SHAREHOLDER LETTER
Dear Shareholder:
It is a pleasure to bring you Franklin Principal Maturity Trust's annual
report for the fiscal year ended November 30, 1997.
Benign inflation and low unemployment characterized the U.S. economy during
the fiscal one-year reporting period, painting a positive picture for
investors who continued to pour large amounts of capital into equity
securities. In December 1996, the Dow Jones(R) Industrial Average (the Dow)
hovered around 6500 points before climbing past the 7000-point mark in
February. At the same time, bond yields generally suffered a steady increase
due to fears that the expanding economy would also foster inflationary
pressures. Driven by these very same concerns, the Federal Open Market
Committee decided to raise interest rates by a quarter point at its March
meeting, from 5.25% to 5.50%. This action immediately sent bond yields rising
well into the next month, as the 30-year Treasury bond yield reached a peak
of 7.17% on April 14. Sympathetically, the Dow dipped down under 6500 in
April, but over the longer term, the Federal Reserve's (the Fed's) action
paved the way for a move through the 8000-point mark for the first time in
July.
CONTENTS
Shareholder Letter ........... 1
Manager's Discussion ......... 4
Performance Summary .......... 9
Dividend
Reinvestment Plan ............ 11
Annual Meeting
of Shareholders .............. 13
Financial Highlights &
Statement of Investments...... 14
Notes to
Financial Statements.......... 22
Report of
Independent Accountants....... 25
Tax Designation............... 26
"Successful investors historically have achieved good results through setting
goals, diversifying their assets, and having patience."
Of course, no securities market can advance forever without a correction, and
many investors were asking, "When will this market correct?" The answer came
on October 27, when, fueled by concerns about currency crises in Southeast
Asia, the Dow dropped 7.18%. The decline probably was enough to keep the Fed
from acting to raise interest rates in the near term, but not enough to deter
investors from participating in the market. The morning after saw the market
gain back almost half its losses, surging ahead 4.7%. Although volatility
reigned through the second week in November, the Dow began an upward climb
and closed the reporting period at 7823.13, nearly 20% higher than it had
been at the beginning of the fiscal year. And with the threat of higher
interest rates laying by the wayside, bond yields enjoyed a significant
decline during the equity markets' roller coaster ride. At the end of the
reporting period, the yield on the 30-year Treasury stood at 6.05%, down 30
basis points from 6.35% on November 30, 1996.
With the volatility present in the markets near the end of the period, it is
important to remember, then, that markets correct -- in our opinion, it is
desirable for them to do so. Consequently, investor concern about market
volatility and questions about its direction prompt us to comment on the
importance of investing for the long term.
Successful investors historically have achieved good results through setting
goals, diversifying their assets, and having patience. They know mutual fund
investments are long term, so daily market fluctuations and short-term
volatility have minimal impact on their overall investment goals. They
understand that patience and discipline are keys to successful investing.
Remember, it's time -- not timing -- that makes the difference.
We encourage you to speak with your investment representative about your
financial goals. He or she can address concerns about volatility, and help
you stay focused on the long term and diversify your investments. Mutual
funds offer a level of diversification that is almost impossible for
individual investors to achieve on their own.
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
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
MANAGER'S DISCUSSION
Your Fund'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 fund will achieve this
goal.
We are pleased to report that the Franklin Principal Maturity Trust generated
a cumulative total return of +17.62% over the 12-month period, based on its
change in market price on the New York Stock Exchange. Additionally, the
Trust continued to pay a current monthly dividend of 4.5 cents per share, as
discussed in the Performance Summary on page 9.
OVERVIEW
In general, the Trust's portfolio consists of zero-coupon U.S. government
securities, corporate bonds, and preferred and common stocks. The chart to
the left shows the portfolio breakdown as of November 30, 1997. We constantly
search for securities which we believe are undervalued and have the potential
for attractive rates of return over the long term. We found such value
potential in common stocks and U.S. government securities during the fiscal
year, and the Trust's holdings have shifted toward these areas accordingly.
At the same time, we reduced our position in corporate bonds to 16.2% of
total net assets, from 24.8% a year ago.
