-Annually, 7.457%, 11/01/18... 1,436,941 1,482,693
FNMA, Cap 12.637%, Margin 2.00% + NCI, Resets Annually, 6.877%, 11/01/17 ............... 12,198,543 12,514,242
FNMA, Cap 12.64%, Margin 2.00% + CMT, Resets Annually, 7.051%, 3/01/19 ................. 2,205,881 2,262,492
FNMA, Cap 12.66%, Margin 1.75% + 6 Month DR, Resets Semi-Annually, 6.249%, 1/01/19 ..... 6,673,004 6,822,297
FNMA, Cap 12.662%, Margin 1.25% + COFI, Resets Monthly, 6.888%, 1/01/19 ................ 2,693,362 2,725,225
FNMA, Cap 12.705%, Margin 1.25% + COFI, Resets Monthly, 5.905%, 9/01/18 ................ 8,637,241 8,653,048
FNMA, Cap 12.787%, Margin 1.25% + COFI, Resets Monthly, 7.555%, 1/01/19 ................ 1,722,891 1,768,031
FNMA, Cap 12.788%, Margin 2.11% + CMT, Resets Annually, 7.157%, 11/01/20 ............... 2,455,307 2,532,232
FNMA, Cap 12.804%, Margin 1.75% + CMT, Resets Annually, 6.706%, 5/01/19 ................ 3,239,226 3,302,950
FNMA, Cap 12.84%, Margin 2.762% + 6 Month DR, Resets Semi-Annually, 7.754%, 6/01/17 .... 1,941,041 2,040,537
FNMA, Cap 12.85%, Margin 2.078% + 5CMT, Resets Every 5 Years, 8.245%, 10/01/17 ......... 2,460,756 2,528,736
FNMA, Cap 12.89%, Margin 2.125% + 6 Month DR, Resets Semi-Annually, 6.976%, 7/01/17 .... 4,256,379 4,393,391
FNMA, Cap 12.938%, Margin 1.25% + COFI, Resets Monthly, 5.905%, 2/01/19 ................ 3,069,436 3,075,053
FNMA, Cap 12.993%, Margin 2.092% + CMT, Resets Annually, 7.097%, 12/01/19 .............. 2,134,953 2,195,496
FNMA, Cap 13.005%, Margin 1.97% + 3CMT, Resets Every 3 Years, 7.5840%, 11/01/17 ........ 3,051,794 3,101,678
FNMA, Cap 13.01%, Margin 2.10% + CMT, Resets Annually, 6.887%, 6/01/19 ................. 3,028,078 3,114,163
FNMA, Cap 13.03%, Margin 1.25% + COFI, Resets Monthly, 6.905%, 2/01/20 ................. 7,385,553 7,468,271
FNMA, Cap 13.03%, Margin 1.75% + 6 Month TB, Resets Semi-Annually, 6.482%, 12/01/20 .... 3,774,281 3,861,409
FNMA, Cap 13.063%, Margin 2.175% + CMT, Resets Annually, 6.735%, 4/01/19 ............... 4,272,184 4,436,149
FNMA, Cap 13.083%, Margin 2.005% + CMT, Resets Annually, 7.163%, 6/01/19 ............... 3,095,423 3,184,337
FNMA, Cap 13.128%, Margin 2.02% + COFI, Resets Annually, 6.946%, 6/01/19 ............... 2,535,655 2,592,399
FNMA, Cap 13.147%, Margin 1.895% + CMT, Resets Annually, 7.033%, 4/01/19 ............... 3,830,363 3,923,955
FNMA, Cap 13.202%, Margin 2.478% + 6 Month DR, Resets Semi-Annually, 6.913%, 11/01/26... 1,638,465 1,710,704
FNMA, Cap 13.249%, Margin 2.00% + CMT, Resets Annually, 6.998%, 6/01/19 ................ 1,821,239 1,870,946
FNMA, Cap 13.281%, Margin 2.00% + CMT, Resets Annually, 7.206%, 10/01/19 ............... 4,277,680 4,398,450
FNMA, Cap 13.32%, Margin 1.25% + COFI, Resets Monthly, 7.243%, 4/01/03 ................. 3,710,650 3,735,994
</TABLE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
STATEMENT OF INVESTMENTS, APRIL 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES (CONT.)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) (CONT.)
