UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-04986
Franklin Investors Securities Trust
(Exact name of registrant as specified in charter)
One Franklin Parkway, San Mateo, CA 94403-1906
(Address of principal executive offices) (Zip code)
Craig S. Tyle, One Franklin Parkway, San Mateo, CA 94403-1906
(Name and address of agent for service)
Registrant’s telephone number, including area code: 650 312-2000
Date of fiscal year end: 10/31
Date of reporting period: 10/31/17
| Item 1. | Reports to Stockholders. |
Franklin Templeton Investments
Gain From Our Perspective®
At Franklin Templeton Investments, we’re dedicated to one goal: delivering exceptional asset management for our clients. By bringing together multiple, world-class investment teams in a single firm, we’re able to offer specialized expertise across styles and asset classes, all supported by the strength and resources of one of the world’s largest asset managers. This has helped us to become a trusted partner to individual and institutional investors across the globe.
Dear Shareholder:
During the 12 months ended October 31, 2017, mostly upbeat economic data, improved US corporate earnings and supportive monetary policies were positives for the securities markets. The US Federal Reserve increased its target range 0.25% three times during the period, noting improved employment and business spending. The 10-year US Treasury yield began the period at 1.84% and ended the period at 2.38%. In this environment, US stocks, as measured by the Standard & Poor’s® 500 Index, generated a +23.63% total return for the 12-month period.1 Investment-grade bonds, as measured by the Bloomberg Barclays US Aggregate Bond Index, posted a
+0.90% total return.1
We are committed to our long-term perspective and disciplined investment approach as we conduct a rigorous, fundamental analysis of securities with a regular emphasis on investment risk management.
We believe active, professional investment management serves investors well. We also recognize the important role of financial advisors in today’s markets and encourage investors to continue to seek their advice. Amid changing markets and economic conditions, we are confident investors with a well-diversified portfolio and a patient, long-term outlook should be well positioned for the years ahead.
In addition, Franklin Investors Securities Trust’s annual report includes more detail about prevailing conditions and a
discussion about investment decisions during the period. Please remember all securities markets fluctuate, as do mutual fund share prices.
We thank you for investing with Franklin Templeton, welcome your questions and comments, and look forward to serving your future investment needs.
Sincerely,
Rupert H. Johnson, Jr.
Chairman
Franklin Investors Securities Trust
This letter reflects our analysis and opinions as of October 31, 2017, unless otherwise indicated. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.
1. Source: Morningstar.
See www.franklintempletondatasources.com for additional data provider information.
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| | | | Not FDIC Insured | | | May Lose Value | | | No Bank Guarantee |
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franklintempleton.com | | Not part of the annual report | | | 1 | |
Contents
Visit franklintempleton.com for fund updates, to access your account, or to find helpful financial planning tools.
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Annual Report
Economic and Market Overview
The US economy expanded during the 12-month period ended October 31, 2017. After moderating in the first quarter, the economy strengthened in 2017’s second quarter, largely due to growth in consumer spending, business investment, net exports and federal government spending. In 2017’s third quarter, the economy expanded at a faster pace. Consumer and federal government spending slowed, while business investment and net exports improved. The manufacturing and services sectors expanded during the period. The unemployment rate decreased from 4.8% in October 2016 to 4.1% at period-end.1 Monthly retail sales were volatile, but were positive during most of the period. Annual inflation, as measured by the Consumer Price Index, increased from 1.6% in October 2016 to 2.0% at period-end.1
The US Federal Reserve (Fed) raised its target range for the federal funds rate 0.25% three times during the period, amid signs of a growing US economy, strengthening labor market, and improving business spending. At its July and September 2017 meetings, the Fed kept its target range unchanged. Furthermore in September, the Fed mentioned that it would begin implementing its balance sheet reduction in October. The minutes of the Fed’s September meeting released in October suggested that many committee members were concerned that low inflation readings this year might not be transitory and could be more persistent than expected.
US equity markets rose during the 12-month period, benefiting from mostly upbeat economic data, better US corporate earnings, and signs of improvement in the Chinese and European economies. The markets were also supported by investor optimism arising from pro-growth and pro-business policy plans in the US, Emmanuel Macron’s victory in France’s presidential election, comments from the US Fed chair indicating optimism about the US economy and the likelihood of gradual rate hikes, and the Senate’s approval of a budget plan that raised expectations for tax reforms. However, continuing concerns about the terms of the UK’s exit from the European Union (also known as “Brexit”), uncertainty about President Trump’s ability to implement reforms, and geopolitical tensions in the Middle East and the Korean peninsula curbed market sentiment. The broad US stock
1. Source: Bureau of Labor Statistics.
2. Source: Morningstar
See www.franklintempletondatasources.com for additional data provider information.
market, as measured by the Standard & Poor’s® 500 Index, generated a +23.63% total return for the period.2
The foregoing information reflects our analysis and opinions as of October 31, 2017. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.
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Franklin Balanced Fund
This annual report for Franklin Balanced Fund covers the fiscal year ended October 31, 2017.
Your Fund’s Goal and Main Investments
The Fund seeks both income and capital appreciation by investing in a diversified portfolio of stocks (substantially dividend paying), convertible securities and debt securities. The Fund normally invests at least 25% of its total assets in debt securities, including bonds, notes, debentures and money market securities, and at least 25% of its total assets in equity securities, primarily common and preferred stock.
Portfolio Composition*
10/31/17
| | |
| | | % of Total
Net Assets |
Stocks | | 61.2% |
Common Stocks | | 50.3% |
Equity-Linked Securities | | 8.0% |
Convertible Preferred Stocks | | 2.4% |
Management Investment Companies | | 0.5% |
Bonds | | 33.0% |
Corporate Bonds | | 32.6% |
Convertible Bonds | | 0.4% |
Short-Term Investments & Other Net Assets | | 5.8% |
*Figures reflect certain derivatives held in the portfolio (or their underlying reference assets) and may not total 100% or may be negative due to rounding, use of derivatives, unsettled trades or other factors. The composition may not match the SOI.
Performance Overview
For the 12 months under review, the Fund’s Class A shares delivered a cumulative total return of +10.88%. In comparison, the Fund’s equity benchmark, the Standard & Poor’s 500 Index (S&P 500®), which is a broad measure of US stock performance, generated a +23.63% total return.1 The Fund’s fixed income benchmark, the Bloomberg Barclays US Aggregate Bond Index, which tracks the US investment-grade, taxable bond market, posted a +0.90% total return.1 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 8.
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
Investment Strategy
We apply a bottom-up approach to investing in individual securities. We will assess the market price of a company’s securities relative to our evaluation of the company’s long-term earnings, asset value and cash flow potential. We also consider a company’s price/earnings ratio, profit margins and liquidation value. In determining an optimal mix of equity and fixed income investments for the Fund, we assess changing economic, market and industry conditions. The Fund seeks income by investing in a combination of corporate, agency and government bonds issued in the US and other countries, as well as common stocks and convertible securities. The Fund seeks capital appreciation by investing in equity securities and convertible securities of companies from a variety of industries. For purposes of pursuing the Fund’s investment goal, we may from time to time enter into various equity-related transactions involving derivative instruments, including put and call options on equity securities and equity indexes. We may also enter into equity-related derivatives transactions to hedge against market risk, to earn income, to gain or increase exposure to certain securities or segments of the equity markets or to otherwise enhance Fund returns.
|
What are put and call options? A put option is a contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time. Put options are most commonly used to protect against the decline of a stock price below a certain price. Conversely, a call option gives the holder the right to buy shares at a specified price within a specified time, regardless of the price in the future before the expiration date. If the stock price rises, the holder of the call option has the right to buy at the agreed-upon price, which could be lower. |
Manager’s Discussion
Consistent with the Fund’s long-term strategy of investing across asset classes to seek to generate attractive income, while
1. Source: Morningstar.
The indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI). The SOI begins on page 38.
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FRANKLIN BALANCED FUND
seeking opportunities for capital appreciation, performance was supported by healthy diversification and positive overall contributions from the Fund’s equity and fixed income positions. During the 12 months under review, we continued to strategically shift the Fund’s asset mix, seeking to manage risk and potential returns. The Fund’s equity weighting declined modestly from 63.2% to 61.2%, while our fixed income weighting rose slightly from 32.7% to 33.0%. Our cash position increased from 4.1% to 5.8% of total net assets. The flexibility to use market volatility to invest in different asset classes remains a core strategy of the Fund.
Dividend Distributions*
11/1/16–10/31/17
| | | | | | | | | | | | | | | | | | | | |
| | | Dividend per Share (cents) | |
| Month | | Class A | | | Class C | | | Class R | | | Class R6 | | | Advisor Class | |
November | | | 3.00 | | | | 2.27 | | | | 2.75 | | | | 3.34 | | | | 3.24 | |
December | | | 3.00 | | | | 2.28 | | | | 2.75 | | | | 3.36 | | | | 3.24 | |
January | | | 3.00 | | | | 2.28 | | | | 2.75 | | | | 3.36 | | | | 3.24 | |
February | | | 3.00 | | | | 2.28 | | | | 2.75 | | | | 3.36 | | | | 3.24 | |
March | | | 3.00 | | | | 2.26 | | | | 2.75 | | | | 3.33 | | | | 3.24 | |
April | | | 3.00 | | | | 2.26 | | | | 2.75 | | | | 3.33 | | | | 3.24 | |
May | | | 3.00 | | | | 2.26 | | | | 2.75 | | | | 3.33 | | | | 3.24 | |
June | | | 3.00 | | | | 2.25 | | | | 2.74 | | | | 3.35 | | | | 3.25 | |
July | | | 3.00 | | | | 2.25 | | | | 2.74 | | | | 3.35 | | | | 3.25 | |
August | | | 3.00 | | | | 2.25 | | | | 2.74 | | | | 3.35 | | | | 3.25 | |
September | | | 3.00 | | | | 2.25 | | | | 2.74 | | | | 3.34 | | | | 3.25 | |
October | | | 3.00 | | | | 2.25 | | | | 2.74 | | | | 3.34 | | | | 3.25 | |
Total | | | 36.00 | | | | 27.14 | | | | 32.95 | | | | 40.14 | | | | 38.93 | |
*The distribution amount is the sum of all net investment income distributions for the period shown. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.
All of the major equity sector groups contributed to returns during the period, with particularly strong returns from our holdings in the financials, information technology (IT) and industrials sectors. Financials benefited during the period from a backdrop of generally rising interest rates, a softening regulatory environment, and a benign credit environment which drove strong returns in our holdings in large-cap banks specifically. Key contributors among our holdings were JPMorgan Chase, Bank of America and Wells Fargo.
IT holdings continued to be a source of strong returns. Microsoft was a top performing equity holding as growing sales and profitability in its cloud-based computing platform
Top Five Equity Holdings
10/31/17
| | |
Company Sector/Industry | | % of Total
Net Assets |
Microsoft Corp. Information Technology | | 2.8% |
General Electric Co. Industrials | | 2.6% |
Wells Fargo & Co. Financials | | 1.9% |
Raytheon Co. Industrials | | 1.8% |
Pfizer Inc. Health Care | | 1.8% |
Azure as well as its expanding Office 365 suite drove strong financial results at the company. Semiconductor companies were also strong performers for the Fund, including Texas Instruments and Intel.
