SHAREHOLDER LETTER
Dear Shareholder:
This semiannual report for Franklin Investors Securities Trust covers the period
ended April 30, 2000.
In the six months since the Trust's annual report, consumer spending remained
the driving force behind U.S. economic growth. Gross domestic product grew an
annualized 7.3% and 5.4% in fourth quarter 1999 and first quarter 2000,
respectively. However, this growth came at the cost of inflation, and the
reporting period's data gave substance to earlier fears. The first quarter 2000
consumer spending gain was the largest since second quarter 1983, while March's
3.7% Consumer Price Index year-over-year increase was the biggest rise since
1991. In the final week of the reporting period, the Labor Department's
employment cost index registered a higher-than-expected 1.4% gain, or 4.3%
annualized -- a clear sign of accelerating wage inflation. The Federal Reserve
Board (the Fed) reacted to continued economic strength and nascent inflation by
raising the federal funds target rate three times, for a total 0.75% increase to
6.0%, by the end of the reporting period.
Barely cooling economic expansion did have a positive outcome -- robust first
quarter 2000 corporate earnings. By the end of the reporting period, of the 435
companies in the Standard & Poor's 500(R) (S&P 500(R)) Index that reported first
quarter earnings, 72% were above analysts' expectations. Although subject to
volatility and major sell-offs, the equity markets generally rose throughout the
reporting period. The broader S&P 500 and the technology-heavy National
Association of Securities Dealers Automated Quotation System (Nasdaq(R))
Composite Index finished the period up 10% and 52%, respectively. Investors
exhibited a love-me/love-me-not relationship with technology. At some points,
concerns over historically high valuations and the federal district court's
anti-monopoly ruling against technology bellwether Microsoft sent investors
fleeing to the safety of shorter-term Treasury securities. At other moments,
investors fled bond markets and "old economy" companies, as inflationary data
and rising interest rates seemed to convince them that the technology- and
telecommunications-based "new economy" was the best place for their money.
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Shareholder Letter .................................................... 1
Fund Reports
Franklin Convertible
Securities Fund ..................................................... 5
Franklin Equity
Income Fund ......................................................... 10
Franklin Global
Government
Income Fund ......................................................... 18
Franklin Short-Intermediate
U.S. Government
Securities Fund ..................................................... 26
Financial Highlights &
Statements of Investments ........................................... 32
Financial Statements .................................................. 54
Notes to
Financial Statements .................................................. 59
</TABLE>
NASDAQ AND S&P 500
Daily Closing Prices
(10/31/99 - 4/30/00)
[LINE GRAPH]
<TABLE>
<CAPTION>
DATE NASDAQ % CHG INDEXED TO 100 S&P 500 % CHG INDEXED TO 100
---- ------ ----- -------------- ------- ----- --------------
<S> <C> <C> <C> <C> <C> <C>
10/31/1999 2966.43 100.00 1362.93 100.00
11/01/1999 2967.65 0.04% 100.04 1354.12 -0.65% 99.35
11/02/1999 2981.63 0.47% 100.51 1347.74 -0.47% 98.89
11/03/1999 3028.51 1.57% 102.09 1354.93 0.53% 99.41
11/04/1999 3055.95 0.91% 103.02 1362.64 0.57% 99.98
11/05/1999 3102.29 1.52% 104.58 1370.23 0.56% 100.54
11/08/1999 3143.97 1.34% 105.98 1377.01 0.49% 101.03
11/09/1999 3125.04 -0.60% 105.35 1365.28 -0.85% 100.17
11/10/1999 3155.96 0.99% 106.39 1373.46 0.60% 100.77
11/11/1999 3197.29 1.31% 107.78 1381.46 0.58% 101.36
11/12/1999 3221.15 0.75% 108.59 1396.06 1.06% 102.43
11/15/1999 3219.54 -0.05% 108.53 1394.39 -0.12% 102.31
11/16/1999 3293.05 2.28% 111.01 1420.03 1.84% 104.19
11/17/1999 3269.39 -0.72% 110.21 1410.71 -0.66% 103.51
11/18/1999 3347.11 2.38% 112.83 1424.94 1.01% 104.55
11/19/1999 3369.25 0.66% 113.58 1422 -0.21% 104.33
11/22/1999 3392.56 0.69% 114.37 1420.94 -0.07% 104.26
11/23/1999 3342.87 -1.46% 112.69 1404.64 -1.15% 103.06
11/24/1999 3420.5 2.32% 115.31 1417.08 0.89% 103.97
11/26/1999 3447.81 0.80% 116.23 1416.62 -0.03% 103.94
11/29/1999 3421.37 -0.77% 115.34 1407.83 -0.62% 103.29
11/30/1999 3336.16 -2.49% 112.46 1388.91 -1.34% 101.91
12/01/1999 3353.71 0.53% 113.06 1397.72 0.63% 102.55
12/02/1999 3452.78 2.95% 116.40 1409.04 0.81% 103.38
12/03/1999 3520.63 1.97% 118.68 1433.3 1.72% 105.16
12/06/1999 3546.01 0.72% 119.54 1423.34 -0.69% 104.43
12/07/1999 3586.92 1.15% 120.92 1409.17 -1.00% 103.39
12/08/1999 3586.08 -0.02% 120.89 1403.88 -0.38% 103.00
12/09/1999 3594.17 0.23% 121.16 1408.11 0.30% 103.31
12/10/1999 3620.23 0.73% 122.04 1417.04 0.63% 103.97
12/13/1999 3658.15 1.05% 123.32 1415.22 -0.13% 103.84
12/14/1999 3571.66 -2.36% 120.40 1403.17 -0.85% 102.95
12/15/1999 3621.95 1.41% 122.10 1413.33 0.72% 103.70
12/16/1999 3715.06 2.57% 125.24 1418.78 0.39% 104.10
12/17/1999 3753.06 1.02% 126.52 1421.05 0.16% 104.26
12/20/1999 3783.87 0.82% 127.56 1418.09 -0.21% 104.05
12/21/1999 3911.15 3.36% 131.85 1433.43 1.08% 105.17
12/22/1999 3937.3 0.67% 132.73 1436.13 0.19% 105.37
12/23/1999 3969.44 0.82% 133.81 1458.34 1.55% 107.00
12/27/1999 3975.38 0.15% 134.01 1457.09 -0.09% 106.91
12/28/1999 3972.11 -0.08% 133.90 1457.66 0.04% 106.95
12/29/1999 4041.46 1.75% 136.24 1463.46 0.40% 107.38
12/30/1999 4036.87 -0.11% 136.09 1464.47 0.07% 107.45
12/31/1999 4069.31 0.80% 137.18 1469.25 0.33% 107.80
01/03/2000 4131.15 1.52% 139.26 1455.22 -0.95% 106.77
01/04/2000 3901.69 -5.55% 131.53 1399.42 -3.83% 102.68
01/05/2000 3877.54 -0.62% 130.71 1402.11 0.19% 102.87
01/06/2000 3727.13 -3.88% 125.64 1403.45 0.10% 102.97
01/07/2000 3882.62 4.17% 130.89 1441.47 2.71% 105.76
01/10/2000 4049.67 4.30% 136.52 1457.6 1.12% 106.95
01/11/2000 3921.19 -3.17% 132.19 1438.56 -1.31% 105.55
01/12/2000 3850.02 -1.82% 129.79 1432.25 -0.44% 105.09
01/13/2000 3957.21 2.78% 133.40 1449.68 1.22% 106.36
01/14/2000 4064.27 2.71% 137.01 1465.15 1.07% 107.50
01/18/2000 4130.81 1.64% 139.25 1455.14 -0.68% 106.77
01/19/2000 4151.29 0.50% 139.94 1455.9 0.05% 106.82
01/20/2000 4189.51 0.92% 141.23 1445.57 -0.71% 106.06
01/21/2000 4235.4 1.10% 142.78 1441.36 -0.29% 105.75
01/24/2000 4096.08 -3.29% 138.08 1401.53 -2.76% 102.83
01/25/2000 4167.41 1.74% 140.49 1410.03 0.61% 103.46
01/26/2000 4069.91 -2.34% 137.20 1404.09 -0.42% 103.02
01/27/2000 4039.56 -0.75% 136.18 1398.56 -0.39% 102.61
01/28/2000 3887.07 -3.77% 131.04 1360.16 -2.75% 99.80
01/31/2000 3940.35 1.37% 132.83 1394.46 2.52% 102.31
02/01/2000 4051.98 2.83% 136.59 1409.28 1.06% 103.40
02/02/2000 4073.96 0.54% 137.34 1409.12 -0.01% 103.39
02/03/2000 4210.98 3.36% 141.95 1424.97 1.12% 104.55
02/04/2000 4244.14 0.79% 143.07 1424.37 -0.04% 104.51
02/07/2000 4321.77 1.83% 145.69 1424.24 -0.01% 104.50
02/08/2000 4427.54 2.45% 149.25 1441.72 1.23% 105.78
02/09/2000 4363.24 -1.45% 147.09 1411.7 -2.08% 103.58
02/10/2000 4485.63 2.81% 151.21 1416.83 0.36% 103.95
02/11/2000 4395.45 -2.01% 148.17 1387.12 -2.10% 101.77
02/14/2000 4418.55 0.53% 148.95 1389.94 0.20% 101.98
02/15/2000 4420.77 0.05% 149.03 1402.05 0.87% 102.87
02/16/2000 4427.65 0.16% 149.26 1387.67 -1.03% 101.82
02/17/2000 4548.92 2.74% 153.35 1388.25 0.04% 101.86
02/18/2000 4411.74 -3.02% 148.72 1346.09 -3.04% 98.76
02/22/2000 4382.12 -0.67% 147.72 1352.17 0.45% 99.21
02/23/2000 4550.33 3.84% 153.39 1360.69 0.63% 99.84
02/24/2000 4617.65 1.48% 155.66 1353.43 -0.53% 99.30
02/25/2000 4590.5 -0.59% 154.75 1333.36 -1.48% 97.83
02/28/2000 4577.85 -0.28% 154.32 1348.05 1.10% 98.91
02/29/2000 4696.69 2.60% 158.33 1366.42 1.36% 100.26
03/01/2000 4784.08 1.86% 161.27 1379.19 0.93% 101.19
03/02/2000 4754.51 -0.62% 160.28 1381.76 0.19% 101.38
03/03/2000 4914.79 3.37% 165.68 1409.17 1.98% 103.39
03/06/2000 4904.85 -0.20% 165.35 1391.28 -1.27% 102.08
03/07/2000 4847.84 -1.16% 163.42 1355.62 -2.56% 99.46
03/08/2000 4897.17 1.02% 165.09 1366.7 0.82% 100.28
03/09/2000 5046.86 3.06% 170.13 1401.69 2.56% 102.84
03/10/2000 5048.62 0.03% 170.19 1395.07 -0.47% 102.36
03/13/2000 4907.24 -2.80% 165.43 1383.62 -0.82% 101.52
03/14/2000 4706.63 -4.09% 158.66 1359.15 -1.77% 99.72
03/15/2000 4582.62 -2.63% 154.48 1392.14 2.43% 102.14
03/16/2000 4717.39 2.94% 159.03 1458.47 4.76% 107.01
03/17/2000 4798.13 1.71% 161.75 1464.47 0.41% 107.45
03/20/2000 4610 -3.92% 155.41 1456.63 -0.54% 106.87
03/21/2000 4711.68 2.21% 158.83 1493.87 2.56% 109.61
03/22/2000 4864.75 3.25% 163.99 1500.64 0.45% 110.10
03/23/2000 4940.61 1.56% 166.55 1527.35 1.78% 112.06
03/24/2000 4963.03 0.45% 167.31 1527.46 0.01% 112.07
03/27/2000 4958.56 -0.09% 167.16 1523.86 -0.24% 111.81
03/28/2000 4833.89 -2.51% 162.95 1507.73 -1.06% 110.62
03/29/2000 4644.67 -3.91% 156.57 1508.52 0.05% 110.68
03/30/2000 4457.89 -4.02% 150.28 1487.92 -1.37% 109.17
03/31/2000 4572.83 2.58% 154.15 1498.58 0.72% 109.95
04/03/2000 4223.68 -7.64% 142.38 1505.97 0.49% 110.50
04/04/2000 4148.89 -1.77% 139.86 1494.73 -0.75% 109.67
04/05/2000 4169.22 0.49% 140.55 1487.37 -0.49% 109.13
04/06/2000 4267.56 2.36% 143.86 1501.34 0.94% 110.16
04/07/2000 4446.45 4.19% 149.89 1516.35 1.00% 111.26
04/10/2000 4188.2 -5.81% 141.19 1504.46 -0.78% 110.38
04/11/2000 4055.9 -3.16% 136.73 1500.59 -0.26% 110.10
04/12/2000 3769.63 -7.06% 127.08 1467.17 -2.23% 107.65
04/13/2000 3676.78 -2.46% 123.95 1440.51 -1.82% 105.69
04/14/2000 3321.29 -9.67% 111.96 1356.56 -5.83% 99.53
04/17/2000 3539.16 6.56% 119.31 1401.44 3.31% 102.83
04/18/2000 3793.57 7.19% 127.88 1441.61 2.87% 105.77
04/19/2000 3706.41 -2.30% 124.95 1427.47 -0.98% 104.74
04/20/2000 3643.88 -1.69% 122.84 1434.54 0.50% 105.25
04/24/2000 3482.48 -4.43% 117.40 1429.86 -0.33% 104.91
04/25/2000 3711.23 6.57% 125.11 1477.44 3.33% 108.40
04/26/2000 3630.09 -2.19% 122.37 1460.99 -1.11% 107.19
04/27/2000 3774.03 3.97% 127.22 1464.92 0.27% 107.48
04/28/2000 3860.66 2.30% 130.14 1452.43 -0.85% 106.57
</TABLE>
Sources: Nasdaq and Standard & Poor's Micropal. The Nasdaq Composite Index
measures all Nasdaq domestic and U.S.-based common stocks listed on the Nasdaq
Market, is market-weighted and includes over 5,000 companies (as of 4/30/00).
The S&P 500 Index is a market value-weighted index of 500 stocks chosen for
market size, liquidity, and industry group representation, with each stock's
weight in the index proportionate to its market value.
The graph is intended to show stock market volatility, as reflected in the
Nasdaq and the S&P 500, and does not illustrate the past or future performance
of any fund in Franklin Investors Securities Trust. To better demonstrate daily
volatility, the graph scales the indexes so they have the same starting point.
In addition to rising interest rates and flight-to-quality inflows from equity
market declines, supply fundamentals also affected the fixed-income markets
throughout the reporting period. The U.S. government's $7 billion (out of a
planned $30 billion) 30-year Treasury bond buyback reduced their supply and
drove their prices higher throughout the period. As bond prices and yields move
in an inverse relationship, this resulted in a corresponding yield decline.
Normally the yield curve, or the yield difference between shorter- and
longer-term debt, rises as maturity increases, and investors are offered greater
yields for the additional risk they take on with longer-term debt. However,
reduced supply on the long end caused a yield curve inversion in January that
lasted through the end of the reporting period. As of April 30, 2000, the 30-
and 10-year Treasury bonds yielded 5.96% and 6.21%, respectively, compared with
6.16% and 6.02% six months earlier.
Looking forward, many analysts expect the Fed to increase the federal funds
target rate another 0.5%, following on the heels of end-of-period inflation
indicators. Rising interest rates will pose short-term challenges for the bond
market and the stocks of those companies that issue debt securities for their
financing needs. However, if the Fed achieves its objective of slowing economic
growth and containing inflation, this should benefit fixed-income securities and
interest-rate sensitive equities long term. Meanwhile, the current income
provided by bonds and equity dividends can cushion overall total returns in
times of market volatility.
Recent market uncertainty 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, who can address concerns about 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/C. B. Johnson
Charles B. Johnson
Chairman
Franklin Investors Securities Trust
FRANKLIN CONVERTIBLE
SECURITIES FUND
[FUND CATEGORY PYRAMID GRAPH]
------------------------------------------------------------------------------
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, U.S. economic growth and corporate profits rose to
levels that exceeded analysts' expectations. Unfortunately, rising energy prices
and overall economic strength awakened inflationary pressures, which contributed
to financial market volatility, including a significant market correction toward
the end of the six months under review. Despite the recent pullback, equity
markets moved higher, fueled by gains in large-capitalization technology and
telecommunications companies. Meanwhile, rising interest rates negatively
impacted Treasury bond prices. As bond price and yield move in opposite
directions, 30-year Treasury yields rose from 6.16% at the beginning of the
period to peak at 6.75% on January 20, 2000. However, somewhat reduced supply
moderated this tendency and the 30-year Treasury yield closed the period at
5.96%.
For the six-month period ended April 30, 2000, the fund's Class A shares
outperformed the benchmark Goldman Sachs/Bloomberg U.S. Convertible 100 Index,
with a +23.84% cumulative total return versus the benchmark index's 13.98%
increase.(1) We attribute the fund's strong performance relative to the index
mainly to a combination of sector and security selection. In particular, the
portfolio's overweight position in oil and gas exploration and production,
including Devon Energy (Kerr-McGee Corp. convertibles), Newfield Exploration
(Newfield Financial Trust), and EOG Resources Inc. (Enron Corp. convertibles),
favorably impacted performance. An improving supply/demand balance in domestic
natural gas markets led to higher gas pricing and improved profitability for
these companies. In addition, renewed emphasis on drilling activity should
result in better-than-expected production growth for these companies going
forward.
1. Cumulative total return measures the change in value of an investment,
assuming reinvestment of all distributions and does not include the sales
charge. The index is unmanaged and includes reinvested dividends; one cannot
invest directly in an index.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), which is a complete
listing of the fund's portfolio holdings, including dollar value and number of
shares or principal amount. The SOI begins on page 34.
PORTFOLIO BREAKDOWN
Franklin Convertible Securities Fund
Based On Total Net Assets
4/30/00
[Pie Chart]
Convertible Bonds 49.6%
Convertible
Preferred Stocks 43.1%
Short-term Investments &
Other Net Assets 7.3%
We added positions in several areas, including technology, where we emphasized
software companies providing products and services to enable Internet or
electronic commerce (e-commerce). Investments in BEA Systems Inc., Oracle Corp.,
i2 Technologies Inc. and Siebel Systems Inc. all benefited the fund's
performance during the period. BEA Systems' products and services help companies
establish a Web presence with e-commerce transaction capability. Their robust
and flexible platform offers a competitive advantage in this market. Siebel
Systems is the leading provider of customer relationship management
applications. Their software helps manage all aspects of customer interaction,
including support, sales force automation, field service and self-service over
the Web, as well as call centers and other channels. This e-business product
suite enables Siebel's clients to improve and lower customer service costs.
The fund's strategy of balancing upside participation, current income and
downside support in its convertible securities portfolio contributed to its
recent out performance, relative to the index. Examples of this strategy include
selling Level 3 Communications Inc.'s equity-sensitive 2009 convertible
debentures and buying their more balanced 2010 convertible bonds. Similarly,
within the electronics contract manufacturing industry, we took profits and
reduced our stake in highly equity-sensitive Sanmina Corp. convertible bonds in
favor of more balanced 2007-maturity SCI Systems convertible bonds. By reducing
the portfolio's equity sensitivity, or delta, we sought to protect the fund from
market declines.
Looking forward, we remain optimistic about the prospects for U.S. financial
markets, given the healthy domestic economy and expectations for continued
growth improvement abroad. We believe the fund is well positioned to take
advantage of this favorable outlook. The potential rise in the convertible
securities' underlying common stock offers an attractive opportunity to
participate in equity market rallies, while their fixed-income component
provides downside protection, through current income and reduced volatility.
Sincerely,
/s/ Edward B. Jamieson
Edward. B. Jamieson
/s/ Edward D. Perks
Edward D. Perks
Portfolio Management Team
Franklin Convertible Securities Fund
This discussion reflects our views, opinions and portfolio holdings as of April
30, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
fund. Our strategies and the fund's portfolio composition will change depending
on market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
DIVIDEND DISTRIBUTIONS
Franklin Convertible Securities Fund
11/1/99 - 4/30/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
------------------
MONTH CLASS A CLASS C
--------------------------------------------------------------------------------
<S> <C> <C>
November 5 cents 4.20 cents
December 6 cents 5.11 cents
January 5 cents 4.11 cents
February 5 cents 4.11 cents
March 5 cents 4.00 cents
April 5 cents 4.00 cents
--------------------------------------------------------------------------------
TOTAL 31 CENTS 25.53 CENTS
</TABLE>
FRANKLIN CONVERTIBLE
SECURITIES FUND
CLASS A: 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 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: 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.
SIX-MONTH PERFORMANCE SUMMARY AS OF 4/30/00
Six-month total return does not include sales charges. 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.
<TABLE>
<S> <C> <C>
CLASS A
Six-Month Total Return +23.84%
Net Asset Value (NAV) $15.44 (4/30/00) $12.74 (10/31/99)
Change in NAV +$2.70
Distributions (11/1/99-4/30/00) Dividend Income $ 0.31
CLASS C
Six-Month Total Return +23.38%
Net Asset Value (NAV) $15.38 (4/30/00) $12.69 (10/31/99)
Change in NAV +$2.69
Distributions (11/1/99-4/30/00) Dividend Income $0.2553
</TABLE>
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF 3/31/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (4/15/87)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +39.80% +110.84% +281.72% +342.52%
Average Annual Total Return(2) +31.75% +14.72% +13.66% +11.65%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (10/2/95)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +38.74% +47.30% +75.65%
Average Annual Total Return(2) +36.35% +13.40% +13.08%
</TABLE>
AS OF 4/30/00
<TABLE>
<CAPTION>
SHARE CLASS A C
--------------------------------------------------------------------------------
<S> <C> <C>
Distribution Rate(3) 3.66% 3.09%
30-Day Standardized Yield(4) 4.32% 3.80%
</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.
3. Distribution rate is based on an annualization of the respective class's
April dividend and the maximum offering price per share on April 30, 2000.
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, 2000.
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
--------------------------------------------------------------------------------
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 does not guarantee future results.
[FUND CATEGORY 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
dividend yields.
A TALE OF TWO ECONOMIES
Stock market performance continued to diverge along the lines of "old economy"
(basic materials, industrial cyclicals, conventional retailers) versus "new
economy" (technology-, Internet- and telecommunications-related) companies
during the six months ended April 30, 2000. Toward the end of the period,
however, cracks surfaced in the shares of new economy growth stocks, whose
valuations are often largely based on anticipated profits rather than actual
earnings. Despite their overall under-performance relative to their growth
counterparts for first quarter 2000, many value stocks registered strong returns
in March and April, while growth stocks lagged or experienced negative returns.
Franklin Equity Income Fund, which invests in value stocks that offer
above-average dividend yields, reflected these trends, with a +0.72% six-month
cumulative total return for its Class A shares, compared with -0.39% for the
benchmark Russell 3000 Value Index.(1)
1. Cumulative total return measures the change in value of an investment,
assuming reinvestment of all distributions and does not include the sales
charge. The index is unmanaged and includes reinvested dividends; one cannot
invest directly in an index.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), which is a complete
listing of the fund's portfolio holdings, including dollar value and number of
shares or principal amount. The SOI begins on page 40.
Despite recent corrections, the overall valuation disparity between growth and
value issues has widened seek to unprecedented proportions. According to the
Frank Russell Co., stocks comprising the Russell 3000 Value Index are selling at
approximately 18.3 times earnings, compared with 21.3 times two years ago.
Russell 3000 Growth Index stocks, on the other hand, have grown from a multiple
of 34.5 times earnings two years ago to approximately 47.7 times today. These
recent valuation differentials exceeded previous market cycles, including the
conglomerate craze of the '60s, the nifty-fifty rage of the '70s, and the
leveraged buyout boom of the late '80s, all of which proved unsustainable.
PORTFOLIO NOTES
The fund maintains a value-oriented 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 book value,
dividend yield, revenues and normalized earnings. This generally entails
investing in stocks at what we expect to be temporarily depressed prices, while
collecting current, steady investment returns in the form of dividends, which
can provide a cushion against possible price declines.
Our overall asset allocation changed modestly during the period. Common stocks
declined slightly to 82.9% of total net assets at the end of the period, from
87.6% on October 31, 1999, and more defensive convertible stocks and bonds
increased to 12.8% from 9.0%. Short-term investments held relatively steady at
4.3% of total net assets at the end of the semiannual period.
WHAT ARE BOOK
VALUE AND NORMALIZED EARNINGS?
Book value seeks to determine the net asset value of a company's securities,
using the following formula: Total net assets are derived by subtracting
intangible assets and any long-term liabilities and equity issues that have a
prior claim from total assets. This figure is then divided by the number of
bonds, shares of preferred stock, or shares of common stock, to give the net
asset value, or "book value" per bond or per share of preferred or common stock.
Normalized earnings refer to a company's earnings, adjusted for cyclical ups and
downs in the economy.*
*Source: Barron's Dictionary of Finance and Investment Terms, 1995.