FNMA, Cap 13.452%, Margin 2.148% + CMT, Resets Annually, 7.079%, 9/01/22 ............... $ 7,767,301 $ 7,992,967
FNMA, Cap 13.457%, Margin 1.903% + CMT, Resets Annually, 6.951%, 6/01/18 ............... 3,826,539 3,908,877
FNMA, Cap 13.662%, Margin 2.177% + CMT, Resets Annually, 7.157%, 3/01/21 ............... 3,077,310 3,171,039
FNMA, Cap 13.791%, Margin 2.143% + CMT, Resets Annually, 7.315%, 12/01/20 .............. 4,701,979 4,832,211
FNMA, Cap 13.797%, Margin 2.20% + CMT, Resets Annually, 6.672%, 3/01/19 ................ 1,543,030 1,587,659
FNMA, Cap 13.80%, Margin 0.94% + 6 Month DR, Resets Semi-Annually, 6.80%, 7/01/24....... 4,073,321 4,206,797
FNMA, Cap 13.887%, Margin 2.25% + CMT, Resets Annually, 6.673%, 2/01/19 ................ 2,393,230 2,464,850
FNMA, Cap 13.896%, Margin 2.25% + CMT, Resets Annually, 6.829%, 12/01/18 ............... 1,759,538 1,814,558
FNMA, Cap 13.932%, Margin 1.992% + 3CMT, Resets Annually, 7.601%, 6/01/26 .............. 4,919,435 5,005,995
FNMA, Cap 14.069%, Margin 2.089% + CMT, Resets Annually, 7.11%, 1/01/19 ................ 3,695,447 3,803,500
FNMA, Cap 14.354%, Margin 2.07% + 5CMT, Resets Every 5 Years, 8.235%, 5/01/21 .......... 5,449,621 5,590,793
FNMA, Cap 14.42%, Margin 2.099% + CMT, Resets Annually, 7.116%, 3/01/20 ................ 2,360,435 2,442,003
FNMA, Cap 14.561%, Margin 2.199% + 3CMT, Resets Annually, 8.20%, 12/01/24 .............. 5,447,078 5,579,404
FNMA, Cap 14.804%, Margin 2.186% + 3CMT, Resets Annually, 7.475%, 12/01/17 ............. 2,198,507 2,228,636
FNMA, Cap 14.887%, Margin 1.72% + CMT, Resets Annually, 6.929%, 1/01/16 ................ 5,450,330 5,552,684
FNMA, Cap 14.952%, Margin 2.523% + CMT, Resets Annually, 8.012%, 5/01/19 ............... 1,758,031 1,807,619
------------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION (COST $182,125,202) ........................ 180,933,039
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) 10.7%
GNMA, Cap 10.00%, Margin 1.50% + CMT, Resets Annually, 6.875%, 1/20/24 ................. 4,168,243 4,250,045
GNMA, Cap 10.50%, Margin 1.50% + CMT, Resets Annually, 6.625%, 8/20/22 ................. 5,944,680 6,083,944
GNMA, Cap 10.50%, Margin 1.50% + CMT, Resets Annually, 6.625%, 9/20/22 ................. 5,152,755 5,273,453
GNMA, Cap 11.00%, Margin 2.50% + CMT, Resets Annually, 7.625%, 7/20/25 ................. 1,877,069 1,957,540
GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 6.875%, 1/20/23 ................. 3,699,143 3,776,729
GNMA, Cap 12.00%, Margin 1.50% + CMT, Resets Annually, 6.125%, 10/20/24 ................ 8,169,220 8,307,397
------------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (COST $29,587,282) ...................... 29,649,108
------------
</TABLE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
STATEMENT OF INVESTMENTS, APRIL 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(a)REPURCHASE AGREEMENT 5.9%
Joint Repurchase Agreement, 4.862%, 5/03/99 (Maturity Value $16,227,270) (Cost $16,220,698)... $16,220,698 $ 16,220,698
Barclays Capital Inc.