The synchronized upturn in global growth that developed during the period drove the industrials sector higher. Union Pacific benefited from a stronger US economy and industrial production which drove volume growth across the company’s rail network.
Other individual contributors included Royal Dutch Shell and DowDuPont. Royal Dutch Shell benefited from a stabilizing oil price environment combined with a steadily decreasing cost of production. Dow Chemical and DuPont completed their merger in August 2017, and the fundamentals of these companies’ core chemical and agriculture businesses remained robust. Cost and revenue synergies from the merger and clarity on the planned composition of their material science, specialty products and agricultural segments further supported company returns.
Several holdings in health care detracted from the overall gains in the sector including the Fund’s holdings in Teva Pharmaceutical,2 Allergan and Mylan.3 Teva, an Israel-based generic and specialty pharmaceuticals provider, has struggled due to the high debt load incurred when it acquired Allergan’s generic drug business, which corresponded to intensified generic price pressure in the US. Allergan, a multi-national pharmaceutical company that produces a range of branded and generic drugs, saw its stock price decline due to its dry-eye treatment Restasis coming under federal patent infringement litigation during the summer. Despite this challenge, we believe Allergan remains compelling for the longer term given its
2. Not held at period-end.
3. New position during the period.
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FRANKLIN BALANCED FUND
robust medical-aesthetics business and extensive, promising drug development pipeline.
Other individual detractors included General Electric, which hindered industrials sector returns as the company reported depressed cash flow driven by weakness in its power and oil and gas divisions and underwent a management change. New Chief Executive Officer (CEO) John Flannery took over from outgoing CEO Jeff Immelt in August. Several energy sector holdings, including Baker Hughes (a General Electric company),3 Occidental Petroleum and Hess2 detracted from Fund results. Uneven commodity prices put downward pressure on the share prices of some oil services and exploration and production companies as investors questioned future production growth in a “lower for longer” oil price environment, but this pressure eased near period-end, helping prices to recover to some extent. Walgreens Boots Alliance detracted from Fund returns as concerns rose near the end of the period around reimbursement rate pressure and Amazon.com’s potential interest in entering the drug distribution market.
Among the Fund’s fixed income holdings, our continued allocation to corporate credit proved to be a positive contributor to total returns. This resulted from a combination of our focus on corporate credit as well as security selection within the credit universe. Within the Fund’s fixed income holdings, most sectors and securities had positive total returns.
The largest contributor to returns was our weighting in the banking industry.4 Similar to the rationale in the equity section above, financials benefited from rising rates, softening regulations and continued strength in asset quality. Within our holdings, Bank of America, Citigroup, JPMorgan, and PNC Financial Services Group were notable performers. Navient was also a beneficiary of some of the positive trends in the financials sector.
The consumer non-cyclical sector was also a strong fixed income performer, especially with regard to our health care holdings, as concerns about the potential repeal of the Affordable Care Act eased and it became clear that much of the Act would remain in place. We increased our exposure to CHS/Community Health Systems. Community Health results had been relatively weak over the past couple of quarters. Despite this, we continue to believe that asset sales could improve management’s ability to manage the remaining
portfolio of hospitals, while also allowing for significant debt reduction. The Fund’s exposure to Tenet Healthcare3 also contributed during the period. Tenet continued to post solid earnings and took another step toward becoming the premier operator of surgery centers in the US. Similar to some of our other top performers, both companies also demonstrated an ability to tap the debt markets to refinance near-term maturities, which helped performance during the period.
Merger and acquisition activity helped our holdings in Whole Foods Market, also in the consumer non-cyclical sector. With the acquisition by Amazon.com, Whole Foods was one of the top performing bonds in the portfolio. Also within retail, Dollar General was a solid performer.
Within communications, our fixed income position in Sprint was a strong performer during the period, benefiting from strong operating performance and increased merger speculation. As a result, we thought it made sense to reduce some of our exposure and take some profits given the strong rally. As of period-end, all of our Sprint bond holdings traded at what we considered meaningful premiums to par.
Top Five Fixed Income Holdings
10/31/17
| | |
Company Sector/Industry | | % of Total
Net Assets |
JPMorgan Chase & Co. Financials | | 1.1% |
Morgan Stanley Financials | | 0.9% |
Costco Wholesale Corp. Consumer Staples | | 0.9% |
Kraft Heinz Foods Co. Consumer Staples | | 0.8% |
Citigroup Inc. Financials | | 0.8% |
All fixed income sectors the Fund invested in during the period delivered positive performance. However, some individual holdings detracted from Fund results. Although consumer cyclicals contributed, a few retail holdings in various segments detracted, including Amazon.com and CVS Health. Some longer duration securities showed negative performance given the backup in interest rates during the period, including Verizon Communications.2 In addition, some consumer and
4. Banking companies are in financials in the fixed income portion of the SOI.
See www.franklintempletondatasources.com for additional data provider information.
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FRANKLIN BALANCED FUND
food-related issues did not have enough spread tightening to offset the backup in rates and posted slightly negative returns during the period. Mondelez Intermational is in this category.
Thank you for your continued participation in Franklin Balanced Fund. We look forward to serving your future investment needs.
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 | | 
Edward D. Perks, CFA |
| | Alan E. Muschott, CFA Shawn Lyons, CFA Todd Brighton, CFA |
| |
| | Portfolio Management Team |
The foregoing information reflects our analysis, opinions and portfolio holdings as of October 31, 2017, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
CFA® is a trademark owned by CFA Institute.
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FRANKLIN BALANCED FUND
Performance Summary as of October 31, 2017
The performance tables and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.
Performance as of 10/31/171
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.75% and the minimum is 0%. Class A: 5.75% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
Share Class | | Cumulative Total Return2 | | Average Annual Total Return3 |
| | |
A | | | | |
1-Year | | +10.88% | | +4.51% |
5-Year | | +43.79% | | +6.27% |
10-Year | | +69.87% | | +4.82% |
| | |
Advisor | | | | |
1-Year | | +11.21% | | +11.21% |
5-Year | | +45.81% | | +7.83% |
10-Year | | +74.83% | | +5.75% |
| | | | | | | | |
| Share Class | | Distribution Rate4 | | 30-Day Standardized Yield5 |
| | | (with waiver) | | | (without waiver) |
| | | |
A | | 2.75% | | | 1.80% | | | 1.79% |
| | | |
Advisor | | 3.15% | | | 2.15% | | | 2.14% |
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
See page 10 for Performance Summary footnotes.
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FRANKLIN BALANCED FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment1
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
Class A (11/1/07–10/31/17)
Advisor Class (11/1/07–10/31/17)
See page 10 for Performance Summary footnotes.
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FRANKLIN BALANCED FUND
PERFORMANCE SUMMARY
Net Asset Value
| | | | | | | | | | | | |
| Share Class (Symbol) | | 10/31/17 | | | 10/31/16 | | | Change | |
| |
A (FBLAX) | | | $12.36 | | | | $11.65 | | | | +$0.71 | |
| |
C (FBMCX) | | | $12.25 | | | | $11.55 | | | | +$0.70 | |
| |
R (N/A) | | | $12.39 | | | | $11.67 | | | | +$0.72 | |
| |
R6 (FBFRX) | | | $12.39 | | | | $11.67 | | | | +$0.72 | |
| |
Advisor (FBFZX) | | | $12.39 | | | | $11.67 | | | | +$0.72 | |
| |
| | | |
Distributions (11/1/16–10/31/17) | | | | | | | | | | | | |
| | | |
| Share Class | | Net Investment
Income | | | Long-Term
Capital Gain | | | Total | |
| |
A | | | $0.3600 | | | | $0.1692 | | | | $0.5292 | |
| |
C | | | $0.2714 | | | | $0.1692 | | | | $0.4406 | |
| |
R | | | $0.3295 | | | | $0.1692 | | | | $0.4987 | |
| |
R6 | | | $0.4014 | | | | $0.1692 | | | | $0.5706 | |
| |
Advisor | | | $0.3893 | | | | $0.1692 | | | | $0.5585 | |
| |
Total Annual Operating Expenses7
| | | | | | | | |
| Share Class | | With Waiver | | | Without Waiver | |
| |
A | | | 1.02% | | | | 1.03% | |
| |
Advisor | | | 0.77% | | | | 0.78% | |
| |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
All investments involve risks, including possible loss of principal. The Fund’s share price and yield will be affected by interest rate movements. Bond prices generally move in the opposite direction of interest rates. As the prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.
1. The Fund has a fee waiver associated with any investment it makes in a Franklin Templeton money fund and/or other Franklin Templeton Fund, contractually guaranteed through 2/28/18. Fund investment results reflect the fee waiver; without this reduction, the results would have been lower.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.
4. Distribution rate is based on an annualization of the respective class’s October dividend and the maximum offering price (NAV for Advisor Class) per share on 10/31/17.
5. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.
6. Source: Morningstar. The S&P 500 is a market capitalization-weighted index of 500 stocks designed to measure total US equity market performance. The Bloomberg Barclays US Aggregate Bond Index is a market capitalization-weighted index representing the US investment-grade, fixed-rate, taxable bond market with index components for government and corporate, mortgage pass-through and asset-backed securities. All issues included are SEC registered, taxable, dollar denominated and nonconvertible, must have at least one year to final maturity and must be rated investment grade (Baa3/BBB-/BBB- or higher) using the middle rating of Moody’s, S&P and Fitch, respectively.
7. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
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FRANKLIN BALANCED FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated.
Actual Fund Expenses
The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | | | | | | | |
| | | | | | | Actual (actual return after expenses) | | | | Hypothetical (5% annual return before expenses) | | | | |
Share Class | | Beginning
Account
Value 5/1/17 | | | | Ending
Account
Value 10/31/17 | | Expenses
Paid During
Period
5/1/17–10/31/171,2 | | | | Ending
Account
Value 10/31/17 | | Expenses Paid During
Period 5/1/17–10/31/171,2 | | | | Net
Annualized
Expense
Ratio2 |
A | | $1,000 | | | | $1,043.60 | | $5.10 | | | | $1,020.21 | | $5.04 | | | | 0.99% |
C | | $1,000 | | | | $1,039.30 | | $8.94 | | | | $1,016.43 | | $8.84 | | | | 1.74% |
R | | $1,000 | | | | $1,042.20 | | $6.38 | | | | $1,018.95 | | $6.31 | | | | 1.24% |
R6 | | $1,000 | | | | $1,045.30 | | $3.30 | | | | $1,021.98 | | $3.26 | | | | 0.64% |
Advisor | | $1,000 | | | | $1,044.80 | | $3.81 | | | | $1,021.48 | | $3.77 | | | | 0.74% |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 184/365 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
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| franklintempleton.com | | Annual Report | | | 11 | |
Franklin Convertible Securities Fund
We are pleased to bring you Franklin Convertible Securities Fund’s annual report for the fiscal year ended October 31, 2017.
Your Fund’s Goal and Main Investments
The Fund seeks to maximize total return, consistent with reasonable risk, by seeking to optimize capital appreciation and high current income under varying market conditions. The Fund normally invests at least 80% of its net assets in convertible securities and common stock received upon conversion of convertible securities.
