SEMI-ANNUAL
REPORT
MAY 31, 1998
FRANKLIN PRINCIPAL MATURITY TRUST
Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective, and to expect that mixed in with the good
years can be some bad years. It's important to remember that all securities
markets move both up and down, as do mutual fund share prices. We appreciate
your past support and look forward to serving your investment needs in the years
ahead.
Charles B. Johnson
President
Franklin Principal Maturity Trust
Contents
Shareholder Letter ............................. 1
Manager's Discussion ........................... 3
Performance Summary ............................ 5
Financial Highlights &
Statement of Investments ....................... 7
Financial Statements ........................... 12
Notes to
Financial Statements ........................... 15
Shareholder Letter
Dear Shareholder:
It is a pleasure to bring you Franklin Principal Maturity Trust's semi-annual
report for the period ended May 31, 1998.
Interest rate stability characterized the Trust's reporting period. The Federal
Reserve Board met in late March, and again in May, and left its overnight target
rate unchanged at 5.50%. This rate has only changed once since January 1996.
Investors and traders waited for evidence that either the economy would slow
down because of Asian problems and push rates lower; or that inflation would
increase, based on current economic strength, and push rates higher. Neither
event occurred. The yield on the 30-year U.S. Treasury bond varied between 6.14%
and 5.70% during the six-month reporting period. The Consumer Price Index (CPI),
a widely used measure of inflation, continued to trend downward. The CPI's
annualized increase for April 1998 was 2.24%, a surprisingly favorable showing
considering the U.S. economy is in its seventh consecutive year of expansion.
The U.S. economy remained strong as measured by 1998's first quarter, annualized
Gross Domestic Product gain of 4.8%. Investors also reacted favorably to first
quarter corporate earnings and pushed stock prices generally higher in May.
Although overall corporate earnings increases were lower than in recent
quarters, they generally exceeded expectations.
On April 6, the Dow Jones(R) Industrial Average (the Dow) broke 9000, closing at
its highest point in history.* The Dow stood at 8899.95 on May 31, 1998, up from
its November 30 level of 7823.13. Along the way, it fluctuated considerably,
dropping 222.20 points on January 9, rising to a high of 9211.84 on May 13, and
suffering a 150.71 point decline on May 26. Although small changes in percentage
terms, these examples of short-term volatility prompt us to remind investors of
the importance of investing for the long term. Patience and discipline continue
to be keys to successful investing.
We encourage you to consult an investment representative when planning your
financial future. He or she can address concerns about volatility, and help you
stay focused on the long term, while diversifying your investments. Mutual funds
offer a level of diversification that is almost impossible for individuals to
achieve on their own.
As always, we appreciate your support, welcome your questions and look forward
to serving your investment needs in the years to come.
Sincerely,
Charles B. Johnson
President
Franklin Principal Maturity Trust
*The Dow Jones Industrial Average is a price-weighted average of 30 actively
traded blue chip stocks.
Manager's Discussion
Your Trust's Objective: Franklin Principal Maturity 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 Trust will achieve this goal.
We are pleased to report that your fund generated a cumulative total return of
+12.02%, based on its change in market price on the New York Stock Exchange
during the six-month period ended May 31, 1998.
With the Trust's primary objective -- a net asset value of $10.00 per share by
May 2001 -- attained last fall, we moved to reduce the Trust's investment risk
profile while seeking to maintain a high level of monthly income. During the
past six months, we raised cash levels, from less than 4% to 27% of total net
assets, by selling corporate bonds and stocks that we felt were fully valued. In
addition, the Trust no longer uses leverage to enhance its portfolio. During the
reporting period, the fund made dividend payments totaling $0.3419 per share.
Two of our equity positions that showed robust performance were cement producer
Lone Star Industries and department store operator Proffitt's. Lone Star thrived
thanks to strong demand in the booming building sector and a tight domestic
cement supply. Cement price increases and improvements in its production
capacity helped Lone Star beat first quarter 1998 earnings expectations by a
substantial margin. The market also rewarded Proffitt's success in improving
gross margins and lowering expenses, which helped the company to achieve strong
first quarter results. The department store operator also reaped benefits from
several successful acquisitions. The Trust took advantage of these two stocks'
recent strength, selling a portion at a profit.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
You will find a complete listing of the Trust's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page x of
this report.