TOP FIVE INVESTMENT SECTORS
Franklin Equity Income Fund
4/30/00
<TABLE>
<CAPTION>
% OF TOTAL
SECTOR NET ASSETS
--------------------------------------------------------------------------------
<S> <C>
Finance 13.7%
Telecommunications 11.8%
Utilities 10.3%
Health Technology 9.2%
REITs 7.2%
</TABLE>
Although discouraging for the fund's short-term performance, investors' relative
indifference to value stocks during the period gave us the opportunity to
increase our exposure to various sectors at prices that we believed offer
excellent value. Financial stocks, including real estate investment trusts, grew
to 20.9% of the portfolio's assets. Rising interest rates pushed financial
stocks, one of the poorer performing sectors during the past six months, to
bargain levels, in our opinion. We recently invested in mortgage finance leader
Fannie Mae, a stock selling at 13 times earnings at time of purchase, despite
its 14% five-year annual growth record. Similarly, we purchased savings bank
Washington Mutual at seven times estimated earnings. Finally, we added to some
of our existing investments, such as Bank of America, Fleet Boston and First
Union, while selling our weaker-positioned holdings.
We also added to our health care and consumer non-durable investments. Many of
these investments also registered disappointing returns late in 1999, but
yielded improved results in recent months. Industry leaders Abbott Labs,
Bristol-Myers Squibb, Johnson & Johnson and American Home Products traded at
substantial discounts, compared to their industry peers during the period,
providing what we believed to be exceptional investment opportunities. Health
care companies, largely pharmaceuticals, represented 10.2% of the fund's total
net assets on April 30, 2000, nearly double the fund's weighting six months
earlier. New household product and food company investments included Gillette
and Sara Lee. Shares of both of these industry leaders were selling at their
lowest relative valuations in nearly 10 years.
Believing telecommunications possessed exciting growth prospects and traded at
reasonable valuations, we maintained a significant weighting in the sector,
which constituted 11.8% of the fund's total net assets by the period's end. At
the same time, telecommunications also accounted for the fund's four largest
holdings -- U.S. West, Bell Atlantic, GTE and AT&T. Demand for
telecommunications services is accelerating in response to the Internet's
growth, yet most of these companies were selling for less than 20 times
estimated earnings, compared with multiples in excess of 50 times earnings for
many large-capitalization growth stocks, by the end of the six months under
review. The fund's electric and gas utilities weighting was 10.3% of total net
assets. In recent months, utilities experienced a turnaround, taking their place
among the stock market's best performers, after underperforming the Standard &
Poor's 500 (S&P 500) Index since 1993. The combination of industry
consolidation, extremely attractive dividend yields, comparable to U.S. Treasury
bonds, and visible earnings growth from non-regulated businesses was largely
responsible for their improved relative performance. One recent, new investment
was Duke Energy, one of the nation's best-managed and best-positioned utilities
for growth, in our opinion.
As one would expect, our technology investments delivered some of the fund's
better performances during the reporting period. We took advantage of this
strength by taking profits in holdings such as Perkin Elmer, Hewlett-Packard and
Motorola, as well as Comverse Technology and BEA Systems convertible securities.
The portfolio's electronic technology investments, at 6.9% of total net assets
on April 30, 2000, remained underweighted compared to its benchmark index. While
we believe these companies maintain excellent growth prospects, we also felt
their valuations fully discounted this potential.
TOP TEN HOLDINGS
Franklin Equity Income Fund
4/30/00
<TABLE>
<CAPTION>
COMPANY, % OF TOTAL
INDUSTRY NET ASSETS
--------------------------------------------------------------------------------
<S> <C>
U.S. West Inc. 3.0%
Telecommunications
Bell Atlantic Corp. 2.7%
Telecommunications
GTE Corp. 2.6%
Telecommunications
AT&T Corp. 2.4%
Telecommunications
St. Paul Companies Inc. 1.8%
Finance
Abbott Laboratories 1.7%
Health Technology
General Mills Inc. 1.7%
Consumer Non-Durables
Bestfoods 1.7%
Consumer Non-Durables
Conoco Inc., B 1.7%
Energy Minerals
Baxter International Inc. 1.7%
Health Technology
</TABLE>
DIVIDEND DISTRIBUTIONS
Franklin Equity Income Fund
11/1/99 - 4/30/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
------------------------------------------------
MONTH CLASS A CLASS B CLASS C
--------------------------------------------------------------------------------
<S> <C> <C> <C>
November 4.3 cents 3.17 cents 3.12 cents
December 4.3 cents 3.15 cents 2.96 cents
January 4.3 cents 3.15 cents 2.96 cents
February 4.3 cents 3.15 cents 2.96 cents
March 4.3 cents 3.27 cents 3.14 cents
April 4.3 cents 3.27 cents 3.14 cents
--------------------------------------------------------------------------------
TOTAL 25.8 CENTS 19.16 CENTS 18.28 CENTS
</TABLE>
Looking forward, we remain enthusiastic about the investment prospects for
above-average dividend-yielding value stocks. Generally modest inflation, strong
profit trends and improving worldwide economic growth should benefit value
stocks in the months ahead. Also, growth has outperformed value investing for
six consecutive years, a historically long period.
While it is impossible to predict when the cycle will reverse itself, we believe
our strategy and the portfolio's investments are well-positioned to maximize
total return through high, current income and capital appreciation.
Sincerely,
/s/ Frank M. Felicelli
Frank M. Felicelli
Portfolio Manager
Franklin Equity Income Fund
This discussion reflects our views, opinions and portfolio holdings as of April
30, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
fund. Our strategies and the fund's portfolio composition will change depending
on market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
FRANKLIN EQUITY
INCOME FUND
CLASS A: 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 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 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: 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.
SIX-MONTH PERFORMANCE SUMMARY
AS OF 4/30/00
Six-month total return does not include sales charges. 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.
<TABLE>
<S> <C> <C>
CLASS A
Six-Month Total Return +0.72%
Net Asset Value (NAV) $17.75 (4/30/00) $19.20 (10/31/99)
Change in NAV -$1.45
Distributions (11/1/99-4/30/00) Dividend Income $0.2580
Short-Term Capital Gain $0.0608
Long-Term Capital Gain $1.2177
----------------------------------------------
Total $1.5365
CLASS B
Six-Month Total Return +0.29%
Net Asset Value (NAV) $17.70 (4/30/00) $ 19.16 (10/31/99)
Change in NAV -$1.46
Distributions (11/1/99-4/30/00) Dividend Income $0.1916
Short-Term Capital Gain $0.0608
Long-Term Capital Gain $1.2177
----------------------------------------------
Total $1.4701
CLASS C
Six-Month Total Return +0.35%
Net Asset Value (NAV) $17.70 (4/30/00) $19.14 (10/31/99)
Change in NAV -$1.44
Distributions (11/1/99-4/30/00) Dividend Income $0.1828
Short-Term Capital Gain $0.0608
Long-Term Capital Gain $1.2177
----------------------------------------------
Total $1.4613
</TABLE>
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF 3/31/00
INCEPTION
Class A 1-YEAR 5-YEAR 10-YEAR (3/15/88)
--------------------------------------------------------------------------------
Cumulative Total Return(1) +3.72% +83.19% +211.46% +308.16%
Average Annual Total Return(2) -2.22% +11.55% +11.37% +11.84%
INCEPTION
CLASS B 1-YEAR (1/1/99)
--------------------------------------------------------------------------------
Cumulative Total Return(1) +2.82% +0.22%
Average Annual Total Return(2) -0.93% -2.74%
INCEPTION
CLASS C 1-YEAR 3-YEAR (10/2/95)
--------------------------------------------------------------------------------
Cumulative Total Return(1) +2.92% +30.52% +59.99%
Average Annual Total Return(2) +0.95% +8.92% +10.77%
AS OF 4/30/00
SHARE CLASS A B C
--------------------------------------------------------------------------------
Distribution Rate(3) 2.74% 2.22% 2.11%
30-Day Standardized Yield(4) 2.98% 2.42% 2.39%
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.
3. Distribution rate is based on an annualization of the respective class's
April dividend and the maximum offering price (net asset value for Class B) per
share on April 30, 2000.
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, 2000.
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
--------------------------------------------------------------------------------
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 does not guarantee future results.
[FUND CATEGORY PYRAMID GRAPH]
FRANKLIN GLOBAL
GOVERNMENT INCOME FUND
------------------------------------------------------------------------------
You 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
Early in the review period, investors remained cautious regarding interest
rates, partly because of inflationary fears stemming from higher oil prices, but
mostly because of upward revisions in global economic growth forecasts.
Confirmed European economic recovery, better-than-expected growth in Japan, as
well as continued growth in the U.S., fueled this cautious approach. Improving
global economies led to expectations of higher commodity prices, productivity
and employment rates, all of which would add to inflationary pressures and a
tighter monetary policy stance by central banks. These conditions supported the
consensus view that the industrial economies, with the possible exception of
Japan, had reached the bottom of their respective interest-rate cycles. Later in
the period, reduced U.S. bond supply and equity market volatility offset these
interest-rate concerns. Bonds began to appear more attractive to investors who
put money back into the global fixed-income markets for the first time in a long
while.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), which is a complete
listing of the fund's portfolio holdings, including dollar value and number of
shares or principal amount. The SOI begins on page 47.
In this environment, the J.P. Morgan Global Government Bond Index (GGBI) posted
a 2.15% positive return in local currency terms for the six months ended April
30, 2000. The GGBI underperformed the J.P. Morgan U.S. Government Bond Index's
2.69% positive return, which benefited from the U.S. Treasury buyback program.
The buyback contributed to the U.S. yield curve inversion during the period. As
bond prices and yields move in an inverse relationship, higher prices on
long-term bonds shifted their yields downward, while short-term bond prices fell
lower and their yields inched higher. In contrast, the European Monetary Union
(EMU) countries' yield curve only flattened, as yields rose on the short end.
Hence, EMU bond prices fell, while those in the U.S. market rose. Most major cur
rencies' weakness against the U.S. dollar resulted in lower returns for the
global index in U.S. dollar terms, and the GGBI posted a negative U.S. dollar
return of 4.11%.
In local currency terms, European bonds rose 2.15%, as most European bond
markets offered positive returns. The U.K. index increased and the EMU bond
index gained 1.87%. The Danish market outperformed the EMU countries, while
Japan remained relatively flat, as economic recovery expectations, stable
interest rates, and a stronger yen resulted in capital flows into Japanese
markets. The Australia/New Zealand dollar-bloc bond markets, where rising
commodity prices supported the local currency and helped contain inflation,
outperformed the U.S. bond market in local currency terms.
Emerging market bond prices rose during the period, mostly as a result of higher
commodity prices and the U.S. equity market's upward momentum early in the
period. The former improved export revenues and hence, the issuer countries'
external debt repayment capacity. The latter decreased many investors' risk
aversion and thus, increased their appetite for emerging market bonds. The J.P.
Morgan Emerging Market Bond Index Plus (EMBI+) increased 14.43%. Most countries
in the index experienced rising bond prices, with the exception of the
Philippines, Nigeria and Colombia. Russian bonds were among the best performers,
increasing 89.32%, followed by those of Ecuador, Peru and Mexico.
Prices of Russian Eurobonds recovered as a result of the favorable presidential
election outcome, as well as the government's agreement to reschedule
bondholders' payments in the London Club negotiations. In Brazil, economic
measures implemented to help increase revenues, in addition to official external
financing from foreign governments and the International Monetary Fund, fueled
the continued recovery of that country's bonds. Meanwhile, the oil price
resurgence led to rising Venezuelan bond prices. Oil constitutes Venezuela's
main source of export revenue.
PORTFOLIO NOTES
Franklin Global Government Income Fund attempted to maximize its total return
during the period by allocating 60%-70% of its assets to intermediate- and
long-term investment-grade bonds and 30%-40% of its assets to the highest
quality and most liquid bonds available in the emerging markets. We believe that
this balance offers the opportunity for higher long-term returns at the cost of
modestly higher short-term volatility.
The fund's geographic allocation changed slightly during the period. North
American markets decreased from approximately 27% to 22% of total net assets,
with Canadian exposure increasing slightly and the U.S. allocation decreasing
6%. We left the European allocation essentially unchanged at 38%, but adjusted
the underlying country mix. During the period, we decreased the portfolio's
exposure to Germany and Spain, and reinvested the proceeds in Belgium, France
and the Netherlands. The fund decreased its percentage of Australia/New Zealand
bonds from 8.5% to 6.7% of total net assets. New Zealand's exposure, in
particular, declined 2.1%. Meanwhile, we added new positions in Korea, Brazil
and increased our holdings in Venezuela, bringing the fund's emerging market
allocation to 33.5% of total net assets by the period's end.
COUNTRY DISTRIBUTION
Franklin Global
Government Income Fund
Based on Total Net Assets
COUNTRY 4/30/00 10/31/99
--------------------------------------------------------------------------------
U.S. 14.8% 20.8%
Brazil 9.5% 8.0%
Germany 8.4% 12.2%
Italy 7.4% 7.6%
Canada 7.2% 6.4%
Venezuela 6.5% 5.3%
Argentina 5.3% 5.5%
Australia 4.4% 4.1%
U.K. 4.3% 4.0%
Mexico 4.1% 4.6%
Turkey 4.1% 3.9%
Netherlands 3.7% 0.0%
France 3.7% 0.0%
Sweden 3.5% 3.3%
South Korea 3.3% 0.0%
Spain 2.6% 7.1%
New Zealand 2.3% 4.4%
Denmark 2.2% 2.2%
Belgium 2.0% 0.0%
Panama 0.7% 0.6%
DIVIDEND DISTRIBUTIONS
Franklin Global Government Income Fund
11/1/99 - 4/30/00
DIVIDEND PER SHARE
----------------------------------------------
ADVISOR
MONTH CLASS A CLASS C CLASS
--------------------------------------------------------------------------------
November 5 cents 4.71 cents 5.08 cents
December 5 cents 4.67 cents 5.08 cents
January 5 cents 4.67 cents 5.11 cents
February 5 cents 4.67 cents 5.07 cents
March 5 cents 4.71 cents 5.08 cents
April 5 cents 4.71 cents 5.07 cents
--------------------------------------------------------------------------------
TOTAL 30 CENTS 28.14 CENTS 30.49 CENTS
The fund's emerging markets exposure continued to have a relatively low duration
with respect to the J.P. Morgan EMBI+, thereby reducing its sensitivity to
interest-rate movements and market uncertainty. At the end of the reporting
period, the portfolio's bonds were U.S. dollar-denominated sovereign Eurobonds,
with fixed coupons issued by countries we believe to have strong repayment
capacity. We also continued to emphasize Latin America, due to the region's
improving fundamentals.
Looking forward, we believe that global inflationary pressures will continue to
increase in the near term and world economic growth will remain strong
throughout the year. In such a challenging environment for bonds, investing in a
fully diversified, global fixed-income portfolio can reduce the risks of
declines in any particular market or sector.
Sincerely,
/s/ Thomas J. Dickson
Thomas J. Dickson
/s/ Umran Demirors
Umran Demirors
Portfolio Management Team
Franklin Global Government Income Fund
This discussion reflects our views, opinions and portfolio holdings as of April
30, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
fund. Our strategies and the fund's portfolio composition will change depending
on market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
FRANKLIN GLOBAL
GOVERNMENT INCOME FUND
CLASS A: 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: Subject to 1% initial sales charge and 1% contingent deferred sales
charge (CDSC) 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.
SIX-MONTH PERFORMANCE SUMMARY
AS OF 4/30/00
Six-month total return does not include sales charges. 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.
CLASS A
Six-Month Total Return -2.03%
Net Asset Value (NAV) $7.27 (4/30/00) $7.72 (10/31/99)
Change in NAV -$0.45
Distributions (11/1/99-4/30/00) Dividend Income $0.30
CLASS C
Six-Month Total Return -2.26%
Net Asset Value (NAV) $7.28 (4/30/00) $7.73 (10/31/99)
Change in NAV -$0.45
Distributions (11/1/99-4/30/00) Dividend Income $0.2814
ADVISOR CLASS
Six-Month Total Return -1.95%
Net Asset Value (NAV) $7.28 (4/30/00) $7.73 (10/31/99)
Change in NAV -$0.45
Distributions (11/1/99-4/30/00) Dividend Income $0.3049
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF 3/31/00
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (3/15/88)
--------------------------------------------------------------------------------
Cumulative Total Return(1) +1.32% +38.46% +93.06% +118.06%
Average Annual Total Return(2) -3.04% +5.80% +6.33% +6.31%
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
--------------------------------------------------------------------------------
Cumulative Total Return(1) +0.79% +9.70% +31.87%
Average Annual Total Return(2) -1.13% +2.77% +5.57%
INCEPTION
ADVISOR CLASS(3) 1-YEAR 5-YEAR 10-YEAR (3/15/88)
--------------------------------------------------------------------------------
Cumulative Total Return(1) +1.45% +40.10% +95.35% +120.65%
Average Annual Total Return(2) +1.45% +6.98% +6.93% +6.79%
AS OF 4/30/00
SHARE CLASS A C ADVISOR
--------------------------------------------------------------------------------
Distribution Rate(4) 7.91% 7.69% 8.36%
30-Day Standardized Yield(5) 7.11% 6.80% 7.55%
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.
3. 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 +10.20% and +3.04%, respectively.
4. Distribution rate is based on an annualization of the respective class's
April dividend and the maximum offering price (net asset value for Advisor
Class) per share on April 30, 2000.
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, 2000.
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
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 does not guarantee future results.
[FUND CATEGORY 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 months under review, continued economic strength and nascent
inflationary pressures pushed interest rates higher. At the same time, the
Treasury bond yield curve became inverted when rates on long-term bonds declined
below those of short-term bonds. As of April 30, 2000, the 2-year Treasury
note's 6.68% yield was the highest on the curve. In this environment, Franklin
Short-Intermediate U.S. Government Securities Fund -- Class A shares posted a
+1.25% six-month cumulative total return, as shown in the Performance Summary on
page 30.
Longer-term Treasury bonds benefited from supply fundamentals and stock market
volatility, as the Nasdaq sell-offs and U.S. government's $7 billion 30-year
Treasury bond repurchase triggered rallies during the reporting period. However,
despite their recent short-term outperformance, we did not see much relative
value in Treasuries, as historically fixed-income assets derive most of their
total return from income, as opposed to price changes. We, therefore, preferred
to concentrate on bond sectors' income advantages rather than their potential
for price appreciation.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), which is a complete
listing of the fund's portfolio holdings, including dollar value and number of
shares or principal amount. The SOI begins on page 52.
Relative to Treasuries, agency bonds and mortgage-backed securities offered
strong income advantages during the six months under review. Uncertainty arose
about the government's future relationship to the Federal National Mortgage
Association (Fannie Mae or FNMA) and the Federal Home Loan Mortgage Corporation
(Freddie Mac or FHLMC), following congressional discussions. Although we feel it
is unrealistic to think they would sever all ties, investor concerns over the
issue pushed agency bond yields to one-year highs versus Treasuries in February
and at the end of the period. We slightly increased our exposure to this sector,
from 26.5% to 34.2% of total net assets. Seeking to take advantage of the
attractive yield spread, we doubled the fund's position in mortgage-backed
securities, from 29.0% to 58.6% during the reporting period.
PORTFOLIO BREAKDOWN
Franklin Short-Intermediate U.S.
Government Securities Fund
Based on Total Net Assets
4/30/00
[PIE CHART]
Mortgage-Backed Securities 58.6%
Agency Bonds 34.2%
Short-Term Investments &
Other Net Assets 7.2%
DIVIDEND DISTRIBUTIONS*
Franklin Short-Intermediate U.S.
Government Securities Fund
11/1/99 - 4/30/00
DIVIDEND PER SHARE
------------------
ADVISOR
MONTH CLASS A CLASS
--------------------------------------------------------------------------------
November 4.30 cents 4.40 cents
December 7.31 cents** 7.39 cents**
January 4.70 cents 4.76 cents
February 4.70 cents 4.77 cents
March 4.70 cents 4.79 cents
April 4.70 cents 4.79 cents
--------------------------------------------------------------------------------
TOTAL 30.41 CENTS 30.90 CENTS
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions include all accrued income earned by the fund during the reporting
period.
**Includes an additional 3.01 cent distribution to meet excise tax
requirements.
In March and April, mortgage-backed securities posted stronger returns relative
to agency bonds. In particular, Government National Mortgage Association (Ginnie
Mae or GNMA) pass-throughs outperformed Fannie Mae and Freddie Mac by a wide
margin, partly because Ginnie Maes would not be affected by any changes in the
status of the other two agencies. The reduced supply of U.S. Treasuries also
enhanced the value of Ginnie Maes because of their "full faith and credit"
guarantee.(1) Toward the end of the reporting period, we sold 30-year Ginnie Mae
mortgage pass-throughs, as we felt they had become overvalued relative to
shorter maturity pass-throughs. Going forward, we hope to take advantage of the
wider yield spreads on Fannie Mae and Freddie Mac bonds and mortgage
pass-throughs to purchase these securities at what we believe are attractive
values.
1. U.S. government securities owned by the fund, but not shares of the fund, are
guaranteed by the U.S. government, its agencies or instrumentalities, as to
timely payment of principal and interest. The fund's yield and share price are
not guaranteed and will vary with market conditions.
Sincerely,
/s/ Roger A. Bayston
Roger A. Bayston
Portfolio Manager
Franklin Short-Intermediate U.S. Government Securities Fund
--------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of April
30, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any industry, security or the fund. Our
strategies and the fund's portfolio composition will change depending on market
and economic conditions. Although historical performance is no guarantee of
future results, these insights may help you understand our investment and
management philosophy.
--------------------------------------------------------------------------------
FRANKLIN
SHORT-INTERMEDIATE
U.S. GOVERNMENT
SECURITIES FUND
--------------------------------------------------------------------------------
CLASS A: Subject to the 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.
--------------------------------------------------------------------------------
SIX-MONTH PERFORMANCE SUMMARY AS OF 4/30/00
Six-month total return does not include sales charges. 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.
CLASS A
Six-Month Total Return +1.25%
Net Asset Value (NAV) $9.93 (4/30/00) $10.11 (10/31/99)
Change in NAV -$0.18
Distributions (11/1/99-4/30/00) Dividend Income $0.3041
ADVISOR CLASS
Six-Month Total Return +1.30%
Net Asset Value (NAV) $9.92 (4/30/00) $10.10 (10/31/99)
Change in NAV -$0.18
Distributions (11/1/99-4/30/00) Dividend Income $0.3090
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF 3/31/00
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (4/15/87)
--------------------------------------------------------------------------------
Cumulative Total Return(1) +2.42% +29.31% +83.25% +124.55%
Average Annual Total Return(2) +0.08% +4.80% +6.00% +6.25%
INCEPTION
ADVISOR CLASS(3) 1-YEAR 5-YEAR 10-YEAR (4/15/87)
--------------------------------------------------------------------------------
Cumulative Total Return(1) +2.42% +29.53% +83.57% +124.94%
Average Annual Total Return(2) +2.42% +5.31% +6.26% +6.45%
AS OF 4/30/00
SHARE CLASS A ADVISOR
--------------------------------------------------------------------------------
Distribution Rate(4) 5.55% 5.79%
30-Day Standardized Yield(5) 5.91% 6.15%
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 applicable, maximum
sales charge(s) for that class.
3. 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 +16.13% and +4.71%, respectively.
4. Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (net asset value for
Advisor Class) per share on April 30, 2000.
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, 2000.
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
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.
FRANKLIN INVESTORS SECURITIES TRUST
Financial Highlights
FRANKLIN CONVERTIBLE SECURITIES FUND
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2000 ------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $12.75 $11.75 $14.74 $13.45 $12.73 $12.34
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income(b) ...................... .35 .61 .62 .64 .61 .58
Net realized and unrealized gains (losses) .... 2.65 1.03 (1.92) 2.15 1.39 1.10
-------------------------------------------------------------------------------
otal from investment operations ................ 3.00 1.64 (1.30) 2.79 2.00 1.68
-------------------------------------------------------------------------------
Less distributions from:
Net investment income ......................... (.31) (.64) (.65) (.60) (.60) (.59)
Net realized gains ............................ -- -- (1.04) (.90) (.68) (.70)
-------------------------------------------------------------------------------
Total distributions ............................ (.31) (.64) (1.69) (1.50) (1.28) (1.29)
-------------------------------------------------------------------------------
Net asset value, end of period ................. $15.44 $12.75 $11.75 $14.74 $13.45 $12.73
===============================================================================
Total return(a) ................................ 23.84% 14.25% (9.93%) 22.47% 16.71% 15.18%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .............. $147,360 $129,908 $170,569 $212,631 $130,951 $83,523
Ratios to average net assets:
Expenses ...................................... 1.06%(c) 1.05% .98% 1.01% 1.02% 1.03%
Net investment income ......................... 4.84%(c) 4.92% 4.63% 4.81% 4.79% 4.82%
Portfolio turnover rate ........................ 107.53% 147.75% 79.17% 141.49% 129.83% 108.64%
</TABLE>
(a) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(b) Based on average shares outstanding effective year ended October 31, 1999.
(c) 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, 2000 ----------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995(d)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period $12.70 $11.70 $14.68 $13.41 $12.71 $13.06
----------------------------------------------------------------------------
Income from investment operations:
Net investment income(b) .30 .51 .51 .54 .51 .07
Net realized and unrealized gains (losses) 2.64 1.04 (1.91) 2.13 1.40 (.37)
----------------------------------------------------------------------------
Total from investment operations 2.94 1.55 (1.40) 2.67 1.91 (.30)
----------------------------------------------------------------------------
Less distributions from:
Net investment income (.26) (.55) (.54) (.50) (.53) (.05)
Net realized gains -- -- (1.04) (.90) (.68) --
----------------------------------------------------------------------------
Total distributions (.26) (.55) (1.58) (1.40) (1.21) (.05)
----------------------------------------------------------------------------
Net asset value, end of period $15.38 $12.70 $11.70 $14.68 $13.41 $12.71
============================================================================
Total return(a) 23.38% 13.48% (10.61%) 21.54% 15.92% (2.33%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $32,715 $29,148 $41,533 $35,282 $10,861 $209
Ratios to average net assets:
Expenses 1.74%(c) 1.80% 1.73% 1.74% 1.79% 1.60%(c)
Net investment income 4.16%(c) 4.16% 3.93% 4.04% 4.00% 3.64%(c)
Portfolio turnover rate 107.53% 147.75% 79.17% 141.49% 129.83% 108.64%
</TABLE>
(a) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(b) Based on average shares outstanding effective year ended October 31, 1999.