Portfolio Composition
Based on Total Net Assets as of 10/31/17
Performance Overview
For the 12 months under review, the Fund’s Class A shares delivered a +18.39% cumulative total return. In comparison, the Fund’s benchmark, the BofA Merrill Lynch (BofAML) All Total Return Alternatives U.S. Convertibles Index, which tracks the domestic convertible securities market, generated a +15.39% total return.1 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 15.
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
Investment Strategy
When choosing convertible securities for the Fund, we attempt to maintain a balance in the portfolio between the equity and
debt characteristics of convertible securities with an emphasis on the equity features. We also consider the company’s long-term earnings, asset value and cash flow potential. Some of the convertible securities in which the Fund may invest have been structured to provide enhanced yield, increased equity exposure or enhanced downside protection. These securities typically provide a benefit to the issuer in exchange for the enhanced features, such as a conversion premium that is paid by the Fund. We may invest in convertible securities of companies of any capitalization size, but we generally seek to make the portfolio representative of the entire convertible securities market.
Manager’s Discussion
Most sectors the Fund invested in rose in value during the twelve months under review and supported performance. The information technology (IT), industrials and consumer discretionary sectors contributed most to Fund performance during the period. Within IT, the Fund’s holdings of convertible bonds issued by interactive entertainment provider Take-Two Interactive Software, semiconductor processing systems manufacturer Novellus Systems (now owned by LAM Research) and semiconductor manufacturer Micron Technology aided performance.
While Take-Two had a relatively quiet release schedule this year, the company’s share price more than doubled due to strong engagement with its key titles. Higher in-game transactions, particularly for Grand Theft Auto Online, contributed to margin expansion during the year. Take-Two’s NBA 2K17 game also continued to be a successful annual release. LAM Research experienced strong earnings growth during the year given its position as a leading equipment supplier to memory semiconductor manufacturers. The memory chip industry is experiencing robust growth due to strong demand for data storage and processing. At the same time, manufacturers now require more equipment to produce the same amount of capacity. These supply and demand dynamics are greatly benefiting semiconductor equipment market leaders like LAM Research. Micron’s shares rose amid firm pricing in both the dynamic random access memory and NAND flash memory markets. Pricing was strong due to constrained supply growth and solid demand from the personal computer, server and mobile phone markets, relative to expectations. In addition,
1. Source: BofA Merrill Lynch.
The index is unmanaged and includes reinvestment of any income or distributions. It does not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI). The SOI begins on page 48.
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FRANKLIN CONVERTIBLE SECURITIES FUND
Top 10 Holdings
10/31/17
| | | | |
Company Sector/Industry | | % of Total
Net Assets | |
Square Inc. Information Technology | | | 2.7% | |
Micron Technology Inc. Information Technology | | | 2.5% | |
Liberty Media Corp. Consumer Discretionary | | | 2.5% | |
Novellus Systems Inc. Information Technology | | | 2.4% | |
Mandatory Exchangeable Trust Information Technology | | | 2.3% | |
ServiceNow Inc. Information Technology | | | 2.3% | |
Take-Two Interactive Software Inc. Information Technology | | | 2.2% | |
Microchip Technology Inc. Information Technology | | | 2.1% | |
Salesforce.com Inc. Information Technology | | | 2.0% | |
Workday Inc. Information Technology | | | 2.0% | |
Micron made good headway toward improving its 3-D NAND 64-layer product. Micron also reported significant upside to revenue and earnings-per-share expectations when it reported its February fiscal quarter.
In industrials, Stanley Black & Decker, a manufacturer of hand and power tools and electronic security systems, Arconic, a lightweight metals engineering and manufacturing company, and Rexnord, a manufacturer specializing in process and motion control and water management operations, contributed to performance. Stanley Black & Decker acquired the tools business of Newell Brands2 and the Craftsman brand from Sears3 in March 2017, which drove significant cost synergies and expanded Stanley Black & Decker’s product offering in key categories. The company continued to benefit from expanding market share through innovation in power tools and growth in housing and construction-related end markets, as management continued to pursue a balanced growth strategy. Arconic, which separated from Alcoa3 at the start of the period, makes specially-engineered lightweight aluminum, titanium and nickel products for the aerospace, auto and other industries. Shares of Arconic advanced during the period due to growing revenue, despite negative publicity in June after it was
disclosed that materials the company supplied to Grenfell Tower in London turned out to be highly flammable. Arconic also weathered higher aluminum costs and Wall Street concerns about whether the company’s new chief executive officer (CEO) could deliver on his promises for margin expansion. Rexnord’s core industrial markets that correlate to industrial production strengthened throughout the period. The company completed a couple of acquisitions that we believe should further drive growth. Rexnord issued a convertible note that reduced debt significantly, leaving more cash reserves to make acquisitions. Lastly, Rexnord’s internal operating program to drive margins higher is bearing fruit.
In the consumer discretionary sector, Priceline Group experienced strong room reservation growth in its core European and North America markets, which drove strong operating leverage. The company continues to ramp its offering in the alternative accommodations space to compete more effectively with Airbnb.3 Our convertibles in media company Liberty Interactive benefited performance. The convertibles are exchangeable for common stock of Charter Communications, which provides TV, internet and voice broadband communication services. The company benefited from strong growth in customer relationships, revenue and earnings that was helped by a number of acquisitions last year.
Elsewhere, the Fund’s position in wireless telecommunications company T-Mobile US contributed to performance in the telecommunication services sector, as did regional bank Wintrust Financial2 in the financials sector. T-Mobile has weathered the collapse of merger conversations between T-Mobile and Sprint. Fundamentally, earnings growth for T-Mobile has also slowed as the company continues to grow larger. However, T-Mobile remained the only growth company in the US wireless space and continued to gain market share. Wintrust Financial benefited from extremely good credit quality, net interest margin expansion, improving efficiency and above-average loan and deposit growth. The company’s first-quarter 2017 earnings also exceeded consensus estimates.
In contrast, the telecommunications and materials sector detracted from performance, including Frontier Communications2 and Cemex. Telecommunications provider Frontier Communications continued to suffer as its cost-cutting efforts were more than offset by revenue declines. The company continued to miss its earnings guidance because of ongoing loss
2. Not held at period-end.
3. Not a Fund holding.
See www.franklintempletondatasources.com for additional data provider information.
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FRANKLIN CONVERTIBLE SECURITIES FUND
of customers and pricing pressures. Shares of cement producer Cemex declined given currency pressure, mostly regarding the Mexican peso, unfavorable weather, particularly in the US, and competitive pricing in some markets. For example, pricing in Colombia became much more competitive over the summer with an importer entering the market. We believe that the company outlook remains strong given upcoming infrastructure activity in Mexico, highway funding expansion in California and growth throughout its Latin American and European businesses.
Several individual holdings also detracted from the Fund’s absolute performance, including Teva Pharmaceutical Industries, Depomed and Dexcom in the health care sector and Palo Alto Networks in the information technology sector. Teva, an Israel-based generic and specialty pharmaceuticals provider, has struggled due to the high debt load incurred when it acquired Allergan’s generic drug business, which corresponded to intensified generic price pressure in the US. Specialty pharmaceuticals company Depomed suffered from greater public attention to opioid abuse that led to a decline in prescriptions and revenue for the company’s largest drug, Nucynta, at the same time that the company faced elevated debt levels. Medical device manufacturer Dexcom declined due to rising investor anxiety over the pending US launch of Abbott’s Libre continuous glucose monitoring system. Security solutions platform provider Palo Alto Networks weakened over the past year due to poor sales execution and disruption from a significant refresh of its product line. Performance has improved materially over the past six months as investors saw sales execution improve and the company began to benefit from the early stages of its product refresh.
Thank you for your continued participation in Franklin Convertible Securities Fund. We look forward to serving your future investment needs.
| | |
 | | 
Alan E. Muschott, CFA |
| | |
 | | 
Matthew D. Quinlan |
| |
| | Eric Webster, CFA |
| |
| | Portfolio Management Team |
The foregoing information reflects our analysis, opinions and portfolio holdings as of October 31, 2017, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
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FRANKLIN CONVERTIBLE SECURITIES FUND
Performance Summary as of October 31, 2017
The performance tables and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.
Performance as of 10/31/171
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.75% and the minimum is 0%. Class A: 5.75% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | | | | | |
| Share Class | | Cumulative Total Return2 | | | Average Annual Total Return3 | |
| | |
A | | | | | | | | |
1-Year | | | +18.39% | | | | +11.60% | |
5-Year | | | +69.67% | | | | +9.85% | |
10-Year | | | +91.79% | | | | +6.10% | |
| | |
Advisor4 | | | | | | | | |
1-Year | | | +18.69% | | | | +18.69% | |
5-Year | | | +71.73% | | | | +11.42% | |
10-Year | | | +96.45% | | | | +6.99% | |
| | | | | | | | |
| | | Distribution Rate5 | | | 30-Day Standardized Yield6 |
| Share Class | | | (with waiver) | | (without waiver) |
A | | | 2.13% | | | 1.07% | | 1.05% |
Advisor | | | 2.49% | | | 1.38% | | 1.37% |
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
See page 17 for Performance Summary footnotes.
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FRANKLIN CONVERTIBLE SECURITIES FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment1
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged index includes reinvestment of any income or distributions. It differs from the Fund in composition and does not pay management fees or expenses. One cannot invest directly in an index.
Class A (11/1/07–10/31/17)
Advisor Class (11/1/07–10/31/17)
See page 17 for Performance Summary footnotes.
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FRANKLIN CONVERTIBLE SECURITIES FUND
PERFORMANCE SUMMARY
Distributions (11/1/16–10/31/17)
| | | | | | | | | | | | | | | | |
| Share Class | | Net Investment
Income | | | Short-Term
Capital Gain | | | Long-Term Capital Gain | | | Total | |
A | | | $0.4666 | | | | $0.3076 | | | | $0.0334 | | | | $0.8076 | |
C | | | $0.3242 | | | | $0.3076 | | | | $0.0334 | | | | $0.6652 | |
R6 | | | $0.5361 | | | | $0.3076 | | | | $0.0334 | | | | $0.8771 | |
Advisor | | | $0.5154 | | | | $0.3076 | | | | $0.0334 | | | | $0.8564 | |
Total Annual Operating Expenses8
| | | | | | | | |
| Share Class | | With Waiver | | | Without Waiver | |
A | | | 0.86% | | | | 0.87% | |
Advisor | | | 0.61% | | | | 0.62% | |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
All investments involve risks, including possible loss of principal. Convertible securities are subject to the risks of stocks when the underlying stock price is high relative to the conversion price (because more of the security’s value resides in the conversion feature) and debt securities when the underlying stock price is low relative to the conversion price (because the conversion feature is less valuable). A convertible security is not as sensitive to interest rate changes as a similar non-convertible debt security, and generally has less potential for gain or loss than the underlying stock. The Fund may invest in high yielding, fixed income securities. High yields reflect the higher credit risk associated with these lower rated securities and, in some cases, the lower market prices for these instruments. Interest rate movements may affect the Fund’s share price and yield. Bond prices generally move in the opposite direction of interest rates. As prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. The Fund may also invest in foreign securities, which involve special risks, including political uncertainty and currency volatility. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.
1. The Fund has a fee waiver associated with any investment it makes in a Franklin Templeton money fund and/or other Franklin Templeton fund, contractually guaranteed through 2/28/18. Fund investment results reflect the fee waiver; without this waiver, the results would have been lower.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.