Bear, Stearns & Co.
Chase Securities Inc.
CIBC Oppenheimer Corp.
Deutsche Bank Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Lehman Brothers Inc.
Paine Webber Inc.
Paribas Corp.
UBS Securities LLC
Collateralized by U.S. Treasury Bills & Notes
------------
TOTAL INVESTMENTS (COST $272,343,978) 98.2% .................................................... 270,920,372
OTHER ASSETS, LESS LIABILITIES 1.8% ............................................................ 4,962,344
------------
NET ASSETS 100.0% .............................................................................. $275,882,716
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
3CMT - 3 Year Constant Maturity Treasury Index
5CMT - 5 Year Constant Maturity Treasury Index
CMT - 1 Year Constant Maturity Treasury Index
COFI - Eleventh District Cost of Funds Index
DR - Discount Rate
NCI - National Median Cost of Funds Index
TB - Treasury Bill Rate
(a)Investment is through participation in a joint account with other funds
managed by the investment advisor.
At April 30, 1999, all repurchase agreements had been entered into on that
date.
See notes to financial statements.
ADJUSTABLE RATE SECURITIES PORTFOLIO
FINANCIAL HIGHLIGHTS
ADJUSTABLE RATE SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30,1999 ---------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 9.94 $ 9.95 $ 9.86 $ 9.81 $ 9.69 $ 10.03
----------------------------------------------------------------------
Income from investment operations:
Net investment income ........................ .261 .595 .616 .607 .625 .469
Net realized and unrealized gain (loss) ...... .021 (.011) .090 .050 .120 (.340)
----------------------------------------------------------------------
Total from investment operations .............. .282 .584 .706 .657 .745 .129
----------------------------------------------------------------------
Less distributions from:
Net investment income ......................... (.261) (.594) (.616) (.607) (.625) (.469)
In excess of net investment income ............ (.001) -- -- -- -- --
----------------------------------------------------------------------
Total distributions ........................... (.262) (.594) (.616) (.607) (.625) (.469)
----------------------------------------------------------------------
Net asset value, end of period ................ $ 9.96 $ 9.94 $ 9.95 $ 9.86 $ 9.81 $ 9.69
=====================================================================
Total Return* ................................. 2.87% 6.03% 7.38% 6.91% 7.94% 1.32%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $20,509 $29,287 $22,540 $20,534 $27,079 $41,619
Ratios to average net assets:
Expenses ..................................... .44%** .26% .25% .25% .25% .25%
Expenses excluding waiver and payments
by affiliate ............................... .44%** .45% .44% .47% .47% .43%
Net investment income ........................ 5.28%** 5.95% 6.20% 6.19% 6.36% 4.55%
Portfolio turnover rate ....................... 18.03% 76.41% 138.32% 46.78% 50.29% 192.06%
</TABLE>
*Total return is not annualized for periods less than one year.