(c) Annualized
(d) 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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN CONVERTIBLE SECURITIES FUND SHARES VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS 43.1%
COMMERCIAL SERVICES 1.9%
United Rentals Trust I, 6.50%, cvt. pfd. 50,000 $ 1,406,250
United Rentals Trust I, 6.50%, cvt. pfd., 144A 74,500 2,095,313
----------
3,501,563
----------
CONSUMER SERVICES 2.3%
Adelphia Communications Corp., 5.50%, cvt. pfd., D 10,000 1,537,500
Seagram Co. Ltd., 7.50%, cvt. pfd. (Canada) 50,000 2,543,750
----------
4,081,250
----------
ENERGY MINERALS 7.3%
Enron Corp., 7.00%, cvt. pfd., (exchangeable into EOG Resources Inc. common) 220,000 5,170,000
Kerr-McGee Corp., 5.50%, cvt. pfd., (exchangeable into Devon Energy Corp. common) 98,000 4,391,625
Newfield Financial Trust I, 6.50%, cvt. pfd. 60,000 3,626,250
----------
13,187,875
----------
FINANCE 7.2%
Apartment Investment & Management Co., 8.00%, cvt. pfd., K 100,000 2,475,000
Bank United Corp., 8.00%, cvt. pfd. 80,000 3,560,000
Metlife Capital Trust I, 8.00%, cvt. pfd. 50,000 2,815,625
Protective Life Capital Trust II, 6.50%, cvt. pfd. 54,700 2,270,050
Sovereign Bancorp Inc., 7.50%, cvt. pfd. 40,000 1,877,500
----------
12,998,175
----------
NON-ENERGY MINERALS 4.7%
Georgia-Pacific Corp., 7.50%, cvt. pfd. 89,500 3,624,750
IMC Global/Merrill Lynch, 6.25%, cvt. pfd., IGL 280,000 4,760,000
----------
8,384,750
----------
PRODUCER MANUFACTURING 2.7%
Tower Automotive Capital, 6.75%, cvt. pfd. 135,000 4,893,750
----------
RETAIL TRADE 2.2%
CVS Trust Automatic Common Exchange Securities, 6.00%, cvt. pfd. 50,000 3,900,000
----------
TECHNOLOGY SERVICES .8%
PSINet Inc., 7.00%, cvt. pfd., D, 144A 45,000 1,423,125
----------
TRANSPORTATION 1.8%
Union Pacific Capital Trust, 6.25%, cvt. pfd. 75,000 3,187,500
----------
UTILITIES 12.2%
AES Trust III, 6.75%, cvt. pfd. 38,800 2,766,925
CMS Energy Trust I, 7.75%, cvt. pfd. 73,000 2,555,000
Global Crossing Ltd., 6.75%, cvt. pfd. (Bermuda) 18,400 4,636,800
Intermedia Communications, 7.00%, cvt. pfd., E 30,000 1,053,750
MediaOne Group Inc., 7.00%, cvt. pfd. (exchangeable into Vodafone AirTouch common) 103,700 4,809,088
Qwest Trends Trust, 5.75%, cvt. pfd., 144A 45,000 3,206,250
RSL Communications Inc., 7.00%, cvt. pfd., 144A (Bermuda) 75,000 2,962,500
----------
21,990,313
----------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $79,245,870) 77,549,301
----------
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN CONVERTIBLE SECURITIES FUND AMOUNT* VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BONDS 49.6%
CONSUMER SERVICES 2.8%
Clear Channel Communications Inc., cvt., 2.625%, 4/01/03 ............................... $1,500,000 $1,905,945
Echostar Communications Corp., cvt., 144A, 4.875%, 1/01/07 ............................. 2,000,000 3,057,500
----------
4,963,445
----------
ELECTRONIC TECHNOLOGY 20.4%
Act Manufacturing Inc., cvt., 144A, 7.00%, 4/15/07 ..................................... 2,500,000 2,550,000
Amkor Technology Inc., cvt., 144A, 5.00%, 3/15/07 ...................................... 3,500,000 4,305,000
ASM Lithography Holding NV, cvt., 4.25%, 11/30/04 (Netherlands) ........................ 2,500,000 3,078,125
Burr-Brown Corp., cvt., 144A, 4.25%, 2/15/07 ........................................... 2,500,000 3,290,625
Comverse Technology Inc., cvt. sub. deb., 144A, 4.50%, 7/01/05 ......................... 500,000 2,067,500
Conexant Systems Inc., cvt., 144A, 4.00%, 2/01/07 ...................................... 2,000,000 1,682,500
Cypress Semiconductor Corp., cvt., 4.00%, 2/01/05 ...................................... 2,000,000 2,690,000
Hewlett-Packard Co., cvt., zero cpn., 10/14/17 ......................................... 5,000,000 3,868,750
Juniper Networks Inc., cvt., 4.75%, 3/15/07 ............................................ 1,500,000 1,365,000
LSI Logic Corp., cvt., 4.00%, 2/15/05 .................................................. 2,000,000 2,250,000
Sanmina Corp., cvt., 144A, 4.25%, 5/01/04 .............................................. 1,500,000 2,231,250
SCI Systems Inc., cvt., 3.00%, 3/15/07 ................................................. 4,000,000 4,675,000
Vitesse Semiconductor Corp., cvt., 144A, 4.00%, 3/15/05 ................................ 3,250,000 2,807,513
----------
36,861,263
----------
ENERGY MINERALS .9%
Range Resources Corp., cvt. sub. deb., 6.00%, 2/01/07 .................................. 3,340,000 1,586,500
----------
FINANCE 1.0%
Macerich Co., cvt. sub. deb., 144A, 7.25%, 12/15/02 .................................... 2,000,000 1,750,000
----------
HEALTH SERVICES 2.5%
Omnicare Inc., cvt. sub. deb., 5.00%, 12/01/07 ......................................... 5,650,000 4,456,438
----------
HEALTH TECHNOLOGY 4.1%
Alpharma Inc., cvt., 3.00%, 6/01/06 .................................................... 2,000,000 2,575,780
Inhale Therapeutic Systems Inc., cvt., 144A, 5.00%, 2/08/07 ............................ 1,000,000 961,250
Roche Holdings Inc., cvt., zero cpn., 1/19/15 .......................................... 5,000,000 3,768,750
----------
7,305,780
----------
TECHNOLOGY SERVICES 11.1%
Affiliated Computer Services, cvt., sub. note, 4.00%, 3/15/05 .......................... 9,000,000 8,707,500
BEA Systems Inc., cvt., 144A, 4.00%, 12/15/06 .......................................... 1,500,000 2,310,000
Excite@home, cvt., 144A, 4.75%, 12/15/06 ............................................... 2,000,000 1,340,000
i2 Technologies Inc., cvt., 144A, 5.25%, 12/15/06 ...................................... 250,000 463,325
Interliant Inc., cvt., 144A, 7.00%, 2/16/05 ............................................ 2,000,000 1,172,500
Morgan Stanley Dean Witter & Co., cvt., 144A, zero cpn., 10/19/06,
(exchangeable into Oracle Corp. common) ................................................ 500,000 1,393,125
Rational Software Corp., cvt., 144A, 5.00%, 2/01/07 .................................... 2,000,000 2,670,000
Siebel Systems Inc., cvt., 144A, 5.50%, 9/15/06 ........................................ 750,000 2,055,000
----------
20,111,450
----------
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN CONVERTIBLE SECURITIES FUND AMOUNT* VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BONDS (CONT.)
UTILITIES 6.8%
Global Telesystems Group Inc., cvt., 5.75%, 7/01/10 ...................................... $2,500,000 $1,659,375
Level 3 Communications Inc., cvt., 6.00%, 3/15/10 ........................................ 2,500,000 2,271,874
Natwest Enron Corp. Nets, cvt., 144A, 3.50%, 9/01/04 ..................................... 1,000,000 3,125,000
Nextel Communications Inc, cvt., 144A, 5.25%, 1/15/10 .................................... 3,000,000 2,940,000
Primus Telecommunications Group Inc., cvt., 144A, 5.75%, 2/15/07 ......................... 2,750,000 2,351,249
---------
12,347,498
----------
TOTAL CONVERTIBLE BONDS (COST $82,245,644) ............................................... 89,382,374
----------
TOTAL LONG TERM INVESTMENTS (COST $161,491,514) 92.7% .................................... 166,930,675
-----------
(a)REPURCHASE AGREEMENT 6.1%
Joint Repurchase Agreement, 5.706%, 5/01/00 (Maturity Value $11,077,197)
(COST $11,071,932) 11,071,932 11,071,932
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Lehman Brothers Inc.
Nesbitt Burns Securities Inc.
Paine Webber Inc.
Paribas Corporation
Societe Generale
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills & Notes
----------
TOTAL INVESTMENTS (COST $172,563,446) 98.8% .............................................. 178,002,607
OTHER ASSETS, LESS LIABILITIES 1.2% ...................................................... 2,073,067
----------
NET ASSETS 100.0% ........................................................................ $180,075,674
===========
</TABLE>
*The principal amount is stated in U.S. dollars unless otherwise indicated.
(a)Investment is through participation in a joint account with other funds
managed by the investment advisor. At April 30, 2000, all repurchase agreements
had been entered into on April 28, 2000.
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, 2000 -------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .............. $19.20 $19.93 $19.31 $16.41 $15.19 $14.14
Income from investment operations:
Net investment income(b) ......................... .27 .58 .64 .64 .64 .63
Net realized and unrealized gains (losses) ...... (.18) .36 1.42 3.23 1.63 1.27
----------------------------------------------------------------------------
Total from investment operations .................. .09 .94 2.06 3.87 2.27 1.90
----------------------------------------------------------------------------
Less distributions from:
Net investment income ............................. (.26) (.60) (.65) (.64) (.65) (.61)
Net realized gains ................................ (1.28) (1.07) (.79) (.33) (.40) (.24)
----------------------------------------------------------------------------
Total distributions ............................... (1.54) (1.67) (1.44) (.97) (1.05) (.85)
----------------------------------------------------------------------------
Net asset value, end of period .................... $17.75 $19.20 $19.93 $19.31 $16.41 $15.19
----------------------------------------------------------------------------
Total return(a) ................................... .72% 4.90% 10.96% 24.40% 15.39% 14.10%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................. $327,514 $385,968 $428,228 $352,555 $246,952 $168,897
Ratios to average net assets:
Expenses ........................................ 1.02%(c) .94% .94% .97% .98% 1.00%
Expenses excluding waiver and payments by affiliate 1.02%(c) .94% .94% .97% .98% 1.02%
Net investment income ........................... 3.02%(c) 2.95% 3.20% 3.62% 4.11% 4.44%
Portfolio turnover rate ......................... 24.63% 50.20% 30.65% 29.04% 24.15% 27.86%
</TABLE>
(a)Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(b)Based on average shares outstanding effective year ended October 31, 1999.
(c)Annualized
FRANKLIN INVESTORS SECURITIES TRUST
Financial Highlights (continued)
FRANKLIN EQUITY INCOME FUND (CONT.)
<TABLE>
<CAPTION>
CLASS B
----------------------------------------
SIX MONTHS ENDED
APRIL 30, 2000 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1999(d)
----------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ....................................... $19.16 $19.37
----------------------------------------
Income from investment operations:
Net investment income(b) ................................................. .20 .33
Net realized and unrealized losses ....................................... (.19) (.16)
----------------------------------------
Total from investment operations ........................................... .01 .17
----------------------------------------
Less distributions from:
Net investment income .................................................... (.19) (.38)
Net realized gains ....................................................... (1.28) --
----------------------------------------
Total distributions ........................................................ (1.47) (.38)
----------------------------------------
Net asset value, end of period ............................................. $17.70 $19.16
========================================
Total return(a) ............................................................ .29% .86%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .......................................... $2,886 $2,493
Ratios to average net assets:
Expenses(c) .............................................................. 1.76% 1.69%
Net investment income(c) ................................................. 2.30% 2.03%
Portfolio turnover rate .................................................... 24.63% 50.20%
</TABLE>
(a)Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(b)Based on average shares outstanding.
(c)Annualized
(d)For the period January 1, 1999 (effective date) to October 31, 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, 2000 ------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995(d)
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $19.14 $19.88 $19.26 $16.38 $15.19 $15.38
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income(b) .................... .20 .43 .50 .50 .52 .05
Net realized and unrealized gains (losses) .. (.18) .36 1.41 3.22 1.63 (.19)
---------------------------------------------------------------------------------
Total from investment operations .............. .02 .79 1.91 3.72 2.15 (.14)
---------------------------------------------------------------------------------
Less distributions from:
Net investment income ....................... (.18) (.46) (.50) (.51) (.56) (.05)
Net realized gains .......................... (1.28) (1.07) (.79) (.33) (.40) --
---------------------------------------------------------------------------------
Total distributions ........................... (1.46) (1.53) (1.29) (.84) (.96) (.05)
---------------------------------------------------------------------------------
Net asset value, end of period ................ $17.70 $19.14 $19.88 $19.26 $16.38 $15.19
=================================================================================
Total return(a) ............................... .35% 4.11% 10.16% 23.40% 14.53% (.93%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $63,850 $82,353 $81,078 $45,277 $18,227 $386
Ratios to average net assets:
Expenses .................................... 1.74%(c) 1.69% 1.69% 1.72% 1.73% 1.99%(c)
Net investment income ....................... 2.28%(c) 2.20% 2.45% 2.78% 3.33% 3.57%(c)
Portfolio turnover rate ....................... 24.63% 50.20% 30.65% 29.04% 24.15% 27.86%
</TABLE>
(a) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(b)Based on average shares outstanding effective year ended October 31, 1999.
(c)Annualized
(d)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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN EQUITY INCOME FUND SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 82.9%
COMMERCIAL SERVICES 2.6%
Dun & Bradstreet Corp. .................................................. 193,200 $ 5,820,150
The McGraw-Hill Cos. Inc. ............................................... 89,000 4,672,500
-----------
10,492,650
-----------
CONSUMER DURABLES 3.1%
Eastman Kodak Co. ....................................................... 65,000 3,635,938
Ford Motor Co. .......................................................... 80,000 4,375,000
General Motors Corp. .................................................... 45,000 4,213,125
-----------
12,224,063
-----------
CONSUMER NON-DURABLES 6.3%
Bestfoods ............................................................... 133,000 6,683,250
General Mills Inc. ...................................................... 184,000 6,693,000
Gillette Co. ............................................................ 78,000 2,886,000
Philip Morris Cos. Inc. ................................................. 241,200 5,276,250
Sara Lee Corp. .......................................................... 233,000 3,495,000
-----------
25,033,500
-----------
CONSUMER SERVICES 1.3%
Harcourt General Inc. ................................................... 136,500 5,101,688
-----------
ELECTRONIC TECHNOLOGY 4.9%
Diebold Inc. ............................................................ 175,000 5,053,125
Hewlett-Packard Co. ..................................................... 32,500 4,387,500
Motorola Inc. ........................................................... 22,500 2,678,906
PerkinElmer Inc. ........................................................ 73,000 3,996,750
Raytheon Co., B ......................................................... 137,800 3,057,438
-----------
19,173,719
-----------
ENERGY MINERALS 6.9%
BP Amoco PLC, ADR (United Kingdom) ...................................... 81,676 4,165,476
Chevron Corp. ........................................................... 48,900 4,162,613
Conoco Inc., B .......................................................... 264,131 6,570,259
Exxon Mobil Corp. ....................................................... 77,717 6,037,639
Texaco Inc. ............................................................. 125,000 6,187,500
-----------
27,123,487
-----------
FINANCE 13.0%
Arthur J. Gallagher & Co. ............................................... 141,800 5,282,050
Bank of America Corp. ................................................... 115,000 5,635,000
Fannie Mae .............................................................. 81,500 4,915,469
First Union Corp. ....................................................... 110,300 3,515,813
Fleet Boston Financial Corp. ............................................ 154,915 5,489,800
J.P. Morgan & Co. Inc. .................................................. 37,500 4,814,063
Lincoln National Corp. .................................................. 176,500 6,144,406
National City Corp. ..................................................... 196,400 3,338,800
St. Paul Cos. Inc. ...................................................... 194,300 6,921,938
Washington Mutual Inc. .................................................. 203,000 5,189,188
-----------
51,246,527
-----------
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
FRANKLIN EQUITY INCOME FUND SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
HEALTH TECHNOLOGY 9.2%
Abbott Laboratories ............................................................. 177,500 $ 6,822,656
American Home Products Corp. .................................................... 97,000 5,450,188
Baxter International Inc. ....................................................... 100,000 6,512,500
Bristol-Myers Squibb Co. ........................................................ 80,000 4,195,000
Glaxo Wellcome PLC, ADR (United Kingdom) ........................................ 100,200 6,293,813
Johnson & Johnson ............................................................... 60,000 4,950,000
(b)Pharmacia Corp. ............................................................... 39,000 1,947,563
-----------
36,171,720
-----------
NON-ENERGY MINERALS 2.4%
Corus Group PLC, ADR (United Kingdom) ........................................... 99,500 1,361,906
De Beers Consolidated Mines AG, ADR (South Africa) .............................. 115,600 2,297,550
Weyerhaeuser Co. ................................................................ 110,000 5,878,125
-----------
9,537,581
-----------
PROCESS INDUSTRIES 1.5%
Dow Chemical Co. ................................................................ 30,000 3,390,000
E. I. du Pont de Nemours and Co. ................................................ 43,769 2,076,292
Union Carbide Corp. ............................................................. 10,000 590,000
-----------
6,056,292
-----------
PRODUCER MANUFACTURING 5.0%
Deere & Co. ..................................................................... 99,500 4,017,313
Delphi Automotive Systems Corp. ................................................. 122,188 2,336,846
Emerson Electric Co. ............................................................ 102,000 5,597,250
Minnesota Mining & Manufacturing Co. ............................................ 41,000 3,546,500
Pitney Bowes Inc. ............................................................... 102,200 4,177,425
-----------
19,675,334
-----------
REAL ESTATE 6.4%
Arden Realty Inc. ............................................................... 265,000 5,896,250
Equity Office Properties Trust .................................................. 100,000 2,718,750
Equity Residential Properties Trust ............................................. 118,300 5,382,650
Meristar Hospitality Corp. ...................................................... 310,000 6,122,500
Simon Property Group Inc. ....................................................... 199,400 5,059,775
-----------
25,179,925
-----------
RETAIL TRADE 1.2%
May Department Stores Co. ....................................................... 169,000 4,647,500
-----------
TECHNOLOGY SERVICES 1.1%
Automatic Data Processing Inc. .................................................. 81,000 4,358,813
-----------
TELECOMMUNICATIONS 11.8%
AT&T Corp. ...................................................................... 204,250 9,535,922
Bell Atlantic Corp. ............................................................. 182,120 10,790,610
GTE Corp. ....................................................................... 151,500 10,264,125
SBC Communications Inc. ......................................................... 92,000 4,030,750
U.S. West Inc. .................................................................. 165,800 11,802,888
-----------
46,424,295
-----------
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
FRANKLIN EQUITY INCOME FUND SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
UTILITIES 6.2%
Constellation Energy Group Inc. ....................................................... 120,500 $ 3,984,031
Duke Energy Corp. ..................................................................... 60,000 3,450,000
Kansas City Power & Light Co. ......................................................... 157,000 4,032,938
MCN Energy Group Inc. ................................................................. 150,000 3,740,625
National Fuel Gas Co. ................................................................. 106,600 5,056,838
Northern States Power Co. ............................................................. 187,000 4,078,929
-----------
24,343,361
-----------
TOTAL COMMON STOCKS (COST $287,689,442) ............................................... 326,790,455
-----------
CONVERTIBLE PREFERRED STOCKS 8.9%
FINANCE .7%
(b)MetLife Capital Trust I, 8.00%, cvt. pfd ........................................... 45,000 2,534,063
-----------
NON-ENERGY MINERALS 1.3%
Georgia-Pacific Corp., 7.50%, cvt. pfd ................................................ 130,000 5,265,000
-----------
REAL ESTATE .9%
Glenborough Realty Trust Inc., 7.75%, cvt. pfd., A .................................... 224,200 3,419,050
-----------
TRANSPORTATION 1.9%
Canadian National Railway Co., 5.25%, cvt. pfd. (Canada) .............................. 74,400 3,348,000
Union Pacific Capital Trust, 6.25%, cvt. pfd .......................................... 100,800 4,284,000
-----------
7,632,000
-----------
UTILITIES 4.1%
AES Trust III, 6.75%, cvt. pfd ........................................................ 26,800 1,911,175
CMS Energy Trust I, 7.75%, cvt. pfd ................................................... 80,000 2,800,000
MediaOne Group Inc., 7.00%, cvt. pfd (exchangeable into Vodaphone AirTouch common) .... 133,400 6,186,425
Texas Utilities Co., 9.25%, cvt. pfd .................................................. 125,100 5,394,938
-----------
16,292,538
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $40,937,740) ................................. 35,142,651
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C> <C>
CONVERTIBLE BONDS 3.9%
ELECTRONIC TECHNOLOGY 2.0%
Comverse Technology Inc., cvt. sub. deb., 4.50%, 7/01/05 ............................ $ 1,050,000 4,341,750
LSI Logic Corp., cvt., 4.00%, 2/15/05 ............................................... 1,750,000 1,968,750
Vitesse Semiconductor Corp., cvt., 144A, 4.00%, 3/15/05 ............................. 1,750,000 1,511,738
------------
7,822,238
------------
HEALTH SERVICES 1.0%
Omnicare Inc., cvt. sub. deb., 5.00%, 12/01/07 ...................................... 5,000,000 3,943,750
------------
TECHNOLOGY SERVICES .9%
BEA Systems Inc., cvt., 144A, 4.00%, 12/15/06 ....................................... 2,300,000 3,542,000
------------
TOTAL CONVERTIBLE BONDS (COST $11,742,304) .......................................... 15,307,988
------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST $340,369,486) ................... 377,241,094
------------
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN EQUITY INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(a)REPURCHASE AGREEMENT 4.3%
Joint Repurchase Agreement 5.706%, 5/1/00, (Maturity Value $17,010,579) (COST $17,002,494) ....... $ 17,002,494 $ 17,002,494
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Lehman Brothers Inc.
Nesbitt Burns Securities Inc.
Paine Webber Inc.
Paribas Corporation
Societe Generale
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills & Notes
------------
TOTAL INVESTMENTS (COST $357,371,980) 100.0% ..................................................... 394,243,588
OTHER INVESTMENTS, LESS LIABILITIES .............................................................. 6,612
------------
NET ASSETS 100.0% ................................................................................ $394,250,200
============
</TABLE>
(a)Investment is through participation in a joint account with other funds
managed by the investment advisor. At April 30, 2000, all repurchase
agreements had been entered into on April 28, 2000.
(b)Non-income producing.
See notes to financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
Financial Highlights
FRANKLIN GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2000 YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------------
(UNAUDITED) 1999(e) 1998(e) 1997 1996 1995
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value, beginning of period $ 7.72 $ 8.25 $ 8.41 $ 8.65 $ 8.31 $ 8.06
---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(b) .......... .28 .58 .60 .60 .61 .67
Net realized and
unrealized gains (losses) ........ (.43) (.51) (.15) (.22) .33 .29
---------------------------------------------------------------------------------------------
Total from investment operations ... (.15) .07 .45 .38 .94 .96
---------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ............. (.30) (.58) (.57) (.61) (.60) (.64)
In excess of net investment income -- -- (.04) (.01) -- --
Tax return of capital ............. -- -- -- -- -- (.07)
Net realized gains ................ -- (.02) -- -- -- --
---------------------------------------------------------------------------------------------
Total distributions ................ (.30) (.60) (.61) (.62) (.60) (.71)
---------------------------------------------------------------------------------------------
Net asset value, end of period ..... $ 7.27 $ 7.72 $ 8.25 $ 8.41 $ 8.65 $ 8.31
=============================================================================================
Total return(a) .................... (2.03%) .90% 5.57% 4.31% 11.80% 12.65%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .. $ 74,806 $ 85,004 $ 110,876 $ 118,348 $ 137,626 $ 164,970
Ratios to average net assets:
Expenses .......................... 1.09%(c) 1.06% .96% .90% .85% .96%
Net investment income ............. 7.56%(c) 7.28% 7.17% 6.97% 7.68% 8.29%
Portfolio turnover rate ............ 64.14% 61.50% 49.93% 193.30% 139.71% 103.49%
</TABLE>
(a)Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(b)Based on average shares outstanding effective year ended October 31, 1999.
(c)Annualized
(e)The per share amounts of net investment income and net realized and
unrealized gains (losses) and the net investment income ratio have been
restated from the 1999 annual report to shareholders to reflect the
correction of an error.