4. Effective 5/15/08, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to 5/15/08, a restated figure is used based upon the Fund’s Class A performance, excluding the effect of Class A’s maximum initial sales charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after 5/15/08 actual Advisor Class performance is used reflecting all charges and fees applicable to that class. Since 5/15/08 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were +104.06% and +7.83%.
5. Distribution rate is based on the sum of the respective class’s past four quarterly dividends and the maximum offering price (NAV for Advisor Class) per share on 10/31/17.
6. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.
7. Source: BofA Merrill Lynch. The BofAML All Total Return Alternatives US Convertibles Index comprises domestic securities of all quality grades that are convertible into US dollar-denominated common stock, ADRs or cash equivalents and have a delta (measure of equity sensitivity) that indicates the security likely has a balance between the debt and equity characteristics of the security.
8. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
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| franklintempleton.com | | Annual Report | | | 17 | |
FRANKLIN CONVERTIBLE SECURITIES FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated.
Actual Fund Expenses
The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | |
| | | | | Actual
(actual return after expenses) | | Hypothetical
(5% annual return before expenses) | | |
Share Class | | Beginning Account Value 5/1/17 | | Ending
Account Value 10/31/17 | | Expenses Paid During
Period 5/1/17–10/31/171,2
| | Ending
Account Value 10/31/17 | | Expenses Paid During
Period 5/1/17–10/31/171,2
| | Net Annualized
Expense Ratio2 |
| | | | | | |
A | | $1,000 | | $1,089.00 | | $4.37 | | $1,021.02 | | $4.23 | | 0.83% |
C | | $1,000 | | $1,084.60 | | $8.30 | | $1,017.24 | | $8.03 | | 1.58% |
R6 | | $1,000 | | $1,090.90 | | $2.48 | | $1,022.84 | | $2.40 | | 0.47% |
Advisor | | $1,000 | | $1,090.30 | | $3.06 | | $1,022.28 | | $2.96 | | 0.58% |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 184/365 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
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| 18 | | Annual Report | | franklintempleton.com |
Franklin Equity Income Fund
This annual report for Franklin Equity Income Fund covers the fiscal year ended October 31, 2017.
Your Fund’s Goal and Main Investments
The Fund seeks to maximize total return, emphasizing high current income and long-term capital appreciation, consistent with reasonable risk, by normally investing at least 80% of its net assets in equity securities, including securities convertible into common stocks. The Fund may invest up to 20% of its net assets in debt securities and may also invest in foreign securities, including emerging markets.
Performance Overview
For the 12 months under review, the Fund’s Class A shares delivered a +18.55% cumulative total return. In comparison, the Fund’s benchmark, the Standard & Poor’s 500 Index (S&P 500), which tracks the broad U.S. stock market, generated a +23.63% total return.1 The Fund’s peers, as measured by the Lipper Equity Income Funds Classification Average, which consists of funds chosen by Lipper that seek relatively high current income and growth of income by investing at least 60% of their portfolios in stocks, posted a +17.85% total return.2 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 23.
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
Investment Strategy
We seek to invest in a broadly diversified portfolio of equity securities that we consider to be financially strong, with a focus on blue chip companies. We apply a bottom-up approach to investing in individual securities. We will assess the market price of a company’s securities relative to our evaluation of the company’s long-term earnings, asset value and cash flow potential. We also consider a company’s price/earnings ratio, profit margins, balance sheet and liquidation value. We consider dividend yield and the opportunity for dividend
Portfolio Composition
Based on Total Net Assets as of 10/31/17
growth in selecting stocks for the Fund because we believe that, over time, dividend income can contribute significantly to total return and can be a more consistent source of investment return than capital appreciation. We seek to take advantage of price dislocations that result from the market’s short-term focus and choose to invest in those companies that, in our opinion, offer the best trade-off between growth opportunity, business and financial risk, and valuation.
Manager’s Discussion
Almost all the sectors the Fund invested in rose in value during the 12 months under review and supported absolute
1. Source: Morningstar.
2. Source: Lipper, a Thomson Reuters Company. For the 6-month period ended 4/30/17, this category consisted of 508 funds. Lipper calculations do not include sales charges, or expense subsidization by a fund’s manager. The Fund’s performance relative to the average may have differed if these and other factors had been considered.
The indexes are unmanaged and include reinvestment of any income or distributions. They do not include any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI). The SOI begins on page 56.
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FRANKLIN EQUITY INCOME FUND
performance. The financials, information technology (IT) and industrials sectors contributed most to Fund returns during the period. Within financials, global bank JPMorgan Chase, capital markets firm Morgan Stanley and investment management firm BlackRock were key contributors. JPMorgan and Morgan Stanley benefited from optimism that deregulation, lower taxes and higher loan growth would emerge following Trump’s presidential election win. JPMorgan was also helped by good expense management, a higher net-interest margin from a rising federal funds rate and stable credit trends. Morgan Stanley further benefited from market appreciation and profit margin expansion in its wealth management business and from market share gains in investment banking. BlackRock performed well due to strength in equity markets that helped assets under management and revenue. The company also experienced further market share gains from growing demand for ETFs and solutions and was also helped by positive operating leverage.
IT holdings that benefited the Fund’s performance included software and IT services company Microsoft, technology hardware and software provider Apple, and semiconductors manufacturer Texas Instruments. Microsoft performed strongly over the past 12 months as investors recognized the stability in its PC and on-premises data center software businesses, as well as strong growth and gross profit margin leverage in its Office 365 and Azure cloud businesses. Apple benefited from solid iPhone 7 sales, the successful launch of the iPhone 8 and anticipation of strong iPhone X sales starting in the fall of 2017. Texas Instruments’ broad offering has seen strong demand across its automotive and industrial end-markets. Margins continued to rise, making the company’s business model one of the more attractive models in the IT industry, in our view.
In industrials, defense and security solutions producer Raytheon, industrial products and equipment manufacturer Illinois Tool Works, and hand and power tools maker Stanley Black & Decker were notable contributors to results. Raytheon has been one of the largest beneficiaries of increasing geopolitical tension over the last year, particularly due to their position in cyber, missile defense, and electronic warfare. Despite the lack of clarity around the defense budget this year, Raytheon experienced strong order growth both internationally and domestically, particularly for missile defense systems and precision guided munitions. Shares of Illinois Tool Works performed well as the company continued to shift from a
Top 10 Holdings
10/31/17
| | | | |
Company Sector/Industry | | % of Total
Net Assets | |
JPMorgan Chase & Co. Financials | | | 4.0% | |
Microsoft Corp. Information Technology | | | 3.7% | |
Wells Fargo & Co. Financials | | | 2.9% | |
Chevron Corp. Energy | | | 2.7% | |
Raytheon Co. Industrials | | | 2.4% | |
BlackRock Inc. Financials | | | 2.4% | |
PepsiCo Inc. Consumer Staples | | | 2.3% | |
U.S. Bancorp Financials | | | 2.3% | |
Morgan Stanley Financials | | | 2.2% | |
Texas Instruments Inc. Information Technology | | | 2.2% | |
reliance on growing profit margins to focus on solid revenue growth and increasing margins. Stanley Black & Decker acquired the tools business of Newell Brands and the Craftsman brand from Sears3 in March 2017, which drove significant cost synergies and expanded Stanley Black & Decker’s product offering in key categories. The company continued to benefit from expanding market share through innovation in power tools and growth in housing and construction-related end markets, as management continued to pursue a balanced growth strategy.
In contrast, several holdings in the consumer discretionary sector detracted from the Fund’s absolute performance during the 12 months under review. Detractors included toy maker Mattel,4 specialty retailer L Brands4 and consumer and commercial products manufacturer Newell Brands. Mattel suffered from an industry-wide challenge of lower-than-expected toy sales in the US over the holiday season, which resulted in excess inventory coming into 2017, and these trends were exacerbated by unfavorable currency exchange dynamics. L Brands did not perform well during the period as an exit from certain categories in the past year coupled with declining mall traffic led to deteriorating trends at Victoria’s Secret. Poor
3. Not a Fund holding.
4. Not held at period-end.
See www.franklintempletondatasources.com for additional data provider information.
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FRANKLIN EQUITY INCOME FUND
same-store sales combined with lowered merchandise margins drove weakness overall. Revenue growth for Newell Brands has slowed as retailers reassessed how much inventory they want to carry with more product sales moving online. We believe that Newell remains an attractive company with a portfolio positioned for market share gains as cost savings push free cash flow higher.
Elsewhere, notable detractors from the Fund’s performance included industrial conglomerate General Electric (GE); Anadarko Petroleum, an independent oil and gas exploration and production company; Schlumberger, a technology provider to the oil and gas industry; and Kraft Heinz, a producer of processed foods and beverages. GE’s shares have come under pressure as its free cash flow profile has diminished due to weakness across several business segments. New leadership has emerged and is focused on simplifying the organization, divesting assets and improving the company’s free cash flow generation capabilities. Anadarko’s shares declined as the company’s quarterly production disappointed versus growth expectations and the market reacted to a tragic house accident in Colorado linked to a pipeline connected to an Anadarko-owned well. Anadarko began a large share buyback to address its poor performance. Also, the energy sector underperformed the broader equity market during the period, as investors grew impatient with the pace of crude oil market rebalancing, after the Organization of the Petroleum Exporting Countries agreed to limit crude oil production. Shares of Schlumberger weakened over the reporting period due to oil price volatility and ongoing uncertainty related to global spending trends. This uncertainty, along with ongoing weakness in international markets, resulted in lower earnings expectations throughout the period. Kraft Heinz, similar to many other packaged food companies, has experienced soft revenue trends. The company has continued to reduce costs, which has lifted earnings. We believe that revenue trends will improve in 2018 and that earnings growth will remain above peer levels.
Thank you for your continued participation in Franklin Equity Income Fund. We look forward to serving your future investment needs.
| | |
 | |  Matthew D. Quinlan |
| | |
| |
Alan E. Muschott, CFA |
| |
| | Todd Brighton, CFA |
| |
| | Portfolio Management Team |
| | | | | | |
| franklintempleton.com | | Annual Report | | | 21 | |
FRANKLIN EQUITY INCOME FUND
The foregoing information reflects our analysis, opinions and portfolio holdings as of October 31, 2017, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
| | | | |
| 22 | | Annual Report | | franklintempleton.com |
FRANKLIN EQUITY INCOME FUND
Performance Summary as of October 31, 2017
The performance tables and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.
