<PAGE>
FRANKLIN PRINCIPAL MATURITY TRUST
The Trust's primary objective is to manage a portfolio of securities with the
goal of returning $10.00 per share to investors on or shortly before May 31,
2001, while providing high monthly income. No assurances can be made that the
fund will achieve this goal.
January 20, 1995
Dear Shareholder:
This report on the Franklin Principal Maturity Trust covers the 12 months ended
November 30, 1994.
During this period, stock and bond markets continued to be dominated by strong
U.S. economic growth and an accompanying rise in interest rates. In an attempt
to restrain inflationary pressures, the Federal Reserve Board continued the
restrictive monetary policy initiated in February 1994, by raising interest
rates six times during the year. The federal funds rate -- the rate banks charge
each other for overnight loans -- rose two and one-half percentage points, from
3.00% in February to 5.50% in November.
Rising interest rates, coupled with inflationary fears, negatively affected
several of the Trust's investment sectors. In this environment, the Trust
reported a disappointing -12.63% one-year total return as shown in the
performance summary on page 3.
Zero-coupon securities continue to play a critical role in the management of the
portfolio. As they approach maturity, they gradually increase in value and
provide a fixed amount of principal (face value) when they mature. On November
30, 1994, zero-coupon securities made up 59.6% of the Trust's total net assets.
Since zero-coupon securities pay no interest, they tend to be placed among the
more volatile debt securities available. Relative to movements in interest
rates, they generally rise in value when interest rates fall. And, when interest
rates rise (as they did throughout 1994), their values decline.
In an attempt to minimize the impact of higher rates on the Trust's current
share value, management sold a portion of the fund's zero-coupon securities in
the spring of 1994, following the first few interest rate hikes. These sales
were made with a view towards replacing the zero-coupon securities at expected
lower future prices. Since the fund seeks to return the $10.00 per share to
shareholders by the end of May of 2001, we are limited to purchasing zero-coupon
securities that mature around that date. As of this writing, the Trust has
replaced approximately half of the zero-coupon securities it had sold.
<PAGE>
Lower-rated, higher yielding corporate bonds remain a substantial 33.2% of the
Trust's total net assets.* During the past 12 months, the managers reduced this
percentage from 42.4%, seeking to take advantage of attractive rates available
from the more senior, floating-rate debt found in the banking sector. Management
believed that this slight shift would also help to mitigate some of the
weaknesses among other bond holdings.
In addition, the Trust continues to invest in certain defaulted securities that
its managers believe offer potential for significant future capital appreciation
should the debtors restructure their balance sheets. On November 30, 1994, 15 of
the portfolio's 78 securities were in default, representing 14.2% of the Trust's
total net assets. The majority of these issues were already in default when
purchased.
Periodic weakness in foreign bonds created buying opportunities. As a result,
positions in foreign government securities were added, bringing the Trust's
total foreign bond holdings to 2.9% of total net assets.
Looking forward, the Trust's managers will maintain a long-term investment view,
seeking to take advantage of short-term variances.
We appreciate your continued support of the Franklin Principal Maturity Trust
and look forward to serving your needs in the years to come.
Sincerely,
/s/ CHARLES B. JOHNSON
- - --------------------
Charles B. Johnson
President
*High yields reflect the higher credit risks associated with certain lower rated
securities in the portfolio, and in some cases, the lower market prices for
these instruments.
2
<PAGE>
PERFORMANCE SUMMARY
The Franklin Principal Maturity Trust produced a cumulative total return of
- - -8.50% for the one year ended November 30, 1994.(1) This total return figure
reflects the change in the Trust's price on the New York Stock Exchange and
assumes reinvestment of dividends and capital gains at market price on the
reinvestment date.
Based on the change in net asset value (as opposed to market price), the total
return was -12.63% for the one-year period. This figure assumes reinvestment of
dividends and capital gains at market price on the reinvestment date. Past
performance is not predictive of future results.
Due to volatile market conditions and substantial increases in interest rates
over the past 12-month reporting period, the Franklin Principle Maturity Trust's
price on the New York Stock Exchange declined from $8.50 on November 30, 1993,
to $7.125 on November 30, 1994. The net asset value also declined, from $9.62 on
November 30, 1993, to $7.70 on November 30, 1994.
The Trust distributed 69.35 cents ($0.6935) per share during the reporting
period, including 59 cents ($0.59) per share in income dividends and 10.35 cents
($0.1035) per share in long-term capital gains. Of course, distributions will
vary depending on income earned by the fund, as well as any profits realized
from the sale of securities in the portfolio, and past distributions are not
predictive of future trends.
Based on an annualization of the current monthly dividend of 5.0 cents ($0.050)
per share and the New York Stock Exchange closing share price of $7.125 on
November 30, 1994, the Trust's distribution rate was 8.42%.(2)
We urge you to view your investment in the Franklin Principal Maturity Trust
from a long-term investment horizon. As the chart below shows, the Trust reports
a cumulative total return of over 40% since its inception on 1/19/89.(1)
FRANKLIN PRINCIPAL MATURITY TRUST
CUMULATIVE TOTAL RETURNS(1)
Periods ended 11/30/94
<TABLE>
<CAPTION>
SINCE
ONE- FIVE INCEPTION
YEAR YEAR (1/19/89)
---- ---- ---------
<S> <C> <C> <C>
Based on change
in net asset value...... -12.63% 40.54% 40.38%
Based on change
in market value......... -8.50% 12.99% 20.80%
</TABLE>
Distribution Rate(2) 8.42%
1. Total return calculations assume reinvestment of all distributions at market
price on the reinvestment date. Past performance in not predictive of future
results.
2. Distribution rate is based on the annualization of the Trust's
current 5.0 cents per share monthly dividend and the New York Stock Exchange
closing price of $7.125 on November 30, 1994.