**Annualized
See notes to financial statements.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
STATEMENT OF INVESTMENTS, APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
ADJUSTABLE RATE SECURITIES PORTFOLIO AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES 89.3%
FNMA, Cap 11.10%, Margin 2.00% + CMT, Resets Annually, 6.616%, 3/01/22 ................ $ 636,443 $ 651,595
FNMA, Cap 12.65%, Margin 1.75% + NCI, Resets Monthly, 6.500%, 10/01/28 ................ 544,705 553,163
FNMA, Cap 12.85%, Margin 1.97% + CMT, Resets Annually, 7.039%, 12/01/17 ............... 506,617 519,064
FNMA, Cap 13.12%, Margin 2.02% + COFI, Resets Semi-Annually, 6.946%, 6/1/19 .......... 877,044 896,671
FNMA, Cap 13.54%, Margin 1.25% + COFI, Resets Monthly, 5.905%, 8/01/26 ................ 831,033 836,385
FNMA, Cap 13.56%, Margin 2.11% + CMT, Resets Monthly, 7.360%, 8/01/20 ................. 1,456,210 1,495,190
FNMA, Cap 13.69%, Margin 1.88% + CMT, Resets Annually, 7.063%, 8/01/16 ................ 222,505 227,870
FNMA, Cap 13.77%, Margin 2.13% + 3CMT, Resets Every 3 Years, 8.208%, 3/01/22 .......... 606,127 622,362
FNMA, Cap 13.87%, Margin 1.98% + CMT, Resets Annually, 6.475%, 3/01/18 ................ 1,452,226 1,486,898
FNMA, Cap 14.78%, Margin 2.130% + 3CMT, Resets Every 3 Years, 7.874%, 8/01/22 ......... 1,408,043 1,438,419
GNMA, Cap 10.50%, Margin 1.50% + CMT, Resets Annually, 6.625%, 8/20/22 ................ 1,619,015 1,656,943
Merrill Lynch Mortgage Investors Inc., Margin 0.40% + 1 Month LIBOR,
Resets Monthly, 6.697%, 1/25/18 ..................................................... 597,351 598,099
PHMS, Cap 11.67%, Margin 2.67% + CMT, Resets Annually, 7.876%, 7/25/22 ................ 270,591 269,708
PHMS, Cap 13.00%, Margin 2.53% + CMT, Resets Annually, 7.598%, 8/25/21 ................ 193,646 191,468
PHMS, Cap 13.40%, Margin 2.50% + CMT, Resets Annually, 7.818%, 7/25/18 ................ 1,070,323 1,074,337
RFC, Cap 10.00%, Margin 0.85% + COFI, Resets Monthly, 5.318%, 2/25/22 ................. 123,845 123,890
RFC, Cap 11.46%, Margin 2.25% + CMT, Resets Annually, 7.472%, 11/25/22 ................ 612,053 622,574
RTC, Cap 12.39%, Margin 1.61% + 6 Month DR, Resets Semi-Annually, 6.155%, 1/25/25 ..... 792,288 789,876
Ryland Mortgage Securities Corp., Cap 12.41%, Margin 1.80% + CMT,
Resets Annually, 6.785%, 3/25/20 .................................................... 1,006,451 1,023,120
Ryland Mortgage Securities Corp., Cap 14.82%, Margin 2.29% + 6 Month TB,
Resets Semi-Annually, 6.886%, 8/25/23 ............................................... 581,899 580,343
Ryland Mortgage Securities Corp., Cap 15.34%, Margin 1.83% + CMT,
Resets Annually, 6.899%, 6/25/20 .................................................... 483,881 484,764
Salomon Brothers Mortgage Securities VII, Cap 14.00%, Margin 0.96% + NACR,
Rests Annually, 7.414%, 12/25/17 .................................................... 695,236 694,368
Sears Mortgage Securities, Cap 10.78%, Margin 1.10% + COFI,
Resets Monthly, 5.630%, 7/25/21 ..................................................... 305,264 303,357
Travelers Mortgage Services Inc., Cap 13.95%, Margin 2.25% + CMT,
Resets Annually, 7.109%, 12/25/18 ................................................... 468,009 469,112
Western Federal Savings and Loan Association, Cap 12.25%, Margin 0.75% + 1 Month LIBOR,
Resets Monthly, 5.689%, 6/25/20 ..................................................... 314,032 311,579
Western Federal Savings and Loan Association, Cap 12.75%, Margin 0.75% + 1 Month LIBOR,
Resets Monthly, 5.689%, 7/25/20 ..................................................... 305,099 301,667
Western Federal Savings and Loan Association, Cap 13.00%, Margin 1.80% + COFI,
Resets Monthly, 6.456%, 3/25/19 ..................................................... 89,140 88,945
-----------
TOTAL ADJUSTABLE RATE MORTGAGE SECURITIES (COST $18,390,461) .......................... 18,311,767
-----------
FIXED RATE MORTGAGE SECURITIES 1.6%
Countrywide Mortgage-Backed Securities Inc., Series 1994-I, A8, 6.250%,
7/25/09 (COST $328,395) ............................................................. 337,681 335,579
-----------
</TABLE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
STATEMENT OF INVESTMENTS, APRIL 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
ADJUSTABLE RATE SECURITIES PORTFOLIO AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(a)REPURCHASE AGREEMENT 9.0%
Joint Repurchase Agreement, 4.862%, 5/03/99, (Maturity Value $1,843,462) (Cost $ 1,842,715)... $ 1,842,715 $ 1,842,715