PORTFOLIO UPDATE
ZERO-COUPON U.S. GOVERNMENT BONDS
As you may know, zero-coupon bonds issued by the U.S. government (also called
Treasury STRIPS1) do not pay any current interest. (For tax purposes,
however, interest is accrued on an annual basis.) Instead, the interest is
paid-in-full, along with the principal, when the bonds mature. This payment
is guaranteed by the U.S. government, but the prices of these bonds are very
sensitive to interest rate movements (i.e., typically when interest rates
rise, bond yields rise and their prices decline). Therefore, the value of our
zero-coupon bonds suffered when, as a preemptive strike against inflation,
the Federal Reserve raised short-term interest rates in late March 1997. The
yield on U.S. Treasury STRIPS due in 2001 reached a high for the year on
April 14, at 6.85%.2 Favorable economic conditions in the U.S. since then
have spurred a steady rise in bond prices, and these STRIPS went along for
the ride, with their yields closing the reporting period at 5.82%, near their
November 1996 levels.3
1. STRIPS is an acronym for Separate Trading of Registered Interest and
Principal of Securities.
2. Source: Bloomberg. U.S. Treasury STRIPS maturing January 15, 2001.
3. Source: Bloomberg.
CORPORATE BONDS
Several of the Trust's corporate bond holdings performed quite well during
the 12-month period. In May, we invested in Comcast Cellular, a subsidiary of
the Comcast Corporation that provides wireless telecommunication services.
Our position benefited when news broke that Microsoft was to pour a $1
billion investment into the parent company, which led to an improved credit
rating for these bonds. The bonds of Saberliner Corp., a diversified
aerospace company, also rose in value as the company was awarded substantial
long-term overhaul and maintenance contracts by the U.S. government and major
aircraft manufacturers.
"The primary reason for the Trust's positive total return over the reporting
period was the strong performance of equity securities."
EQUITIES
The primary reason for the Trust's positive total return over the reporting
period was the strong performance of equity securities. Three of our
holdings, in particular, highlight this contribution to the Trust's
performance. Lone Star Industries, the fifth largest domestic manufacturer of
cement, benefited from higher cement prices in key markets as well as
increased shipments due to improved production processes. The company
recently sold off a less profitable aggregates division, and expanded its
credit facilities. This, coupled with the initiation of a $25 million stock
buyback program and operational improvements in manufacturing facilities, led
to a substantial increase in stock price over the reporting period. In the
near term, the prospects are bright for the U.S. cement industry, as domestic
demand is expected to exceed capacity by about 20% this year.4 Some producers
have already announced preemptive price hikes for 1998. Along with price
increases and moderate capacity additions, this could position Lone Star for
further growth potential.
The stock price of Ladish Co., a leading manufacturer of components for the
commercial aerospace industry, also appreciated considerably over the fiscal
year. This company has made an impressive turnaround in its operations during
this time, driven by the sale of an unprofitable industrial products division
and increased production of high margin aerospace components. Future growth
fundamentals for the commercial aerospace industry appear to be favorable.
For example, Boeing and Airbus collectively booked 817 net orders for new
aircraft as of October 1997, compared with 898 for all of 1996.5
Additionally, Boeing plans to boost its production level from 34 to 43
aircraft per month over the next six to nine months, and capital spending at
the major airlines remains high.
5. Source: Merrill Lynch, November 13, 1997.
Another stock which contributed to the Trust's performance was Carson Pirie
Scott & Co., a leading Midwestern regional department store chain. During the
reporting period, Carson Pirie Scott improved its financial position by
reducing its net debt-to-capitalization ratio with excess cash flow, and
implemented a promotional strategy aimed at highlighting better brand name
products. In addition to improving fundamentals, the company's stock price
also benefited from an agreement to be acquired by Profitt's, a major
metropolitan department store operator.
Although the Trust enjoyed successes such as these over the period, not all
of our holdings performed as well as we had hoped. We elected to sell our
preferred and common stocks of Harvard Industries at a significant loss,
salvaging the remaining proceeds in order to reinvest in securities with
greater return potential. Its strong, past performance and the high yields of
its securities originally attracted us to the company. Unfortunately, Harvard
Industries was encumbered by unexpectedly heavy losses from an ill-advised
takeover of another company, Doehler-Jarvis. Upon the takeover, Harvard
assumed numerous non-performing contracts, eventually forcing it into Chapter
11 bankruptcy in May.
4. Source: SBC Warburg Dillon Read, November 19, 1997.
GOING FORWARD
During the fiscal year, the Trust achieved a net asset value of $10.00 per
share, meeting its investment objective three and a half years prior to the
scheduled date of May 31, 2001. We are currently taking steps to maintain the
net asset value at a level exceeding $10.00 per share by selling many of our
holdings with the objective of increasing the Trust's cash position and
lowering its investment risk profile.