3
<PAGE>
FRANKLIN PRINCIPAL MATURITY TRUST
DIVIDEND REINVESTMENT PLAN
The Fund's Dividend Reinvestment Plan offers you a prompt and simple way to
reinvest dividends and capital gain distributions in shares of the Fund. The
Shareholder Services Group ("TSSG" or "Plan Agent"), c/o Corporate Securities,
53 State Street, Boston, Massachusetts 02109, acts as your Plan Agent in
administering the Plan. All reinvestments are in full and fractional shares,
carried to two decimal places. The complete Terms and Conditions of the Dividend
Reinvestment Plan are contained in the Fund's prospectus, dated January 19,
1989, used in connection with its initial public offering. A copy of that
prospectus may be obtained from the Fund at the address on the cover of this
report.
You are automatically enrolled in the Plan unless you elect to receive dividends
or distributions in cash. If you own shares in your own name, you should notify
the Plan Agent, in writing if you wish to receive dividends or distributions in
cash.
If the Fund declares a dividend or capital gain distribution, you, as a
participant in the Plan, will automatically receive an equivalent amount of
shares of the Fund purchased on your behalf by the Plan Agent in the open
market. All reinvestments are in full and fractional shares. The Fund does not
issue new shares in connection with the Plan.
There is no direct charge to participants for reinvesting dividends and
distributions, since the Plan Agent's fees are paid by the Fund. Whenever shares
are purchased through the exchange on which they are listed, each participant
will pay a pro rata portion of brokerage commissions. The automatic reinvestment
of dividends and distributions does not relieve shareholders of liability for
any taxes which may be payable on dividends or distributions. Generally, income
and capital gains, resulting from dividends and distributions received in the
form of shares of the Fund, are realized notwithstanding the fact that cash is
not received by shareholders.
You will receive an annual account statement from the Plan Agent, showing total
dividends and distributions, date of investment, shares acquired and price per
share, and total shares of record held by you and by the Plan Agent for you. You
are entitled to vote all shares of record, including shares purchased for you by
the Plan Agent, and, if you vote by proxy, your proxy will include all such
shares.
As long as you participate in the Plan, the Plan Agent will hold the shares it
has acquired for you in safekeeping, in non-certificated form. This convenience
provides added protection against loss, theft or inadvertent destruction of
certificates.
You may withdraw from the Plan at any time by notifying the Plan Agent in
writing. There is a $5 fee to withdraw from the reinvestment plan. If you
withdraw from the Plan, you will receive a certificate issued in your name for
all full shares and the Plan Agent will convert any fractional shares you hold
at the time of withdrawal to cash at the then current market price and send you
a check for the proceeds. If you prefer, the Plan Agent will sell all of your
full and fractional shares upon your withdrawal and send you the proceeds.
If you hold shares in your own name, please address all notices, correspondence,
questions, or other communications regarding the Plan to the Plan Agent at the
address noted above. If shares are not held in your name, you should contact
your brokerage firm, bank, or other nominee for more information.
4
<PAGE>
FRANKLIN PRINCIPAL MATURITY TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, NOVEMBER 30, 1994
<TABLE>
<CAPTION>
SHARES/ VALUE
WARRANTS (NOTE 1)
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS & WARRANTS 31.9%
AUTOMOBILE/AUTO PARTS 1.1%
105,000 (a)Harvard Industries, Inc., Class B.............................................. $ 1,745,625
-----------
CHEMICALS 7.2%
60,593 (a)Envirodyne Industries, Inc. ................................................... 265,094
984,000 (a,j)Rexene Corp. .................................................................. 11,070,000
-----------
11,335,094
-----------
FOREST/PAPER PRODUCTS .5%
407,221 (a)WTD Industries, Inc. .......................................................... 814,442
-----------
HOME BUILDING 1.3%
393,694 (a)NVR, Inc. ..................................................................... 2,066,894
24,000 (a)NVR, Inc., warrants ........................................................... 15,000
-----------
2,081,894
-----------
HOTEL/GAMING .9%
65,864 (a)Gillett Holdings, Inc. ........................................................ 1,185,552
21,000 Showboat, Inc. ................................................................ 257,250
-----------
1,442,802
-----------
INDUSTRIAL 9.0%
585,724 (a,j)Lone Star Industries, Inc. .................................................... 10,396,601
254,545 (a)Spreckel Industrial, Inc., Class A ............................................ 2,354,541
274,444 (a,c,j)Triangle Wire & Cable Corp. ................................................... 1,372,220
-----------
14,123,362
-----------
INSURANCE
200 (a)American RE Corp. ............................................................. 5,175
-----------
METAL FABRICATE/HARDWARE .8%
2,844,000 (a,j)Ladish Co., Inc. .............................................................. 1,208,700
-----------
REAL ESTATE .3%
17,500 Developers Diversified Realty Corp. ........................................... 479,063
65,393 XRC Corp. ..................................................................... 57,546
-----------
536,609
-----------
RETAIL 7.8%
633,790 (a)Carson Pirie Scott & Co. ...................................................... 11,883,563
22,048 (a)Hills Department Store ........................................................ 443,716
-----------
12,327,279
-----------
TECHNOLOGY/INFORMATION SYSTEMS 1.1%
438,408 (a)Memorex Telex, NV, ADR ........................................................ 219,204
142,383 (a)Wang Laboratories, Inc. ....................................................... 1,530,617
1209 (a)Wang Laboratories, Inc., Warrants ............................................. 7,816
-----------
1,757,637
-----------
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
FRANKLIN PRINCIPAL MATURITY TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, NOVEMBER 30, 1994 (CONT.)
</TABLE>
<TABLE>
<CAPTION>
SHARES/ VALUE
WARRANTS (NOTE 1)
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS & WARRANTS (CONT.)