Unfortunately, not every position can be as positive. One disappointment was the
American Rice bond holding, which went into default during the period under
review.
Looking ahead, we intend to focus on maintaining the Trust's portfolio, in
preparation for its eventual liquidation or transfer at or near $10.00 per
share. With this in mind, we will move toward more conservative and liquid
positions.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of May 31, 1998, the end of the reporting period. However, market
and economic conditions are changing constantly, which can be expected to affect
our strategies and the Trust's portfolio composition. Although historic
performance is no guarantee of future results, these insights may help you
understand our investment and management philosophy.
Performance Summary
Dividend Distributions
12/1/97 - 5/31/98
Dividend
Month per share
December 5.0 cents*
January 4.5 cents
February 4.5 cents
March 4.5 cents
April 4.5 cents
May 11.19 cents**
Total 34.19 cents
*Includes an additional 0.5 cents to meet excise tax requirements.
**Includes an additional 6.69 cents to meet sub-chapter M requirements.
The share price of Franklin Principal Maturity Trust on the New York Stock
Exchange (NYSE) increased 75 cents, from $9.125 on November 30, 1997, to $9.875
on May 31, 1998. The Trust's net asset value per share decreased one cent, from
$10.23, to $10.22 for the same period.
During the reporting period, the Trust made income distributions totaling 34.19
cents ($0.3419) per share. Distributions will vary based on the Trust's income,
and past distributions are not indicative of future trends.
Based on an annualization of May's regular monthly per-share dividend of 4.5
cents ($0.045) and the NYSE closing price of $9.875 on May 31, 1998, the Trust's
distribution rate was 5.47%.
Franklin Principal Maturity Trust reported a +12.02% cumulative total return for
the six-month period ended May 31, 1998. Total return reflects the change in the
Trust's share price on the NYSE. Based on the change in net asset value (as
opposed to market price), the six-month total return for the same period was
3.37%. All total returns assume the reinvestment of dividends and capital gains
at market price on the reinvestment date.
We urge you to view your investment in Franklin Principal Maturity Trust with a
long-term perspective. As the table on page 6 shows, the Trust reported a
cumulative total return of 139.72%, based on net asset value, since its
inception on January 19, 1989.
Periods ended 5/31/98
Since
Inception
1-Year 5-Year (1/19/89)
- ---------------------------------------------------------------------
Cumulative Total Return1
Based on change in net asset value 18.85% 70.58% 139.72%
Based on change in market price 20.39% 79.36% 111.46%
Average Annual Total Return1
Based on change in net asset value 18.85% 11.27% 9.88%
Based on change in market price 20.39% 12.39% 8.41%
Distribution Rate2 5.47%
1. Total return calculations represent the change in value of an investment over
the periods indicated and assume reinvestment of all distributions at market
price on the reinvestment date.
2. Distribution rate is based on the annualization of May's regular 4.5 cent per
share monthly dividend and the New York Stock Exchange closing price of $9.875
on May 31, 1998.