Please remember, this discussion reflects our views and opinions as of
November 30, 1997, the end of the reporting period. However, market and
economic conditions are changing constantly which may affect our strategies
and portfolio holdings. Although historic performance is no guarantee of
future results, these insights may help you understand our investment and
management philosophy.
PERFORMANCE SUMMARY
The share price of Franklin Principal Maturity Trust on the New York Stock
Exchange (NYSE) increased 87.5 cents, from $8.25 on November 30, 1996, to
$9.125 on November 30, 1997. The Trust's net asset value per share increased
67 cents, from $9.56 on November 30, 1996, to $10.23 on November 30, 1997.
In addition to distributing 54.0 cents ($0.54) per share in dividend income
during the reporting period, the Trust also paid out a special distribution
of 0.5 cents ($0.005) per share in November 1997. Distributions will vary
based on the Trust's income and any profits realized from the sale of
securities in the portfolio. Past distributions are not indicative of future
trends.
Based on an annualization of November's monthly per share dividend of 4.5
cents ($0.045) and the NYSE closing price of $9.125 on November 30, 1997, the
Trust's distribution rate was 5.92%.
The Franklin Principal Maturity Trust reported a +17.62% cumulative total
return for the one-year period ended November 30, 1997. 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 the market price), the one-year total return for
the same period was +13.73%. All total returns assume the reinvestment of
dividends and capital gains at market price on the reinvestment date.
Dividend Distributions
12/1/96 - 11/30/97
Dividend
Month per share
December 4.5 cents
January 4.5 cents
February 4.5 cents
March 4.5 cents
April 4.5 cents
May 4.5 cents
June 4.5 cents
July 4.5 cents
August 4.5 cents
September 4.5 cents
October 4.5 cents
November 4.5 cents
Total 54.0 cents
We urge you to view your investment in Franklin Principal Maturity Trust with
a long-term perspective. As the table to the below shows, the Trust reported
a cumulative total return of +124.48%, based on net asset value, since its
inception on January 19, 1989.
Periods ended 11/30/97
Since
Inception
1-Year 5-Year (1/19/89)
Cumulative Total Return1
Based on change in net asset value 13.73% 79.93% 124.48%
Based on change in market price 17.62% 75.99% 87.31%
Average Annual Total Return1
Based on change in net asset value 13.73% 12.47% 9.65%
Based on change in market price 17.62% 11.97% 7.41%
Distribution Rate2 5.92%
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 the Trust's
November 4.5 cent per share monthly dividend and the New York Stock Exchange
closing price of $9.125 on November 30, 1997.
Past performance is not predictive of future results.
DIVIDEND REINVESTMENT PLAN
The Fund's Dividend Reinvestment Plan (the "Plan") offers you a prompt and
simple way to reinvest dividends and/or capital gain distributions in shares
of the Fund. First Data Investor Services Group (the "Plan Agent"), P.O. Box
8030, Boston, Massachusetts 02266-8030, acts as your Plan Agent in
administering the Plan. All reinvestments are in full and fractional shares,
carried to three decimal places. The complete terms and conditions of the
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 a monthly 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.
ANNUAL MEETING OF SHAREHOLDERS
At an Annual Meeting of Shareholders of Franklin Principal Maturity Trust (the
Trust) held on July 16, 1997, shareholders of the Trust voted as follows:
1. Regarding the election of trustees who constitute the current Board of
Trustees.
<TABLE>
<CAPTION>
% of % of
Outstanding % of Outstanding % of
For Shares Voted Against Shares Voted
<S> <C> <C> <C> <C> <C> <C>
Frank H. Abbott, III 15,226,802.384 74.413% 98.307% 262,277.445 1.282% 1.693%
Harris J. Ashton 15,235,653.355 74.456% 98.364% 253,426.474 1.238% 1.636%
S. Joseph Fortunato 15,233,163.569 74.444% 98.348% 255,916.260 1.251% 1.652%
David W. Garbellano* 15,224,114.837 74.400% 98.289% 264,964.992 1.295% 1.711%
Edward B. Jamieson 15,237,542.158 74.465% 98.376% 250,967.457 1.226% 1.620%
Charles B. Johnson 15,237,845.158 74.670% 98.378% 251,234.671 1.228% 1.622%
Rupert H. Johnson, Jr. 15,237,542.158 74.465% 98.376% 251,537.671 1.229% 1.624%
Frank W. T. LaHaye 15,235,133.158 74.454% 98.360% 253,946.671 1.241% 1.640%
Gordon S. Macklin 15,230,603.167 74.431% 98.331% 258,467.662 1.263% 1.669%
2. Regarding the ratification of the selection of Coopers & Lybrand L.L.P.,
Certified Public Accountants, as the independent auditors for the Trust for the
fiscal year ending November 30, 1997.