TEXTILE .6%
61,907 (a)WestPoint Stevens, Inc., Class A .............................................. $ 897,652
-----------
TRANSPORTATION 1.3%
179,999 (a)Leaseway Transportation Corp. ................................................. 1,979,989
-----------
TOTAL COMMON STOCKS & WARRANTS (COST $56,208,592) ....................... 50,256,260
-----------
PREFERRED STOCKS 3.3%
AUTOMOBILE/AUTO PARTS 3.0%
186,767 Harvard Industries, Inc., 14.25% pfd., PIK .................................... 4,809,250
-----------
FINANCIAL SERVICES .3%
20,000 Nortel, Inc., pfd., Series B .................................................. 420,000
-----------
FOOD RETAILING
31,250 (a,b)Grand Union Holdings, Inc., 12.00% pfd., Series C ............................. 31,250
-----------
TOTAL PREFERRED STOCKS (COST $8,281,041) ................................ 5,260,500
-----------
CONVERTIBLE PREFERRED STOCKS 2.7%
HOME BUILDING 1.7%
174,345 (a)U.S. Home Corp., 5.00% cvt. pfd. .............................................. 2,745,934
-----------
RESTAURANTS .8%
60,400 Flagstar Cos., $2.25 cvt. pfd., Series A ...................................... 1,192,900
-----------
RETAIL .2%
19,103 (a)Hills Department Store, cvt. pfd., Series A ................................... 377,284
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $5,652,387) .................... 4,316,118
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
--------
<S> <C> <C>
(b,g,i)BANK DEBTS 11.0%
$ 5,000,000 El Paso Electric Co., 5.9375%, 05/03/99 ....................................... 2,750,000
6,110,087 (a,d)JWP, Inc., 0.00%, 05/03/99 .................................................... 1,833,026
2,100,000 (a,d)KB Isoceles, 0.00%, 12/31/03 .................................................. 1,481,052
4,810,347 (a,d)Maxwell Communication, Plc., 0.00%, 12/31/99 .................................. 1,804,739
7,265,966 Phar-Mor, Inc., 6.545%, 12/31/97 .............................................. 6,176,071
3,574,394 Resurgence Properties, Inc., 7.375%, 12/31/95 ................................. 3,288,443
-----------
TOTAL BANK DEBT (COST $18,356,388) ...................................... 17,333,331
-----------
CORPORATE BONDS 34.4%
AIR FREIGHT .7%
2,500,000 (a,d)Evergreen International Aviation, senior notes, 13.50%, 08/15/02 .............. 1,075,000
-----------
CHEMICAL 3.2%
4,000,000 (c)Acadia Partners, senior sub. notes, 13.00%, 10/01/97 .......................... 4,100,000
1,314,000 Envirodyne Industrial, senior notes, 10.25%, 12/01/01 ......................... 926,370
-----------
5,026,370
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
FRANKLIN PRINCIPAL MATURITY TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, NOVEMBER 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONT.)
COMMERCIAL SERVICES 2.4%
$ 6,000,000 (a,b,d)JWP, Inc., S.F., senior notes, 9.95%, 11/15/04 ................................ $ 2,100,000
5,000,000 (a,b,d)JWP, Inc., senior notes, 10.35%, 11/30/05 ..................................... 1,750,000
-----------
3,850,000
-----------
CONSUMER GOODS .7%
2,250,000 (a,d)Equitable Bag Co., senior notes, 12.375%, 08/15/02 ............................ 1,068,750
-----------
ELECTRONICS
500,000 (a,d)Ampex Group, Inc., senior notes, 13.25%, 11/15/96 ............................. 35,000
-----------
ENERGY .6%
1,116,000 Synergy Group, Inc., senior sub. notes, 9.50%, 09/15/00 ...................... 948,600
-----------
FOOD RETAILING 5.1%
23,350,000 (a,d)Almacs, Inc., senior secured notes,13.00%, 08/01/00 ........................... 1,167,500
3,000,000 Purity Supreme, Inc., senior notes, 11.75%, 08/01/99 .......................... 2,535,000
6,000,000 Victory Markets, Inc., notes, 12.50%, 03/15/00 ................................ 4,350,000
-----------
8,052,500
-----------
FOREST/PAPER PRODUCTS 2.4 %
4,189,640 WTD Industries, Inc., notes, 10.00%, 12/04/04 ................................. 3,603,090
204,500 WTD Industries, Inc., notes, 8.00%, 06/30/05 .................................. 122,700
-----------
3,725,790
-----------
HOME BUILDING 3.1%
3,000,000 (a,d)Walter (Jim) Corp., sub. deb., 13.125%, 02/01/49 .............................. 2,460,000
2,535,000 Waxman Industries, S.F., senior sub. notes, 13.75%, 06/01/99 .................. 2,395,575
-----------
4,855,575
-----------
HOTEL/GAMING 1.2%
1,725,599 Gillett Holdings, Inc., senior sub. notes, 12.25%, 06/30/02 ................... 1,829,135
-----------
INDUSTRIAL 7.7%
4,300,000 (a,d,m)Clevite Industrial, sub. deb., 12.375%, 06/30/01 .............................. 1,741,500
4,000,000 Great Dane Holdings, Inc., senior notes, 14.50%, 01/01/06 ..................... 3,940,000
8,500,000 Haynes International, Inc., senior sub. notes, 13.50%, 08/15/99 ............... 5,142,500
8,000 Lone Star Industries, Inc., senior notes, 10.00%, 07/31/03 .................... 7,600
1,013,000 Rosebud Holdings, Inc., asset-backed notes, 10.00%, 07/31/97 .................. 967,415
149,000 Thermadyne Industries, Inc., senior sub. notes, 10.25%, 05/01/02 .............. 143,785
207,000 Thermadyne Industries, Inc., sub. notes, 10.75%, 11/01/03 ..................... 193,545
-----------
12,136,345
-----------
MACHINE/CONSTRUCTION 3.9%
5,000,000 Terex Corp., S.F., deb., 13.50%, 07/01/97 ..................................... 4,725,000
1,559,000 (c)Terex Corp., senior secured notes, 13.00%, 08/01/96............................ 1,496,640
-----------
6,221,640
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
FRANKLIN PRINCIPAL MATURITY TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, NOVEMBER 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONT.)