Franklin Principal Maturity Trust
Financial Highlights
<TABLE>
<CAPTION>
Six Months Ended
May 31, 1998 Year ended November 30
----------------------------------------------
(unaudited) 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period ................ $10.23 $9.56 $8.54 $7.70 $9.62 $8.09
--------------------------------------------------------------
Income from investment operations:
Net investment income .............................. 0.29 0.57 0.56 0.52 0.54 0.52
Net realized and
unrealized gains (losses) .......................... 0.04 0.65 1.00 0.91 (1.77) 1.57
--------------------------------------------------------------
Total from investment operations .................... 0.33 1.22 1.56 1.43 (1.23) 2.09
--------------------------------------------------------------
Less distributions from:
Net investment income .............................. (0.29) (0.55) (0.53) (0.59) (0.59) (0.52)
In excess of net investment income ................. (0.05) -- (0.01) -- -- (0.04)
Net realized gains ................................. -- -- -- -- (0.10) --
--------------------------------------------------------------
Total distributions ................................. (0.34) (0.55) (0.54) (0.59) (0.69) (0.56)
--------------------------------------------------------------
Net asset value, end of period ...................... $10.22 $10.23 $9.56 $8.54 $7.70 $9.62
==============================================================
Market value, end of period ........................ $9.875 $9.125 $8.250 $7.500 $7.125 $8.500
==============================================================
Total return
[based on market value per share]* ................. 12.02% 17.62% 17.69% 14.21% (8.50%) 21.17%
Ratios/supplemental data
Net assets, end of period (000's) ................... $209,095 $209,231 $195,623 $174,805 $157,508 $196,895
Ratios to average net assets:
Expenses ........................................... 0.59%*** 3.03% 3.06% 3.32% 2.60% 2.98%
Net investment income .............................. 5.61%*** 5.98% 6.20% 6.33% 5.86% 5.74%
Portfolio turnover rate ............................. 2.86% 15.79% 27.37% 30.57% 45.19% 70.91%
Average commission rate paid** ...................... $0.0561 $0.0600 $0.0564 -- -- --
Total senior securities
outstanding at end of period
(000 omited) ...................................... -- -- $84,102 $70,727 $75,146 $83,920
Asset coverage per
$1,000 of senior securities ........................ -- -- $3,326 $3,472 $3,096 $3,346
Based on the last sale on the New York Stock Exchange.
*Total return is not annualized.
**Relates to purchases and sales of equity securities. Prior to November 30,
1996 disclosure of average commission rate was not required.
***Annualized.
Franklin Principal Maturity Trust
Statement of Investments, May 31, 1998 (unaudited)
SHARES/
WARRANTS VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Long Term Investments 73.5%
Common Stocks & Warrants 20.9%
Aerospace/Defense 7.4%
aLadish Co., Inc. ............................................. 357,333 $ 5,270,662
aLadish Co., Inc., warrants ................................... 149 10,109,601
aSabreliner Corp., warrants ................................... 5,000 25,000
-------------
15,405,263
-------------
Chemicals
aLanesborough Corp. ........................................... 4,942 49
-------------
Commercial Services 1.7%
aEmcor Group, Inc. ............................................ 177,991 3,548,696
-------------
Electronics
aAmpex Group, Inc. ............................................ 27,620 62,145
-------------
Food, Beverage & Tobacco .1%
Brooke Group Ltd. ............................................ 29,385 293,850
-------------
Forest/Paper Products .2%
aWTD Industries, Inc. ......................................... 357,221 424,200
-------------
Industrial 5.8%
Lone Star Industries, Inc. ................................... 160,075 12,035,639
-------------
Retail 4.9%
Proffitt's Inc. .............................................. 260,392 10,220,386
-------------
Utilities .8%
aEl Paso Electric Co. ......................................... 168,677 1,602,432
-------------
Wireless/Telecommunications .1%
aInternational Wireless Communication, warrants ............... 13,500 60,750
Loral Orion Network System, warrants ......................... 5,500 66,188
-------------
126,938
-------------
Total Common Stocks & Warrants (Cost $11,079,339) ............ 43,719,598
-------------
Preferred Stocks 2.3%
Cable Television 2.0%
aCSC Holdings Inc., Series M, 11.125% pfd., PIK ............... 36,008 4,167,926
-------------
Telecommunications .3%
Nortel, Inversora, SA, pfd., Series B ........................ 20,000 540,000
-------------
Total Preferred Stocks (Cost $3,150,782) ..................... 4,707,926
-------------
Franklin Principal Maturity Trust
Statement of Investments, May 31, 1998 (unaudited) (cont.)