Barclays Capital Inc. .......................................................................
Bear, Sterns & Co. Inc. .....................................................................
Chase Securities Inc. .......................................................................
CIBC Oppenheimer Corp. ......................................................................
Deutsche Bank Securities Inc. ...............................................................
Donaldson, Lufkin & Jenrette Securities Corp. ...............................................
Dresdner Kleinwort Benson, North America LLC
Lehman Brothers Inc. ........................................................................
Paine Webber Inc. ...........................................................................
Paribas Corp. ...............................................................................
UBS Securities LLC ..........................................................................
Collateralized by U.S. Treasury Bills and Notes
-----------
TOTAL INVESTMENTS (COST $20,561,571) 99.9% ................................................... 20,490,061
OTHER ASSETS, LESS LIABILITIES .1% ........................................................... 19,137
-----------
NET ASSETS 100.0% ............................................................................ $20,509,198
===========
</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 Contract Rate
NACR - National Average Contract Rate
NCI - National Median Cost of Funds Index
PHMS - Prudential Hame Mortgage Securities
RFC - Residential Finance Corp.
RTC - Resolution Trust Corp.
SBA - Small Business Administration
TB - Treasury Bill Rate
(a)Investment is through participation in a joint account with other funds
managed by the investment advisor.
At April 30, 1999, all repurchase agreements had been entered into on that
date.
See notes to financial statements.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
U.S. GOVERNMENT
ADJUSTABLE RATE ADJUSTABLE RATE
MORTGAGE PORTFOLIO SECURITIES PORTFOLIO
-----------------------------------------
<S> <C> <C>
Assets:
Investments in securities:
Cost ............................................................................ $272,343,978 $20,561,571
-----------------------------------------
Value ........................................................................... 270,920,372 20,490,061
Receivables:
Investment securities sold ...................................................... 775,594 --
Capital shares sold ............................................................. 2,592,105 --
Interest ........................................................................ 1,721,607 106,056
Other assets ..................................................................... -- 3,699
-----------------------------------------
Total assets .................................................................. 276,009,678 20,599,816
-----------------------------------------
Liabilities:
Payables:
Capital shares redeemed ......................................................... -- 78,500
Affiliates ...................................................................... 92,766 7,614
Other liabilities ................................................................ 34,196 4,504
-----------------------------------------
Total liabilities ................................................................. 126,962 90,618
-----------------------------------------
Net assets, at value .......................................................... $ 275,882,716 $20,509,198
=========================================
Net assets consist of:
Accumulated distributions in excess of net investment income ..................... $ -- $ (2,316)
Net unrealized depreciation ...................................................... (1,423,606) (71,510)
Accumulated net realized loss .................................................... (136,921,669) (2,806,619)
Capital shares ................................................................... 414,227,991 23,389,643
-----------------------------------------
Net assets, at value .......................................................... $ 275,882,716 $20,509,198
=========================================
Shares outstanding ................................................................ 29,495,626 2,059,554
=========================================
Net asset value and maximum offering price per share .............................. $9.35 $9.96