RETAIL
$ 500,000 (a,d)Macy (R.H.) & Co., junior sub. disc. deb., 16.50%, 11/15/06 ................... $ 52,500
-----------
TOBACCO 2.5%
5,250,000 Liggett Group, S.F., senior secured notes, 11.50%, 02/01/99 ................... 3,858,750
74,000 (c)Liggett Group, Series C, senior secured notes, 16.50%, 02/01/99 ............... 55,500
-----------
3,914,250
-----------
TRANSPORTATION .6%
4,199,000 Trans World Airlines, Inc., notes, PIK, 8.00%, 11/03/00 ....................... 944,775
-----------
UTILITIES .3%
500,000 Midland CoGeneration Venture, S.F., secured lease obligation bonds,
Series A, 11.75%, 07/23/05 ................................................... 459,810
-----------
TOTAL CORPORATE BONDS (COST $63,216,976) ................................ 54,196,040
-----------
CONVERTIBLE CORPORATE BONDS
RETAIL
80,000 Hills Department Store, cvt. senior notes, 10.25%, 09/30/03 (COST $80,000) .... 74,000
-----------
(e)FOREIGN GOVERNMENT BONDS .5%
4,350,000 ESCOM, E168, utility deb. (South Africa), 11.00%, 06/01/08 (COST $1,017,040) .. 742,923
-----------
(h)ZERO COUPON BONDS 54.7%
FOREIGN GOVERNMENT SECURITIES 2.4%
4,000,000 (a,d)Ecuador Sovereign, debt notes, 12/31/95 ....................................... 2,068,400
3,000,000 (a,d)Panama Sovereign, debt notes, 12/31/95 ........................................ 1,635,000
-----------
FOREIGN GOVERNMENT SECURITIES (COST $ 4,230,000) ........................ 3,703,400
-----------
(f)U.S. GOVERNMENT & ITS AGENCIES 52.3%
4,696,000 FICO Strip, 04/06/01 .......................................................... 2,853,717
5,211,000 FICO Strip, 05/02/01 .......................................................... 3,147,106
1,116,000 FICO Strip, 05/11/01 .......................................................... 672,586
4,224,000 FICO Strip, 05/30/01 .......................................................... 2,534,734
8,100,000 GTC Trust Certificates-Israel, Series 1D, 05/15/01 ............................ 4,877,148
27,226,000 GTC Trust Certificates-Israel, Series 2F, 05/15/01 ............................ 16,393,237
85,249,000 U.S. Treasury Strips, 05/15/01 ................................................ 51,856,540
-----------
TOTAL U.S. GOVERNMENT & ITS AGENCIES (COST $88,779,909) ................. 82,335,068
-----------
TOTAL ZERO COUPON BONDS (COST $93,009,909) .............................. 86,038,468
-----------
TOTAL LONG TERM INVESTMENTS (COST $245,822,333).......................... 218,217,640
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
FRANKLIN PRINCIPAL MATURITY TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, NOVEMBER 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENTS
(h)ZERO COUPON BONDS 4.9%
$5,000,000 (a,d)McCrory Corp., deb., (original accretion rate 5.883%), 07/15/95 ............... $ 2,075,000
2,147,889 Mortgage & Realty Trust, (original accretion rate 16.165%), 06/30/95 .......... 1,761,269
4,650,000 Telemundo Group, (original accretion rate 10.014%), 12/31/94 .................. 3,859,500
------------
TOTAL ZERO COUPON BONDS (COST $9,712,023) ............................... 7,695,769
------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS (COST $255,534,356)....... 225,913,409
------------
(k,l)Receivables from Repurchase Agreements .2%
409,463 Joint Repurchase Agreement, 5.707%, 12/01/94 (Maturity Value $393,518)
(COST $393,456)
Collateral: U.S. Treasury Bills, 02/09/95 - 05/11/95 ....................... 393,456
------------
TOTAL INVESTMENTS (COST $255,927,812) 143.6% ....................... 226,306,865
LIABILITIES IN EXCESS OF OTHER ASSETS, NET (43.5)% ................. (68,799,024)
------------
NET ASSETS 100.0% .................................................. $157,507,841
============
At November 30, 1994, the net unrealized depreciation based on
the cost of investments for income tax purposes of
$255,954,062 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
was an excess of value over tax cost ....................................... $9,102,988
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value ....................................... (38,750,185)
------------
Net unrealized depreciation ................................................. $(29,647,197)
============
</TABLE>
PORTFOLIO ABREVIATIONS:
FICO - Financing Corp.
GTC - Government Trust Certificates
PIK - Payment-in-Kind
S.F. - Sinking Fund
(a)Non-income producing.
(b)See Note 6 regarding restricted securities.
(c)See Note 7 regarding Rule 144A securities.
(d)See Note 9 regarding credit risk and defaulted securities.
(e)Face amount stated in foreign currencies, value in U.S. dollars.
(f)A portion of these securities is designated as collateral for reverse
repurchase agreement transactions.
(g)Investments described as bank debts are loan participations acquired by
the Fund from banks or finance companies (lenders). Loan participations are
interests in floating or variable rate loans to U.S. corporations,
partnerships and other entities (borrowers) in which the Fund has a
contractual relationship solely with the lender for payment of principal and
interest upon receipt by the lender of such payments from the borrower. The
companies listed are the borrowers of the bank debts in which the Fund has
acquired participation.
(h)Zero coupon bonds. The current effective yield may vary. The original
accretion rate by security will remain constant.
(i)Securities are valued in accordance with procedures approved by the Board of
Trustees.
(j)See Note 11 regarding holdings of 5% voting securities.
(k)Face amount for repurchase agreements is for the underlying collateral.
(l)See Note 2(f) regarding Joint Repurchase Agreement.
(m)Due to the uncertainty of future interest payments, the fund discontinued
the accrual of income on 6/30/94, the date the last interest payment was
received.