% of % of
Outstanding % of Outstanding % of
For Shares Voted Against Shares Voted
<S> <C> <C> <C> <C> <C>
15,176,014.736 74.165% 97.979% 108,675.220 0.531% 0.702%
</TABLE>
*THE BOARD NOTES WITH DEEP REGRET THE PASSING OF DIRECTOR DAVID GARBELLANO, ON
SEPTEMBER 27, 1997. A SEARCH FOR A QUALIFIED CANDIDATE TO FILL THIS VACANCY IS
UNDERWAY.
<TABLE>
<CAPTION>
FRANKLIN PRINCIPAL MATURITY TRUST
Financial Highlights
Year Ended November 30,
-----------------------------------------------
1997 1996 1995 1994 1993
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year ................... $9.56 $8.54 $7.70 $9.62 $8.09
-----------------------------------------------
Income from investment operations:
Net investment income ............................... 0.57 0.56 0.52 0.54 0.52
Net realized and unrealized gains (losses) .......... 0.65 1.00 0.91 (1.77) 1.57
-----------------------------------------------
Total from investment operations ..................... 1.22 1.56 1.43 (1.23) 2.09
-----------------------------------------------
Less distributions from:
Net investment income ............................... (0.55) (0.53) (0.59) (0.59) (0.52)
In excess of net investment income .................. -- (0.01) -- -- (0.04)
Net realized gains .................................. -- -- -- (0.10) --
-----------------------------------------------
Total distributions .................................. (0.55) (0.54) (0.59) (0.69) (0.56)
-----------------------------------------------
Net asset value, end of year ......................... $10.23 $9.56 $8.54 $7.70 $9.62
================================================
Market value, end of year+ ........................... $9.125 $8.250 $7.500 $7.125 $8.500
================================================
Total return (based on market value per share)* ...... 17.62% 17.69% 14.21%(8.50)% 21.17%
Ratios/supplemental data
Net assets, end of year (000's) ...................... $209,231 $195,623 $174,805 $157,508 $196,895
Ratios to average net assets:
Expenses ............................................ 3.03% 3.06% 3.32% 2.60% 2.98%
Net investment income ............................... 5.98% 6.20% 6.33% 5.86% 5.74%
Portfolio turnover rate .............................. 15.79% 27.37% 30.57% 45.19% 70.91%
Average commission rate paid** ....................... $0.0600 $0.0564 -- -- --
Total senior securities outstanding
at end of year (000's omitted) ...................... -- $84,102 $70,727 $75,146 $83,920
Asset coverage per $1,000 of senior securities ....... -- $3,326 $3,472 $3,096 $3,346
</TABLE>
+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.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN PRINCIPAL MATURITY TRUST
Statement of Investments, November 30, 1997
<S> <C> <C>
Aerospace/Defense 9.9%
a,d Ladish Co., Inc. ................................................. 2,144,000 $ 6,968,000
a,d Ladish Co., Inc., warrants ....................................... 895 13,653,554
a Sabreliner Corp., warrants ....................................... 5,000 35,000
-------------
20,656,554
-------------
Chemicals
a Lanesborough Corp. ............................................... 4,942 49
-------------
Commercial Services 2.2%
a Emcor Group, Inc. ................................................ 227,991 4,559,820
-------------
Electronics
a Ampex Group, Inc. ................................................ 27,620 70,776
-------------
Forest/Paper Products .4%
a WTD Industries, Inc. ............................................. 357,221 759,095
-------------
Industrial 6.6%
Lone Star Industries, Inc. .......................................... 265,075 13,817,034
-------------
Real Estate
a XRC Corp. ........................................................ 65,393 327
-------------
Retail 6.2%
a Carson Pirie Scott & Co. ......................................... 250,510 12,932,579
a Hills Stores Co. ................................................. 456 1,653
-------------
12,934,232
-------------
Technology/Information Systems .5%
a Wang Laboratories, Inc. .......................................... 48,081 1,063,792
-------------
Utilities .8%