=========================================
</TABLE>
See notes to financial statements.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Financial Statements (continued)
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
U.S. GOVERNMENT
ADJUSTABLE RATE ADJUSTABLE RATE
MORTGAGE PORTFOLIO SECURITIES PORTFOLIO
----------------------------------------
<S> <C> <C>
Investment income:
Interest .......................................................................... $8,229,403 $742,199
----------------------------------------
Expenses:
Management fees (Note 3) .......................................................... 570,552 51,930
Custodian fees .................................................................... 1,612 99
Professional fees ................................................................. 26,180 772
Trustees' fees and expenses ....................................................... 6,165 363
Other ............................................................................. 9,711 2,786
----------------------------------------
Total expenses ................................................................. 614,220 55,950
----------------------------------------
Net investment income ....................................................... 7,615,183 686,249
----------------------------------------
Realized and unrealized gains (losses):
Net realized loss from investments ................................................ (65,902) (2,637)
Net unrealized appreciation (depreciation) on investments ......................... (522,687) 31,160
----------------------------------------
Net realized and unrealized gain (loss) ............................................ (588,589) 28,523
----------------------------------------
Net increase in net assets resulting from operations ............................... $7,026,594 $714,772
========================================
</TABLE>
See notes to financial statements.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
AND THE YEAR ENDED OCTOBER 31, 1998
<TABLE>
<CAPTION>
U.S. GOVERNMENT ADJUSTABLE ADJUSTABLE RATE
RATE MORTGAGE PORTFOLIO SECURITIES PORTFOLIO
-----------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
APRIL 30, 1999 OCTOBER 31, 1998 APRIL 30, 1999 OCTOBER 31, 1998
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .............................. $7,615,183 $18,709,641 $686,249 $1,439,274
Net realized gain (loss) from investments .......... (65,902) 271,114 (2,637) (75,829)
Net unrealized appreciation (depreciation)
on investments .................................... (522,687) (3,967,154) 31,160 40,875
-----------------------------------------------------------------------
Net increase in net assets resulting
from operations ................................. 7,026,594 15,013,601 714,772 1,404,320
Distributions to shareholders from:
Net investment income .............................. (7,615,183) (18,709,641) (686,249) (1,438,180)
In excess of net investment income ................. -- -- (2,316) --
-----------------------------------------------------------------------
Total distributions to shareholders ................. (7,615,183) (18,709,641) (688,565) (1,438,180)
Capital share transactions (Note 2) ................. (25,962,438) (36,411,307) (8,804,316) 6,781,305
-----------------------------------------------------------------------
Net increase (decrease) in net assets ............ (26,551,027) (40,107,347) (8,778,109) 6,747,445
Net assets:
Beginning of period ................................. 302,433,743 342,541,090 29,287,307 22,539,862
-----------------------------------------------------------------------
End of period ....................................... $275,882,716 $302,433,743 $20,509,198 $29,287,307
=======================================================================
Accumulated distributions in excess of net
investment income:
End of period .................................. $ -- $ -- $ (2,316) $ --
=======================================================================
</TABLE>
See notes to financial statements.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Notes to Financial Statements(unaudited)
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 exempt from registration under the Securities Act
of 1933. The investment objective of each Portfolio is to seek current income.
On February 18, 1999 the Board approved the liquidation of the Securities
Portfolio, which was effective May 6, 1999.