Performance as of 10/31/171
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.75% and the minimum is 0%. Class A: 5.75% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
Share Class | | Cumulative Total Return2 | | Average Annual Total Return3 |
| | |
A | | | | |
1-Year | | +18.55% | | +11.75% |
5-Year | | +77.74% | | +10.87% |
10-Year | | +74.53% | | +5.10% |
| | |
Advisor4 | | | | |
1-Year | | +18.88% | | +18.88% |
5-Year | | +80.07% | | +12.48% |
10-Year | | +78.85% | | +5.99% |
| | | | | | | | | | |
| | | Distribution | | | 30-Day Standardized Yield6 |
| Share Class | | Rate5 | | | (with waiver) | | | (without waiver) |
| | | |
A | | | 2.69% | | | | 1.58% | | | 1.58% |
| | | |
Advisor | | | 3.11% | | | | 1.92% | | | 1.92% |
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
See page 25 for Performance Summary footnotes.
| | | | | | |
| franklintempleton.com | | Annual Report | | | 23 | |
FRANKLIN EQUITY INCOME FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment1
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
Class A (11/1/07–10/31/17)
Advisor Class (11/1/07–10/31/17)
See page 25 for Performance Summary footnotes.
| | | | |
| 24 | | Annual Report | | franklintempleton.com |
FRANKLIN EQUITY INCOME FUND
PERFORMANCE SUMMARY
Distributions (11/1/16–10/31/17)
| | | | | | | | | | | | | | | | | | | | |
| Share Class | | Net Investment
Income | | | | | | Long-Term
Capital Gain | | | | | | Total | |
A | | | $0.5819 | | | | | | | | $0.8885 | | | | | | | | $1.4704 | |
C | | | $0.4061 | | | | | | | | $0.8885 | | | | | | | | $1.2946 | |
R | | | $0.5284 | | | | | | | | $0.8885 | | | | | | | | $1.4169 | |
R6 | | | $0.6701 | | | | | | | | $0.8885 | | | | | | | | $1.5586 | |
Advisor | | | $0.6446 | | | | | | | | $0.8885 | | | | | | | | $1.5331 | |
Total Annual Operating Expenses10
| | | | | | |
| Share Class | | | | | | |
| | | |
A | | | | | | 0.88% |
| | | |
Advisor | | | | | | 0.63% |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
All investments involve risks, including possible loss of principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Convertible securities are subject to the risks of stocks when the underlying stock price is high relative to the conversion price and debt securities when the underlying stock price is low relative to the conversion price. The Fund’s investment in foreign securities also involves special risks, including currency fluctuations and economic as well as political uncertainty. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.
1. The Fund has a fee waiver associated with any investment it makes in a Franklin Templeton money fund and/or other Franklin Templeton Fund, contractually guaranteed through 2/28/18. Fund investment results reflect the fee waiver; without this waiver, the results would have been lower.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.
4. Effective 5/15/08, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to 5/15/08, a restated figure is used based upon the Fund’s Class A performance, excluding the effect of Class A’s maximum initial sales charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after 5/15/08, actual Advisor Class performance is used reflecting all charges and fees applicable to that class. Since 5/15/08 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were +91.84% and +7.13%.
5. Distribution rate is based on an annualization of the respective class’s current quarterly dividend and the maximum offering price (NAV for Advisor Class) per share on 10/31/17.
6. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.
7. Source: Morningstar: The S&P 500 is a market capitalization-weighted index of 500 stocks designed to measure total US equity market performance.
8. Source: Lipper, a Thomson Reuters Company. The Lipper Equity Income Funds Classification Average is an equally weighted average calculation of performance figures for all funds within the Lipper Equity Income Funds classification in the Lipper Open-End underlying funds universe. Lipper Equity Income Funds seek relatively high current income and growth of income through investing 60% or more of their portfolios in equities. For the one-year period ended 10/31/17, there were 537 funds in this category. Lipper calculations do not include sales charges or expense subsidization by a fund’s manager. The Fund’s performance relative to the average may have differed if these or other factors had been considered.
9. Source: Bureau of Labor Statistics, bls.gov/cpi. The Consumer Price Index (CPI), is a commonly used measure of the inflation rate.
10. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
| | | | |
| franklintempleton.com | | Annual Report | | 25 |
FRANKLIN EQUITY INCOME FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated.
Actual Fund Expenses
The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | | | | | | | |
| | | | | | | Actual (actual return after expenses) | | | | Hypothetical (5% annual return before expenses) | | | | |
Share Class | | Beginning
Account
Value 5/1/17 | | | | Ending
Account
Value 10/31/17 | | Expenses
Paid During
Period 5/1/17–10/31/171,2 | | | | Ending
Account
Value 10/31/17 | | Expenses
Paid During
Period 5/1/17–10/31/171,2 | | | | Net
Annualized
Expense
Ratio2 |
A | | $1,000 | | | | $1,077.80 | | $4.45 | | | | $1,020.92 | | $4.33 | | | | 0.85% |
C | | $1,000 | | | | $1,073.90 | | $8.36 | | | | $1,017.14 | | $8.13 | | | | 1.60% |
R | | $1,000 | | | | $1,076.60 | | $5.71 | | | | $1,019.71 | | $5.55 | | | | 1.09% |
R6 | | $1,000 | | | | $1,080.10 | | $2.52 | | | | $1,022.79 | | $2.45 | | | | 0.48% |
Advisor | | $1,000 | | | | $1,079.10 | | $3.14 | | | | $1,022.18 | | $3.06 | | | | 0.60% |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 184/365 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
| | | | |
| 26 | | Annual Report | | franklintempleton.com |
Franklin Real Return Fund
This annual report for Franklin Real Return Fund covers the fiscal year ended October 31, 2017.
Your Fund’s Goal and Main Investments
The Fund seeks total return that exceeds the rate of inflation over an economic cycle. Under normal market conditions, the Fund seeks to allocate assets among investments to achieve the highest level of real return (total return less the rate of inflation) consistent with an acceptable level of risk. The Fund shifts its investments among the following general asset classes: inflation-indexed securities and investment-grade and high yield fixed income securities issued by governments, corporations and municipal issuers; equity securities with high correlation to broad measures of inflation; and short-term non-dollar denominated debt securities.
Portfolio Composition*
Based on Total Net Assets as of 10/31/17
*Figures reflect certain derivatives held in the portfolio (or their underlying reference assets) and may not total 100% or may be negative due to rounding, use of derivatives, unsettled trades or other factors.
**In the SOI, the natural resources sector comprises energy and materials.
***Includes Senior Floating Rate Interests.
Performance Overview
For the 12 months under review, the Fund’s Class A shares had a +1.77% cumulative total return. In comparison, the Bloomberg Barclays US TIPS Index, which tracks the universe of inflation-protected notes issued by the US Treasury that have
at least one year to final maturity, had a -0.11% total return.1 Also for comparison, the Consumer Price Index for All Urban Consumers - Non-Seasonally Adjusted (CPI-NSA), a measure of the average change in prices of all goods and services purchased for consumption by urban householders, rose 2.04% for the same period.2 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 29.
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
Investment Strategy
The Fund uses an active asset allocation strategy to try to achieve its goal of total return that exceeds the rate of inflation over an economic cycle by allocating its assets among securities in various market sectors based on our assessment of changing economic, global market, industry and issuer conditions. When making our investment decisions, we use a top-down analysis of macroeconomic trends combined with a bottom-up fundamental analysis of market sectors, industries and issuers to try to take advantage of varying sector reactions to economic events. We will evaluate such criteria as country risk, business cycles, yield curves and values between and within markets.
|
What is the yield curve? A yield curve is a line that plots the yield to maturity of bonds having equal credit quality against their maturity dates. |
Manager’s Discussion
At period-end, more than half of total net assets were invested in Treasury Inflation-Protected Securities (TIPS). For diversification, we also allocated the Fund’s assets to management investment companies, natural resources common stocks, foreign government and agency securities, corporate bonds, senior secured floating rate loans, repurchase agreements and other short-term investments. We employed a
1. Source: Morningstar.
The indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.
2. Source: Bureau of Labor Statistics, bls.gov/cpi.
See www.franklintempletondatasources.com for additional data provider information.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI). The SOI begins on page 63.
| | | | |
| franklintempleton.com | | Annual Report | | 27 |
FRANKLIN REAL RETURN FUND
Dividend Distributions*
11/1/16–10/31/17
| | | | | | | | | | | | | | | | |
| | | Dividend per Share (cents) | |
| | | | | | | | | | | | Advisor | |
| Month | | Class A | | | Class C | | | Class R6 | | | Class | |
November** | | | — | | | | — | | | | — | | | | — | |
December** | | | — | | | | — | | | | — | | | | — | |
January** | | | — | | | | — | | | | — | | | | — | |
February** | | | — | | | | — | | | | — | | | | — | |
March** | | | — | | | | — | | | | — | | | | — | |
April | | | 0.88 | | | | — | | | | 2.92 | | | | 2.20 | |
May | | | 1.78 | | | | 1.45 | | | | 2.13 | | | | 1.99 | |
June | | | 2.77 | | | | 2.44 | | | | 3.12 | | | | 2.98 | |
July | | | 1.36 | | | | 1.03 | | | | 1.71 | | | | 1.57 | |
August | | | 1.83 | | | | 1.48 | | | | 2.20 | | | | 2.05 | |
September | | | 1.54 | | | | 1.20 | | | | 1.89 | | | | 1.75 | |
October | | | 2.68 | | | | 2.32 | | | | 3.10 | | | | 2.91 | |
| Total | | 12.84 | | | 9.92 | | | 17.07 | | | 15.45 | |
*The distribution amount is the sum of all net investment income distributions for the period shown. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.
**The Fund paid no dividends due to impact of net currency losses.
non-US dollar strategy to help hedge against potential US dollar weakness versus certain currencies and concentrated our TIPS holdings in shorter maturities.
During the period, we increased the Fund’s allocations to TIPS and natural resources equities. In contrast, we decreased the Fund’s allocation to foreign government debt securities and senior secured floating rate loans. The Fund’s heaviest allocations were in TIPS and natural resources equities.
The Fund’s investments in foreign government bonds and TIPS helped results. In contrast, the Fund’s foreign currency exposure hindered Fund performance.
Thank you for your continued participation in Franklin Real Return Fund. We look forward to serving your future investment needs.
| | |
 | | 
T. Anthony Coffey, CFA |
| |
 | | 
Kent Burns, CFA |
| |
| | Portfolio Management Team |
The foregoing information reflects our analysis, opinions and portfolio holdings as of October 31, 2017, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
| | | | |
| 28 | | Annual Report | | franklintempleton.com |
FRANKLIN REAL RETURN FUND
Performance Summary as of October 31, 2017
The performance tables and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.
Performance as of 10/31/171
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 4.25% and the minimum is 0%. Class A: 4.25% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
| Share Class | | Cumulative
Total Return2 | | Average Annual
Total Return3 |
| | |
A | | | | |
1-Year | | +1.77% | | -2.57% |
5-Year | | +0.05% | | -0.86% |
10-Year | | +18.98% | | +1.31% |
| | |
| Advisor | | | | |
1-Year | | +2.03% | | +2.03% |
5-Year | | +1.24% | | +0.25% |
10-Year | | +22.00% | | +2.01% |
| | | | | | | | | | | | |
| | | Distribution | | | 30-Day Standardized Yield5 | |
| Share Class | | Rate4 | | | (with waiver) | | | (without waiver) | |
A | | | 3.04% | | | | 1.78% | | | | 1.56% | |
Advisor | | | 3.43% | | | | 2.12% | | | | 1.87% | |
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
See page 31 for Performance Summary footnotes.
| | | | |
| franklintempleton.com | | Annual Report | | 29 |
FRANKLIN REAL RETURN FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment1
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
Class A (11/1/07–10/31/17)
Advisor Class (11/1/07–10/31/17)
See page 31 for Performance Summary footnotes.
| | | | |
| 30 | | Annual Report | | franklintempleton.com |
FRANKLIN REAL RETURN FUND
PERFORMANCE SUMMARY
Distributions (11/1/16–10/31/17)
| | | | |
| Share Class | | Net Investment
Income | |
A | | | $0.1284 | |
C | | | $0.0992 | |
R6 | | | $0.1707 | |
Advisor | | | $0.1545 | |
Total Annual Operating Expenses8
| | | | | | | | |
| Share Class | | With Waiver | | | Without Waiver | |
A | | | 0.93% | | | | 1.15% | |
Advisor | | | 0.68% | | | | 0.90% | |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
All investments involve risks, including possible loss of principal. Interest rate movements will affect the Fund’s share price and yield. Bond prices generally move in the opposite direction of interest rates. As prices of bonds in a fund adjust to a rise in interest rates, the Fund’s share price may decline. Foreign securities involve special risks, including currency fluctuations and economic and political uncertainties. Changes in the financial strength of a bond issuer or in a bond’s credit rating may affect its value. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.