a El Paso Electric Co. ............................................. 248,077 1,674,520
-------------
Wireless/Telecommunications .4%
a International Wireless Communication, warrants ................... 13,500 675,000
-------------
Orion Network System, warrants ...................................... 5,500 62,150
-------------
737,150
-------------
Total Common Stocks & Warrants (Cost $15,401,680)................. 56,273,349
-------------
Preferred Stocks 2.1%
Cable Television 1.9%
a Cablevision Systems Corp., Series M, 11.125% pfd., PIK ........... 34,085 3,902,733
-------------
Telecommunications .2%
Nortel, Inversora, SA, pfd., Series B ............................... 20,000 495,000
-------------
Total Preferred Stocks (Cost $3,150,782) ......................... 4,397,733
-------------
Convertible Preferred Stocks
a Hills Stores Co., cvt. pfd., Series A (Cost $392,397) ............ 19,498 70,680
-------------
Aerospace/Defense 1.5%
Sabreliner Corp., senior notes, 12.50%, 4/15/03 ..................... $ 3,000,000 $ 3,150,000
-------------
Automotive .3%
c Harvard Industries, Inc., senior notes, 12.00%, 7/15/04 .......... 2,000,000 620,000
-------------
Chemicals 2.6%
Huntsman Corp., senior sub. floating rate notes, 144A, 9.0937%, 7/01/07 1,500,000 1,545,000
c Lanesborough Corp., senior notes, 10.00%, 4/15/00 ................ 7,700,000 3,850,000
-------------
5,395,000
-------------
Consumer Products 6.0%
Liggett Group, senior notes, Series C, 19.75%, 2/01/99 .............. 2,000,000 1,480,000
Liggett Group, senior secured notes, Series C, 19.75%, 2/01/99 ...... 74,000 54,760
Liggett Group, S.F., senior notes, 11.50%, 2/01/99 .................. 6,750,000 4,691,250
Remington Products Co., L.L.C., Series B, senior sub. notes, 11.00%, 5/15/06 7,500,000 6,337,500
-------------
12,563,510
-------------
Food & Beverages 2.3%
American Rice, Inc., mortgage, secured notes, 13.00%, 7/31/02 ....... 5,000,000 4,925,000
-------------
Food Retailing .1%
Almacs, Inc., senior sub. notes, PIK, 11.50%, 11/18/04 .............. 2,528,000 176,960
-------------
Gaming & Leisure 2.4%
c Harrah's Jazz Co., first mortgage, 14.25%, 11/15/01 .............. 15,000,000 4,950,000
-------------
Oil/Gas 1.0%
TransAmerican Refining Corp., first mortgage, Series 2,
16.50% coupon to 8/15/98, 16.00% thereafter, 2/15/02 ................. 2,000,000 2,217,500
-------------
Total Corporate Bonds (Cost $42,955,594) ......................... 33,997,970
-------------
Foreign Government Bonds .3%
ESCOM, E168, utility deb. (South Africa),
11.00%, 6/01/08 (Cost $1,040,535) .................................... 4,350,000 ZAR 730,596
-------------
Zero Coupon Bonds 51.3%
FICO Strips, 3/07/01 ................................................ 10,850,000 8,915,011
FICO Strips, 4/06/01 ................................................ 12,520,000 10,234,662
FICO Strips, 5/02/01 ................................................ 5,211,000 4,240,034
FICO Strips, 5/11/01 ................................................ 1,116,000 906,628
FICO Strips, 5/30/01 ................................................ 5,253,000 4,253,801
FNMA Strips, 2/01/01 ................................................ 7,348,000 6,085,871
GTC Trust Certificates-Israel, Series 1D, 5/15/01 ................... 8,100,000 6,606,708
GTC Trust Certificates-Israel, Series 2F, 5/15/01 ................... 27,226,000 22,206,696
International Wireless Communication, senior disc. notes, 8/15/01 ... 13,500,000 7,020,000
c McCrory Corp., deb., 7/15/94 ..................................... 500,000 5
Orion Network Systems, Inc., units, zero coupon
to 1/15/02, 12.50%, thereafter, 1/15/07 .............................. 5,500,000 4,070,000
REFCO Strips, 4/15/01 ............................................... 30,250,000 24,871,217
San Joaquin Hills, California, Toll Road Revenue, 1/01/01 ........... 9,100,000 7,959,134
-------------
Total Zero Coupon Bonds (Cost $106,668,279) ......................... 107,369,767
-------------
Joint Repurchase Agreement, 5.691%, 12/01/97 (Maturity Value $6,657,437)
(Cost $6,654,281) ................................................... $ 6,654,281 $ 6,654,281
-------------
BA Securities, Inc.