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
FRANKLIN PRINCIPAL MATURITY TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1994
<TABLE>
<S> <C>
Assets:
Investments in securities, at value
(identified cost $255,534,356) $225,913,409
Receivables from repurchase
agreements, at value and cost 393,456
Cash 5,145,522
Receivables:
Interest 2,413,508
Investment securities sold 93,115
------------
Total assets 233,959,010
------------
Liabilities:
Payables:
Reverse repurchase agreements
(Note 2) 75,145,875
Distributions payable to shareholders 1,023,130
Accrued interest (Note 2) 160,968
Management fees 82,496
Accrued expenses and other payables 38,700
------------
Total liabilities 76,451,169
------------
Net assets, at value $157,507,841
============
Net assets consist of:
Undistributed net investment income
(Note 2) $ 2,090,458
Unrealized depreciation on investments
and translation of assets and
liabilities denominated in foreign
currencies (29,617,103)
Accumulated net realized loss (323,358)
Capital shares 204,626
Additional paid-in capital 185,153,218
------------
Net assets, at value $157,507,841
============
Net asset value per share
($157,507,841 divided by 20,462,600
shares of capital stock outstanding) $7.70
============
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1994
<TABLE>
<S> <C> <C>
Investment income:
Interest (Note 2) $14,988,901
Dividends 898,320
-----------
Total income $ 15,887,221
Expenses:
Management fees (Note 4) 1,127,460
Shareholder servicing costs 88,898
Professional fees 90,028
Reports to shareholders 36,197
Custodian fees 33,017
Trustees' fees and expenses 14,892
Amortization of organization
costs (Note 1) 1,200
Other 44,567
-----------
Operating expenses 1,436,259
Interest expense (Note 2) 3,457,672
-----------
Total expenses 4,893,931
------------
Net investment income 10,993,290
------------
Realized and unrealized gain
(loss) on investments:
Net realized gain (loss)
from:
Investments (323,358)
Foreign currency
transactions 28,549
Net unrealized depreciation
on investments and translation
of assets and liabilities
denominated in foreign
currencies (35,895,185)
------------
Net realized and unrealized
loss on investments (36,189,994)
------------
Net decrease in net assets
resulting from operations $(25,196,704)
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
FRANKLIN PRINCIPAL MATURITY TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED NOVEMBER 30, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
------------ -------------
<S> <C> <C>
Increase (decrease) in
net assets:
Operations:
Net investment
income $ 10,993,290 $ 10,581,334
Net realized gain (loss)
from investments and
foreign currency
transactions (294,809) 8,624,690
Net unrealized appre-
ciation (depreciation)
on investments and
translation of assets
and liabilities denom-
inated in foreign
currencies (35,895,185) 23,408,618
------------ ------------
Net increase (de-
crease) in net
assets resulting
from operations (25,196,704) 42,614,642
Distributions to
shareholders from:
Undistributed net
investment income (12,074,213) (10,581,334)
Net realized capital
gains (2,116,600) --
Distributions in excess
of net investment
income -- (775,412)*
------------ ------------
Net increase
(decrease) in
net assets (39,387,517) 31,257,896
Net assets:
Beginning of year 196,895,358 165,637,462
------------ ------------
End of year (including undistributed
net investment income of $2,090,458 -
11/30/94 and $3,142,832 - 11/30/93) $157,507,841 $196,895,358
============ ============
</TABLE>
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED NOVEMBER 31, 1994
<TABLE>
<S> <C>
Interest and dividends received $ 17,627,920
Interest expense paid (3,446,368)
Operating expenses paid (1,458,222)
---------------
Cash provided - operating activities 12,723,330
---------------
Investment purchases (1,173,868,388)
Investment sales 1,189,152,524
---------------
Cash provided - investing activities 15,284,136
---------------
Net decrease in reverse repurchase
agreement transactions (8,774,505)
Distributions to shareholders (14,088,500)
---------------
Cash used - financing activities (22,863,005)
---------------
Net increase in cash 5,144,461
Cash at beginning of the period 1,061
---------------
Cash at end of period $ 5,145,522
===============
</TABLE>
*The excess distributions are due to timing differences between book and tax
basis.
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
FRANKLIN PRINCIPAL MATURITY TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
Franklin Principal Maturity Trust (the "Fund") was organized as a Massachusetts
business trust on November 22, 1988, and is registered as a diversified,
closed-end management investment company under the Investment Company Act of
1940. Costs of $48,000 incurred by the Fund in connection with its organization
were amortized on a straight-line basis over a period of five years from January
19, 1989, (the effective date of registration); offering costs of $817,342 were
charged to capital.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
A. SECURITY VALUATION
Portfolio securities listed on a securities exchange or on the NASDAQ National
Market System for which market quotations are readily available are valued at
the last quoted sale price of the day or, if there is no such reported sale,
within the range of the most recent quoted bid and ask prices. Other securities
for which market quotations are readily available are valued at current market
values, obtained from pricing services, which are based on a variety of factors,
including recent trades, institutional size trading in similar types of
securities (considering yield, risk and maturity) and/or developments related to
specific securities. Portfolio securities which are traded both in the
over-the-counter market and on a securities exchange are valued according to the
broadest and most representative market as determined by the Manager. Other
securities for which market quotations are not available, if any, are valued in
accordance with procedures established by the Board of Trustees. Short-term
securities and similar investments with remaining maturities of 60 days or less
are valued at amortized cost, which approximates value.
Securities denominated in foreign currencies and traded on foreign exchanges or
in foreign markets are valued in a similar manner and the values are translated
into U.S. dollars at current market quotations of their respective currency
against U.S. dollars last quoted by a major bank or, if no such quotation is
available, at the rate of exchange determined in accordance with procedures
established by the Board of Trustees.
The fair values of securities restricted as to resale, if any, are determined
following procedures established by the Board of Trustees - see Note 6.
B. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income and estimated expenses are accrued daily. Bond
discount and premium are amortized as required by the Internal Revenue Code.
Net realized capital gains or loss differ for financial statement and tax
purposes primarily due to losses deferred for wash sales.
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of defaulted securities - see Note 9.
C. SECURITY TRANSACTIONS
Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Realized gains and losses on security transactions are
determined on the basis of specific identification for both financial statement
and income tax purposes.
12
<PAGE>
FRANKLIN PRINCIPAL MATURITY TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
D. INCOME TAXES
The Fund intends to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make the
requisite distributions to its shareholders which will be sufficient to relieve
it from income and excise taxes.
E. FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies are translated into U.S.
dollars at the rate of exchange of such currencies against U.S. dollars on the
date of the valuation. Purchases and sales of securities, income and expenses
are translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income and expense amounts
recorded and collected or paid are recognized when reported by the custodian
bank.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency gains
or losses realized between the trade date and settlement dates on securities
transactions, the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end, resulting
from changes in exchange rates.