1. The Fund has an expense reduction and a fee waiver associated with any investments it makes in a Franklin Templeton money fund and/or other Franklin Templeton fund, contractually guaranteed through 2/28/18. Fund investment results reflect the expense reduction and fee waiver; without these reductions, the results would have been lower.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.
4. Distribution rate is based on an annualization of the respective class’s October dividend and the maximum offering price (NAV for Advisor Class) per share on 10/31/17.
5. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.
6. Source: Morningstar. The Barclays US TIPS Index comprises US TIPS rated investment grade (Baa3/BBB- or better) with at least one year to final maturity and at least $250 million par amount outstanding.
7. Source: Bureau of Labor Statistics, bls.gov/cpi. The Consumer Price Index (CPI), is a commonly used measure of the inflation rate.
8. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
| | | | |
franklintempleton.com | | Annual Report | | 31 |
FRANKLIN REAL RETURN FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated.
Actual Fund Expenses
The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | | | | | | | |
| | | | | Actual (actual return after expenses) | | | | Hypothetical (5% annual return before expenses) | | | | |
Share
Class | | Beginning
Account
Value 5/1/17 | | | | Ending
Account
Value 10/31/17 | | Expenses Paid During
Period 5/1/17–10/31/171,2 | | | | Ending Account
Value 10/31/17 | | Expenses
Paid During
Period
5/1/17–10/31/171,2 | | | | Net Annualized Expense Ratio2 |
A | | $1,000 | | | | $1,007.90 | | $4.55 | | | | $1,020.67 | | $4.58 | | | | 0.90% |
C | | $1,000 | | | | $1,004.90 | | $6.57 | | | | $1,018.65 | | $6.61 | | | | 1.30% |
R6 | | $1,000 | | | | $1,009.00 | | $2.43 | | | | $1,022.79 | | $2.45 | | | | 0.48% |
Advisor | | $1,000 | | | | $1,009.10 | | $3.29 | | | | $1,021.93 | | $3.31 | | | | 0.65% |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 184/365 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
| | | | |
| | | |
32 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
Financial Highlights
Franklin Balanced Fund
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Class A | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $11.65 | | | | $11.40 | | | | $11.86 | | | | $11.43 | | | | $10.64 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment incomeb | | | 0.33 | | | | 0.30 | | | | 0.30 | | | | 0.31 | c | | | 0.27 | |
| | | | | |
Net realized and unrealized gains (losses) | | | 0.91 | | | | 0.31 | | | | (0.24) | | | | 0.65 | | | | 1.02 | |
| | | | | |
Total from investment operations | | | 1.24 | | | | 0.61 | | | | 0.06 | | | | 0.96 | | | | 1.29 | |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | (0.36 | ) | | | (0.36 | ) | | | (0.36 | ) | | | (0.36 | ) | | | (0.36 | ) |
| | | | | |
Net realized gains | | | (0.17 | ) | | | (— | )d | | | (0.16 | ) | | | (0.17 | ) | | | (0.14 | ) |
| | | | | |
Total distributions | | | (0.53 | ) | | | (0.36 | ) | | | (0.52 | ) | | | (0.53 | ) | | | (0.50 | ) |
| | | | | |
Net asset value, end of year | | | $12.36 | | | | $11.65 | | | | $11.40 | | | | $11.86 | | | | $11.43 | |
| | | | | |
Total returne | | | 10.88% | | | | 5.54% | | | | 0.51% | | | | 8.66% | | | | 12.51% | |
| | | | | |
| Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 1.02% | | | | 1.02% | | | | 1.06% | | | | 1.09% | | | | 1.12% | |
| | | | | |
Expenses net of waiver and payments by affiliatesf | | | 1.00% | | | | 1.01% | | | | 1.06% | g | | | 1.09% | g | | | 1.10% | |
| | | | | |
Net investment income | | | 2.72% | | | | 2.62% | | | | 2.56% | | | | 2.64% | c | | | 2.51% | |
| | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $2,646,599 | | | | $2,532,459 | | | | $2,371,133 | | | | $2,053,623 | | | | $1,354,710 | |
| | | | | |
Portfolio turnover rate | | | 34.99% | | | | 46.03% | | | | 69.23% | | | | 40.54% | | | | 58.52% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cNet investment income per share includes approximately $0.03 per share related to income received in the form of a special dividend in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 2.39%.
dAmount rounds to less than $0.01 per share.
eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
fBenefit of expense reduction rounds to less than 0.01%.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| | | | |
| | | |
franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | 33 |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin Balanced Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Class C | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $11.55 | | | | $11.31 | | | | $11.77 | | | | $11.34 | | | | $10.57 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment incomeb | | | 0.24 | | | | 0.21 | | | | 0.21 | | | | 0.23c | | | | 0.20 | |
Net realized and unrealized gains (losses) | | | 0.90 | | | | 0.31 | | | | (0.23) | | | | 0.65 | | | | 0.99 | |
| | | | | |
Total from investment operations | | | 1.14 | | | | 0.52 | | | | (0.02) | | | | 0.88 | | | | 1.19 | |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | (0.27 | ) | | | (0.28 | ) | | | (0.28 | ) | | | (0.28 | ) | | | (0.28 | ) |
Net realized gains | | | (0.17 | ) | | | (— | )d | | | (0.16 | ) | | | (0.17 | ) | | | (0.14 | ) |
| | | | | |
Total distributions | | | (0.44 | ) | | | (0.28 | ) | | | (0.44 | ) | | | (0.45 | ) | | | (0.42 | ) |
| | | | | |
Net asset value, end of year | | | $12.25 | | | | $11.55 | | | | $11.31 | | | | $11.77 | | | | $11.34 | |
| | | | | |
Total returne | | | 10.06% | | | | 4.73% | | | | (0.20)% | | | | 7.97% | | | | 11.62% | |
| | | | | |
| Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 1.77% | | | | 1.77% | | | | 1.77% | | | | 1.79% | | | | 1.82% | |
| | | | | |
Expenses net of waiver and payments by affiliatesf | | | 1.75% | | | | 1.76% | | | | 1.77% | g | | | 1.79% | g | | | 1.80% | |
| | | | | |
Net investment income | | | 1.97% | | | | 1.87% | | | | 1.85% | | | | 1.94% | c | | | 1.81% | |
| | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $633,108 | | | | $630,110 | | | | $563,419 | | | | $492,514 | | | | $354,359 | |
| | | | | |
Portfolio turnover rate | | | 34.99% | | | | 46.03% | | | | 69.23% | | | | 40.54% | | | | 58.52% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cNet investment income per share includes approximately $0.03 per share related to income received in the form of a special dividend in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 1.69%.
dAmount rounds to less than $0.01 per share.
eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
fBenefit of expense reduction rounds to less than 0.01%.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| | | | |
| 34 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin Balanced Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Year Ended October 31, | | | | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
| | | | | |
Class R | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $11.67 | | | | $11.42 | | | | $11.89 | | | | $11.45 | | | | $10.66 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment incomeb | | | 0.30 | | | | 0.27 | | | | 0.27 | | | | 0.29 | c | | | 0.26 | |
Net realized and unrealized gains (losses) | | | 0.92 | | | | 0.32 | | | | (0.24) | | | | 0.66 | | | | 1.01 | |
| | | | | |
Total from investment operations | | | 1.22 | | | | 0.59 | | | | 0.03 | | | | 0.95 | | | | 1.27 | |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | (0.33) | | | | (0.34) | | | | (0.34) | | | | (0.34) | | | | (0.34) | |
| | | | | |
Net realized gains | | | (0.17) | | | | (—) | d | | | (0.16) | | | | (0.17) | | | | (0.14) | |
| | | | | |
Total distributions | | | (0.50) | | | | (0.34) | | | | (0.50) | | | | (0.51) | | | | (0.48) | |
| | | | | |
Net asset value, end of year | | | $12.39 | | | | $11.67 | | | | $11.42 | | | | $11.89 | | | | $11.45 | |
| | | | | |
Total return | | | 10.66% | | | | 5.28% | | | | 0.21% | | | | 8.51% | | | | 12.26% | |
| | | | | |
| Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 1.27% | | | | 1.27% | | | | 1.27% | | | | 1.29% | | | | 1.32% | |
| | | | | |
Expenses net of waiver and payments by affiliatese | | | 1.25% | | | | 1.26% | | | | 1.27% | f | | | 1.29% | f | | | 1.30% | |
| | | | | |
Net investment income | | | 2.47% | | | | 2.37% | | | | 2.35% | | | | 2.44% | c | | | 2.31% | |
| | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $4,763 | | | | $4,482 | | | | $4,699 | | | | $3,598 | | | | $3,253 | |
| | | | | |
Portfolio turnover rate | | | 34.99% | | | | 46.03% | | | | 69.23% | | | | 40.54% | | | | 58.52% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cNet investment income per share includes approximately $0.03 per share related to income received in the form of a special dividend in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 2.19%.
dAmount rounds to less than $0.01 per share.
eBenefit of expense reduction rounds to less than 0.01%.
fBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| | | | |
| | | |
franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | 35 |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin Balanced Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Year Ended October 31, | | | | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013a | |
| | | | | | |
| Class R6 | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $11.67 | | | | $11.42 | | | | $11.89 | | | | $11.45 | | | | $11.08 | |
| | | | | |
Income from investment operationsb: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment incomec | | | 0.41 | | | | 0.34 | | | | 0.35 | | | | 0.37d | | | | 0.19 | |
| | | | | |
Net realized and unrealized gains (losses) | | | 0.88 | | | | 0.31 | | | | (0.25) | | | | 0.65 | | | | 0.38 | |
| | | | | |
Total from investment operations | | | 1.29 | | | | 0.65 | | | | 0.10 | | | | 1.02 | | | | 0.57 | |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | (0.40) | | | | (0.40) | | | | (0.41) | | | | (0.41) | | | | (0.20) | |
| | | | | |
Net realized gains | | | (0.17) | | | | (—) | e | | | (0.16) | | | | (0.17) | | | | — | |
| | | | | |
Total distributions | | | (0.57) | | | | (0.40) | | | | (0.57) | | | | (0.58) | | | | (0.20) | |
| | | | | |
Net asset value, end of year | | | $12.39 | | | | $11.67 | | | | $11.42 | | | | $11.89 | | | | $11.45 | |
| | | | | |
Total returnf | | | 11.33% | | | | 5.90% | | | | 0.81% | | | | 9.29% | | | | 5.15% | |
| | | | | |
| Ratios to average net assetsg | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 0.71% | | | | 0.73% | | | | 0.70% | | | | 0.68% | | | | 1.82% | |
| | | | | |
Expenses net of waiver and payments by affiliatesh | | | 0.64% | | | | 0.66% | | | | 0.67% | | | | 0.68% | i | | | 0.70% | |
| | | | | |
Net investment income | | | 3.08% | | | | 2.97% | | | | 2.95% | | | | 3.05% | d | | | 2.91% | |
| | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $342 | | | | $233 | | | | $221 | | | | $513 | | | | $5 | |
| | | | | |
Portfolio turnover rate | | | 34.99% | | | | 46.03% | | | | 69.23% | | | | 40.54% | | | | 58.52% | |
aFor the period May 1, 2013 (effective date) to October 31, 2013.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dNet investment income per share includes approximately $0.03 per share related to income received in the form of a special dividend in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 2.80%.