FRANKLIN INVESTORS SECURITIES TRUST
Financial Highlights (continued)
FRANKLIN GLOBAL GOVERNMENT INCOME FUND (CONT.)
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2000 YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------------
(UNAUDITED) 1999(e) 1998(e) 1997 1996 1995(d)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value, beginning of period $ 7.73 $ 8.26 $ 8.41 $ 8.65 $ 8.31 $ 8.03
---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(b) .......... .27 .54 .55 .55 .56 .31
Net realized and unrealized
gains (losses) ................... (.44) (.51) (.14) (.22) .33 .30
---------------------------------------------------------------------------------------------
Total from investment operations ... (.17) .03 .41 .33 .89 .61
---------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ............. (.28) (.54) (.52) (.56) (.55) (.30)
In excess of net investment income -- -- (.04) (.01) -- --
Tax return of capital ............. -- -- -- -- -- (.03)
Net realized gains ................ -- (.02) -- -- -- --
---------------------------------------------------------------------------------------------
Total distributions ................ (.28) (.56) (.56) (.57) (.55) (.33)
---------------------------------------------------------------------------------------------
Net asset value, end of period ..... $ 7.28 $ 7.73 $ 8.26 $ 8.41 $ 8.65 $ 8.31
=============================================================================================
Total return(a) .................... (2.26%) .36% 5.12% 3.74% 11.19% 7.09%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .. $ 3,812 $ 4,744 $ 5,710 $ 4,473 $ 3,700 $ 1,193
Ratios to average net assets:
Expenses ........................... 1.60%(c) 1.59% 1.49% 1.46% 1.40% 1.54%(c)
Net investment income .............. 7.07%(c) 6.77% 6.64% 6.43% 7.17% 7.41%(c)
Portfolio turnover rate ............ 64.14% 61.50% 49.93% 193.30% 139.71% 103.49%
</TABLE>
(a)Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(b)Based on average shares outstanding effective year ended October 31, 1998.
(c)Annualized
(d)For the period May 1, 1995 (effective date) to October 31, 1995.
(e)The per share amounts of net investment income and net realized and
unrealized gains (losses) and the net investment income ratio have been
restated from the 1999 annual report to shareholders to reflect the
correction of an error.
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, 2000 ------------------------------------------------
(UNAUDITED) 1999(e) 1998(e) 1997(d)
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................. $ 7.73 $ 8.26 $ 8.41 $ 8.71
---------------------------------------------------------------------
Income from investment operations:
Net investment income(b) ............................. .30 .59 .62 .49
Net realized and unrealized losses ................... (.45) (.51) (.15) (.28)
---------------------------------------------------------------------
Total from investment operations ...................... (.15) .08 .47 .21
---------------------------------------------------------------------
Less distributions from:
Net investment income ................................ (.30) (.59) (.58) (.49)
In excess of net investment income ................... -- -- (.04) (.02)
Net realized gains ................................... -- (.02) -- --
---------------------------------------------------------------------
Total distributions ................................... (.30) (.61) (.62) (.51)
---------------------------------------------------------------------
Net asset value, end of period ........................ $ 7.28 $ 7.73 $ 8.26 $ 8.41
=====================================================================
Total return(a) ....................................... (1.95%) 1.03% 5.81% 2.49%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................... $ 84 $ 694 $ 829 $ 741
Ratios to average net assets:
Expenses ............................................. .96%(c) .94% .85% .82%(c)
Net investment income ................................ 7.80%(c) 7.43% 7.30% 7.08%(c)
Portfolio turnover rate ............................... 64.14% 61.50% 49.93% 193.30%
</TABLE>
(a)Total return is not annualized for periods less than one year.
(b)Based on average shares outstanding effective year ended October 31, 1998.
(c)Annualized
(d)For the period January 2, 1997 (effective date) to October 31, 1997.
(e)The per share amounts of net investment income and net realized and
unrealized gains (losses) and the net investment income ratio have been
restated from the 1999 annual report to shareholders to reflect the
correction of an error.
See notes to financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN GLOBAL GOVERNMENT INCOME FUND AMOUNT* VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 95.3%
ARGENTINA 5.3%
Republic of Argentina:
8.75%, 5/09/02 ........................................................... $1,100,000 $1,066,725
11.00%, 10/09/06 ......................................................... 250,000 244,875
11.75%, 4/07/09 .......................................................... 2,045,000 2,010,746
11.375%, 3/15/10 ......................................................... 370,000 355,662
9.75%, 9/19/27 ........................................................... 600,000 503,250
----------
4,181,258
----------
AUSTRALIA 4.4%
Government of Australia, 10.00%, 10/15/07 ................................... 2,438,000 AUD 1,717,540
Queensland Treasury Corp., 6.50%, 6/14/05 ................................... 2,979,000 AUD 1,721,312
----------
3,438,852
----------
BELGIUM 2.0%
Kingdom of Belgium, 8.50%, 10/01/07 ......................................... 1,488,000 EUR 1,600,286
----------
BRAZIL 9.5%
Government of Brazil:
FRN, 7.438%, 4/15/09 ..................................................... 3,950,000 3,273,562
14.50%, 10/15/09 ......................................................... 1,855,000 1,957,953
Series L, cvt., FRN, 7.438%, 4/15/12 ..................................... 1,250,000 902,738
10.125%, 5/15/27 ......................................................... 1,700,000 1,330,250
----------
7,464,503
----------
CANADA 7.2%
Government of Canada:
10.50%, 3/01/01 .......................................................... 5,000,000 CAD 3,494,027
10.00%, 5/01/02 .......................................................... 3,005,000 CAD 2,168,317
----------
5,662,344
----------
DENMARK 2.2%
Kingdom of Denmark:
9.00%, 11/15/00 .......................................................... 3,385,000 DKK 422,013
8.00%, 3/15/06 ........................................................... 9,357,000 DKK 1,278,746
----------
1,700,759
----------
FRANCE 3.7%
Government of France:
8.25%, 2/27/04 ........................................................... 1,279,000 EUR 1,296,028
8.50%, 10/25/08 .......................................................... 1,459,000 EUR 1,612,307
----------
2,908,335
----------
GERMANY 8.4%
Federal Republic of Germany:
Series 96, 6.00%, 1/05/06 ................................................ 2,914,364 EUR 2,757,968
Series 97, 6.00%, 1/04/07 ................................................ 4,080,109 EUR 3,869,335
----------
6,627,303
----------
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN GLOBAL GOVERNMENT INCOME FUND AMOUNT* VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
ITALY 7.4%
Buoni Poliennali del Tesoro, 6.75%, 7/01/07 .......................................... 2,065,824 EUR $ 1,903,572
Government of Italy:
10.50%, 7/15/00 ................................................................... 2,763,039 EUR 3,080,059
10.50%, 4/01/05 ................................................................... 825,000 EUR 809,295
-----------
5,792,926
-----------
MEXICO 4.1%
United Mexican States:
9.875%, 1/15/07 ................................................................... 675,000 694,069
8.625%, 3/12/08 ................................................................... 565,000 541,270
11.375%, 9/15/16 .................................................................. 1,760,000 1,992,320
-----------
3,227,659
-----------
NETHERLANDS 3.7%
Cellco Finance NV, 15.00%, 8/01/05 ................................................... 1,300,000 1,379,560
Government of Netherlands, 7.75%, 3/01/05 ............................................ 1,485,000 EUR 1,500,034
-----------
2,879,594
-----------
NEW ZEALAND 2.3%
Government of New Zealand, Series 1106, 8.00%, 11/15/06 .............................. 3,623,000 NZD 1,849,832
-----------
PANAMA .7%
Republic of Panama, 8.875%, 9/30/27 .................................................. 650,000 550,875
-----------
SOUTH KOREA 3.3%
Hanvit Bank, 144A, 12.75%, 3/01/10 ................................................... 890,000 901,125
Republic of Korea, 8.875%, 4/15/08 ................................................... 1,660,000 1,714,946
-----------
2,616,071
-----------
SPAIN 2.6%
Bonos y Oblig del Estado, 8.80%, 4/30/06 ............................................. 1,932,855 EUR 2,067,614
-----------
SWEDEN 3.5%
Kingdom of Sweden, 10.25%, 5/05/03 ................................................... 21,500,000 SEK 2,731,556
-----------
TURKEY 4.1%
Republic of Turkey:
Reg S, 10.00%, 9/19/07 ............................................................ 550,000 541,750
12.375%, 6/15/09 .................................................................. 2,465,000 2,675,757
-----------
3,217,507
-----------
UNITED KINGDOM 4.3%
United Kingdom:
8.00%, 12/07/00 ................................................................... 1,000,000 GBP 1,581,336
8.50%, 7/16/07 .................................................................... 1,005,000 GBP 1,838,338
-----------
3,419,674
-----------
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN GLOBAL GOVERNMENT INCOME FUND AMOUNT* VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
UNITED STATES 10.1%
Fannie Mae, 5.25%, 1/15/09 .................................................................. $ 3,609,000 $ 3,130,450
U.S. Treasury Bond, 5.25%, 11/15/28 ......................................................... 2,334,000 2,048,085
U.S. Treasury Note, 7.25%, 8/15/04 .......................................................... 2,714,000 2,779,307
-----------
7,957,842
-----------
VENEZUELA 6.5%
Republic of Venezuela:
144A, 9.125%, 6/18/07 .................................................................... 1,220,000 957,700
9.25%, 9/15/27 ........................................................................... 6,530,000 4,175,119
-----------
5,132,819
-----------
TOTAL LONG TERM INVESTMENTS (COST $88,608,454) .............................................. 75,027,609
-----------
(a)REPURCHASE AGREEMENT .7%
BZW Securities Inc., 5.71%, 5/01/00, (Maturity Value $530,252) (COST $530,000)
Collateralized by U.S. Treasury Notes & Bonds ............................................. 530,000 530,000
-----------
TOTAL INVESTMENTS (COST $89,138,454) 96.0% .................................................. 75,557,609
OTHER ASSETS, LESS LIABILITIES 4.0% ......................................................... 3,144,619
-----------
TOTAL NET ASSETS 100.0% ..................................................................... $78,702,228
===========
</TABLE>
CURRENCY ABBREVIATIONS:
AUD - Australian Dollar
CAD - Canadian Dollar
DKK - Danish Krone
EUR - European Unit
GBP - British Pound
NZD - New Zealand Dollar
SEK - Swedish Krona
PORTFOLIO ABBREVIATION:
FRN - Floating Rate Note
*The principal amount is stated in U.S. dollars unless otherwise indicated.
(a)At April 30, 2000, the repurchase agreement held by the fund had been entered
into on April 28, 2000.
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
APRIL 30, 2000 YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value,
beginning of period .............. $ 10.11 $ 10.46 $ 10.29 $ 10.28 $ 10.35 $ 10.03
---------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income(b) .......... .28 .53 .54 .57 .58 .56
Net realized and unrealized
gains (losses) .................. (.16) (.38) .19 .02 (.08) .31
---------------------------------------------------------------------------------------------
Total from investment operations ... .12 .15 .73 .59 .50 .87
---------------------------------------------------------------------------------------------
Less distributions from
net investment income ............ (.30) (.50) (.56) (.58) (.57) (.55)
---------------------------------------------------------------------------------------------
Net asset value, end of period ..... $ 9.93 $ 10.11 $ 10.46 $ 10.29 $ 10.28 $ 10.35
=============================================================================================
Total return(a) .................... 1.25% 1.51% 7.38% 5.88% 4.97% 8.90%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .. $ 148,866 $ 176,114 $ 224,132 $ 192,051 $ 196,042 $ 208,057
Ratios to average net assets:
Expenses .......................... .84%(c) .79% .78% .78% .74% .73%
Net investment income ............. 5.62%(c) 5.18% 5.24% 5.51% 5.64% 5.42%
Portfolio turnover rate ............ 49.54% 64.26% 37.70% 40.56% 72.62% 56.34%
</TABLE>
(a)Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(b)Based on average shares outstanding effective year ended October 31, 1999.
(c)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, 2000 -----------------------------------------------
(UNAUDITED) 1999 1998 1997(d)
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ......................... $ 10.10 $ 10.45 $ 10.30 $ 10.24
-----------------------------------------------------------------
Income from investment operations:
Net investment income(b)..................................... .29 .54 .57 .47
Net realized and unrealized gains (losses) .................. (.16) (.38) .16 .07
-----------------------------------------------------------------
Total from investment operations ............................. .13 .16 .73 .54
-----------------------------------------------------------------
Less distributions from net investment income ................ (.31) (.51) (.58) (.48)
-----------------------------------------------------------------
Net asset value, end of period ............................... $ 9.92 $ 10.10 $ 10.45 $ 10.30
=================================================================
Total return(a)............................................... 1.30% 1.62% 7.38% 5.45%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................ $ 1,379 $ 1,367 $ 3,644 $ 385
Ratios to average net assets:
Expenses .................................................... .74%(c) .69% .69% .70%(c)
Net investment income ....................................... 5.72%(c) 5.26% 5.28% 5.35%(c)
Portfolio turnover rate ...................................... 49.54% 64.26% 37.70% 40.56%
</TABLE>
(a) Total return is not annualized for periods less than one year.
(b) Based on average shares outstanding effective year ended October 31, 1999.
(c) Annualized
(d) 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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN SHORT-INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AGENCY BONDS 34.2%
FEDERAL HOME LOAN BANK (FHLB) 6.5%
6.00%, 8/15/02 .................................................................. $10,000,000 $ 9,755,380
-----------
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) 6.5%
6.52%, 1/02/02 .................................................................. 5,000,000 4,958,525
5.50%, 5/15/02 .................................................................. 5,000,000 4,847,185
-----------
9,805,710
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) 21.2%
5.60%, 2/02/01 .................................................................. 9,500,000 9,416,106
5.70%, 5/15/02 .................................................................. 10,000,000 9,725,890
5.75%, 4/15/03 .................................................................. 7,000,000 6,730,255
6.61%, 4/10/08 .................................................................. 3,000,000 2,820,027
6.19%, 2/19/09 .................................................................. 3,500,000 3,201,300
-----------
31,893,578
-----------
TOTAL AGENCY BONDS (COST $52,136,215) ........................................... 51,454,668
-----------
MORTGAGE BACKED SECURITIES 58.6%
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) 5.3%
7.00%, 3/01/07 .................................................................. 339,797 334,437
7.00%, 4/01/07 .................................................................. 135,404 133,268
7.00%, 8/01/07 .................................................................. 274,253 269,928
7.00%, 12/01/10 ................................................................. 1,298,943 1,271,719
7.00%, 7/01/11 .................................................................. 362,163 354,454
7.00%, 10/01/11 ................................................................. 713,946 698,748
7.00%, 11/01/11 ................................................................. 112,398 110,006
7.00%, 4/01/12 .................................................................. 168,422 164,749
7.00%, 5/01/12 .................................................................. 495,215 484,415
7.00%, 8/01/12 .................................................................. 1,588,810 1,554,160
7.00%, 9/01/12 .................................................................. 124,696 121,977
7.00%, 10/01/12 ................................................................. 311,272 304,484
7.00%, 8/01/13 .................................................................. 392,437 383,764
7.00%, 9/01/13 .................................................................. 1,728,268 1,689,519
-----------
7,875,628
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) 43.9%
6.00%, 4/01/04 .................................................................. 11,848,104 11,487,922
6.50%, 9/01/05 .................................................................. 12,510,126 12,248,411
6.50%, 10/01/06 ................................................................. 11,492,362 11,251,939
6.50%, 12/01/08 ................................................................. 5,172,670 5,021,174
6.50%, 5/01/11 .................................................................. 7,559,587 7,282,025
6.50%, 2/01/12 .................................................................. 5,754,251 5,521,650
7.00%, 7/01/12 .................................................................. 682,485 667,522
7.00%, 8/01/12 .................................................................. 191,122 186,932
7.00%, 9/01/12 .................................................................. 241,010 235,726
7.00%, 10/01/12 ................................................................. 2,792,903 2,731,672
7.00%, 11/01/12 ................................................................. 2,857,231 2,794,590
7.00%, 12/01/12 ................................................................. 420,324 411,108
7.00%, 1/01/13 .................................................................. 442,857 433,148
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN SHORT-INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MORTGAGE BACKED SECURITIES (CONT.)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) (CONT.)
7.00%, 5/01/13 .................................................................. $ 553,740 $ 541,600
7.00%, 8/01/13 .................................................................. 223,620 218,611
7.00%, 7/01/14 .................................................................. 85,086 83,146
7.50%, 12/01/14 ................................................................. 1,964,488 1,954,946
7.50%, 1/01/15 .................................................................. 2,933,944 2,919,693
-----------
65,991,815
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) 9.4%
6.50%, 10/15/13 ................................................................. 838,829 811,763
6.50%, 4/15/14 .................................................................. 1,913,327 1,846,258
6.50%, 6/15/14 .................................................................. 843,006 813,455
6.50%, 7/15/14 .................................................................. 6,012,567 5,801,804
7.50%, 10/15/14 ................................................................. 952,056 953,070
7.50%, 11/15/14 ................................................................. 1,980,823 1,982,933
7.50%, 12/15/14 ................................................................. 1,979,893 1,982,001
-----------
14,191,284
------------
TOTAL MORTGAGE BACKED SECURITIES (COST $89,339,051) ............................. 88,058,727
------------
TOTAL LONG TERM INVESTMENTS (COST $141,475,266) ................................. 139,513,395
------------
(a)REPURCHASE AGREEMENT 6.8%
Joint Repurchase Agreement, 5.706%, 5/01/00
(Maturity Value $10,145,909) (COST $10,141,087) ................................ 10,141,087 10,141,087
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Lehman Brothers Inc.
Nesbitt Burns Securities Inc.
Paine Webber Inc.
Paribas Corporation
Societe Generale
Warburg Dillion Read LLC
Collateralized by U.S. Treasury Bills & Notes
------------
TOTAL INVESTMENTS (COST $151,616,353) 99.6% ..................................... 149,654,482
OTHER ASSETS, LESS LIABILITIES .4% .............................................. 590,660
------------
NET ASSETS 100.0% ............................................................... $150,245,142
============
</TABLE>
(a)Investment is through participation in a joint account with other funds
managed by the investment adviser. At April 30, 2000, all repurchase agreements
had been entered into on April 28, 2000.
See notes to financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
APRIL 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN FRANKLIN GLOBAL SHORT-INTERMEDIATE
CONVERTIBLE FRANKLIN EQUITY GOVERNMENT U.S. GOVERNMENT
SECURITIES FUND INCOME FUND INCOME FUND SECURITIES FUND
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost ........................................ $172,563,446 $357,371,980 $89,138,454 $151,616,353
========================================================================
Value ....................................... 178,002,607 394,243,588 75,557,609 149,654,482
Cash ......................................... -- -- 314 --
Receivables:
Investment securities sold .................. 5,174,869 2,942,909 1,496,081 --
Capital shares sold ......................... 70,720 129,370 200,830 102,654
Dividends and interest ...................... 1,391,028 1,302,494 1,863,389 1,327,589
------------------------------------------------------------------------
Total assets ............................ 184,639,224 398,618,361 79,118,223 151,084,725
------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ............. 2,694,548 2,831,384 -- --
Capital shares redeemed ..................... 672,485 790,865 207,251 531,002
Affiliates .................................. 166,954 387,761 93,486 99,929
Shareholders ................................ 137,754 322,356 -- 189,339
Funds advanced by custodian .................. 871,381 -- -- --
Other liabilities ............................ 20,428 35,795 115,258 19,313
------------------------------------------------------------------------
Total liabilities ....................... 4,563,550 4,368,161 415,995 839,583
------------------------------------------------------------------------
Net assets, at value ................... $180,075,674 $394,250,200 $78,702,228 $150,245,142
========================================================================
Net assets consist of:
Undistributed net investment income .......... $ 791,559 $ 319,035 $ -- $ 182,652
Accumulated distributions in excess of net
investment income ............................ -- -- (165,021) --
Net unrealized appreciation (depreciation) ... 5,439,161 36,871,608 (13,664,925) (1,961,871)
Accumulated net realized gain (loss) ......... 18,078,912 3,315,023 (4,995,484) (8,142,559)
Capital shares ............................... 155,766,042 353,744,534 97,527,658 160,166,920
------------------------------------------------------------------------
Net assets, at value .................... $180,075,674 $394,250,200 $78,702,228 $150,245,142
========================================================================
</TABLE>
See notes to financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
APRIL 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN FRANKLIN GLOBAL SHORT-INTERMEDIATE
CONVERTIBLE FRANKLIN EQUITY GOVERNMENT U.S. GOVERNMENT
SECURITIES FUND INCOME FUND INCOME FUND SECURITIES FUND
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A:
Net assets, at value ....................... $147,360,343 $327,513,964 $74,806,139 $148,865,931
==============================================================================
Shares outstanding ......................... 9,546,883 18,455,464 10,283,116 14,984,991
==============================================================================
Net asset value per share* ................. $15.44 $17.75 $7.27 $ 9.93
==============================================================================
Maximum offering price per share (net
asset value per share [divided by] 94.25%,
94.25%, 95.75%, 97.75%, respectively) ...... $16.38 $18.83 $7.59 $10.16
==============================================================================
CLASS B:
Net assets, at value ....................... -- $ 2,886,428 -- --
==============================================================================
Shares outstanding ......................... -- 163,075 -- --
==============================================================================
Net asset value and maximum offering price
per share* ................................. -- $17.70 -- --
==============================================================================
CLASS C:
Net assets, at value ....................... $ 32,715,331 $ 63,849,808 $ 3,811,639 --
==============================================================================
Shares outstanding ......................... 2,127,305 3,607,440 523,463 --
==============================================================================
Net asset value per share* ................. $15.38 $17.70 $7.28 --
==============================================================================
Maximum offering price per share (net
asset value per share [divided by] 99.00%).. $15.54 $17.88 $7.35 --
==============================================================================
ADVISOR CLASS:
Net assets, at value ....................... -- -- $ 84,450 $ 1,379,211
==============================================================================
Shares outstanding ......................... -- -- 11,604 139,016
==============================================================================
Net asset value and maximum offering
price per share ............................ -- -- $7.28 $ 9.92
==============================================================================
</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 OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN FRANKLIN GLOBAL SHORT-INTERMEDIATE
CONVERTIBLE FRANKLIN EQUITY GOVERNMENT U.S. GOVERNMENT
SECURITIES FUND INCOME FUND INCOME FUND SECURITIES FUND
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:+
Dividends .................................. $ 3,040,116 $ 7,563,252 $ -- $ --
Interest ................................... 2,027,417 837,958 3,665,211 5,379,148
------------------------------------------------------------------------------
Total investment income ............... 5,067,533 8,401,210 3,665,211 5,379,148
------------------------------------------------------------------------------
Expenses:
Management fees (Note 3) ................... 493,407 1,047,113 241,930 478,242
Distribution fees (Note 3)
Class A ................................... 174,715 428,728 52,482 79,400
Class B ................................... -- 12,487 -- --
Class C ................................... 147,640 341,292 13,771 --
Transfer agent fees (Note 3) ............... 139,542 395,436 91,300 77,975
Custodian fees ............................. 941 3,213 21,500 1,167
Reports to shareholders .................... 27,687 69,205 13,900 22,022
Registration and filing fees ............... 11,844 46,034 32,800 24,081
Professional fees (Note 3) ................. 5,388 12,747 3,700 6,160
Trustees' fees and expenses ................ 4,375 14,047 1,600 4,967
Other ...................................... 5,233 4,910 153 1,924
------------------------------------------------------------------------------
Total expenses ........................ 1,010,772 2,375,212 473,136 695,938
------------------------------------------------------------------------------
Net investment income ................ 4,056,761 6,025,998 3,192,075 4,683,210
------------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ............................... 21,982,076 3,973,058 (4,909,021) (2,467,482)
Foreign currency transactions ............. -- -- (68,669) --
------------------------------------------------------------------------------
Net realized gain (loss) .............. 21,982,076 3,973,058 (4,977,690) (2,467,482)
Net unrealized appreciation (depreciation)
on:
Investments ............................... 9,655,268 (10,087,306) 1,009,897 (112,696)
Translation of assets and liabilities
denominated in foreign currencies ........ -- -- (817,143) --
------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) 9,655,268 (10,087,306) 192,754 (112,696)
------------------------------------------------------------------------------
Net realized and unrealized gain (loss) ...... 31,637,344 (6,114,248) (4,784,936) (2,580,178)
------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations .................. $35,694,105 $ (88,250) $(1,592,861) $2,103,032
==============================================================================
</TABLE>
+ Net of foreign taxes and fees of $24,789 and $7,259 for the Franklin Equity
Income Fund and Franklin Global Government Income Fund, respectively.