PRINCIPAL
AMOUNT* VALUE
- ------------------------------------------------------------------------------------------------------------
Bank Debt 2.4%
Wheeling Pittsburg Corp., Term Loan, 9.0625%,
floating rate, 11/15/06 (Cost 4,975,000) ......................... $ 5,000,000 $ 5,000,000
--------------
Corporate Bonds 11.8%
Aerospace/Defense .5%
Sabreliner Corp., senior notes, 12.50%, 4/15/03 .............. 1,000,000 1,055,000
--------------
Automotive .4%
a,cHarvard Industries, Inc., senior notes, 12.00%, 7/15/04 ...... 2,000,000 855,000
--------------
Chemicals 2.2%
Huntsman Corp., senior sub. floating rate notes,
144A, 9.0937%, 7/01/07 ........................................... 1,500,000 1,509,375
a,cLanesborough Corp., senior notes, 10.00%, 4/15/00 ............ 7,700,000 3,003,000
--------------
4,512,375
--------------
Consumer Products 4.4%
Liggett Group, senior notes, Series C, 19.75%, 2/01/99 ....... 2,000,000 1,660,000
Liggett Group, senior secured notes,
Series C, 19.75%, 2/01/99 ........................................ 74,000 61,420
Liggett Group, S.F., senior notes, 11.50%, 2/01/99 ........... 3,750,000 2,850,000
Remington Products Co., L.L.C., Series B,
senior sub. notes, 11.00%, 5/15/06 ............................... 5,000,000 4,662,500
--------------
9,233,920
--------------
Food & Beverage 1.8%
a,cAmerican Rice, Inc., mortgage,
secured notes, 13.00%, 7/31/02 ................................... 5,000,000 3,825,000
--------------
Food Retailing .1%
a,c Almacs, Inc., senior sub. notes,
PIK, 11.50%, 11/19/04 ............................................ 2,528,000 202,240
--------------
Gaming & Leisure 2.4%
a,cHarrah's Jazz Co.,
first mortgage, 14.25%, 11/15/01 ................................. 15,000,000 5,100,000
--------------
Total Corporate Bonds (Cost $34,787,439) ..................... 24,783,535
--------------
Foreign Government Bonds .3%
ESCOM, E168, utility deb. (South Africa),
11.00%, 6/01/08 (Cost $1,044,805) ................................ 4,350,000ZAR 702,614
--------------
Zero Coupon Bonds 35.8%
FICO Strips, 3/07/01 ......................................... 10,850,000 9,261,658
FICO Strips, 4/06/01 ......................................... 12,520,000 10,634,676
FICO Strips, 5/02/01 ......................................... 5,211,000 4,407,047
FICO Strips, 5/11/01 ......................................... 1,116,000 942,407
FICO Strips, 5/30/01 ......................................... 5,253,000 4,422,527
FNMA Strips, 2/01/01 ......................................... 7,348,000 6,318,347
GTC Trust Certificates-Israel, Series 1D, 5/15/01 ............ 8,100,000 6,863,073
GTC Trust Certificates-Israel, Series 2F, 5/15/01 ............ 27,226,000 23,068,399
International Wireless Communication,
senior disc. notes, 8/15/01 ...................................... 13,500,000 4,590,000
Orion Network Systems, Inc., units, zero
coupon to 1/15/02, 12.50%, thereafter, 1/15/07 ................... 5,500,000 4,276,249
--------------
Total Zero Coupon Bonds (Cost $77,456,771) ................... 74,784,383
--------------
Total Long Term Investments (Cost $132,494,136) .............. 153,698,056
--------------
Franklin Principal Maturity Trust
Statement of Investments, May 31, 1998 (unaudited) (cont.)
PRINCIPAL
AMOUNT* VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
b Repurchase Agreement 27.2%
Joint Repurchase Agreement,
5.521%, 6/01/98 (Maturity Value $56,799,498)
(Cost $56,773,378) ................................................ $56,773,378 $ 56,773,378
BancAmerica Robertson Stephens (Maturity Value $2,462,256)
Barclays Capital Group, Inc. (Maturity Value $5,692,446)
Bear Stearns Securities Corp. (Maturity Value $3,105,228)
BT Alex Brown, Inc. (Maturity Value $5,692,446)
Chase Securities, Inc. (Maturity Value $5,692,446)
Donaldson, Lufkin & Jenrette Securities Corp.
(Maturity Value $5,692,446)
Dresdner Kleinwort Benson, North America, L.L.C.