eAmount rounds to less than $0.01 per share.
fTotal return is not annualized for periods less than one year.
gRatios are annualized for periods less than one year.
hBenefit of expense reduction rounds to less than 0.01%.
iBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| | | | | | |
| 36 | | Annual Report | | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin Balanced Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Advisor Class | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $11.67 | | | | $11.42 | | | | $11.88 | | | | $11.45 | | | | $10.66 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment incomeb | | | 0.35 | | | | 0.29 | | | | 0.33 | | | | 0.35c | | | | 0.30 | |
| | | | | |
Net realized and unrealized gains (losses) | | | 0.93 | | | | 0.35 | | | | (0.24) | | | | 0.65 | | | | 1.02 | |
| | | | | |
Total from investment operations | | | 1.28 | | | | 0.64 | | | | 0.09 | | | | 1.00 | | | | 1.32 | |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | (0.39) | | | | (0.39) | | | | (0.39) | | | | (0.40) | | | | (0.39) | |
| | | | | |
Net realized gains | | | (0.17) | | | | (—)d | | | | (0.16) | | | | (0.17) | | | | (0.14) | |
| | | | | |
Total distributions | | | (0.56) | | | | (0.39) | | | | (0.55) | | | | (0.57) | | | | (0.53) | |
| | | | | |
Net asset value, end of year. | | | $12.39 | | | | $11.67 | | | | $11.42 | | | | $11.88 | | | | $11.45 | |
| | | | | |
Total return | | | 11.21% | | | | 5.79% | | | | 0.81% | | | | 8.97% | | | | 12.82% | |
| | | | | |
Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 0.77% | | | | 0.77% | | | | 0.77% | | | | 0.79% | | | | 0.82% | |
| | | | | |
Expenses net of waiver and payments by affiliatese | | | 0.75% | | | | 0.76% | | | | 0.77%f | | | | 0.79%f | | | | 0.80% | |
| | | | | |
Net investment income | | | 2.97% | | | | 2.87% | | | | 2.85% | | | | 2.94%c | | | | 2.81% | |
| | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $243,674 | | | | $138,111 | | | | $54,881 | | | | $41,494 | | | | $68,201 | |
| | | | | |
Portfolio turnover rate | | | 34.99% | | | | 46.03% | | | | 69.23% | | | | 40.54% | | | | 58.52% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cNet investment income per share includes approximately $0.03 per share related to income received in the form of a special dividend in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 2.69%.
dAmount rounds to less than $0.01 per share.
eBenefit of expense reduction rounds to less than 0.01%.
fBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| | | | | | | | |
| franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | | Annual Report | | | 37 | |
FRANKLIN INVESTORS SECURITIES TRUST
Statement of Investments, October 31, 2017
Franklin Balanced Fund
| | | | | | | | | | | | |
| | | Country | | | Shares | | | Value | |
Common Stocks 50.3% | | | | | | | | | | | | |
Consumer Discretionary 1.6% | | | | | | | | | | | | |
The Home Depot Inc. | | | United States | | | | 200,000 | | | $ | 33,156,000 | |
Lowe’s Cos. Inc. | | | United States | | | | 300,000 | | | | 23,985,000 | |
| | | | | | | | | | | 57,141,000 | |
Consumer Staples 6.6% | | | | | | | | | | | | |
Anheuser-Busch InBev SA/NV, ADR | | | Belgium | | | | 350,000 | | | | 42,973,000 | |
The Coca-Cola Co. | | | United States | | | | 1,200,000 | | | | 55,176,000 | |
Kimberly-Clark Corp. | | | United States | | | | 300,000 | | | | 33,753,000 | |
Philip Morris International Inc. | | | United States | | | | 300,000 | | | | 31,392,000 | |
The Procter & Gamble Co. | | | United States | | | | 400,000 | | | | 34,536,000 | |
Walgreens Boots Alliance Inc. | | | United States | | | | 500,000 | | | | 33,135,000 | |
| | | | | | | | | | | 230,965,000 | |
Energy 7.5% | | | | | | | | | | | | |
Anadarko Petroleum Corp. | | | United States | | | | 475,000 | | | | 23,450,750 | |
Baker Hughes a GE Co., A | | | United States | | | | 700,000 | | | | 22,001,000 | |
Chevron Corp. | | | United States | | | | 500,000 | | | | 57,945,000 | |
Exxon Mobil Corp. | | | United States | | | | 535,000 | | | | 44,592,250 | |
Halliburton Co. | | | United States | | | | 549,774 | | | | 23,497,341 | |
Occidental Petroleum Corp. | | | United States | | | | 400,000 | | | | 25,828,000 | |
Royal Dutch Shell PLC, A, ADR | | | United Kingdom | | | | 719,264 | | | | 45,335,210 | |
Schlumberger Ltd. | | | United States | | | | 320,000 | | | | 20,480,000 | |
| | | | | | | | | 263,129,551 | |
Financials 8.0% | | | | | | | | | | | | |
Bank of America Corp. | | | United States | | | | 1,496,715 | | | | 40,995,024 | |
The Charles Schwab Corp. | | | United States | | | | 670,000 | | | | 30,042,800 | |
JPMorgan Chase & Co. | | | United States | | | | 605,000 | | | | 60,869,050 | |
The Toronto-Dominion Bank | | | Canada | | | | 750,000 | | | | 42,637,500 | |
U.S. Bancorp | | | United States | | | | 750,000 | | | | 40,785,000 | |
Wells Fargo & Co. | | | United States | | | | 1,200,000 | | | | 67,368,000 | |
| | | | | | | | | | | 282,697,374 | |
Health Care 5.1% | | | | | | | | | | | | |
AstraZeneca PLC, ADR | | | United Kingdom | | | | 985,000 | | | | 33,982,500 | |
Johnson & Johnson | | | United States | | | | 300,000 | | | | 41,823,000 | |
Medtronic PLC | | | United States | | | | 300,000 | | | | 24,156,000 | |
a Mylan NV | | | United States | | | | 455,800 | | | | 16,276,618 | |
Pfizer Inc. | | | United States | | | | 1,810,000 | | | | 63,458,600 | |
| | | | | | | | | | | 179,696,718 | |
Industrials 9.9% | | | | | | | | | | | | |
General Dynamics Corp. | | | United States | | | | 100,000 | | | | 20,298,000 | |
General Electric Co. | | | United States | | | | 4,500,000 | | | | 90,720,000 | |
Honeywell International Inc. | | | United States | | | | 225,000 | | | | 32,436,000 | |
Northrop Grumman Corp. | | | United States | | | | 125,000 | | | | 36,941,250 | |
Raytheon Co. | | | United States | | | | 360,000 | | | | 64,872,000 | |
Republic Services Inc. | | | United States | | | | 560,000 | | | | 36,439,200 | |
Union Pacific Corp. | | | United States | | | | 385,189 | | | | 44,601,034 | |
United Technologies Corp. | | | United States | | | | 203,592 | | | | 24,382,178 | |
| | | | | | | | | | | 350,689,662 | |
| | | | |
| 38 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
| | | | | | | | | | | | |
Franklin Balanced Fund (continued) | | | | | | | | | | | | |
| | | Country | | | Shares | | | Value | |
Common Stocks (continued) | | | | | | | | | | | | |
Information Technology 5.2% | | | | | | | | | | | | |
Analog Devices Inc. | | | United States | | | | 150,000 | | | $ | 13,695,000 | |
Cisco Systems Inc. | | | United States | | | | 500,000 | | | | 17,075,000 | |
Intel Corp. | | | United States | | | | 750,000 | | | | 34,117,500 | |
Microsoft Corp. | | | United States | | | | 604,000 | | | | 50,240,720 | |
Oracle Corp. | | | United States | | | | 350,000 | | | | 17,815,000 | |
Texas Instruments Inc. | | | United States | | | | 530,000 | | | | 51,245,700 | |
| | | |
| | | | | | | | | | | 184,188,920 | |
Materials 2.1% | | | | | | | | | | | | |
BASF SE | | | Germany | | | | 400,000 | | | | 43,628,790 | |
DowDuPont Inc. | | | United States | | | | 400,000 | | | | 28,924,000 | |
| | | |
| | | | | | | | | | | 72,552,790 | |
Real Estate 0.8% | | | | | | | | | | | | |
Host Hotels & Resorts Inc. | | | United States | | | | 1,500,000 | | | | 29,340,000 | |
Telecommunication Services 1.4% | | | | | | | | | | | | |
Verizon Communications Inc. | | | United States | | | | 1,000,000 | | | | 47,870,000 | |
| Utilities 2.1% | | | | | | | | | | | | |
Entergy Corp. | | | United States | | | | 450,000 | | | | 38,817,000 | |
The Southern Co. | | | United States | | | | 700,000 | | | | 36,540,000 | |
| | | |
| | | | | | | | | | | 75,357,000 | |
| | | |
| Total Common Stocks (Cost $1,487,245,088) | | | | | | | | | | | 1,773,628,015 | |
| | | |
| Management Investment Companies (Cost $17,998,125) 0.5% | | | | | | | | | | | | |
| Financials 0.5% | | | | | | | | | | | | |
b Franklin Liberty Investment Grade Corporate ETF | | | United States | | | | 750,000 | | | | 18,585,000 | |
| c Equity-Linked Securities 8.0% | | | | | | | | | | | | |
| Consumer Discretionary 2.7% | | | | | | | | | | | | |
d Deutsche Bank AG into Target Corp., 8.00%, 144A | | | United States | | | | 780,000 | | | | 46,071,864 | |
d Wells Fargo Bank National Assn. into Ford Motor Co., 9.00%, 144A | | | United States | | | | 3,900,000 | | | | 47,815,307 | |
| | | |
| | | | | | | | | | | 93,887,171 | |
Energy 0.5% | | | | | | | | | | | | |
d The Goldman Sachs Group Inc. into Anadarko Petroleum Corp., 7.00%, 144A | | | United States | | | | 340,000 | | | | 17,407,804 | |
Information Technology 4.0% | | | | | | | | | | | | |
d Citigroup Global Markets Holdings Inc. into Analog Devices Inc., 6.50%, 144A | | | United States | | | | 450,000 | | | | 39,081,679 | |
d Credit Suisse AG London into Apple Inc., 6.50%, 144A | | | United States | | | | 190,000 | | | | 26,236,775 | |
d Merrill Lynch International & Co. CV into Microsoft Corp., 6.00%, 144A | | | United States | | | | 600,000 | | | | 47,794,805 | |