Barclays de Zoete Wedd Securities, Inc.
Bear Sterns & Co. Inc.
Chase Securities, Inc.
CIBS Wood Gundy Securities Corp.
Deutsche Morgan Grenfell/C.J. Lawrence, Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson North America, L.L.C.
Greenwich Capital Markets, Inc.
SBC Warburg, Inc.
UBS Securities, L.L.C.
Collateralized by U.S. Treasury Bills & Notes
Total Investments (Cost $176,263,548) 100.1% ........................ 209,494,376
Other Assets, less Liabilities (.1)% ................................ (263,109)
-------------
Net Assets 100.0% ................................................... $209,231,267
=============
</TABLE>
CURRENCY ABBREVIATIONS:
ZAR - South African Rand
*Securities traded in U.S. dollars unless otherwise stated.
aNon-income producing.
bInvestment is through participation in a joint account with other funds managed
by the investment advisor. At 11/30/97, all repurchase agreements held by the
Fund had been entered into on 11/28/97.
cSee Note 7 regarding defaulted securities.
dThe Investment Company Act of 1940 defines "affiliated companies" as
investments in portfolio companies in which the Fund owns 5% or more of the
outstanding voting securities. Investments in "affiliated companies" at 11/30/97
were $20,621,554.
Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates
1.12% of the ordinary income dividends as income qualifying for the dividends
received deduction for the fiscal year ended November 30, 1997.
FRANKLIN PRINCIPAL MATURITY TRUST
Financial Statements
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
November 30, 1997
Assets:
<S> <C>
Investments in securities, at value (cost $176,263,548)............................... $209,494,376
Receivables:
Dividends and interest............................................................... 842,779
Other assets.......................................................................... 28,004
-------------
Total assets........................................................................... 210,365,159
-------------
Liabilities:
Payable to affiliates................................................................. 78,302
Distributions to shareholders......................................................... 1,023,130
Other liabilities..................................................................... 32,460
-------------
Total liabilities.................................................................... 1,133,892
-------------
Net assets, at value................................................................... $209,231,267
=============
Net assets consist of:
Undistributed net investment income................................................... $ 228,936
Net unrealized appreciation........................................................... 33,228,679
Accumulated net realized loss......................................................... (10,801,113)
Capital shares........................................................................ 186,574,765
-------------
Net assets, at value................................................................... $209,231,267
=============
Net asset value per share ($209,231,267 O 20,462,600 shares outstanding).............. $10.23
=============
See notes to financial statements.
FRANKLIN PRINCIPAL MATURITY TRUST
Financial Statements (continued)
Statement of Operations (continued)
for the year ended November 30, 1997
Investment income:
<S> <C> <C>
Dividends .............................................................. $ 141,115
Interest .............................................................. 17,386,847
------------
Total investment income ................................................ $17,527,962
Expenses:
Management fees (Note 3) ............................................... 1,016,622
Transfer agent fees ................................................... 78,762
Other .................................................................. 132,077
------------
Total expenses .......................................................... 1,227,461
Interest expense ........................................................ 4,659,768
-------------
Net expenses ........................................................... 5,887,229
-------------
Net investment income ................................................. 11,640,733
-------------
Realized and unrealized gains (losses):
Net realized loss from:
Investments ........................................................... (5,334,077)
Foreign currency transactions ......................................... (884)
------------
Net realized loss ....................................................... (5,334,961)
Net unrealized appreciation (depreciation) on:
Investments ........................................................... 18,455,924
Translation of assets and liabilities denominated in foreign currencies (833)
------------
Net unrealized appreciation ............................................. 18,455,091
-------------
Net realized and unrealized gain ........................................ 13,120,130
-------------
Net increase in net assets resulting from operations ................... $24,760,863
=============
See notes to financial statements.