(Maturity Value $5,692,446)
Greenwich Capital Markets, Inc. (Maturity Value $5,692,446)
Paribas Corp. (Maturity Value $5,692,446)
SBC Warburg Dillon Read, Inc. (Maturity Value $5,692,446)
UBS Securities, L.L.C. (Maturity Value $5,692,446)
Collateralized by U.S. Treasury Bills & Notes
-------------
Total Investments (Cost $189,267,514) 100.7% 210,471,434
Other Assets, less Liabilities (.7%) (1,376,248)
-------------
Net Assets 100.0% $209,095,186
=============
CURRENCY ABBREVIATIONS:
ZAR - South African Rand
*Securities traded in U.S. dollars unless otherwise stated.
aNon-income producing.
bSee Note 1 regarding joint repurchase agreement.
cSee Note 6 regarding defaulted securities.
Franklin Principal Maturity Trust
Financial Statements
Statement of Assets and Liabilities
May 31, 1998 (unaudited)
Assets
Investments in securities, at value (cost $132,494,136) ... 153,698,056
Repurchase agreements, at value and cost .................. 56,773,378
Receivables from dividends and interest ................... 984,696
Other assets .............................................. 28,004
------------
Total assets .......................................... 211,484,134
------------
Liabilities
Payables to affiliates .................................... 79,433
Distributions to shareholders ............................. 2,289,765
Other liabilities ......................................... 19,750
------------
Total liabilities ..................................... 2,388,948
------------
Net assets, at value ................................. $209,095,186
============
Net assets consist of:
Distributions in excess of net investment income .......... $ (800,730)
Net unrealized appreciation ............................... 21,202,195
Accumulated net realized gain ............................. 2,118,956
Capital shares ............................................ 186,574,765
------------
Net assets, at value ................................. $209,095,186
============
Net asset value per share
($209,095,186 / 20,462,600 shares outstanding) ............. $10.22
============
Investment income:
Dividends ................................................. $ 425,772
Interest .................................................. 6,059,948
------------
Total investment income ............................... 6,485,720
------------
Expenses:
Management fees (Note 3) .................................. 470,015
Transfer agent fees ....................................... 39,816
Custodian fees ............................................ 1,979
Reports to shareholders ................................... 29,017
Professional fees ......................................... 29,980
Trustees' fees and expenses ............................... 6,410
Exchange listing expenses ................................. 32,340
Other ..................................................... 11,977
------------
Total expenses ........................................ 621,534
------------
Net investment income ................................ 5,864,186
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments .............................................. 12,922,259
Foreign currency transactions ............................ (2,190)
------------
Net realized gain .................................... 12,920,069
Net unrealized appreciation (depreciation) on:
Investments .............................................. (12,026,908)
Translation of assets and liabilities
denominated in foreign currencies ......................... 424
------------
Net unrealized depreciation .......................... (12,026,484)
------------
Net realized and unrealized gain ........................... 893,585
------------
Net increase in net assets resulting from operations ....... $ 6,757,771
------------
1998 1997
---------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 5,864,186 $ 11,640,733
Net realized gain (loss) from investments
and foreign currency transactions 12,920,069 (5,334,961)
Net unrealized appreciation (depreciation)
on investments and translation of
assets and liabilities denominated in foreign currencies (12,026,484) 18,455,091
---------------------------------
Net increase in net assets resulting from operations 6,757,771 24,760,863
Distributions to shareholders from:
Net investment income (6,093,122) (11,152,121)
In excess of net investment income (800,730) --
---------------------------------
Net increase (decrease) in net assets (136,081) 13,608,742
Net assets:
Beginning of period 209,231,267 195,622,525
---------------------------------
End of period $209,095,186 $209,231,267
=================================
Undistributed net investment income (accumulated distribution
in excess of net investment income) included in net assets:
End of period $ (800,730) $ 228,936
=================================
</TABLE>
Franklin Principal Maturity Trust
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Principal Maturity Trust (the Fund) is registered under the Investment
Company Act of 1940 as a closed-end, diversified, investment company. The Fund
seeks to provide investors with high current income. The following summarizes
the Fund'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. Restricted securities and securities for
which market quotations are not readily available are valued at fair value as
determined by management in accordance with procedures established by the Board
of Trustees.