F. REPURCHASE AGREEMENTS
The Fund may enter into a Joint Repurchase Agreement whereby its uninvested cash
balance is deposited into a joint cash account to be used to invest in one or
more repurchase agreements. The value and face amount of the Joint Repurchase
Agreement has been allocated to the Fund based on its pro-rata interest at
November 30, 1994. In a repurchase agreement, the Fund purchases a U.S.
government security from a dealer or bank subject to an agreement to resell it
at a mutually agreed upon price and date. Such a transaction is accounted for as
a loan by the Fund to the seller, collateralized by the underlying security. The
transaction requires the initial collateralization of the seller's obligation by
U.S. government securities with market value, including accrued interest, of at
least 102% of the dollar amount invested by the Fund, with the value of the
underlying security marked to market daily to maintain coverage of at least
100%. The collateral is delivered to the Fund's custodian and held until resold
to the dealer or bank. At November 30, 1994, all outstanding joint repurchase
agreements held by the Fund had been entered into on that date.
G. CHANGE IN ACCOUNTING POLICY FOR FOREIGN CURRENCY PRESENTATION:
Effective November 30, 1994, the Fund adopted AICPA Statement of Position (SOP)
93-4: Foreign Currency Accounting and Financial Statement Presentation for
Investment Companies. The adoption of SOP 93-4 had no effect on net assets for
the fiscal year ended November 30, 1994, but affected the classification on the
statement of operations of foreign currency transactions from assets and
liabilities other than investments.
13
<PAGE>
FRANKLIN PRINCIPAL MATURITY TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
H. REVERSE REPURCHASE AGREEMENTS
During the year ended November 30, 1994, the Fund entered into reverse
repurchase agreements with certain brokers. Under a reverse repurchase, the Fund
sells securities and agrees to repurchase them at a mutually agreed upon date
and price. Such a transaction is accounted for as a borrowing by the Fund,
collateralized by the securities for which the Fund retains possession. The
difference between the selling price and the repurchase price is accounted for
as interest expense. At November 30, 1994, the outstanding reverse repurchase
agreements had been entered into on November 16, 1994 and November 30, 1994,
mature within 61 days and are collateralized by zero coupon bonds issued by the
U.S. government or its agencies. Such agreements are:
<TABLE>
<CAPTION>
AMOUNT OF WEIGHTED WEIGHTED COST OF VALUE OF
COUNTERPARTY AGREEMENT AVERAGE RATE AVERAGE MATURITY COLLATERAL COLLATERAL
- - ------------- --------- ------------ ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Bear Stearns $75,145,875 5.65% 34 days $75,263,386 $77,127,147
</TABLE>
The Fund has entered into various interest rate swap agreements in order to
convert its interest rate exposure on a portion of the reverse repurchase
agreements from a current short-term rate to a long-term fixed rate. See Note
2i.
I. INTEREST RATE SWAP AGREEMENTS
During the year ended November 30, 1994, the Fund entered into various interest
rate swap agreements. As part of the Fund's asset and liability management,
these agreements are used as a hedge for the interest rate exposure on its
reverse repurchase agreements - see Note 2h. The Fund is exposed to credit risk
in the event of non-performance by the counterparty to the interest rate swap
agreements. Notional principal amounts specified in these agreements often are
used to express the volume of these transactions, but the amounts potentially
subject to such credit risk are limited to the accrued interest. To minimize the
risk, the Fund's policy requires all counterparties to have a minimum credit
rating of A.
Terms of the interest rate swap agreements outstanding at November 30, 1994 are
as follows:
<TABLE>
<CAPTION>
NOTIONAL FIXED-PAYMENT VARIABLE PAYMENT
MATURITY PRINCIPAL RATE PAID RATE RECEIVED
DATE AMOUNT BY THE FUND BY THE FUND
-------- ---------- ------------ ---------------
<S> <C> <C> <C>
01/19/96 $5,000,000 5.240% 3 month LIBOR
01/22/96 5,000,000 5.150 3 month LIBOR
03/05/96 5,000,000 4.515 3 month LIBOR
</TABLE>
The variable payment rate is based on the London Interbank Offered Rate (LIBOR).
The rate is reset every three months based on the LIBOR at a preset reference
date. The differential to be paid or received on interest rate swap agreements
is accrued daily. At November 30, 1994, the dollar-weighted averages of the
fixed and variable rates were 4.97% and 5.38%, respectively.
If terminated at November 30, 1994, the interest rate swap agreements would
generate a gain of approximately $382,241.
J. RECLASSIFICATIONS
Certain reclassifications were made in the prior years financial statements to
conform to current year presentation.
NOTE 3 - DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At November 30, 1994, for tax purposes, the Fund had an accumulated net realized
loss of $297,108.
14
<PAGE>
FRANKLIN PRINCIPAL MATURITY TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOTE 3 - DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS (CONT.)
For income tax purposes, the aggregate cost of securities and unrealized
depreciation is higher for financial statement purposes at November 30, 1994 by
$26,250.
NOTE 4 - TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Franklin Advisers, Inc., under the terms of a management agreement, provides
investment advice, administrative services, office space and facilities to the
Fund, and receives fees computed weekly and payable monthly at 0.60% of the
Fund's average weekly net assets from June 1, 1993 through May 31, 1997; and
0.45% of the Fund's average weekly net assets from June 1, 1997 until May 31,
2001 (the anticipated termination of the Fund). Fees incurred by the Fund
aggregated $1,127,460 for the year ended November 30, 1994. Certain officers and
trustees of the Fund are also officers and/or directors of Franklin Advisers,
Inc., a wholly owned subsidiary of Franklin Resources, Inc.
NOTE 5 - TRUST SHARES
As a result of its initial public offering, 20,355,000 shares of beneficial
interest were sold at a price of $10.00 per share. The Fund received proceeds
from the sale of $189,301,500, after underwriting discounts of $.70 per share.
At November 30, 1994, there was an unlimited number of shares of $.01 par value
authorized.