FRANKLIN PRINCIPAL MATURITY TRUST
Financial Statements (continued)
Statements of Changes in Net Assets
for the years ended November 30, 1997 and 1996
1997 1996
--------------------------------
Increase in net assets:
<S> <C> <C>
Operations:
Net investment income ................................................. $ 11,640,733 $ 11,486,497
Net realized loss from investments and foreign currency transactions .. (5,334,961) (1,744,583)
Net unrealized appreciation on investments
and translation of assets and liabilities
denominated in foreign currencies .................................... 18,455,091 22,125,386
--------------------------------
Net increase in net assets resulting from operations .................... 24,760,863 31,867,300
Distributions to shareholders from:
Net investment income ................................................. (11,152,121) (10,791,012)
In excess of net investment income..................................... -- (258,792)
--------------------------------
Net increase in net assets............................................... 13,608,742 20,817,496
Net assets:
Beginning of year ...................................................... 195,622,525 174,805,029
--------------------------------
End of year ............................................................ $209,231,267 $195,622,525
================================
Undistributed net investment income
(accumulated distributions in excess of net investment income)
included in net assets:
End of year .......................................................... $ 228,936 $ (258,792)
================================
See notes to financial statements.
FRANKLIN PRINCIPAL MATURITY TRUST
Financial Statements (continued)
Statement of Cash Flows
for the year ended November 30, 1997
<S> <C>
Dividends and interest received .................................................... $ 5,239,793
Operating expenses paid ............................................................ (1,263,045)
Interest expense paid .............................................................. (4,976,319)
-------------
Cash used - operations ............................................................ (999,571)
=============
Investment purchases ............................................................... (1,763,589,312)
Investment sales ................................................................... 1,775,638,691
-------------
Cash provided - investments ....................................................... 12,049,379
=============
Distributions to shareholders ...................................................... (11,049,808)
-------------
Cash used - financing activities .................................................. (11,049,808)
=============
Net increase in cash ............................................................... --
-------------
Cash at beginning of year .......................................................... --
-------------
Cash at end of year ................................................................ $--
=============
</TABLE>
FRANKLIN PRINCIPAL MATURITY TRUST
Notes to Financial Statements
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, 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 currency denominated assets and liabilities other than investments in
securities held at the end of the reporting period.
c. 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
distribute all of its taxable income.
d. 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.
e. 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. TRUST SHARES
At November 30, 1997, there were an unlimited number of shares authorized ($0.01
par value). During the year ended November 30, 1997, 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 Advisers, 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 paid an investment management fee to Advisers of 0.60% per year of the
average weekly net assets of the Fund from June 1, 1993 through May 31, 1997.
After May 31, 1997, the Fund pays fees of 0.45% per year of its average weekly
net assets from June 1, 1997 until May 31, 2001 (the anticipated termination 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
============
At November 30, 1997, the net unrealized appreciation based on the cost of
investments for income tax purposes of $176,317,102 was as follows:
Unrealized appreciation ......... $ 46,113,956
Unrealized depreciation ......... (12,936,682)
------------
Net Unrealized appreciation ..... $ 33,177,274
------------
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
Purchases and sales of securities (excluding short-term securities) for the
period ended November 30, 1997 aggregated $41,892,395 and $139,035,280,
respectively.
6. REVERSE REPURCHASE AGREEMENT
The Fund enters into reverse repurchase agreements, under which 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 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, 1997, the Fund has no outstanding reverse
repurchase agreements.
7. CREDIT RISK AND DEFAULTED SECURITIES
The Fund has 21.52% 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 November 30, 1997, the
Fund held defaulted securities with a value aggregating $9,420,005 representing
4.5% 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.
8. OTHER CONSIDERATIONS
Advisers, as the Fund's manager, may serve as a member of various credit
committees, representing credit interest 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 this security while in possession of
this information.
9. STATEMENT OF CASH FLOWS
Cash provided from operations differs from net investment income by $12,640,304
due to amortization of bond discount and note issuance costs, and year-end
income and expense accrual changes.
To the Shareholders and Board of Trustees
of Franklin Principal Maturity Trust:
We have audited the accompanying statement of assets and liabilities of the
Franklin Principal Maturity Trust (the Fund), including the Fund's statement of
investments as of November 30, 1997, and the related statements of operations
and 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 periods presented. 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, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Fund as of November 30, 1997, 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 its financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
December 31, 1997
FRANKLIN PRINCIPAL MATURITY TRUST ANNUAL REPORT NOVEMBER 30, 1997
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 composition of the fund's portfolio on
11/30/97, based on total net assets.
Portfolio Composition
Zero-Coupon Bonds 51.3%
Common Stocks & Warrants 27.0%
Corporate Bonds 16.2%
Other 5.5%