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
to distribute substantially 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.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Notes to Financial Statements(unaudited)(continued)
2. SHARES OF BENEFICIAL INTEREST
At April 30, 1999, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Portfolios' shares were as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT ADJUSTABLE RATE
ADJUSTABLE RATE MORTGAGE PORTFOLIO SECURITIES PORTFOLIO
---------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Six months ended April 30, 1999
Shares sold ............................................. 2,509,493 $23,448,254 233,216 $2,312,583
Shares issued in reinvestment of distributions .......... 815,520 7,613,764 69,148 686,582
Shares redeemed ......................................... (6,107,244) (57,024,456) (1,188,589) (11,803,481)
---------------------------------------------------------------------
Net decrease ............................................ (2,782,231) $(25,962,438) (886,225) $(8,804,316)
---------------------------------------------------------------------
Year ended October 31, 1998
Shares sold ............................................. 11,366,772 $107,271,915 1,878,813 $18,706,872
Shares issued in reinvestment of distributions .......... 1,982,722 18,703,706 144,487 1,437,947
Shares redeemed ......................................... (17,212,608) (162,386,928) (1,343,424) (13,363,514)
---------------------------------------------------------------------
Net increase (decrease) ................................. (3,863,114) $(36,411,307) 679,876 $6,781,305
---------------------------------------------------------------------
</TABLE>
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors of
Franklin Advisers, Inc. (Advisers), the Portfolios' investment manager, and
officers or trustees of Franklin Investors Securities Trust.
The Portfolios pay an investment management fee to Advisers based on the average
net assets of the Portfolios as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE MONTH END NET ASSETS
------------------------------------------------------------------------
<S> <C>
.400% First $5 billion
.350% Over $5 billion, up to and including $10 billion
.330% Over $10 billion, up to and including $15 billion
</TABLE>
Fees are further reduced on net assets over $15 billion.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Notes to Financial Statements(unaudited)(continued)
3. TRANSACTIONS WITH AFFILIATES (cont.)
At April 30, 1999, 29,495,626 shares of the Mortgage Portfolio were owned by the
following:
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
NAME OWNED OUTSTANDING SHARES
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Adjustable U.S. Government Securities Fund ......................... 29,495,626 100%
</TABLE>
At April 30, 1999, 2,059,554 shares of the Securities Portfolio were owned by
the following:
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
NAME OWNED OUTSTANDING SHARES
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Adjustable Rate Securities Fund .................................... 2,057,944 100%
Franklin Resources, Inc. .................................................... 1,610 --
</TABLE>
4. INCOME TAXES
At October 31, 1998, the Portfolios had tax basis capital losses which may be
carried over to offset future capital gains. Such losses expire as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT
ADJUSTABLE RATE ADJUSTABLE RATE
MORTGAGE PORTFOLIO SECURITIES PORTFOLIO
--------------------------------------------------
<S> <C> <C>
Capital loss carryovers
expiring in:
2000 ......... $44,474,794 $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
2006 ......... -- 75,829
------------------------------------------
$136,855,767 $2,803,982
------------------------------------------
</TABLE>
At April 30, 1999, the net unrealized depreciation based on the cost of
investments for income tax purposes was as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT
ADJUSTABLE RATE ADJUSTABLE RATE
MORTGAGE PORTFOLIO SECURITIES PORTFOLIO
--------------------------------------------------
<S> <C> <C>
Investment at cost ........ $272,343,978 $20,561,571
==================================================
Unrealized appreciation ... 616,739 59,049
Unrealized depreciation ... (2,040,345) (130,559)
--------------------------------------------------
Net unrealized depreciation $(1,423,606) $(71,510)
==================================================
</TABLE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Notes to Financial Statements (unaudited) (continued)
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended April 30, 1999 were as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT
ADJUSTABLE RATE ADJUSTABLE RATE
MORTGAGE PORTFOLIO SECURITIES PORTFOLIO
------------------------------------------------------------
<S> <C> <C>
Purchases .................................. $20,286,154 $4,159,228
Sales ...................................... $50,935,859 $12,530,447
</TABLE>
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