NOTE 6 - RESTRICTED SECURITIES
A restricted security is a security which has not been registered with the
Securities and Exchange Commission pursuant to the Securities Act of 1933. The
Fund may purchase restricted securities through a private offering and they
cannot be sold without prior registration under the Securities Act of 1933
unless such sale is pursuant to an exemption therefrom. Subsequent costs of
registration of such securities are borne by the issuer. A secondary market
exists for certain privately placed securities. The Fund values these restricted
securities as disclosed in Note 2. At November 30, 1994, the Fund held
restricted securities with a value aggregating $21,214,581, representing 13.5%
of the Fund's net assets.
Such securities are:
<TABLE>
<CAPTION>
SHARES SECURITY ACQUISITION DATE COST VALUE
------- --------------------------------------------------- ------------------- ---------- ----------
<S> <C> <C> <C> <C>
31,250 Grand Union Holding, Inc., 12.00% pfd., Series C... 11/01/93 & 01/24/94 $3,343,750 $ 31,250
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
------
<S> <C> <C> <C> <C>
$ 5,000,000 El Paso Electric Co., bank debt ................... 02/25/94 4,275,000 2,750,000
6,000,000 JWP Inc., S.F. senior notes, 9.95%, 11/15/04 ...... 02/14/94 2,456,250 2,100,000
6,110,087 JWP Inc., bank debt ............................... 02/03/94 2,107,980 1,833,026
5,000,000 JWP Inc., senior notes, 10.35%, 11/30/05 .......... 03/08/94 2,250,000 1,750,000
2,100,000 KB Isoceles, bank debt ............................ 09/21/94 1,156,523 1,481,052
4,810,347 Maxwell Communication, Plc., bank debt ............ 08/18/93 2,074,536 1,804,739
7,265,966 Phar-Mor Inc., bank debt .......................... 09/13/93 & 09/13/94 5,685,290 6,176,071
3,574,394 Resurgence Properties, Inc., bank debt ............ 04/21/94 3,057,060 3,288,443
</TABLE>
15
<PAGE>
FRANKLIN PRINCIPAL MATURITY TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOTE 7 - RULE 144A SECURITIES
Rule 144A provides a non-exclusive safe harbor exemption from the registration
requirements of the Securities Act of 1933 for specified resales of restricted
securities to qualified institutional investors. The Fund values these
securities as disclosed in Note 2. At November 30, 1994, the Fund held 144A
securities with a value aggregating $7,024,360 representing 4.5% of the Fund's
net assets. See the accompanying statement of investments in securities and net
assets for specific information on such securities.
NOTE 8 - STATEMENT OF CASH FLOWS
The Fund's financial statements for the year ended November 30, 1994 include a
statement of cash flows in compliance with SFAS 102. Cash provided from
operations differs from net investment income because of amortization of bond
discount and premium, bonds paid-in-kind, year-end income and expense accrual
changes amounting to $1,730,040.
NOTE 9 - CREDIT RISK AND DEFAULTED SECURITIES
Although the Fund has a diversified portfolio, the Fund has 33.2% of its
portfolio invested in lower rated and comparable quality unrated high yield
securities. Investments in higher yield securities are accompanied by a greater
degree of credit risk and such lower quality securities tend to be more
sensitive to economic conditions than higher rated securities. The risk of loss
due to default by the issuer may be significantly greater for the holders of
high yielding securities, because such securities are generally unsecured and
are often subordinated to other creditors of the issuer. At November 30, 1994,
the Fund held 15 defaulted securities issued by 13 separate issuers with a value
aggregating $22,347,467, representing 14.2% of the Fund's net assets. For
information as to specific securities, see the accompanying statement of
investments in securities and net assets.
For financial reporting purposes, it is the Fund's accounting practice to
discontinue accrual of income and provide an estimate for probable losses due to
unpaid interest income on defaulted bonds for the current reporting period.
NOTE 10 - OTHER CONSIDERATIONS
Franklin Advisers, Inc., as the Fund's manager, may serve as a member of various
bondholders' committees, representing bondholders' interests in certain
corporate restructuring negotiations. Currently the manager serves on the
bondholders' committee for Clevite Industrial. As a result of this involvement
in this committee, Franklin Advisers, Inc. may be in possession of certain
material non-public information. The Fund's manager has not, nor does it intend
to sell, any of its holdings in this security while in possession of material
non-public information in contravention of the Federal Securities laws.
NOTE 11 - HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
Investments of 5% or more of an issuer's outstanding voting securities held by
the Fund are defined in the Investment Company Act of 1940 as affiliated
companies. The Fund had investments in such affiliated companies at November 30,
1994, which amounted to $24,047,521. See the accompanying statement of
investments in securities and net assets for specific information on such
securities.
16
<PAGE>
FRANKLIN PRINCIPAL MATURITY TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOTE 12 - SUBSEQUENT EVENTS
On December 13, 1994, the Board of Trustees declared the following per share
distribution:
<TABLE>
<CAPTION>
FROM UNDISTRIBUTED
RECORD DATE PAYMENT DATE NET INVESTMENT INCOME
----------------- ---------------- ----------------------
<S> <C> <C>
December 30, 1994 January 13, 1995 $.05
</TABLE>
NOTE 13 - FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding throughout each
year are as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------------------------------
1994 1993 1992 1991 1990
------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value at beginning of year.......................... $ 9.62 $ 8.09 $ 8.06 $ 7.36 $ 8.60
Net investment income......................................... .540 .517 .456 .736 .950
Net realized and unrealized gain (loss) on investments........ (1.766) 1.568 .214 .757 (1.180)
------- ------- ------- ------- -------
Total from investment operations.............................. (1.226) 2.085 .670 1.493 (.230)
------- ------- ------ ------- -------
Less distributions:
Distributions from net investment income...................... (.590) (.517) (.456) (.729) (1.002)
Distributions from paid-in capital............................ -- -- (.184) (.064) (.008)
Distributions in excess of net investment income.............. -- (.038) -- -- --
Distributions from capital gains.............................. (.104) -- -- -- --
------- ------- ------ ------- -------
Total distributions........................................... (1.920) (.555) (.640) (.793) (1.010)
------- ------- ------ ------- -------
Net asset value at end of year................................ $ 7.70 $ 9.62 $ 8.09 $ 8.06 $ 7.36
======= ======= ======= ====== =======
TOTAL RETURN+................................................. (8.50%) 21.17% 4.88% 10.30% (11.90)%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of year (in 000's).......................... $157,508 $196,895 $165,637 $164,934 $150,601
Ratio of expenses to average net assets....................... 2.60% 2.98% 3.27% 4.06% 4.49%
Ratio of net investment income to average net assets......... 5.86% 5.74% 5.51% 9.41% 11.96%
Portfolio turnover rate....................................... 45.19% 70.91% 61.69% 49.91% 28.96%
Closing market price per share at end of year++............... $7.125 $8.50 $7.50 $7.75 $7.75
</TABLE>
+Total return measures the change in the market price of an investment over the
periods indicated, assuming reinvestment of dividends and capital gains, if any,
at market price.