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 Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollars
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
c. Joint Repurchase Agreement
The 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 are allocated to the Fund base on its pro-rata interest. A repurchase
agreement is accounted for as a loan by the Fund to the seller, collateralized
by securities which are delivered to the Fund's custodian. The market value,
including accrued interest, of the initial collateralization is required to be
at least 102% of dollar amount invested by the Fund, with the value of the
underlying securities marked to market daily to maintain coverage of at least
100%. At May 31, 1998, all outstanding repurchase agreements had been entered
into on May 29, 1998.
d. Income Taxes
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.
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.
f. Accounting Estimates
The preparation of the 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 expenses during
the reporting period. Actual results could differ from those estimates.
2. SHARES OF BENEFICIAL INTEREST
At May 31, 1998, there were an unlimited number of shares authorized ($0.01 par
value). During the period ended May 31, 1998, there were no share transactions;
all reinvested distributions were satisfied with previously issued shares
purchased in the open market.
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Fund are also officers or directors of
Franklin Adviser, Inc. (Advisers), and Franklin Templeton Services, Inc. (FT
Services), the Fund's investment manager and administrative manager,
respectively.
Under an agreement with Advisers, FT Services provides administrative services
to the Fund. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense to the Fund. The Fund pays an investment management
fee to Advisers of 0.45% per year of the average weekly net assets of the Fund.
4. INCOME TAXES
At November 30, 1997, the Fund had tax basis capital losses of $10,747,559 which
may be carried over to offset future capital gains. Such losses expire as
follows:
Capital loss carryovers expiring in: 2002........... $ 121,933
2003........... 3,346,388
2005........... 7,279,238
-----------
$10,747,559
===========
4. INCOME TAXES (cont.)
At May 31, 1998, the net unrealized appreciation based on the cost of
investments for income tax purposes of $189,285,128 was as follows:
Unrealized appreciation ............................. $37,274,756
Unrealized depreciation ............................. (16,088,450)
-----------
Net unrealized appreciation ......................... $21,186,306
-----------
Net investment income differs for financial statement and tax purposes primarily
due to differing treatment of foreign currency transactions.
Net realized capital gains differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and foreign currency
transactions.
5. INVESTMENT TRANSACTIONS
Purchase and sales of securities (excluding short-term securities) for the
period ended May 31, 1998 aggregated $4,975,000 and $58,813,288, respectively.
6. CREDIT RISK AND DEFAULTED SECURITIES
The Fund has 18.48% 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. At May 31, 1998, the Fund
held defaulted securities with a value aggregating $12,783,000 representing
6.11% of the Fund's net assets. For information as to specific securities, see
the accompanying Statement of Investments.
For financial reporting purposes, the Fund discontinues accruing income on
defaulted bonds and provides an estimate for losses on interest receivable.
7. OTHER CONSIDERATIONS
Franklin Advisers, Inc., as the Fund's manager, may serve as a member of various
credit committees, representing credit interests in certain corporate
restructuring negotiations. Currently, the manager serves on the credit
committees for Harvard Industries, Inc. As a result of this involvement,
Advisers 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 these
securities while in possession of this information.
8. SUBSEQUENT EVENTS
On June 5, 1998, shareholders approved the merger of the Fund into the Franklin
Income Fund. The merger will be effective June 26,1998.
FRANKLIN PRINCIPAL MATURITY TRUST ANNUAL REPORT May 31, 1998
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING (PURSUANT TO ITEM
304(a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
This chart shows in pie format the portfolio composition of Principal Maturity
Trust's investments based on total net assets as of 5/31/98.
Zero-Coupon Bonds ................................. 35.8%
Common Stocks ..................................... 20.9%
Corporate Bonds ................................... 14.2%
Preferred Stocks .................................. 2.3%
Foreign Government Bonds .......................... 0.3%
Cash and Equivalents............................... 26.5%