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, 2000 (UNAUDITED)
AND THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN CONVERTIBLE SECURITIES FUND FRANKLIN EQUITY INCOME FUND
--------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2000 OCTOBER 31, 1999 APRIL 30, 2000 OCTOBER 31, 1999
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .......................... $4,056,761 $8,709,026 $6,025,998 $14,528,303
Net realized gain from investments and foreign
currency transactions ......................... 21,982,076 4,749,408 3,973,058 30,161,732
Net unrealized appreciation (depreciation) on
investments and translation of assets and
liabilities denominated in foreign currencies.. 9,655,268 11,188,287 (10,087,306) (20,510,599)
---------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ................. 35,694,105 24,646,721 (88,250) 24,179,436
Distributions to shareholders from:
Net investment income:
Class A ....................................... (2,986,386) (7,743,319) (5,007,772) (12,960,968)
Class B ....................................... -- -- (27,724) (24,744)
Class C ....................................... (553,440) (1,607,571) (713,790) (2,000,705)
Net realized gains:
Class A ....................................... -- -- (25,502,215) (23,373,432)
Class B ....................................... -- -- (173,233) --
Class C ....................................... -- -- (5,212,007) (4,503,651)
---------------------------------------------------------------------------
Total distributions to shareholders ............. (3,539,826) (9,350,890) (36,636,741) (42,863,500)
Capital share transactions: (Note 2)
Class A ........................................ (8,788,715) (53,014,023) (28,329,739) (26,849,718)
Class B ........................................ -- -- 584,510 2,574,198
Class C ........................................ (2,345,512) (15,327,964) (12,093,404) 4,467,283
---------------------------------------------------------------------------
Total capital share transactions ........... (11,134,227) (68,341,987) (39,838,633) (19,808,237)
Net increase (decrease) in net assets ..... 21,020,052 (53,046,156) (76,563,624) (38,492,301)
Net assets:
Beginning of period ............................. 159,055,622 212,101,778 470,813,824 509,306,125
---------------------------------------------------------------------------
End of period ................................... $180,075,674 $159,055,622 $394,250,200 $470,813,824
===========================================================================
Undistributed net investment income included
in net assets:
End of period ................................ $ 791,559 $ 274,624 $ 319,035 $ 42,323
===========================================================================
</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, 2000 (UNAUDITED)
AND THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN GLOBAL FRANKLIN SHORT-INTERMEDIATE
GOVERNMENT INCOME FUND U.S. GOVERNMENT SECURITIES FUND
----------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2000 OCTOBER 31, 1999 APRIL 30, 2000 OCTOBER 31, 1999
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Decrease in net assets:
Operations:
Net investment income ....................... $ 3,192,075 $ 7,815,767 $ 4,683,210 $ 10,454,640
Net realized gain (loss) from investments
and foreign currency transactions ......... (4,977,690) 2,292,674 (2,467,482) (21,004)
Net unrealized appreciation (depreciation)
on investments and translation of assets and
liabilities denominated in foreign currencies 192,754 (9,301,008) (112,696) (7,765,879)
--------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ............. (1,592,861) 807,433 2,103,032 2,667,757
Distributions to shareholders from:
Net investment income:
Class A .................................... (3,184,745) (7,040,581) (5,036,036) (9,778,284)
Class C .................................... (160,174) (358,541) -- --
Advisor Class .............................. (11,413) (56,550) (52,363) (99,886)
Net realized gains:
Class A .................................... -- (221,141) -- --
Class C .................................... -- (12,401) -- --
Advisor Class .............................. -- (1,793) -- --
--------------------------------------------------------------------------
Total distributions to shareholders .......... (3,356,332) (7,691,007) (5,088,399) (9,878,170)
Capital share transactions: (Note 2)
Class A ..................................... (5,506,105) (19,386,030) (24,291,589) (40,875,576)
Class C ..................................... (685,828) (618,502) -- --
Advisor Class ............................... (599,355) (84,877) 41,186 (2,209,357)
--------------------------------------------------------------------------
Total capital share transactions ............. (6,791,288) (20,089,409) (24,250,403) (43,084,933)
Net decrease in net assets .............. (11,740,481) (26,972,983) (27,235,770) (50,295,346)
Net assets:
Beginning of period .......................... 90,442,709 117,415,692 177,480,912 227,776,258
--------------------------------------------------------------------------
End of period ................................ $78,702,228 $ 90,442,709 $150,245,142 $177,480,912
==========================================================================
Undistributed net investment income
(accumulated distributions in excess of net
investment income) included in net assets:
End of period ............................ $ (165,021) $ (764) $ 182,652 $ 587,841
==========================================================================
</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
six separate series. All funds included in this report (the Funds) are
diversified except the Franklin Global Government Income Fund. The investment
objectives of the Funds included in this report are:
<TABLE>
<CAPTION>
GLOBAL INCOME GROWTH AND INCOME INCOME
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Global Government Income Fund Convertible Securities Fund Short-Intermediate U.S. Government Securities Fund
Equity Income Fund
</TABLE>
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.
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.
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. FORWARD EXCHANGE CONTRACT:
The 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.
d. 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.
FRANKLIN INVESTORS SECURITIES TRUST
Notes to Financial Statements (unaudited) (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
e. 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.
Certain income from foreign securities is recorded as soon as information is
available to the Funds. 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.
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.
f. 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. Each
class of shares differs by its initial sales load, distribution fees, voting
rights on matters affecting a single class and its exchange privilege.
FUND CLASS
-----------------------------------------------------------------
Convertible Securities Fund A & C
Equity Income Fund A, B & C
Global Government Income Fund A, C & Advisor
Short-Intermediate U.S. Government Securities Fund A & Advisor
FRANKLIN INVESTORS SECURITIES TRUST
Notes to Financial Statements (unaudited) (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
At April 30, 2000, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Funds' shares were as follows:
<TABLE>
<CAPTION>
CONVERTIBLE SECURITIES FUND EQUITY INCOME FUND
-------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Six months ended April 30, 2000
Shares sold ................................... 2,811,324 $42,456,105 3,818,305 $ 67,145,761
Shares issued in reinvestment of distributions 158,788 2,275,955 1,535,487 26,662,345
Shares redeemed ............................... (3,608,411) (53,520,775) (6,998,862) (122,137,845)
-------------------------------------------------------------------------
Net decrease .................................. (638,299) $(8,788,715) (1,645,070) $ (28,329,739)
=========================================================================
Year ended October 31, 1999
Shares sold ................................... 2,068,275 $25,777,173 5,788,113 $113,372,968
Shares issued in reinvestment of distributions 475,259 5,808,595 1,647,926 31,685,607
Shares redeemed ............................... (6,878,148) (84,599,791) (8,820,547) (171,908,293)
-------------------------------------------------------------------------
Net decrease .................................. (4,334,614) $(53,014,023) (1,384,508) $(26,849,718)
=========================================================================
CLASS B SHARES:
Six months ended April 30, 2000
Shares sold ............................................................................ 65,529 $ 1,133,989
Shares issued in reinvestment of distributions ......................................... 10,737 185,920
Shares redeemed ........................................................................ (43,290) (735,399)
-------------------------------
Net increase ........................................................................... 32,976 $ 584,510
===============================
Year ended October 31, 1999**
Shares sold ............................................................................ 143,757 $ 2,846,656
Shares issued in reinvestment of distributions ......................................... 1,143 22,443
Shares redeemed ........................................................................ (14,801) (294,901)
-------------------------------
Net increase............................................................................ 130,099 $ 2,574,198
===============================
CLASS C SHARES:
Six months ended April 30, 2000
Shares sold ................................... 225,360 $ 3,340,097 404,639 $ 7,128,546
Shares issued in reinvestment of distributions 29,734 424,458 313,320 5,425,679
Shares redeemed ............................... (422,386) (6,110,067) (1,412,691) (24,647,629)
-------------------------------------------------------------------------
Net decrease .................................. (167,292) $ (2,345,512) (694,732) $(12,093,404)
=========================================================================
Year ended October 31, 1999
Shares sold ................................... 311,908 $ 3,811,987 1,374,494 $ 26,925,968
Shares issued in reinvestment of distributions 100,454 1,221,234 310,254 5,945,035
Shares redeemed ............................... (1,667,505) (20,361,185) (1,460,904) (28,403,720)
-------------------------------------------------------------------------
Net increase (decrease) ....................... (1,255,143) $(15,327,964) 223,844 $ 4,467,283
=========================================================================
</TABLE>
**For the period January 1, 1999 (effective date) to October 31, 1999.
FRANKLIN INVESTORS SECURITIES TRUST
Notes to Financial Statements (unaudited) (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
GLOBAL SHORT-INTERMEDIATE
GOVERNMENT INCOME FUND U.S. GOVERNMENT SECURITIES FUND
-----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Six months ended April 30, 2000
Shares sold ..................................... 1,046,716 $ 7,904,694 20,721,502 $206,607,390
Shares issued in reinvestment of distributions .. 246,806 1,864,097 351,918 3,509,570
Shares redeemed ................................. (2,018,421) (15,274,896) (23,515,485) (234,408,549)
-----------------------------------------------------------------
Net decrease .................................... (724,899) $(5,506,105) (2,442,065) $(24,291,589)
=================================================================
Year ended October 31, 1999
Shares sold ..................................... 3,229,144 $25,890,191 34,503,497 $352,227,000
Shares issued in reinvestment of distributions .. 527,266 4,191,903 649,862 6,640,659
Shares redeemed ................................. (6,184,889) (49,468,124) (39,156,441) (399,743,235)
-----------------------------------------------------------------
Net decrease .................................... (2,428,479) $(19,386,030) (4,003,082) $ (40,875,576)
=================================================================
CLASS C SHARES:
Six months ended April 30, 2000
Shares sold ..................................... 72,262 $ 545,098
Shares issued in reinvestment of distributions .. 12,343 93,416
Shares redeemed ................................. (174,831) (1,324,342)
---------------------------
Net decrease .................................... (90,226) $ (685,828)
===========================
Year ended October 31, 1999
Shares sold ..................................... 131,666 $1,059,002
Shares issued in reinvestment of distributions .. 29,752 236,792
Shares redeemed ................................. (239,250) (1,914,296)
---------------------------
Net decrease .................................... (77,832) $ (618,502)
===========================
ADVISOR CLASS:
Six months ended April 30, 2000
Shares sold ..................................... 4,521 $ 34,577 57,592 $ 579,857
Shares issued in reinvestment of distributions .. 1,452 11,101 4,603 45,845
Shares redeemed ................................. (84,254) (645,033) (58,618) (584,516)
-----------------------------------------------------------------
Net increase (decrease) ......................... (78,281) $ (599,355) 3,577 $ 41,186
=================================================================
Year ended October 31, 1999
Shares sold ..................................... 18,974 $ 153,011 109,306 $ 1,121,253
Shares issued in reinvestment of distributions .. 7,067 56,218 6,126 62,526
Shares redeemed ................................. (36,633) (294,106) (328,548) (3,393,136)
-----------------------------------------------------------------
Net decrease .................................... (10,592) $ (84,877) (213,116) $ (2,209,357)
=================================================================
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
Notes to Financial Statements (unaudited) (continued)
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
</TABLE>
The Funds pay an investment management fee to Advisers based on the month end
net assets of the Funds as follows:
ANNUALIZED
FEE RATE NET ASSETS
-------------------------------------------------------------------------
.625% First $100 million
.500% Over $100 million, up to and including $250 million
.450% In excess of $250 million
Under an agreement with Advisers, FT Services provides administrative services
to the Funds. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Funds.
Under a subadvisory agreement, TICI provides subadvisory services to the Global
Government Income Fund, and receives from Advisers fees based on the average
monthly net assets of the fund.
The Funds reimburse Distributors up to the stated percentages of their average
daily 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>
Convertible Securities Fund .25% -- 1.00%
Equity Income Fund .25% 1.00% 1.00%
Global Government Income Fund .15% -- .65%
Short-Intermediate U.S. Government Securities Fund .10% -- --
</TABLE>
Distributors paid net commissions on sales of the Funds' shares, and received
contingent deferred sales charges for the period as follows:
<TABLE>
<CAPTION>
GLOBAL SHORT-INTERMEDIATE
CONVERTIBLE EQUITY GOVERNMENT U.S. GOVERNMENT
SECURITIES FUND INCOME FUND INCOME FUND SECURITIES FUND
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net commissions paid .......................... $25,518 $77,011 $1,891 $186,709
Contingent deferred sales charges ............. $10,825 $26,634 $ 490 $ 1,072
</TABLE>
The Funds paid transfer agent fees of $704,253, of which $603,545 was paid to
Investor Services.
Included in professional fees are legal fees of $4,424 that were paid to a law
firm in which a partner is an officer of the Funds.
FRANKLIN INVESTORS SECURITIES TRUST
Notes to Financial Statements (unaudited) (continued)
4. INCOME TAXES
At October 31, 1999, the Convertible Securities Fund and the Short-Intermediate
U.S. Government Securities Fund had tax basis capital losses, which may be
carried over to offset future capital gains. Such losses expire as follows:
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE
CONVERTIBLE U.S. GOVERNMENT
SECURITIES FUND SECURITIES FUND
--------------------------------------
<S> <C> <C>
Capital loss carryovers expiring in:
2002 ......................... $ -- $1,788,818
2003 ......................... -- 3,564,637
2004 ......................... -- 300,618
2005 ......................... -- --
2006 ......................... 3,900,664 --
2007 ......................... -- 21,004
--------------------------------------
$3,900,664 $5,675,077
--------------------------------------
</TABLE>
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions.
Net realized capital gains/losses differ for financial statement and tax
purposes primarily due to differing treatments of wash sales and foreign
currency transactions.
At April 30, 2000, the net unrealized appreciation/(depreciation) based on the
cost of investments for income tax purposes was as follows:
<TABLE>
<CAPTION>
GLOBAL SHORT-INTERMEDIATE
CONVERTIBLE EQUITY GOVERNMENT U.S. GOVERNMENT
SECURITIES FUND INCOME FUND INCOME FUND SECURITIES FUND
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments at cost ......................... $172,847,446 $357,371,980 $ 89,138,454 $151,616,353
------------------------------------------------------------------------
Unrealized appreciation ..................... $ 19,751,641 $ 62,990,321 $ 99,100 $ 164,107
Unrealized depreciation ..................... (14,596,480) (26,118,713) (13,679,945) (2,125,978)
------------------------------------------------------------------------
Net unrealized appreciation (depreciation) .. $ 5,155,161 $ 36,871,608 $(13,580,845) $ (1,961,871)
------------------------------------------------------------------------
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ending April 30, 2000 were as follows:
<TABLE>
<CAPTION>
GLOBAL SHORT-INTERMEDIATE
CONVERTIBLE EQUITY GOVERNMENT U.S. GOVERNMENT
SECURITIES FUND INCOME FUND INCOME FUND SECURITIES FUND
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases ..................................... $175,000,161 $ 98,386,134 $54,723,107 $ 77,692,773
Sales ......................................... $198,642,096 $169,617,426 $50,360,824 $110,890,357
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
Notes to Financial Statements (unaudited) (continued)
6. CREDIT RISK
The Convertible Securities Fund has 64.1% 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 Convertible Securities Fund has investments in excess of 10% of its total
net assets in the electronic technology and technology services industries. Such
concentration may subject the Fund more significantly to economic changes
occurring within those industries.
SHAREHOLDER LETTER
Dear Shareholder:
This semiannual report for Franklin Investors Securities Trust covers the period
ended April 30, 2000.
In the six months since the Trust's annual report, consumer spending remained
the driving force behind U.S. economic growth. Gross domestic product grew an
annualized 7.3% and 5.4% in fourth quarter 1999 and first quarter 2000,
respectively. However, this growth came at the cost of inflation, and the
reporting period's data gave substance to earlier fears. The first quarter 2000
consumer spending gain was the largest since second quarter 1983, while March's
3.7% Consumer Price Index year-over-year increase was the biggest rise since
1991. In the final week of the reporting period, the Labor Department's
employment cost index registered a higher-than-expected 1.4% gain, or 4.3%
annualized -- a clear sign of accelerating wage inflation. The Federal Reserve
Board (the Fed) reacted to continued economic strength and nascent inflation by
raising the federal funds target rate three times, for a total 0.75% increase to
6.0%, by the end of the reporting period.
CONTENTS
Shareholder Letter 1
Fund Reports
Franklin Adjustable
U.S. Government
Securities Fund 5
Franklin Bond Fund 11
Financial Highlights &
Statement of Investments 18
Financial Statements 27
Notes to
Financial Statements 31
[Pyramid Graphic]
NASDAQ AND S&P 500
Daily Closing Prices
(10/31/99 - 4/30/00)
<TABLE>
<CAPTION>
INDEXED INDEXED
TO TO
DATE NASDAQ % CHG 100 S&P 500 % CHG 100
---- ------ ----- --- ------- ----- ---
<S> <C> <C> <C> <C> <C> <C>
10/31/1999 2966.43 100.00 1362.93 100.00
11/01/1999 2967.65 0.04% 100.04 1354.12 - 0.65% 99.35
11/02/1999 2981.63 0.47% 100.51 1347.74 - 0.47% 98.89
11/03/1999 3028.51 1.57% 102.09 1354.93 0.53% 99.41
11/04/1999 3055.95 0.91% 103.02 1362.64 0.57% 99.98
11/05/1999 3102.29 1.52% 104.58 1370.23 0.56% 100.54
11/08/1999 3143.97 1.34% 105.98 1377.01 0.49% 101.03
11/09/1999 3125.04 - 0.60% 105.35 1365.28 - 0.85% 100.17
11/10/1999 3155.96 0.99% 106.39 1373.46 0.60% 100.77
11/11/1999 3197.29 1.31% 107.78 1381.46 0.58% 101.36
11/12/1999 3221.15 0.75% 108.59 1396.06 1.06% 102.43
11/15/1999 3219.54 - 0.05% 108.53 1394.39 - 0.12% 102.31
11/16/1999 3293.05 2.28% 111.01 1420.03 1.84% 104.19
11/17/1999 3269.39 - 0.72% 110.21 1410.71 - 0.66% 103.51
11/18/1999 3347.11 2.38% 112.83 1424.94 1.01% 104.55
11/19/1999 3369.25 0.66% 113.58 1422 - 0.21% 104.33
11/22/1999 3392.56 0.69% 114.37 1420.94 - 0.07% 104.26
11/23/1999 3342.87 - 1.46% 112.69 1404.64 - 1.15% 103.06
11/24/1999 3420.5 2.32% 115.31 1417.08 0.89% 103.97
11/26/1999 3447.81 0.80% 116.23 1416.62 - 0.03% 103.94
11/29/1999 3421.37 - 0.77% 115.34 1407.83 - 0.62% 103.29
11/30/1999 3336.16 - 2.49% 112.46 1388.91 - 1.34% 101.91
12/01/1999 3353.71 0.53% 113.06 1397.72 0.63% 102.55
12/02/1999 3452.78 2.95% 116.40 1409.04 0.81% 103.38
12/03/1999 3520.63 1.97% 118.68 1433.3 1.72% 105.16
12/06/1999 3546.01 0.72% 119.54 1423.34 - 0.69% 104.43
12/07/1999 3586.92 1.15% 120.92 1409.17 - 1.00% 103.39
12/08/1999 3586.08 - 0.02% 120.89 1403.88 - 0.38% 103.00
12/09/1999 3594.17 0.23% 121.16 1408.11 0.30% 103.31
12/10/1999 3620.23 0.73% 122.04 1417.04 0.63% 103.97
12/13/1999 3658.15 1.05% 123.32 1415.22 - 0.13% 103.84
12/14/1999 3571.66 - 2.36% 120.40 1403.17 - 0.85% 102.95
12/15/1999 3621.95 1.41% 122.10 1413.33 0.72% 103.70
12/16/1999 3715.06 2.57% 125.24 1418.78 0.39% 104.10
12/17/1999 3753.06 1.02% 126.52 1421.05 0.16% 104.26
12/20/1999 3783.87 0.82% 127.56 1418.09 - 0.21% 104.05
12/21/1999 3911.15 3.36% 131.85 1433.43 1.08% 105.17
12/22/1999 3937.3 0.67% 132.73 1436.13 0.19% 105.37
12/23/1999 3969.44 0.82% 133.81 1458.34 1.55% 107.00
12/27/1999 3975.38 0.15% 134.01 1457.09 - 0.09% 106.91
12/28/1999 3972.11 - 0.08% 133.90 1457.66 0.04% 106.95
12/29/1999 4041.46 1.75% 136.24 1463.46 0.40% 107.38
12/30/1999 4036.87 - 0.11% 136.09 1464.47 0.07% 107.45
12/31/1999 4069.31 0.80% 137.18 1469.25 0.33% 107.80
01/03/2000 4131.15 1.52% 139.26 1455.22 - 0.95% 106.77
01/04/2000 3901.69 - 5.55% 131.53 1399.42 - 3.83% 102.68
01/05/2000 3877.54 - 0.62% 130.71 1402.11 0.19% 102.87
01/06/2000 3727.13 - 3.88% 125.64 1403.45 0.10% 102.97
01/07/2000 3882.62 4.17% 130.89 1441.47 2.71% 105.76
01/10/2000 4049.67 4.30% 136.52 1457.6 1.12% 106.95
01/11/2000 3921.19 - 3.17% 132.19 1438.56 - 1.31% 105.55
01/12/2000 3850.02 - 1.82% 129.79 1432.25 - 0.44% 105.09
01/13/2000 3957.21 2.78% 133.40 1449.68 1.22% 106.36
01/14/2000 4064.27 2.71% 137.01 1465.15 1.07% 107.50
01/18/2000 4130.81 1.64% 139.25 1455.14 - 0.68% 106.77
01/19/2000 4151.29 0.50% 139.94 1455.9 0.05% 106.82
01/20/2000 4189.51 0.92% 141.23 1445.57 - 0.71% 106.06
01/21/2000 4235.4 1.10% 142.78 1441.36 - 0.29% 105.75
01/24/2000 4096.08 - 3.29% 138.08 1401.53 - 2.76% 102.83
01/25/2000 4167.41 1.74% 140.49 1410.03 0.61% 103.46
01/26/2000 4069.91 - 2.34% 137.20 1404.09 - 0.42% 103.02
01/27/2000 4039.56 - 0.75% 136.18 1398.56 - 0.39% 102.61
01/28/2000 3887.07 - 3.77% 131.04 1360.16 - 2.75% 99.80
01/31/2000 3940.35 1.37% 132.83 1394.46 2.52% 102.31
02/01/2000 4051.98 2.83% 136.59 1409.28 1.06% 103.40
02/02/2000 4073.96 0.54% 137.34 1409.12 - 0.01% 103.39
02/03/2000 4210.98 3.36% 141.95 1424.97 1.12% 104.55
02/04/2000 4244.14 0.79% 143.07 1424.37 - 0.04% 104.51
02/07/2000 4321.77 1.83% 145.69 1424.24 - 0.01% 104.50
02/08/2000 4427.54 2.45% 149.25 1441.72 1.23% 105.78
02/09/2000 4363.24 - 1.45% 147.09 1411.7 - 2.08% 103.58
02/10/2000 4485.63 2.81% 151.21 1416.83 0.36% 103.95
02/11/2000 4395.45 - 2.01% 148.17 1387.12 - 2.10% 101.77
02/14/2000 4418.55 0.53% 148.95 1389.94 0.20% 101.98
02/15/2000 4420.77 0.05% 149.03 1402.05 0.87% 102.87
02/16/2000 4427.65 0.16% 149.26 1387.67 - 1.03% 101.82
02/17/2000 4548.92 2.74% 153.35 1388.25 0.04% 101.86
02/18/2000 4411.74 - 3.02% 148.72 1346.09 - 3.04% 98.76
02/22/2000 4382.12 - 0.67% 147.72 1352.17 0.45% 99.21
02/23/2000 4550.33 3.84% 153.39 1360.69 0.63% 99.84
02/24/2000 4617.65 1.48% 155.66 1353.43 - 0.53% 99.30
02/25/2000 4590.5 - 0.59% 154.75 1333.36 - 1.48% 97.83
02/28/2000 4577.85 - 0.28% 154.32 1348.05 1.10% 98.91
02/29/2000 4696.69 2.60% 158.33 1366.42 1.36% 100.26
03/01/2000 4784.08 1.86% 161.27 1379.19 0.93% 101.19
03/02/2000 4754.51 - 0.62% 160.28 1381.76 0.19% 101.38
03/03/2000 4914.79 3.37% 165.68 1409.17 1.98% 103.39
03/06/2000 4904.85 - 0.20% 165.35 1391.28 - 1.27% 102.08
03/07/2000 4847.84 - 1.16% 163.42 1355.62 - 2.56% 99.46
03/08/2000 4897.17 1.02% 165.09 1366.7 0.82% 100.28
03/09/2000 5046.86 3.06% 170.13 1401.69 2.56% 102.84
03/10/2000 5048.62 0.03% 170.19 1395.07 - 0.47% 102.36
03/13/2000 4907.24 - 2.80% 165.43 1383.62 - 0.82% 101.52
03/14/2000 4706.63 - 4.09% 158.66 1359.15 - 1.77% 99.72
03/15/2000 4582.62 - 2.63% 154.48 1392.14 2.43% 102.14
03/16/2000 4717.39 2.94% 159.03 1458.47 4.76% 107.01
03/17/2000 4798.13 1.71% 161.75 1464.47 0.41% 107.45
03/20/2000 4610 - 3.92% 155.41 1456.63 - 0.54% 106.87
03/21/2000 4711.68 2.21% 158.83 1493.87 2.56% 109.61
03/22/2000 4864.75 3.25% 163.99 1500.64 0.45% 110.10
03/23/2000 4940.61 1.56% 166.55 1527.35 1.78% 112.06
03/24/2000 4963.03 0.45% 167.31 1527.46 0.01% 112.07
03/27/2000 4958.56 - 0.09% 167.16 1523.86 - 0.24% 111.81
03/28/2000 4833.89 - 2.51% 162.95 1507.73 - 1.06% 110.62
03/29/2000 4644.67 - 3.91% 156.57 1508.52 0.05% 110.68
03/30/2000 4457.89 - 4.02% 150.28 1487.92 - 1.37% 109.17
03/31/2000 4572.83 2.58% 154.15 1498.58 0.72% 109.95
04/03/2000 4223.68 - 7.64% 142.38 1505.97 0.49% 110.50
04/04/2000 4148.89 - 1.77% 139.86 1494.73 - 0.75% 109.67
04/05/2000 4169.22 0.49% 140.55 1487.37 - 0.49% 109.13
04/06/2000 4267.56 2.36% 143.86 1501.34 0.94% 110.16
04/07/2000 4446.45 4.19% 149.89 1516.35 1.00% 111.26
04/10/2000 4188.2 - 5.81% 141.19 1504.46 - 0.78% 110.38
04/11/2000 4055.9 - 3.16% 136.73 1500.59 - 0.26% 110.10
04/12/2000 3769.63 - 7.06% 127.08 1467.17 - 2.23% 107.65
04/13/2000 3676.78 - 2.46% 123.95 1440.51 - 1.82% 105.69
04/14/2000 3321.29 - 9.67% 111.96 1356.56 - 5.83% 99.53
04/17/2000 3539.16 6.56% 119.31 1401.44 3.31% 102.83
04/18/2000 3793.57 7.19% 127.88 1441.61 2.87% 105.77
04/19/2000 3706.41 - 2.30% 124.95 1427.47 - 0.98% 104.74
04/20/2000 3643.88 - 1.69% 122.84 1434.54 0.50% 105.25
04/24/2000 3482.48 - 4.43% 117.40 1429.86 - 0.33% 104.91
04/25/2000 3711.23 6.57% 125.11 1477.44 3.33% 108.40
04/26/2000 3630.09 - 2.19% 122.37 1460.99 - 1.11% 107.19
04/27/2000 3774.03 3.97% 127.22 1464.92 0.27% 107.48
04/28/2000 3860.66 2.30% 30.14 1452.43 - 0.85% 106.57
</TABLE>
Sources: Nasdaq and Standard & Poor's Micropal. The Nasdaq Composite Index
measures all Nasdaq domestic and U.S.-based common stocks listed on the Nasdaq
Market, is market-weighted and includes over 5,000 companies (as of 4/30/00).