++Based on last sale on the New York Stock Exchange.
The Fund hereby designates 8.05% as the percentage amount of dividend income
distributions as qualifying for the dividends received deduction for
corporations under the Internal Revenue Code Section 854(b)(2) for the fiscal
year ended November 30, 1994. The amount reported is an estimated percentage and
should be used for information purposes only. Information on the final
percentage that qualify for this deduction for calendar year 1994 will be
available after the end of this calendar year.
During the fiscal year ended November 30, 1994, the Franklin Principal Maturity
Trust paid dividends derived from net long-term capital gains in the amount of
$.1035 per share and hereby designates such dividends as capital gain dividends
under Section 852(b)(3) of the Internal Revenue Code.
17
<PAGE>
FRANKLIN PRINCIPAL MATURITY TRUST
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees
of Franklin Principal Maturity Trust:
We have audited the accompanying statement of assets and liabilities of Franklin
Principal Maturity Trust (the Fund), including the statement of investments in
securities and net assets, as of November 30, 1994, and the related statements
of operations, cash flows for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
November 30, 1994 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Franklin Principal Maturity Trust as of November 30, 1994, the results of its
operations and its cash flows for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
December 28, 1994
18
<PAGE>
THE FRANKLIN/TEMPLETON GROUP
For a free brochure and prospectus, which contain more complete information,
including charges and expenses, call Franklin Fund Information, toll free, at
1-800/DIAL BEN (800/342-5236). Please read the prospectus carefully before you
invest or send money. To ensure the highest quality of service, telephone
calls to or from our service departments may be monitored, recorded and
accessed. These calls can be determined by the presence of a regular beeping
tone.
<TABLE>
<S> <C> <C> <C>
TEMPLETON Colorado FRANKLIN FUNDS SEEKING FRANKLIN FUNDS FOR
GROUPS OF FUNDS Connecticut GROWTH AND INCOME NON-U.S. INVESTORS
Americas Government Florida* Balance Sheet Tax-Advantaged
Securities Fund Georgia Investment Fund High Yield Securities Fund
Developing Markets Trust Hawaii** Convertible Tax-Advantaged
Foreign Fund Indiana Securities Fund International Bond Fund
Global Instrastructure Fund Kentucky Equity Income Fund Tax-Advantaged
Global Opportunities Trust Louisiana Global Utilities Fund U.S. Government
Global Rising Maryland Income Fund Securities Fund
Dividends Fund Massachusetts*** Premier Return Fund
Growth Fund Michigan*** Rising Dividends Fund FRANKLIN/TEMPLETON
Income Fund Minnesota*** Utilities Fund GLOBAL CURRENCY FUNDS
Real Estate Missouri Global Currency Fund
Securities Fund New Jersey FRANKLIN FUNDS SEEKING High Income
Smaller Companies New York* HIGH CURRENT INCOME Currency Fund
Growth Fund North Carolina AGE High Income Fund Hard Currency Fund
World Fund Ohio*** German Government
Oregon Bond Fund FRANKLIN MONEY
FRANKLIN FUNDS SEEKING Pennsylvania Global Government MARKET FUNDS
TAX-FREE INCOME Tennessee** Income Fund Money Funds
Federal Tax-Free Texas Investment Grade Federal Money Fund
Income Fund Virginia Income Fund Tax-Exempt Money Fund
Federal Intermediate-Term Washington** U.S. Government California Tax-Exempt
Tax-Free Income Fund Securities Fund Money Fund
High Yield Tax-Free FRANKLIN FUNDS SEEKING New York Tax-Exempt
Income Fund CAPITAL GROWTH FRANKLIN FUNDS SEEKING Money Fund
Insured Tax-Free California Growth Fund HIGH CURRENT INCOME IFT U.S. Treasury Money
Income Fund*** DynaTech Fund AND STABILITY OF PRINCIPAL Market Portfolio
Puerto Rico Tax-Free Equity Fund Adjustable Rate
Income Fund Global Health Care Fund Securities Fund FRANKLIN FUND
Gold Fund Adjustable U.S. FOR CORPORATIONS
FRANKLIN STATE-SPECIFIC Growth Fund Government Corporate Qualified
FUNDS SEEKING International Equity Fund Securities Fund Dividend Fund
TAX-FREE INCOME Japan Fund Short-Intermediate
Alabama Pacific Growth Fund U.S. Government FRANKLIN TAX-DEFERRED
Arizona* Real Estate Securities Fund ANNUITY
Arkansas** Securities Fund Valuemark
California* Small Cap Growth Fund
</TABLE>
*Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and a high yield
portfolio (CA).
**The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.
***Portfolio of insured municipal securities.
12/94
<PAGE>
FRANKLIN
PRINCIPAL
MATURITY
TRUST
- - ---------------------
ANNUAL REPORT
NOVEMBER 30, 1994
[FRANKLIN TEMPLETON LOGO]
FRANKLIN PRINCIPAL
MATURITY TRUST
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, CA 94403-7777
1-800/DIAL BEN
INVESTMENT MANAGER
Franklin Advisers, Inc.
777 Mariners Island Blvd.
San Mateo, CA 94404-1585
415/312-2000
TRANSFER AGENT
The Shareholder Services Group
One Exchange Place
Boston, MA 02109
1-800/331-1710
This report must be accompanied or preceded by a prospectus for the Franklin
Principal Maturity Trust. PMT A9401/95