The S&P 500 Index is a market value-weighted index of 500 stocks chosen for
market size, liquidity, and industry group representation, with each stock's
weight in the index proportionate to its market value.
The graph is intended to show stock market volatility, as reflected in the
Nasdaq and the S&P 500, and does not illustrate the past or future performance
of any fund in Franklin Investors Securities Trust. To better demonstrate daily
volatility, the graph scales the indexes so they have the same starting point.
Barely cooling economic expansion did have a positive outcome -- robust first
quarter 2000 corporate earnings. By the end of the reporting period, of the 435
companies in the Standard & Poor's 500(R) (S&P 500(R)) Index that reported first
quarter earnings, 72% were above analysts' expectations. Although subject to
volatility and major sell-offs, the equity markets generally rose throughout the
reporting period. The broader S&P 500 and the technology-heavy National
Association of Securities Dealers Automated Quotation System (Nasdaq(R))
Composite Index finished the period up 10% and 52%, respectively. Investors
exhibited a love-me/love-me-not relationship with technology. At some points,
concerns over historically high valuations and the federal district court's
anti-monopoly ruling against technology bellwether Microsoft sent investors
fleeing to the safety of shorter-term Treasury bonds. At other moments,
investors fled bond markets and "old economy" companies, as inflationary data
and rising interest rates seemed to convince them that the technology- and
telecommunications-based "new economy" was the best place for their money.
In addition to rising interest rates and flight-to-quality inflows from equity
market declines, supply fundamentals also affected the fixed-income markets
throughout the reporting period. The U.S. government's $7 billion (out of a
planned $30 billion) 30-year Treasury bond buyback reduced their supply and
drove their prices higher throughout the period. As bond prices and yields move
in an inverse relationship, this resulted in a corresponding yield decline.
Normally the yield curve, or the yield difference between shorter- and
longer-term debt, rises as maturity increases, and investors are offered greater
yields for the additional risk they take on with longer-term debt. However,
reduced supply on the long end caused a yield curve inversion in January that
lasted through the end of the reporting period. As of April 30, 2000, the 30-
and 10-year Treasury bonds yielded 5.96% and 6.21%, respectively, compared with
6.18% and 6.02% six months earlier.
Looking forward, many analysts expect the Fed to increase the federal funds
target rate another 0.5%, following on the heels of end-of-period inflation
indicators. Rising interest rates will pose short-term challenges for the bond
market and the stocks of those companies that issue debt securities for their
financing needs. However, if the Fed achieves its objective of slowing economic
growth and containing inflation, this should benefit fixed-income securities and
interest-rate sensitive equities long-term. Meanwhile, the current income
provided by bonds and equity dividends can cushion overall total returns in
times of market volatility.
Recent market uncertainty 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, who can address concerns about 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
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 witnessed a divergence between the behavior of
short-term versus long-term interest rates in an environment of continued strong
economic growth. While short-term rates moved higher in tandem with the Federal
Reserve Board's (the Fed's) hikes in the federal funds target rate, long-term
rates declined due to expectations of reduced future supply of long-term
Treasury securities. For example, while the 2-year Treasury note's yield rose
from 5.82% on November 1, 1999, to 6.68% at the end of April, the 30-year
Treasury bond yield had actually fallen from 6.18% to 5.96% over the same time
period. This represented a yield curve inversion of 72 basis points, an unusual
occurrence.
(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.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), which is a complete
listing of the fund's portfolio holdings, including dollar value and number of
shares or principal amount. The SOI begins on page 19.
PORTFOLIO BREAKDOWN
Franklin Adjustable
U.S. Government Securities Fund
Based on Total Net Assets
4/30/00
[Pie Graph]
FNMA 69.5%
FHLMC 14.7%
GNMA 10.2%
Other 5.6%
Normally, a yield curve inversion is associated with a slowing economy or even a
recession, but in this instance that was not the case since robust economic
growth took place during the reporting period. The decline in long-term rates
has been primarily due to technical, not fundamental, factors. As increased tax
receipts pushed the economy from a deficit to a surplus, the Treasury decided to
reduce future debt issuance and buy back some outstanding securities. As a
result, the remaining 30-year Treasuries in the market were bid up ahead of
their perceived supply shortfall, driving long-term yields down.
The unabated economic strength raised concerns by the Fed that inflation
pressures would grow despite productivity increases. Indeed, pockets of
inflation appeared during the reporting period. On the manufacturing side, the
prices-paid component of the National Association of Purchasing Management's
index rose to 71.0 in April, its highest level since February 1995, when it
reached 81.7. On the consumer side, the Consumer Price Index (CPI), a measure of
inflation, was up 3.7% through March on a year-over-year basis, its highest
level since 1991. Higher energy prices were the main culprit, as they were back
in 1991. This pick-up in inflation prompted the Fed to raise rates three times
during the period and release public warnings that further rate hikes might
follow if inflation did not subside.
PORTFOLIO NOTES
For the six months under review, Franklin Adjustable U.S. Government Securities
Fund's Class A shares delivered a +2.32% cumulative total return, outperforming
the benchmark Lehman Brothers Short U.S. Government 1-2 Year Index, which
returned 1.98%.(2)
The portfolio continued to employ a conservative strategy of investing primarily
in seasoned adjustable rate mortgage (ARM) securities, which have already been
through one or more refinancing cycles and thus, tend to prepay at slower rates
than newer-production ARMs that have not been through previous refinancing
cycles. We chose securities using a value-oriented approach, which emphasizes a
bond's fundamental cheapness to comparable securities as well as its historical
prepayment performance.
In general, ARMs performed better than comparable fixed-income investments over
the reporting period. For example, the price on comparable 2-year Treasuries
decreased 1.71%, while the average ARM security only declined 0.62%.(3) As
short-term interest rates rose, prepayments on ARMs declined significantly,
enhancing returns. Continued interest rate stability will likely prove
beneficial to ARMs, as yield spreads should remain narrow.
DIVIDEND DISTRIBUTIONS
Franklin Adjustable U.S. Government
Securities Fund
11/1/99 - 4/30/00
DIVIDEND
MONTH PER SHARE
November 3.6 cents
December 4.1 cents*
January 3.6 cents
February 3.9 cents
March 3.9 cents
April 4.2 cents
----------
TOTAL 23.3 CENTS
*Includes an additional 0.5 cent distribution to meet excise tax requirements.
(2) Source: Lehman Brothers. The unmanaged Lehman Brothers Short U.S. Government
1-2 Year Index includes fixed-rate debt issues rated investment grade or higher
by Moody's, S&P or Fitch, in that order. All issues have between one and two
years to maturity and an outstanding par value of at least $100 million for U.S.
Government issues. All returns are market value-weighted inclusive of accrued
interest. The index includes issues of the U.S. government or any agency
thereof. The non-convertible, publicly issued, domestic debt is guaranteed by
the U.S. government. Total return includes price appreciation/depreciation and
income as a percentage of the original investment. The index is rebalanced
monthly by market capitalization. One cannot invest directly in an index, nor is
an index representative of the fund's portfolio.
(3) Source: Lehman Brothers. Figure represents the average of all month-to-month
price returns for ARM securities between 10/31/99 and 4/30/00.
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 nearly 70% of total net assets on
April 30, 2000. Net outflows during the period prompted us to liquidate some of
our faster-prepaying, unseasoned ARM securities. However, we were able to
selectively add several seasoned conventional ARMs to our core holdings. Our
emphasis on these seasoned Constant Maturity Treasury (CMT) ARMs could prove
most beneficial to shareholders, as the relatively flat yield curve environment
will probably have less of a negative impact on such securities.(4)
Going forward, bond market developments will revolve around whether the economy
can continue to surpass the Fed's growth "speed limit" and threaten to bring on
a serious inflationary surge. The surprising strength of consumer spending and
wage gains have renewed fears that the Fed will abandon its gradual policy of
steady, quarter-point rate increases in favor of more aggressive interest rate
hikes. The fund will continue to maintain its conservative strategy, allowing it
the potential to provide high, current income in a variety of interest-rate
environments.
(4) Constant Maturity Treasury bonds are Treasury securities with a constant,
fixed maturity that is constructed by the Treasury Department based on the most
actively traded marketable Treasury securities. Yields on these issues are based
on composite quotes reported by U.S. Government Securities Dealers to the
Federal Reserve Bank of New York. To obtain the Constant Maturity Yields,
personnel at the Treasury construct a yield curve each business day and yield
values are then read from the curve at fixed maturities.
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.
This discussion reflects our views, opinions and portfolio holdings as of April
30, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any industry, security or the fund. Our
strategies and the fund's portfolio composition will change depending on market
and economic conditions. Although historical performance is no guarantee of
future results, these insights may help you understand our investment and
management philosophy.
FRANKLIN ADJUSTABLE
U.S. GOVERNMENT
SECURITIES FUND
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.
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 applicable, maximum
sales charge.
3. Distribution rate is based on an annualization of April's 4.2 cent per share
dividend and the maximum offering price of $9.49 per share on April 30, 2000.
4. Yield, calculated as required by the SEC, is based on earnings of the fund's
portfolio for the 30 days ended April 30, 2000.
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.
SIX-MONTH PERFORMANCE SUMMARY
AS OF 4/30/00
Six-month total return does not include the sales charge. 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.
<TABLE>
<CAPTION>
CLASS A
<S> <C> <C>
Six-month Total Return +2.32%
Net Asset Value (NAV) $9.28 (4/30/00) $9.30 (10/31/99)
Change in NAV -$0.02
Distributions (11/1/99 - 4/30/00) Dividend Income $0.2330
</TABLE>
ADDITIONAL PERFORMANCE
AS OF 3/31/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (10/20/87)
------- ------ ------ ------- ----------
<S> <C> <C> <C> <C>
Cumulative Total Return (1) +4.28% +32.96% +64.31% +98.10%
Average Annual Total Return (2) +1.99% +5.39% +4.85% +5.45%
</TABLE>
AS OF 4/30/00
SHARE CLASS A
----------- -
Distribution Rate (3) 5.31%
30-Day Standardized Yield (4) 5.33%
For updated performance figures, please see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
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.
U.S. bond markets experienced considerable volatility during the six-month
period, due to rising interest rates, widespread inflation fears, and choppy
equity markets. Several key U.S. economic health indicators, including
record-low 3.9% unemployment, rising commodity prices, higher manufacturing
costs and strong consumer spending, led the Federal Reserve Board (the Fed) to
raise interest rates 0.25% on three separate occasions. Although this
environment generally presented challenges for the fixed-income markets, bond
prices were lifted at the end of the period as a widespread sell-off in the
Nasdaq Composite Index during late March and April caused many investors to eye
debt securities as a haven from erratic stock markets.
Treasury bonds were volatile as fears of unsustainable economic growth gave way
to a rebound late in the reporting period, based on the positive implications of
a decrease in the Treasury bond supply. The reduced availability of Treasury
issues, stemming from the government's announcement in February that it would
sponsor bond buybacks and lessen future issuance of long-date Treasuries,
increased demand just as supply was dwindling. Long-term Treasury bond prices
then rose sharply for the first time since mid-1999. In this environment, the
Treasury bond yield curve became inverted when rates on long-term bonds declined
below those of short-term bonds. The yield on the 30-year Treasury fell from
6.18% on November 1, 1999, to 5.96% on April 28, 2000, after climbing to a high
of 6.75% on January 20, 2000. But the 10-year Treasury bond actually rose during
the same period, from 6.02% to 6.21%.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), which is a complete
listing of the fund's portfolio holdings, including dollar value and number of
shares or principal amount. The SOI begins on page 22.
WHAT IS A MORTGAGE
PASS-THROUGH SECURITY?
A mortgage pass-through security represents pooled mortgages that are repackaged
into a security and sold to investors. Such securities pass mortgage holder
principal and interest payments from the originating financial institutions
through a government agency or some other intermediary and then to investors.
As most interest rates increased, mortgage rates also rose, reducing the
incentive for homeowners to refinance their mortgages. According to the Federal
Home Loan Mortgage Corporation (FHLMC or Freddie Mac), the conforming 30-year
fixed mortgage rate rose from 7.84% at the beginning of the reporting period, to
8.13% on April 28, 2000. While mortgage rates spiked during the period, they
were still historically quite low. But at these recent, higher relative rates,
mortgage bond prepayments slowed and prepayment risk was reduced. We believe
this creates a positive environment going forward for mortgage pass-through
securities, which were the fund's principal investments during the reporting
period. As such, we kept a relatively high concentration of mortgage-backed
securities, compared to Treasuries, due to their strong yield advantage over
Treasuries. We increased our exposure to agency mortgage pass-throughs after
year-end liquidity concerns in the bond market had passed. At the time, agency
pass-throughs were yielding more than 8% with little or no credit risk and were
selling at what we considered to be attractive prices.
Among mortgage-backed securities, Government National Mortgage Association (GNMA
or Ginnie Mae) pass-throughs outperformed those issued from agencies such as
FHLMC and Federal National Mortgage Association (FNMA or Fannie Mae) due to
concerns about possible changes to the quasi-government status of the latter
two. The fund also benefited from its exposure to commercial mortgage-backed
securities during the reporting period, as they provided a significant yield
advantage to both mortgage-backed and investment-grade corporate bonds.
Our corporate bond holdings decreased during the period to end at 32% of total
investments, down from approximately 34% on October 31, 1999. Although many of
these bonds' values held up well considering that interest rates were rising
during much of the period, the yield difference between Treasury bonds and the
high yield bond market (corporate bonds rated below BBB) widened toward the
latter half of the reporting period. The spread widening largely resulted from
the negative impact of cash outflows from dedicated high yield mutual funds, as
well as downgrades of several investment-grade bonds. The high yield bond
market's close ties to interest-rate fears and equity market volatility also
made the past few months more difficult. We focused most of our corporate bond
purchases in the services and manufacturing sectors, as we believed their
long-term growth prospects, combined with appreciation potential from stock
offerings and merger and acquisition activity, boded well for many of these
companies' credit outlooks and total return potential. In anticipation of future
Fed interest-rate increases, the fund increased its exposure to what we felt
were high-quality, well-managed and profitable companies that may prosper in a
rising interest-rate environment, and therein selected mostly short-term
investment-grade bonds with relatively little interest-rate risk.
PORTFOLIO BREAKDOWN
Franklin Bond Fund
Based on Total Investments
4/30/00
SECTOR 4/30/00 10/31/99
Mortgage-
Backed
Securities 49.96% 47.61%
Corporate
Bonds 32.01% 33.53%
Asset-Backed
Securities 13.09% 8.34%
International
Bonds 1.81% 3.74%
U.S. Agency
Bonds 1.81% 2.26%
U.S. Treasury
Securities 0.00% 0.04%
Short-Term
Investments 1.32% 4.48%
DIVIDEND DISTRIBUTIONS*
Franklin Bond Fund
11/1/99 - 4/30/00
DIVIDEND PER SHARE
------------------
MONTH CLASS A ADVISOR CLASS
----- ------- -------------
November 5.20 cents 5.41 cents
December 14.26 cents** 14.47 cents**
January 5.50 cents 5.69 cents
February 5.90 cents 6.08 cents
March 5.90 cents 6.09 cents
April 5.90 cents 6.10 cents
----- -----
TOTAL 42.66 CENTS 43.84 CENTS
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions include all accrued income earned by the fund during the reporting
period.
**Includes an additional 0.0876 cent distribution to meet excise tax
requirements.
Among international bonds, the fund pared back its exposure to Brady bonds
during March. These securities, although just a small percentage of the fund's
total net assets, have been our top-performing asset class so far in 2000.
Moody's, an independent credit rating agency, upgraded Mexico's sovereign debt
to investment grade in the first quarter of the year, which was very supportive
to Bradys in general, and caused yield spreads to narrow further. We felt that
their strong performance through the end of the reporting period made them
somewhat less attractive investments relative to other sectors. At this point,
we expect to maintain a light exposure until spreads widen to more attractive
levels.
Going forward, we expect interest rates to increase in the near term amid
continued domestic economic growth and the Fed's attempts to slow the economy
and contain inflationary pressures. 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.
Sincerely,
/s/ Roger A. Bayston
Roger A. Bayston
Portfolio Manager
Franklin Bond Fund
This discussion reflects our views, opinions and portfolio holdings as of April
30, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any industry, security or the fund. Our
strategies and the fund's portfolio composition will change depending on market
and economic conditions. Although historical performance is no guarantee of
future results, these insights may help you understand our investment and
management philosophy.
FRANKLIN BOND FUND
CLASS A: 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 shareholders (see Additional Performance). 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 6.68% and 7.25% 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 Trustees.
SIX-MONTH PERFORMANCE SUMMARY
AS OF 4/30/00
Six-month total return does not include the sales charge. 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.
CLASS A
Six-month Total Return +1.12%
Net Asset Value (NAV) $9.29 (4/30/00) $9.61 (10/31/99)
Change in NAV -$0.32
Distributions (11/1/99 - 4/30/00) Dividend Income $0.4266
ADVISOR CLASS
Six-month Total Return +1.28%
Net Asset Value (NAV) $9.30 (4/30/00) $9.62 (10/31/99)
Change in NAV -$0.32
Distributions (11/1/99 - 4/30/00) Dividend Income $0.4384
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF 3/31/00
INCEPTION
CLASS A 1-YEAR (8/3/98)
------- ------ --------
Cumulative Total Return(1) +1.01% +4.95%
Average Annual Total Return(2) -3.24% +0.31%
INCEPTION
ADVISOR CLASS 1-YEAR (8/3/98)
------------- ------ --------
Cumulative Total Return(1) +1.30% +5.44%
Average Annual Total Return(2) +1.30% +3.23%
AS OF 4/30/00
SHARE CLASS A ADVISOR
----------- - -------
Distribution Rate(3) 7.30% 7.87%
30-Day Standardized Yield(4) 7.18% 7.77%
For updated performance figures, please see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
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 applicable, maximum
sales charge(s) for that class.
3. Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (net asset value for
Advisor Class) per share on April 30, 2000.
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, 2000.
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.
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2000 -------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period $ 9.30 $ 9.36 $ 9.48 $ 9.37 $ 9.34 $ 9.20
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income(b) .24 .45 .51 .55 .56 .54
Net realized and unrealized gains (losses) (.03) (.06) (.12) .10 .03 .14
-------- -------- -------- -------- -------- --------
Total from investment operations .21 .39 .39 .65 .59 .68
-------- -------- -------- -------- -------- --------
Less distributions from net investment income (.23) (.45) (.51) (.54) (.56) (.54)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 9.28 $ 9.30 $ 9.36 $ 9.48 $ 9.37 $ 9.34
-------- -------- -------- -------- -------- --------
Total return(a) 2.32% 4.24% 4.26% 7.18% 6.54% 7.57%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $245,536 $282,685 $298,298 $334,990 $397,078 $509,371
Ratios to average net assets:
Expenses(e) .98%c .96% .76% .75% .69% .61%
Expenses excluding waiver and payments
by affiliate(e) .98%c .96% .93% .93% .86% .86%
Net investment income 5.16%c 4.80% 5.38% 5.81% 5.87% 5.76%
Portfolio turnover rate(d) 5.93% 23.23% 38.92% 20.84% 24.63% 20.16%
</TABLE>
(a)Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(b)Based on average shares outstanding effective year ended October 31, 1999.
(c)Annualized
(d)Represents the U.S. Government Adjustable Rate Mortgage Portfolio rate of
turnover.
(e)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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND SHARES VALUE
--------------------------------------------------- ------ -----
<S> <C> <C>
MUTUAL FUNDS 100.9%
U.S. Government Adjustable Rate Mortgage Portfolio (Note 1) 26,699,990 $247,775,911
------------
TOTAL INVESTMENTS (COST $268,592,809) 100.9% 247,775,911
OTHER ASSETS, LESS LIABILITIES (.9%) (2,239,631)
------------
NET ASSETS 100.0% $245,536,280
------------
</TABLE>
See notes to financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
Financial Highlights
FRANKLIN BOND FUND
<TABLE>
<CAPTION>
CLASS A
SIX MONTHS ENDED
APRIL 30, 2000 YEAR ENDED OCTOBER 31,
(UNAUDITED) 1999 1998(d)
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period $9.61 $10.37 $10.00
Income from investment operations: ------ ------ ------
Net investment income(b) .36 .63 .12
Net realized and unrealized gains (losses) (.25) (.71) .30
------ ------ ------
Total from investment operations .11 (.08) .42
Less distributions from: ------ ------ ------
Net investment income (.43) (.63) (.05)
Net realized gains -- (.05) --
------ ------ ------
Total distributions (.43) (.68) (.05)
------ ------ ------
Net asset value, end of period $9.29 $9.61 $10.37
------ ------ ------
Total return(a) 1.12% (.73%) 4.05%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $12,377 $7,870 $4,232
Ratios to average net assets:
Expenses .50%(c) .50% .50%(e)
Expenses excluding waiver and payments by affiliate 1.02%(c) 1.18% 1.29%(e)
Net investment income 7.54%(c) 6.32% 5.21%(e)
Portfolio turnover rate 23.2% 96.38% 23.19%
</TABLE>
(a)Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(b)Based on average shares outstanding.
(c)Annualized
(d)For the period August 3, 1998 (effective date) to October 31, 1998.
FRANKLIN INVESTORS SECURITIES TRUST
Financial Highlights (continued)
FRANKLIN BOND FUND (CONT.)
<TABLE>
<CAPTION>
ADVISOR CLASS
----------------------------------------
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2000 ---------------------
(UNAUDITED) 1999 1998(d)
----------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............... $ 9.62 $ 10.38 $ 10.00
----------------------------------------
Income from investment operations:
Net investment income(b) .......................... .37 .66 .12
Net realized and unrealized gains (losses) ........ (.25) (.71) .31
----------------------------------------
Total from investment operations ................... .12 (.05) .43
----------------------------------------
Less distributions from:
Net investment income ............................. (.44) (.66) (.05)
Net realized gains ................................ -- (.05) --
----------------------------------------
Total distributions ................................ (.44) (.71) (.05)
----------------------------------------
Net asset value, end of period ..................... $ 9.30 $ 9.62 $ 10.38
----------------------------------------
Total return(a) .................................... 1.28% (.46%) 4.27%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .................. $12,874 $12,099 $31,588
Ratios to average net assets:
Expenses .......................................... .25%(c) .25% .25%(e)
Expenses excluding waiver and payments by affiliate .77%(c) .93% 1.04%(e)
Net investment income ............................. 7.77%(c) 6.57% 5.46%(e)
Portfolio turnover rate ............................ 23.2% 96.38% 23.19%
</TABLE>
(a)Total return is not annualized for periods less than one year.
(b)Based on average shares outstanding.
(c)Annualized
(d)For the period August 3, 1998 (effective date) to October 31, 1998.
See notes to financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN BOND FUND AMOUNT(a) VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 116.6%
CORPORATE BONDS 30.1%
COMMERCIAL SERVICES .8%
Grand Metropolitan Investment, 7.125%, 9/15/04 ..................... $ 200,000 $ 195,383
----------
CONSUMER NON-DURABLES 1.8%
Pepsi Bottling Group Inc., 7.00%, 3/01/29 .......................... 500,000 445,760
----------
CONSUMER SERVICES 4.5%
AMFM Inc., 9.00%, 10/01/08 ......................................... 300,000 305,250
CSC Holdings Inc., senior note, 7.25%, 7/15/08 ..................... 300,000 272,466
Horseshoe Gaming Holding, senior sub. note, 8.625%, 5/15/09 ........ 300,000 282,000
Six Flags Entertainment Corp., senior note, 8.875%, 4/01/06 ........ 300,000 282,000
----------
1,141,716
----------
ELECTRONIC TECHNOLOGY 3.1%
L-3 Communications Holdings Inc., senior sub. note, 10.375%, 5/01/07 300,000 301,500
Lockheed Martin Corp., 8.50%, 12/01/29 ............................. 500,000 492,390
----------
793,890
----------
ENERGY MINERALS 1.2%
Pioneer Natural Resource, senior note, 9.625%, 4/01/10 ............. 300,000 306,750
----------
FINANCE 5.6%
Bankers Trust Corp., debenture, 9.00%, 8/01/01 ..................... 35,000 35,646
First Chicago NBD Corp., sub. note, 7.625%, 1/15/03 ................ 291,000 289,194
Fleetboston Finl. Corp., sub note, 9.90%, 6/15/01 .................. 55,000 56,421
Ford Motor Credit Co., 6.84%, 7/10/01 .............................. 25,000 24,841
Ford Motor Credit Co., 6.03%, 8/13/01 .............................. 20,000 19,673
HMH Properties Inc., senior secured note, B, 7.875%, 8/01/08 ....... 300,000 261,750
Paine Webber Group Inc., senior note, 6.55%, 4/15/08 ............... 150,000 134,459
Societe Generale-New York, sub. note, 7.40%, 6/01/06 ............... 300,000 291,688
Sovereign Bancorp, senior note, 10.50%, 11/15/06 ................... 300,000 295,500
----------
1,409,172
----------
HEALTH TECHNOLOGY 1.1%
Fresenius Medical Care Capital Trust I, 9.00%, 12/01/06 ............ 300,000 283,500
----------
INDUSTRIAL SERVICES 2.0%
Allied Waste North America Inc., senior note, B, 7.875%, 1/01/09 ... 300,000 223,500
Waste Management Inc., 7.125%, 6/15/01 ............................. 285,000 276,601
----------
500,101
----------
MISCELLANEOUS .4%
CBS Corp., 8.875%, 6/01/01 ......................................... 95,000 96,371
----------
PROCESS INDUSTRIES 1.2%
Lyondell Chemical Co., 9.875%, 5/01/07 ............................. 300,000 295,500
----------
RETAIL TRADE 1.8%
Sears Roebuck Acceptance, 7.13%, 6/26/01 ........................... 445,000 442,290
----------
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN BOND FUND AMOUNT(a) VALUE
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
CORPORATE BONDS (CONT.)
TRANSPORTATION 1.3%
Gearbulk Holding Ltd., senior note, 11.25%, 12/01/04 (Bermuda) ............ $ 100,000 $ 100,500
Sea Containers Ltd., senior note, 10.75%, 10/15/06 ........................ 300,000 225,000
----------
325,500
----------
UTILITIES 5.3%
CMS Energy Corp., senior note, 7.50%, 1/15/09 ............................. 300,000 264,000
Duquesne Light Co., 6.625%, 6/15/04 ....................................... 300,000 291,996
McLeodusa Inc., 8.125%, 2/15/09 ........................................... 300,000 267,000
Sprint Capital Corp., 6.875%, 11/15/28 .................................... 500,000 436,160
Virginia Electric Power, 6.30%, 6/21/01 ................................... 90,000 88,922
----------
1,348,078
----------
TOTAL CORPORATE BONDS (COST $8,019,288) ................................... 7,584,011
----------
ASSET BACKED SECURITIES 16.8%
Advanta Mortgage Loan Trust, 7.05%, 5/25/21 ............................... 39,229 39,060
Centex Home Equity, 5.91%, 4/25/19 ........................................ 242,636 240,116
Champion Home Equity Loan Trust, 7.72%, 5/25/29 ........................... 850,000 829,859
Countrywide Asset-backed Certificates, 6.78%, 11/25/27 .................... 500,000 473,628
Green Tree Financial Corp., 7.68%, 7/01/30 ................................ 1,000,000 917,405
Green Tree Financial Corp., 6.80%, 12/01/30 ............................... 400,000 352,250
Green Tree Financial Corp., 8.37%, 2/01/31 ................................ 500,000 440,547
Saxon Asset Securities Trust, 6.365%, 10/25/13 ............................ 296,326 294,356
Saxon Asset Securities Trust, 7.00%, 3/25/27 .............................. 552,000 526,084
Saxon Asset Securities Trust, 6.93%, 1/25/30 .............................. 150,000 135,294
----------
TOTAL ASSET BACKED SECURITIES (COST $4,413,539) ........................... 4,248,599
----------
COMMERCIAL MORTGAGE BACKED SECURITIES 7.5%
Bear Stearns Commercial Mortgage Securities, 1998-C1 CL A1, 6.34%, 10/16/07 377,765 358,051
JP Morgan Commercial Mortgage Finance Corp., 8.119%, 10/15/32 ............. 600,000 606,118
Morgan Stanley Capital I, 7.12%, 1/15/08 .................................. 1,000,000 929,265
----------
TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (COST $1,925,117) ............. 1,893,434
----------
MORTGAGE BACKED SECURITIES 54.8%
15-YEAR MORTGAGE BACKED SECURITIES 4.4%
FNMA, 5.50%, 1/01/14 ...................................................... 457,944 420,266
FNMA, 6.50%, 6/01/15 ...................................................... 322,094 330,601
GNMA, SF, 7.00%, 2/15/09 .................................................. 364,233 360,160
----------
1,111,027
----------
30-YEAR MORTGAGE BACKED SECURITIES 42.0%
(c)FHLMC, 7.50%, 5/01/29 .................................................. 808,486 792,064
FNMA, 7.807%, 9/01/19 .................................................. 396,677 401,001
(c)FNMA, 6.00%, 5/01/29 ................................................... 1,000,000 906,250
(c)FNMA, 6.50%, 5/01/29 ................................................... 1,994,000 1,860,651
(c)FNMA, 7.00%, 5/01/29 ................................................... 1,500,000 1,435,313
(c)FNMA, 8.00%, 5/01/30 ................................................... 1,000,000 998,438
FNMA, ARM, 7.437%, 12/01/24 ............................................ 480,506 482,446
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN BOND FUND AMOUNT(a) VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
MORTGAGE BACKED SECURITIES (CONT.)
30-YEAR MORTGAGE BACKED SECURITIES (CONT.)
GNMA II, 6.00%, 3/20/28 ......................................... $ 457,840 $ 414,390
GNMA, ARM, 7.375%, 1/20/23 ...................................... 672,669 678,620
GNMA, ARM, 7.125%, 10/20/26 ..................................... 89,412 90,260
GNMA, SF, 7.00%, 10/15/27 ....................................... 476,102 458,574
(c)GNMA, SF, 6.50%, 5/01/29 ........................................ 708,656 663,922
(c)GNMA, SF, 7.50%, 5/01/29 ........................................ 430,000 422,744
(c)GNMA, SF, 8.00%, 5/01/29 ........................................ 1,000,000 1,002,188
-----------
10,606,861
-----------
ADJUSTABLE RATE MORTGAGE SECURITIES 8.4%
Prudential Home Mortgage Securities, 7.265%, 7/25/18 ............... 1,265,470 1,245,697
Saxon Mortgage Securities Corp., 8.846%, 5/25/24 ................... 126,320 131,255
Structured Asset Securities Corp., 7.274%, 11/15/26 ................ 751,415 751,885
-----------
2,128,837
-----------
TOTAL MORTGAGE BACKED SECURITIES (COST $14,158,866) ................ 13,846,725
-----------
OTHER GOVERNMENT AND AGENCY SECURITIES 4.2%
FNMA, 5.75%, 4/15/03 ............................................... 500,000 480,733
Tennessee Valley Authority, 5.28%, 9/14/01 ......................... 600,000 586,945
-----------
TOTAL OTHER GOVERNMENT AND AGENCY SECURITIES (COST $1,086,154) ..... 1,067,678
-----------
FOREIGN GOVERNMENT AND AGENCY SECURITIES 2.3%
Republic of Argentina, Bonos Del Tesoro, 8.75%, 5/09/02 (Argentina) 250,000 242,428
Republic of Turkey, Reg S, 10.00%, 9/19/07 (Turkey) ................ 350,000 344,750
-----------
TOTAL FOREIGN GOVERNMENT AND AGENCY SECURITIES (COST $578,900) ..... 587,178
-----------
ZERO COUPON BOND .9%
Charter Communications Holdings LLC, senior disc. note, zero cpn. to
4/01/04, 9.92% thereafter, 4/01/11 (Cost $277,756) ................. 400,000 221,000
-----------
TOTAL LONG TERM INVESTMENTS (COST $30,459,620) ..................... 29,448,625
-----------
SHORT TERM INVESTMENTS 10.3%
CONSUMER DURABLES .8%
Mattel Inc., 6.75%, 5/15/00 ........................................ 200,000 200,218
-----------
CONSUMER SERVICES .1%
Viacom Inc, senior note, 5.875%, 7/15/00 ........................... 15,000 15,009
-----------
ELECTRONIC TECHNOLOGY .5%
Raytheon Co., 6.30%, 8/15/00 ....................................... 50,000 49,964
Raytheon Co., 5.95%, 3/15/01 ....................................... 70,000 69,050
-----------
119,014
-----------
ENERGY MINERALS .1%
BP America Inc., debenture, 8.50%, 4/15/01 ......................... 37,000 37,466
-----------
FINANCE 4.4%
American Express Credit Corp., senior note, 6.50%, 8/01/00 ......... 50,000 50,009
Associates Corp. NA, 6.00%, 6/15/00 ................................ 10,000 9,999
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN BOND FUND AMOUNT(a) VALUE
---------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENTS (CONT.)
FINANCE (CONT.)
Associates Corp. NA, 6.70%, 5/29/01 ......................... $ 10,000 $ 9,930
Bank of America Corp., sub. note, 9.75%, 7/01/00 ............ 10,000 10,055
Bank of America Corp., sub. note, 9.70%, 8/01/00 ............ 5,000 5,035
Bankers Trust Corp., sub. debenture, 9.50%, 6/14/00 ......... 10,000 10,036
Bankers Trust Corp., sub. debenture, 9.40%, 3/01/01 ......... 35,000 35,572
Bear Stearns Co., Inc., senior note, 5.75%, 2/15/01 ......... 45,000 44,516
Chrysler Financial Co., LLC, 5.875%, 2/07/01 ................ 213,000 211,045
Chrysler Financial Co., LLC, 6.34%, 3/26/01 ................. 11,000 10,917
Dillard Investment, debenture, 9.25%, 2/01/01 ............... 50,000 50,713
Ford Motor Credit Co., 5.90%, 2/23/01 ....................... 10,000 9,909
Ford Motor Credit Co., 6.57%, 3/27/01 ....................... 70,000 69,657
General Electric Capital Corp., debenture, 8.375%, 3/01/01 .. 25,000 25,268
International Lease Finance Corp., debenture, 8.875%, 4/15/01 45,000 45,603
Lehman Brothers Holdings, 6.50%, 7/18/00 .................... 10,000 9,993
Lehman Brothers Holdings, medium term note, 6.00%, 2/26/01 .. 268,000 265,111
Mellon Funding Corp., senior note, 6.30%, 6/01/00 ........... 15,000 15,006
Merrill Lynch & Co., 6.70%, 8/01/00 ......................... 60,000 60,007
Merrill Lynch & Co., 6.02%, 5/11/01 ......................... 19,000 18,785
Morgan Stanley Dean Witter, 6.75%, 8/15/00 .................. 25,000 25,006
Morgan Stanley Dean Witter, senior note, 5.25%, 2/08/01 ..... 25,000 24,665
Morgan Stanley Dean Witter, senior note, 6.09%, 3/09/01 ..... 15,000 14,835
Republic NY Corp., debenture, 8.875%, 2/01/01 ............... 25,000 25,319
Salomon Inc., Smith Barney Hld., senior note, 9.25%, 5/01/01 35,000 35,681
Travelers Property Casualty, 6.75%, 4/15/01 ................. 22,000 21,922
Wells Fargo Company, 5.625%, 2/05/01 ........................ 15,000 14,848
----------
1,129,442
----------
MISCELLANEOUS .1%
PNC Funding Corp., sub. note, 9.875%, 3/01/01 ............... 15,000 15,306
----------
PRODUCER MANUFACTURING .3%
Tyco International Ltd., senior note, 8.25%, 8/01/00 ........ 75,000 75,162
----------
RETAIL TRADE 1.6%
Penney (J.C.) Co. Inc., 6.375%, 9/15/00 ..................... 310,000 306,795
Sears Roebuck Acceptance, 6.18%, 12/01/00 ................... 10,000 9,938
Target Corp., debenture, 10.00%, 12/01/00 ................... 40,000 40,693
Target Corp., debenture, 9.40%, 2/15/01 ..................... 42,000 42,724
----------
400,150
----------
TRANSPORTATION 2.3%
Consolidated Rail Corp., debenture, 9.75%, 6/01/00 .......... 500,000 501,655
CSX Transportation, 8.80%, 5/15/00 .......................... 10,000 10,015
Norfolk Southern Corp., 6.70%, 5/01/00 ...................... 35,000 35,000
Union Pacific Corp., 7.00%, 6/15/00 ......................... 25,000 25,038
----------
571,708
----------
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN BOND FUND AMOUNT(a) VALUE
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENTS (CONT.)
UTILITIES .1%
GTE California Inc., debenture, 5.625%, 2/01/01 ..................................... $ 15,000 $ 14,876
Northwestern Bell Telephone, debenture, 9.50%, 5/01/00 .............................. 10,000 10,000
------------
24,876
------------
TOTAL SHORT TERM INVESTMENTS (COST $2,593,295) ...................................... 2,588,351
------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS (COST $33,052,915) .................. 32,036,976
(b)REPURCHASE AGREEMENT 1.7%
Joint Repurchase Agreement, 5.706%, 5/01/00 (Maturity Value $431,942) (COST $431,737) 431,737 431,737
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Lehman Brothers Inc.
Nesbitt Burns Securities Inc.
Paine Webber Inc.
Paribas Corporation
Societe Generale
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills & Notes
------------
TOTAL INVESTMENTS (COST $33,484,652) 128.6% ......................................... 32,468,713
OTHER ASSETS, LESS LIABILITIES (28.6%) .............................................. (7,217,615)
------------
NET ASSETS 100.0% ................................................................... $ 25,251,098
------------
</TABLE>
(a)Securities denominated in U.S. dollars unless otherwise indicated.
(b)Investment is through participation in a joint account with other funds
managed by the investment advisor. At April 30, 2000, all repurchase agreements
had been entered into on April 28, 2000.
(c)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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN
ADJUSTABLE
U.S. GOVERNMENT FRANKLIN
SECURITIES FUND BOND FUND
----------------------------------
<S> <C> <C>
Assets:
Investments in securities:
Cost .................................................................................... $268,592,809 $33,484,652
----------------------------------
Value ................................................................................... 247,775,911 32,468,713
Cash ...................................................................................... -- 1,008,214
Receivables:
Capital shares sold ..................................................................... 1,133,156 1,031
Dividends and interest .................................................................. -- 380,480
Affiliates .............................................................................. -- 1,947
----------------------------------
Total assets .......................................................................... 248,909,067 33,860,385
----------------------------------
Liabilities:
Payables:
Investment securities purchased ......................................................... 831,386 8,524,449
Capital shares redeemed ................................................................. 2,226,420 83,572
Affiliates .............................................................................. 52,724 --
Shareholders ............................................................................ 260,367 1,266
Other liabilities ......................................................................... 1,890 --
----------------------------------
Total liabilities .................................................................... 3,372,787 8,609,287
----------------------------------
Net assets, at value ............................................................... $245,536,280 $25,251,098
----------------------------------
Net assets consist of:
Undistributed net investment income ....................................................... $ 888,047 $ 49,650
Net unrealized depreciation ............................................................... (20,816,898) (1,015,939)
Accumulated net realized loss ............................................................. (90,113,602) (1,856,749)
Capital shares ............................................................................ 355,578,733 28,074,136
----------------------------------
Net assets, at value ............................................................... $245,536,280 $25,251,098
----------------------------------
CLASS A:
Net assets, at value ...................................................................... $245,536,280 $12,377,221
----------------------------------
Shares outstanding ........................................................................ 26,458,203 1,331,645
----------------------------------
Net asset value per share* .............................................................. $ 9.28 $ 9.29
----------------------------------
Maximum offering price per share (net asset value per share / 97.75%, 95.75%, respectively) $ 9.49 $ 9.70
----------------------------------
ADVISOR CLASS:
Net assets, at value ...................................................................... -- $12,873,877
----------------------------------
Shares outstanding ........................................................................ -- 1,383,608
----------------------------------
Net asset value and maximum offering price per share ...................................... -- $ 9.30
----------------------------------
</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 OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN
ADJUSTABLE
U.S. GOVERNMENT FRANKLIN
SECURITIES FUND BOND FUND
-------------------------------
<S> <C> <C>
Investment income:
Dividends ................................................. $ 7,523,309 $ --
Interest .................................................. -- 921,312
-------------------------------
Total investment income ............................... 7,523,309 921,312
-------------------------------
Expenses:
Management fees (Note 3) .................................. -- 48,610
Administrative fees (Note 3) .............................. 131,730 22,962
Distribution fees-Class A (Note 3) ........................ 328,956 12,766
Transfer agent fees (Note 3) .............................. 172,672 4,532
Custodian fees ............................................ 284 303
Reports to shareholders ................................... 28,182 1,935
Registration and filing fees .............................. 28,442 4,417
Professional fees (Note 3) ................................ 9,365 1,560
Trustees' fees and expenses ............................... 7,972 593
Other ..................................................... 586 3,157
-------------------------------
Total expenses ........................................ 708,189 100,835
Expenses waived/paid by affiliate (Note 3) ............ -- (59,481)
-------------------------------
Net expenses ........................................ 708,189 41,354
-------------------------------
Net investment income ............................. 6,815,120 879,958
-------------------------------
Realized and unrealized gains (losses):
Net realized loss from investments ........................ (1,573,691) (181,144)
Net unrealized appreciation (depreciation) from investments 696,309 (415,413)
-------------------------------
Net realized and unrealized loss ........................... (877,382) (596,557)
-------------------------------
Net increase in net assets resulting from operations ....... $ 5,937,738 $ 283,401
-------------------------------
</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, 2000 (UNAUDITED)
AND THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN ADJUSTABLE
U.S. GOVERNMENT SECURITIES FUND FRANKLIN BOND FUND
------------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
APRIL 30, 2000 OCTOBER 31, 1999 APRIL 30, 2000 OCTOBER 31, 1999
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................ $ 6,815,120 $ 13,753,864 $ 879,958 $ 2,191,713
Net realized loss from investments ............... (1,573,691) (2,239,106) (181,144) (1,669,242)
Net unrealized appreciation (depreciation)
on investments .................................. 696,309 168,036 (415,413) (906,443)
------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations .............................. 5,937,738 11,682,794 283,401 (383,972)
Distributions to shareholders from:
Net investment income:
Class A ....................................... (6,658,676) (13,725,049) (447,918) (403,205)
Advisor Class ................................. -- -- (588,578) (1,804,997)
Net realized gains:
Class A ....................................... -- -- -- (23,840)
Advisor Class ................................. -- -- -- (158,045)
------------------------------------------------------------------------
Total distributions to shareholders .............. (6,658,676) (13,725,049) (1,036,496) (2,390,087)
Capital share transactions: (Note 2)
Class A ....................................... (36,427,613) (13,570,505) 4,831,348 4,122,424
Advisor Class ................................. -- -- 1,204,416 (17,200,522)
------------------------------------------------------------------------
Total capital share transactions ................. (36,427,613) (13,570,505) 6,035,764 (13,078,098)
Net increase (decrease) in net assets ....... (37,148,551) (15,612,760) 5,282,669 (15,852,157)
Net assets
Beginning of period ............................. 282,684,831 298,297,591 19,968,429 35,820,586
------------------------------------------------------------------------
End of period ................................... $ 245,536,280 $ 282,684,831 $ 25,251,098 $ 19,968,429
------------------------------------------------------------------------
Undistributed net investment income included in
net assets:
End of period ................................. $ 888,047 $ 731,603 $ 49,650 $ 206,188
------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
FRANKLIN INVESTORS SECURITIES TRUST
Financial Statements (continued)
STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED APRIL 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN
BOND FUND
---------
<S> <C>
Cash flow from operating activities:
Interest received ....................................................... $ 742,535
Operating expenses paid ................................................. (110,368)
-------------
Cash provided - operations .......................................... 632,167
-------------
Cash flow from investing activities:
Investment purchases .................................................... (237,252,815)
Investment sales and maturities ......................................... 232,546,766
Net payments for futures contracts (Note 1) ............................. (5,915)
-------------
Cash used - investments ............................................. (4,711,964)
-------------
Cash flow from financing activities:
Proceeds from shares sold ............................................... 8,204,339
Payment on shares redeemed .............................................. (2,859,983)
Distributions to shareholders ........................................... (308,016)
Net dollar roll transactions (Note 1) ................................... 51,671
-------------
Cash provided - financing ........................................... 5,088,011
-------------
Net change in cash ....................................................... 1,008,214
Cash at beginning of period .............................................. --
-------------
Cash at end of period .................................................... $ 1,008,214
-------------
RECONCILIATION OF NET INVESTMENT INCOME TO NET CASH PROVIDED BY OPERATIONS
FOR THE PERIOD ENDED APRIL 30, 2000
Net investment income .................................................... $ 879,958
Amortization income ..................................................... (30,011)
Net dollar roll transactions (Note 1) ................................... (51,671)
Decrease in dividends and interest receivable ........................... (97,095)
Decrease in other liabilities ........................................... (69,014)
-------------
Cash provided - operations ............................................... $ 632,167
-------------
</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
six separate series. All Funds included in this report (the Funds) are
diversified. The Funds' investment objective is to provide high level current
income.
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 Statement
of Investments, are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The following summarizes the Funds' significant accounting policies.
a. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. 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 their proportionate interest in the net asset values of the
Portfolio. At April 30, 2000 the Franklin Adjustable U.S. Government Securities
Fund owns 100% of the Portfolio.
b. MORTGAGE DOLLAR ROLLS:
The Fund may enter into dollar roll transactions under which it may sell
mortgage-backed securities and agree to repurchase mortgage-backed securities at
an agreed upon price in the future. When the repurchased securities are
substantially similar to those sold, the transaction is accounted for as a
financing transaction and any gain or loss is deferred until the disposition of
the repurchased security. If the securities repurchased are not substantially
similar to those sold, the transaction is accounted for as a sale and subsequent
purchase, and any gain or loss is realized at the commencement of the dollar
roll transaction.
c. 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.
d. 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.
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (cont.)
e. 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.
Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of net assets of each fund to the combined net assets. Other expenses are
charged to each fund on a specific identification basis.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
f. 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. Each
class of shares differs by its initial sales load, distribution fees, voting
rights on matters affecting a single class and its exchange privilege.
FUND CLASS
-------------------------------------------------------------------
Franklin Adjustable U.S. Government Securities Fund A
Franklin Bond Fund A & Advisor
At April 30, 2000, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Funds' shares were as follows:
<TABLE>
<CAPTION>
FRANKLIN ADJUSTABLE
U.S. GOVERNMENT SECURITIES FUND FRANKLIN BOND FUND
------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Six months ended April 30, 2000
Shares sold .................................. 10,234,442 $ 94,998,976 728,265 $ 6,870,533
Shares issued in reinvestment of distributions 440,729 4,081,170 26,563 249,621
Shares redeemed .............................. (14,605,565) (135,507,759) (241,880) (2,288,806)
------------------------------------------------------------------------
Net increase (decrease) ....................... (3,930,394) $ (36,427,613) 512,948 $ 4,831,348
------------------------------------------------------------------------
Year ended October 31, 1999
Shares sold .................................. 24,552,970 $ 228,668,326 619,183 $ 6,175,528
Shares issued in reinvestment of distributions 902,518 8,389,289 19,877 195,826
Shares issued on merger (a)................... 2,176,537 20,350,622 -- --
Shares redeemed .............................. (29,098,204) (270,978,742) (228,647) (2,248,930)
------------------------------------------------------------------------
Net increase (decrease) ....................... (1,466,179) $ (13,570,505) 410,413 $ 4,122,424
------------------------------------------------------------------------
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
2. SHARES OF BENEFICIAL INTEREST (cont.)
<TABLE>
<CAPTION>
FRANKLIN BOND FUND
-----------------------------
SHARES AMOUNT
-----------------------------
<S> <C> <C>
ADVISOR CLASS
Six months ended April 30, 2000
Shares sold .................................. 139,949 $ 1,332,480
Shares issued in reinvestment of distributions 50,823 478,859
Shares redeemed .............................. (64,563) (606,923)
-----------------------------
Net increase .................................. 126,209 $ 1,204,416
-----------------------------
Year ended October 31, 1999
Shares sold .................................. 749,605 $ 7,643,339
Shares issued in reinvestment of distributions 178,319 1,787,167
Shares redeemed .............................. (2,713,667) (26,631,028)
-----------------------------
Net decrease .................................. (1,785,743) $(17,200,522)
-----------------------------
</TABLE>
(a)During the year ended October 31, 1999, the Adjustable U.S. Government
Securities Fund acquired the net assets of the Franklin Adjustable Rate
Securities Fund pursuant to a plan of reorganization approved by the Fund's
shareholders.
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 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.
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 daily net assets of the Fund, as follows:
ANNUALIZED
FEE RATE NET ASSETS
--------------------------------------------------------------
.10% First $5 billion
.09% Over $5 billion, up to including $10 billion
.08% Over $10 billion
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
3. TRANSACTIONS WITH AFFILIATES (cont.)
Under a subadvisory agreement, TICI provides subadvisory services to the
Franklin Bond Fund, and receives from Advisers fees based on the month end net
assets of the Fund.
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 up to 0.25% per year of their average daily net
assets of Class A for costs incurred in marketing the Funds' shares.
Distributors paid net commissions on sales of the Funds' shares, and received
contingent deferred sales charges for the period as follows:
FRANKLIN
ADJUSTABLE
U.S. GOVERNMENT FRANKLIN
SECURITIES FUND BOND FUND
----------------------------------------------------------------------
Net Commissions paid ............... $43,352 $24,155
Contingent deferred sales charges .. $28,347 $ --
The Funds paid transfer agent fees of $177,204 of which $125,081 was paid to
Investor Services.
At April 30, 2000, Advisers and/or investment companies managed by Advisers
owned 60.1% of the net assets of the Franklin Bond Fund.
Included in professional fees are legal fees of $4,964 that were paid to a law
firm in which a partner is an officer of the Funds.
4. INCOME TAXES
At October 31, 1999, the Funds had tax basis capital losses, which may be
carried over to offset future capital gains. The Franklin Adjustable U.S.
Government Securities Fund includes $822,194 from the merged Franklin Adjustable
Rate Securities Fund. Such losses expire as follows:
<TABLE>
<CAPTION>
FRANKLIN
ADJUSTABLE
U.S. GOVERNMENT FRANKLIN
SECURITIES FUND BOND FUND
--------------------------------
<S> <C> <C>
Capital loss carryovers expiring in:
2000 ................................. $ 1,925,614 $ --
2001 ................................. 7,701,615 --
2002 ................................. 42,220,363 --
2003 ................................. 18,463,010 --
2004 ................................. 8,807,294 --
2005 ................................. 4,580,551 --
2006 ................................. 2,585,375 --
2007 ................................. 1,456,300 1,794,250
--------------------------------
$87,740,122 $1,794,250
--------------------------------
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
4. INCOME TAXES (cont.)
Net realized capital losses differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and mortgage dollar roll
transactions.
At April 30, 2000, the net unrealized depreciation based on the cost of
investments for income tax purposes was as follows:
<TABLE>
<CAPTION>
FRANKLIN
ADJUSTABLE
U.S. GOVERNMENT FRANKLIN
SECURITIES FUND BOND FUND
---------------------------------
<S> <C> <C>
Investments at cost ......................... $ 269,392,598 $ 33,484,652
---------------------------------
Unrealized appreciation ..................... $ -- $ 41,173
Unrealized depreciation ..................... (21,616,687 (1,057,112)
---------------------------------
Net unrealized depreciation ................. $ (21,616,687) $ (1,015,939)
---------------------------------
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended April 30, 2000 were as follows:
<TABLE>
<CAPTION>
FRANKLIN
ADJUSTABLE
U.S. GOVERNMENT FRANKLIN
SECURITIES FUND BOND FUND
---------------------------------
<S> <C> <C>
Purchases .......................... $51,726,295 $13,044,502
Sales .............................. $84,968,442 $ 6,252,241
</TABLE>
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Franklin Bond Fund had been a party to financial instruments with
off-balance-sheet risk, primarily financial future contracts in order to
minimize the impact on the Fund from adverse changes in interest rates.
A financial futures contract is an agreement between 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 future
contracts, interest rates, and the underlying hedged assets.
As of April 30, 2000, the Bond Fund has no futures contract outstanding.
7. CREDIT RISK
The Franklin Bond Fund has 12.0% 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 Bond Fund has investments in excess of 10% of its total net assets
in the finance industry. Such concentration may subject the Fund more
significantly to economic changes occurring within that industry.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2000 ------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 9.31 $ 9.37 $ 9.48 $ 9.37 $ 9.33 $ 9.19
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income (c)..................... .266 .496 .553 .593 .589 .572
Net realized and unrealized gains (losses) ... (.030) (.060) (.110) .110 .040 .140
-----------------------------------------------------------------------------
Total from investment operations .............. .236 .436 .443 .703 .629 .712
Less distributions from net investment income . (.266) (.496) (.553) (.593) (.589) (.572)
-----------------------------------------------------------------------------
Net asset value, end of period ................ $ 9.28 $ 9.31 $ 9.37 $ 9.48 $ 9.37 $ 9.33
-----------------------------------------------------------------------------
Total return (a)............................... 2.57% 4.77% 4.80% 7.74% 6.95% 7.99%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 247,736 $281,974 $302,434 $ 342,541 $ 406,431 $522,802
Ratios to average net assets:
Expenses ..................................... .44%(b) .43% .26% .25% .25% .18%
Expenses excluding waiver and payments
by affiliate ................................ .44%(b) .43% .43% .43% .42% .43%
Net investment income ........................ 5.72%(b) 5.32% 5.88% 6.31% 6.31% 6.17%
Portfolio turnover rate ....................... 5.93% 23.23% 38.92% 20.84% 24.63% 20.16%
</TABLE>
(a) Total return is not annualized for periods less than one year.
(b) Annualized
(c) Based on average shares outstanding effective year ended October 31, 1999.
See notes to financial statements.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO AMOUNT VALUE
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 95.6%
U.S. GOVERNMENT AND AGENCY SECURITIES 94.4%
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) 14.7%
Cap 11.253%, Margin 1.75% + CMT, Resets Annually, 7.00%, 11/01/16 ............ $ 2,590,443 $ 2,617,544
Cap 12.012%, Margin 2.297% + 5CMT, Resets Annually, 7.858%, 5/01/26 .......... 3,700,821 3,742,083
Cap 12.744%, Margin 2.00% + CMT, Resets Annually, 6.695%, 7/01/18 ............ 1,673,718 1,711,607
Cap 12.806%, Margin 2.23% + CMT, Resets Annually, 7.436%, 4/01/18 ............ 3,953,396 4,055,121
Cap 12.993%, Margin 1.743% + 6 Month TB, Resets Semi-Annually, 7.034%, 10/01/29 630,905 643,715
Cap 13.006%, Margin 2.00% + CMT, Resets Annually, 7.203%, 9/01/19 ............ 3,019,330 3,097,926
Cap 13.156%, Margin 1.915% + CMT, Resets Annually, 7.194%, 12/01/16 .......... 1,643,561 1,678,509
Cap 13.175%, Margin 2.233% + CMT, Resets Annually, 7.491%, 5/01/25 ........... 2,703,931 2,778,840
Cap 13.246%, Margin 2.175% + CMT, Resets Annually, 7.321%, 10/01/18 .......... 814,344 840,879
Cap 13.292%, Margin 2.115% + CMT, Resets Annually, 7.393%, 3/01/19 ........... 1,264,682 1,301,834
Cap 13.366%, Margin 2.102% + CMT, Resets Annually, 7.674%, 3/01/18 ........... 2,595,442 2,634,751
Cap 13.37%, Margin 2.04% + CMT, Resets Annually, 7.287%, 4/01/19 ............. 4,856,584 4,954,794
Cap 13.65%, Margin 2.249% + CMT, Resets Annually, 7.222%, 7/01/20 ............ 2,753,290 2,861,884
Cap 13.793%, Margin 2.214% + CMT, Resets Annually, 7.261%, 11/01/19 .......... 1,639,286 1,696,149
Cap 14.307%, Margin 1.957% + 3CMT, Resets Every 3 Years, 7.777%, 12/01/21 .... 770,560 776,063
Cap 14.90%, Margin 2.546% + CMT, Resets Annually, 8.366%, 2/01/19 ............ 1,031,828 1,060,772
-----------
36,452,471
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) 69.5%
Cap 11.06%, Margin 1.98% + CMT, Resets Annually, 7.458%, 3/01/22 ............. 444,719 458,458
Cap 11.884%, Margin 2.211% + CMT, Resets Annually, 7.468%, 2/01/25 ........... 2,274,935 2,314,799
Cap 11.94%, Margin 2.352% + CMT, Resets Annually, 6.944%, 9/01/29 ............ 6,003,674 5,885,000
Cap 11.966%, Margin 1.25% + COFI, Resets Monthly, 5.829%, 4/01/22 ............ 4,861,685 4,741,073
Cap 12.233%, Margin 1.70% + COFI, Resets Monthly, 6.292%, 1/01/19 ............ 5,068,499 4,974,467
Cap 12.435%, Margin 2.146% + CMT, Resets Annually, 6.480%, 8/01/29 ........... 10,519,000 10,256,680
Cap 12.605%, Margin 2.536% + 6 Month DR, Resets Semi-Annually, 7.238%, 11/01/18 1,032,802 1,033,259
Cap 12.637%, Margin 2.00% + NCI, Resets Annually, 6.502%, 11/01/17 ........... 10,068,937 10,055,948
Cap 12.64%, Margin 2.00% + CMT, Resets Annually, 7.246%, 3/01/19 ............. 1,601,704 1,653,568
Cap 12.65%, Margin 1.75% + NCI, Resets Monthly, 6.375%, 10/01/28 ............. 522,828 510,133
Cap 12.66%, Margin 1.75% + 6 Month DR, Resets Semi-Annually, 6.851%, 1/01/19 . 4,881,010 4,984,730
Cap 12.662%, Margin 1.25% + COFI, Resets Monthly, 6.867%, 1/01/19 ............ 2,212,977 2,190,760
Cap 12.705%, Margin 1.25% + COFI, Resets Monthly, 6.102%, 9/01/18 ............ 8,397,797 8,129,739
Cap 12.763%, Margin 1.25% + COFI, Resets Monthly, 6.145%, 6/01/20 ............ 5,667,448 5,509,951
Cap 12.787%, Margin 1.25% + COFI, Resets Monthly, 7.555%, 1/01/19 ............ 314,249 313,646
Cap 12.788%, Margin 2.11% + CMT, Resets Annually, 7.254%, 11/01/20 ........... 1,940,946 2,005,484
Cap 12.804%, Margin 1.75% + CMT, Resets Annually, 6.932%, 5/01/19 ............ 2,532,797 2,581,319
Cap 12.84%, Margin 2.762% + 6 Month DR, Resets Semi-Annually, 7.393%, 6/01/17 1,478,918 1,543,993
Cap 12.85%, Margin 1.97% + CMT, Resets Annually, 7.138%, 12/01/17 ............ 612,949 627,577
Cap 12.85%, Margin 2.078% + 5CMT, Resets Every 5 Years, 8.258%, 10/01/17 ..... 1,657,877 1,691,786
Cap 12.89%, Margin 2.125% + 6 Month DR, Resets Semi-Annually, 6.915%, 7/01/17 5,622,288 5,805,077
Cap 12.938%, Margin 1.25% + COFI, Resets Monthly, 6.102%, 2/01/19 ............ 2,980,947 2,885,796
Cap 12.953%, Margin 2.125% + 6 Month TB, Resets Semi-Annually, 7.219%, 4/01/18 437,970 448,945
Cap 12.993%, Margin 2.092% + CMT, Resets Annually, 7.40%, 12/01/19 ........... 1,522,234 1,573,602
Cap 13.005%, Margin 1.97% + 3CMT, Resets Every 3 Years, 7.411%, 11/01/17 ..... 2,379,941 2,394,753
Cap 13.01%, Margin 2.10% + CMT, Resets Annually, 7.383%, 6/01/19 ............. 2,526,369 2,611,202
Cap 13.03%, Margin 1.25% + COFI, Resets Monthly, 6.896%, 2/01/20 ............. 7,242,973 7,170,254
</TABLE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
U.S. GOVERNMENT AND AGENCY SECURITIES (CONT.)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) (CONT.)
Cap 13.03%, Margin 1.75% + 6 Month TB, Resets Semi-Annually, 7.09%, 12/01/20 .. $ 2,779,887 $ 2,825,831
Cap 13.063%, Margin 2.175% + CMT, Resets Annually, 7.639%, 4/01/19 ............ 3,573,280 3,648,139
Cap 13.083%, Margin 2.005% + CMT, Resets Annually, 7.052%, 6/01/19 ............ 2,252,511 2,315,734
Cap 13.128%, Margin 2.02% + COFI, Resets Semi-Annually, 6.57%, 4/01/03 ........ 2,854,089 2,808,131
Cap 13.147%, Margin 1.895% + CMT, Resets Annually, 6.911%, 4/01/19 ............ 2,979,273 3,041,200
Cap 13.202%, Margin 2.478% + 6 Month DR, Resets Semi-Annually, 7.760%, 11/01/26 1,258,247 1,309,583
Cap 13.249%, Margin 2.00% + CMT, Resets Annually, 7.007%, 6/01/19 ............. 1,641,235 1,684,379
Cap 13.281%, Margin 2.00% + CMT, Resets Annually, 7.205%, 10/01/19 ............ 3,666,652 3,772,739
Cap 13.32%, Margin 1.25% + COFI, Resets Monthly, 7.285%, 4/01/03 .............. 2,733,936 2,720,157
Cap 13.452%, Margin 2.148% + CMT, Resets Annually, 7.360%, 9/01/22 ............ 5,957,614 6,164,796
Cap 13.54%, Margin 1.25% + COFI, Resets Monthly, 6.151%, 8/01/26 .............. 682,113 663,637
Cap 13.563%, Margin 2.111% + CMT, Resets Annually, 6.989%, 8/01/20 ............ 1,818,819 1,879,898
Cap 13.662%, Margin 2.177% + CMT, Resets Annually, 7.243%, 3/01/21 ............ 2,287,842 2,377,747
Cap 13.791%, Margin 2.143% + CMT, Resets Monthly, 7.159%, 12/01/20 ............ 3,808,766 3,934,938
Cap 13.797%, Margin 2.20% + CMT, Resets Annually, 7.962%, 3/01/19 ............. 1,041,433 1,072,378
Cap 13.80%, Margin 0.94% + 6 Month DR, Resets Semi-Annually, 6.786%, 7/01/24 .. 3,490,724 3,492,766
Cap 13.847%, Margin 2.134% + 3CMT, Resets Every 3 Years, 8.138%, 3/01/22 ...... 445,976 454,284
Cap 13.86%, Margin 1.842% + CMT, Resets Monthly, 6.933%, 8/01/16 .............. 137,906 140,363
Cap 13.875%, Margin 1.975% + CMT, Resets Annually, 7.812%, 3/01/18 ............ 849,207 868,018
Cap 13.887%, Margin 2.25% + CMT, Resets Annually, 7.765%, 2/01/19 ............. 1,773,670 1,826,425
Cap 13.896%, Margin 2.25% + CMT, Resets Annually, 7.552%, 12/01/18 ............ 1,345,485 1,384,683
Cap 13.932%, Margin 1.992% + 3CMT, Resets Every 3 Years, 7.387%, 6/01/26 ...... 3,562,038 3,583,561
Cap 14.069%, Margin 2.089% + CMT, Resets Annually, 7.241%, 1/01/19 ............ 2,855,629 2,942,917
Cap 14.354%, Margin 2.07% + 5CMT, Resets Every 5 Years, 7.900%, 5/01/21 ....... 4,308,569 4,362,595
Cap 14.42%, Margin 2.099% + CMT, Resets Annually, 7.161%, 3/01/20 ............. 1,773,398 1,818,620
Cap 14.561%, Margin 2.199% + 3CMT, Resets Every 3 Years, 7.751%, 12/01/24 ..... 4,020,366 4,060,619
Cap 14.68%, Margin 2.125% + 3CMT, Resets Every 3 Years, 7.817%, 8/01/22 ....... 1,147,021 1,162,332
Cap 14.725%, Margin 2.42% + CMT, Resets Annually, 7.676%, 6/01/19 ............. 3,531,526 3,631,051
Cap 14.804%, Margin 2.186% + 3CMT, Resets Every 3 Years, 7.464%, 12/01/17 ..... 1,897,340 1,913,127
Cap 14.887%, Margin 1.72% + CMT, Resets Annually, 6.661%, 1/01/16 ............. 4,204,365 4,269,593
Cap 14.952%, Margin 2.523% + CMT, Resets Annually, 7.525%, 5/01/19 ............ 1,719,273 1,783,588
-----------
172,265,828
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) 10.2%
Cap 10.00%, Margin 1.50% + CMT, Resets Annually, 6.375%, 1/20/24 .............. 3,417,583 3,439,751
Cap 10.50%, Margin 1.50% + CMT, Resets Annually, 6.75%, 9/20/22 ............... 4,128,090 4,158,032
Cap 11.00%, Margin 1.50% + CMT, Resets Annually, 6.375%, 5/20/17 .............. 2,162,931 2,177,001
Cap 11.00%, Margin 1.50% + CMT, Resets Annually, 7.125%, 11/20/23 ............. 2,212,682 2,244,466
Cap 11.00%, Margin 2.50% + CMT, Resets Annually, 7.75%, 7/20/25 ............... 1,503,889 1,566,587
Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 6.375%, 1/20/23 .............. 11,560,681 11,662,970
-----------
25,248,807
-----------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES (COST $237,425,115) ............... 233,967,106
-----------
</TABLE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
MISCELLANEOUS MORTGAGE BACKED SECURITIES 1.2%
Countrywide Mortgage Backed Securities, Inc., Series 1994-I, A8, 6.25%, 7/25/09 .......... $ 294,026 $ 290,553
Home Owners Federal Savings & Loan, Cap 13.00%, Margin 1.75%, Resets Monthly, 6.928%,
1/25/18 ................................................................................ 464,441 464,369
RTC, Cap 12.39%, Margin 1.61% + 6 Month DR, Resets Semi-Annually, 7.037%, 1/25/25 ........ 588,487 586,283
Salomon Brothers Mortgage Securities VII, Cap 14.00%, Margin 0.96% + NACR, Resets
Annually, 7.657%, 10/25/16 ............................................................. 473,731 473,139
Sears Mortgage Securities, Cap 12.34%, Margin 1.10% + COFI, Resets Monthly, 5.73%,
7/25/21 ................................................................................ 204,033 199,825
Travelers Mortgage Services, Inc., Cap 13.95%, Margin 2.25% + CMT, Resets Annually,
7.425%, 12/25/18 ....................................................................... 370,478 370,110
Western Federal Savings and Loan Association, Cap 12.25%, Margin 0.75% + 1 Month LIBOR,
Resets Monthly, 6.627%, 6/25/20 ........................................................ 214,106 205,809
Western Federal Savings and Loan Association, Cap 12.75%, Margin 0.75% + 1 Month LIBOR,
Resets Monthly, 6.627%, 7/25/20 ........................................................ 225,537 216,798
------------
TOTAL MISCELLANEOUS MORTGAGE BACKED SECURITIES (COST $2,844,585) .......................... 2,806,886
============
TOTAL LONG TERM INVESTMENTS (COST $240,269,700) ........................................... 236,773,992
------------
(a) REPURCHASE AGREEMENT 3.2%
Joint Repurchase Agreement, 5.706%, 5/01/00 (Maturity Value $8,036,171) (COST $8,032,352) 8,032,352 8,032,352
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Lehman Government Securities
Nesbitt Burns Securities Inc.
Paine Webber Inc.
Paribas Corporation
Societe Generale
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes
------------
TOTAL INVESTMENTS (COST $248,302,052) 98.8% .............................................. 244,806,344
OTHER ASSETS, LESS LIABILITIES 1.2% ...................................................... 2,929,230
------------
NET ASSETS 100.0% ........................................................................ $247,735,574
============
</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
LIBOR - London Interbank Offered Rate
NACR - National Average Contract Rate
NCI - National Median Cost of Funds Index
RTC - Resolution Trust Corp.
TB - Treasury Bill Rate
(a) Investment is through participation in a joint account with other funds
managed by the investment advisor. At April 30, 2000, all repurchase
agreements had been entered into on April 28, 2000.
See notes to financial statements.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2000 (UNAUDITED)
Assets:
Investments in securities:
Cost ................................................... $ 248,302,052
-------------
Value .................................................. 244,806,344
Receivables:
Investment securities sold ............................. 630,022
Capital shares sold .................................... 831,386
Interest ............................................... 1,592,727
-------------
Total assets ....................................... 247,860,479
-------------
Liabilities:
Payable to affiliates ................................... 79,467
Other liabilities ....................................... 45,438
-------------
Total liabilities .................................. 124,905
-------------
Net assets, at value .............................. $ 247,735,574
-------------
Net assets consist of:
Net unrealized depreciation ............................. $ (3,495,708)
Accumulated net realized loss ........................... (137,183,098)
Capital shares .......................................... 388,414,380
-------------
Net assets, at value ..................................... $ 247,735,574
-------------
Shares outstanding ....................................... 26,699,990
-------------
Net asset value and maximum offering price per share ..... $9.28
-------------
See notes to financial statements.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO
FINANCIAL STATEMENTS (continued)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 2000 (UNAUDITED)
Investment income:
Interest .................................................. $ 8,092,708
-----------
Expenses:
Management fees (Note 3) .................................. 526,240
Custodian fees ............................................ 1,296
Reports to shareholders ................................... 998
Professional fees (Note 3) ................................ 27,316
Trustees' fees and expenses ............................... 6,593
Other ..................................................... 6,795
-----------
Total expenses ....................................... 569,238
-----------
Net investment income ............................... 7,523,470
-----------
Realized and unrealized losses:
Net realized loss from investments ........................ (187,208)
Net unrealized depreciation on investments ................ (809,014)
-----------
Net realized and unrealized loss ........................... (996,222)
-----------
Net increase in net assets resulting from operations ....... $ 6,527,248
-----------
See notes to financial statements.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO
FINANCIAL STATEMENTS (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED APRIL 30, 2000 (UNAUDITED)
AND THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
APRIL 30, 2000 OCTOBER 31, 1999
-----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ....................................................... $ 7,523,470 $ 15,297,092
Net realized loss from investments .......................................... (187,208) (140,123)
Net unrealized depreciation on investments .................................. (809,014) (1,785,775)
---------------------------------
Net increase in net assets resulting from operations .................... 6,527,248 13,371,194
Distributions to shareholders from net investment income ..................... (7,523,470) (15,297,092)
Capital share transactions (Note 2) .......................................... (33,242,145) (18,533,904)
---------------------------------
Net decrease in net assets .............................................. (34,238,367) (20,459,802)
Net assets (there is no undistributed net investment income at beginning or
end of period):
Beginning of period .......................................................... 281,973,941 302,433,743
---------------------------------
End of period ................................................................ $ 247,735,574 $ 281,973,941
---------------------------------
</TABLE>
See notes to financial statements.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO
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 a diversified, open-end investment company,
consisting of one portfolio, the U.S. Government Adjustable Rate Mortgage
Portfolio (the 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 the Portfolio is to seek current income.
The following summarizes the Portfolio's 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 the Portfolio's policy is to
qualify as a regulated investment company under the Internal Revenue Code and
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.
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
U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
2. SHARES OF BENEFICIAL INTEREST
At April 30, 2000, there was an unlimited number of shares authorized ($0.01 par
value). Transactions in the Portfolio's shares were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
-------------------------------
<S> <C> <C>
Six months ended April 30, 2000
Shares sold .................................. 4,762,314 $ 44,202,988
Shares issued in reinvestment of distributions 810,556 7,523,309
Shares redeemed .............................. (9,151,660) (84,968,442)
-------------------------------
Net decrease .................................. (3,578,790) $ (33,242,145)
-------------------------------
Year ended October 31, 1999
Shares sold .................................. 18,450,025 $ 172,044,493
Shares issued in reinvestment of distributions 1,641,140 15,300,133
Shares redeemed .............................. (22,090,242) (205,878,530)
-------------------------------
Net decrease .................................. (1,999,077) $ (18,533,904)
-------------------------------
</TABLE>
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors of
Franklin Advisers, Inc. (Advisers), the Portfolio's investment manager (a
wholly-owned subsidiary of Franklin Resources, Inc.) and trustees of Franklin
Investors Securities Trust.
The Portfolio pays an investment management fee to Advisers based on the average
daily net assets of the Portfolio as follows:
ANNUALIZED
FEE RATE NET ASSETS
------------------------------------------------------------------
.400% First $5 billion
.350% Over $5 billion, up to and including $10 billion
.330% Over $10 billion, up to and including $15 billion
Fees are further reduced on net assets over $15 billion.
At April 30, 2000, all shares of the Portfolio were owned by the Franklin
Adjustable U.S. Government Securities Fund.
Included in professional fees are legal fees of $731 that were paid to a law
firm in which a partner is an officer of the Portfolio.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
4. INCOME TAXES
At October 31, 1999, the Portfolio had tax basis capital losses, which may be
carried over to offset future capital gains. Such losses expire as follows:
Capital loss carryovers
expiring in:
2000 $ 44,474,794
2001 17,182,002
2002 67,102,060
2003 7,677,608
2004 419,303
2007 140,123
------------
$136,995,890
============
At April 30, 2000, the net unrealized depreciation based on the cost of
investments for income tax purposes of $248,302,052 was as follows:
Unrealized appreciation $ 331,219
Unrealized depreciation (3,826,927)
-----------
Net unrealized depreciation $(3,495,708)
===========
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended April 30, 2000 aggregated $14,859,521 and $45,079,701,
respectively.