d UBS AG London into Intel Corp., 6.00%, 144A | | | United States | | | | 715,000 | | | | 28,713,392 | |
| | | |
| | | | | | | | | | | 141,826,651 | |
Materials 0.8% | | | | | | | | | | | | |
d The Goldman Sachs Group Inc. into The Mosaic Co., 10.00%, 144A | | | United States | | | | 1,210,000 | | | | 28,228,574 | |
| | | |
Total Equity-Linked Securities (Cost $273,348,400) | | | | | | | | | | | 281,350,200 | |
| | | |
Convertible Preferred Stocks 2.4% | | | | | | | | | | | | |
Health Care 0.6% | | | | | | | | | | | | |
Allergan PLC, 5.50%, cvt. pfd | | | United States | | | | 35,102 | | | | 22,594,806 | |
Real Estate 1.3% | | | | | | | | | | | | |
American Tower Corp., 5.50%, cvt. pfd | | | United States | | | | 350,000 | | | | 44,159,500 | |
| | | | | | |
franklintempleton.com | | Annual Report | | | 39 | |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
| | | | | | | | | | | | |
Franklin Balanced Fund (continued) | | | | | | | | | | | | |
| | | Country | | | Shares | | | Value | |
Convertible Preferred Stocks (continued) | | | | | | | | | | | | |
Utilities 0.5% | | | | | | | | | | | | |
NextEra Energy Inc., 6.371%, cvt. pfd | | | United States | | | | 260,000 | | | $ | 18,135,000 | |
| | | | | | | | | | | | |
Total Convertible Preferred Stocks (Cost $82,585,263) | | | | | | | | | | | 84,889,306 | |
| | | | | | | | | | | | |
| | | |
| | | | | | Principal
Amount* | | | | |
Convertible Bonds (Cost $15,000,000) 0.4% | | | | | | | | | | | | |
Energy 0.4% | | | | | | | | | | | | |
Weatherford International Ltd., cvt., senior note, 5.875%, 7/01/21 | | | United States | | | $ | 15,000,000 | | | | 15,168,750 | |
| | | | | | | | | | | | |
| | | |
Corporate Bonds 32.6% | | | | | | | | | | | | |
Consumer Discretionary 4.2% | | | | | | | | | | | | |
d Amazon.com Inc., senior note, 144A, 2.40%, 2/22/23 | | | United States | | | | 10,000,000 | | | | 9,941,680 | |
Charter Communications Operating LLC/Charter Communications Operating Capital Corp., senior secured note, first lien, 4.908%, 7/23/25 | | | United States | | | | 20,000,000 | | | | 21,308,532 | |
DISH DBS Corp., senior note, 5.875%, 7/15/22 | | | United States | | | | 12,000,000 | | | | 12,120,000 | |
Dollar General Corp., | | | | | | | | | | | | |
senior bond, 3.25%, 4/15/23 | | | United States | | | | 15,000,000 | | | | 15,407,186 | |
senior bond, 3.875%, 4/15/27 | | | United States | | | | 10,000,000 | | | | 10,448,774 | |
Ford Motor Credit Co. LLC, senior note, 2.551%, 10/05/18 | | | United States | | | | 5,000,000 | | | | 5,031,270 | |
NIKE Inc., senior bond, 2.375%, 11/01/26 | | | United States | | | | 20,000,000 | | | | 19,086,536 | |
d Sirius XM Radio Inc., senior bond, 144A, 5.375%, 4/15/25 | | | United States | | | | 15,000,000 | | | | 15,843,750 | |
Tiffany & Co., senior bond, 4.90%, 10/01/44 | | | United States | | | | 7,000,000 | | | | 6,897,125 | |
Trinity Acquisition PLC, senior note, 4.625%, 8/15/23 | | | United States | | | | 7,000,000 | | | | 7,498,225 | |
d Wynn Macau Ltd., senior bond, 144A, 5.50%, 10/01/27 | | | Macau | | | | 25,000,000 | | | | 25,312,500 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 148,895,578 | |
| | | | | | | | | | | | |
Consumer Staples 4.9% | | | | | | | | | | | | |
Anheuser-Busch InBev Finance Inc., senior bond, 4.90%, 2/01/46 | | | Belgium | | | | 15,000,000 | | | | 16,902,918 | |
The Clorox Co., senior bond, 3.10%, 10/01/27 | | | United States | | | | 17,500,000 | | | | 17,471,534 | |
Costco Wholesale Corp., senior note, 2.75%, 5/18/24 | | | United States | | | | 30,000,000 | | | | 30,246,338 | |
CVS Health Corp., senior note, 3.875%, 7/20/25 | | | United States | | | | 10,000,000 | | | | 10,281,287 | |
Kraft Heinz Foods Co., | | | | | | | | | | | | |
senior bond, 3.50%, 6/06/22 | | | United States | | | | 10,000,000 | | | | 10,341,027 | |
senior bond, 3.00%, 6/01/26 | | | United States | | | | 20,000,000 | | | | 19,360,032 | |
Mondelez International Inc., senior bond, 4.00%, 2/01/24 | | | United States | | | | 15,000,000 | | | | 15,917,048 | |
Reynolds American Inc., senior note, 4.45%, 6/12/25 | | | United Kingdom | | | | 15,000,000 | | | | 16,160,194 | |
Tyson Foods Inc., senior bond, 3.95%, 8/15/24 | | | United States | | | | 12,100,000 | | | | 12,772,813 | |
Whole Foods Market Inc., senior note, 5.20%, 12/03/25 | | | United States | | | | 20,000,000 | | | | 23,004,019 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 172,457,210 | |
| | | | | | | | | | | | |
Energy 3.1% | | | | | | | | | | | | |
Anadarko Petroleum Corp., senior note, 8.70%, 3/15/19 | | | United States | | | | 7,215,000 | | | | 7,840,903 | |
Energy Transfer Partners LP, senior bond, 3.60%, 2/01/23 | | | United States | | | | 15,000,000 | | | | 15,305,331 | |
EOG Resources Inc., senior bond, 2.625%, 3/15/23 | | | United States | | | | 5,500,000 | | | | 5,468,459 | |
Ferrellgas LP/Ferrellgas Finance Corp., senior note, 6.75%, 6/15/23 | | | United States | | | | 18,800,000 | | | | 17,578,000 | |
Nabors Industries Inc., senior note, 5.50%, 1/15/23 | | | United States | | | | 20,000,000 | | | | 19,250,000 | |
Oceaneering International Inc., senior note, 4.65%, 11/15/24 | | | United States | | | | 9,400,000 | | | | 9,355,199 | |
Sabine Pass Liquefaction LLC, senior secured bond, first lien, 5.00%, 3/15/27 | | | United States | | | | 8,200,000 | | | | 8,828,073 | |
Weatherford International Ltd., senior note, 5.125%, 9/15/20 | | | United States | | | | 10,000,000 | | | | 9,925,000 | |
Williams Partners LP, senior note, 3.60%, 3/15/22 | | | United States | | | | 15,000,000 | | | | 15,525,509 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 109,076,474 | |
| | | | | | | | | | | | |
| | | | |
| 40 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Balanced Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | | Value | |
Corporate Bonds (continued) | | | | | | | | | | | | |
Financials 7.5% | | | | | | | | | | | | |
e Bank of America Corp., junior sub. bond, AA, 6.10% to 3/17/25, FRN thereafter, Perpetual | | | United States | | | $ | 15,000,000 | | | $ | 16,762,500 | |
Capital One Bank USA NA, senior note, 2.30%, 6/05/19 | | | United States | | | | 10,000,000 | | | | 10,021,737 | |
Capital One Financial Corp., senior note, 3.75%, 3/09/27 | | | United States | | | | 10,000,000 | | | | 10,125,075 | |
f Capital One NA, FRN, 2.082%, (3-month USD LIBOR + 0.765%), 9/13/19 | | | United States | | | | 15,000,000 | | | | 15,106,384 | |
Citigroup Inc., | | | | | | | | | | | | |
e junior sub. bond, P, 5.95% to 5/15/25, FRN thereafter, Perpetual | | | United States | | | | 15,000,000 | | | | 16,430,400 | |
sub. bond, 4.125%, 7/25/28 | | | United States | | | | 10,000,000 | | | | 10,324,498 | |
Compass Bank, sub. note, 3.875%, 4/10/25 | | | United States | | | | 15,000,000 | | | | 15,040,599 | |
JPMorgan Chase & Co., | | | | | | | | | | | | |
e junior sub. bond, I, 7.90% to 4/30/19, FRN thereafter, Perpetual | | | United States | | | | 10,000,000 | | | | 10,267,500 | |
e junior sub. bond, V, 5.00% to 7/30/19, FRN thereafter, Perpetual | | | United States | | | | 13,000,000 | | | | 13,418,860 | |
senior note, 2.295%, 8/15/21 | | | United States | | | | 15,000,000 | | | | 14,943,321 | |
d Liberty Mutual Group Inc., senior note, 144A, 4.95%, 5/01/22 | | | United States | | | | 7,100,000 | | | | 7,761,176 | |
d Mizuho Bank Ltd., senior note, 144A, 2.45%, 4/16/19 | | | Japan | | | | 12,000,000 | | | | 12,070,838 | |
Morgan Stanley, | | | | | | | | | | | | |
senior note, 2.50%, 4/21/21 | | | United States | | | | 15,000,000 | | | | 15,033,640 | |
senior sub. bond, 4.35%, 9/08/26 | | | United States | | | | 15,000,000 | | | | 15,754,013 | |
Navient Corp., senior note, 6.125%, 3/25/24 | | | United States | | | | 15,000,000 | | | | 15,468,750 | |
d Nippon Life Insurance Co., sub. bond, 144A, 5.10% to 10/16/24, FRN thereafter, 10/16/44 | | | Japan | | | | 15,000,000 | | | | 16,093,125 | |
e PNC Financial Services Group Inc., junior sub. note, 4.85% to 6/01/23, FRN thereafter, | | | | | | | | | | | | |
Perpetual | | | United States | | | | 12,000,000 | | | | 12,450,000 | |
Prudential Financial Inc., senior note, 3.50%, 5/15/24 | | | United States | | | | 10,000,000 | | | | 10,435,433 | |
Royal Bank of Scotland Group PLC, sub. note, 5.125%, 5/28/24 | | | United Kingdom | | | | 10,400,000 | | | | 11,125,348 | |
e Wells Fargo & Co., junior sub. bond, 5.875% to 6/15/25, FRN thereafter, Perpetual | | | United States | | | | 15,000,000 | | | | 16,788,750 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 265,421,947 | |
| | | | | | | | | | | | |
Health Care 3.5% | | | | | | | | | | | | |
Actavis Funding SCS, senior bond, 4.75%, 3/15/45 | | | United States | | | | 4,011,000 | | | | 4,251,014 | |
d AMAG Pharmaceuticals Inc., senior note, 144A, 7.875%, 9/01/23 | | | United States | | | | 16,000,000 | | | | 16,360,000 | |
Baxalta Inc., senior note, 4.00%, 6/23/25 | | | United States | | | | 11,900,000 | | | | 12,488,606 | |
Biogen Inc., senior note, 3.625%, 9/15/22 | | | United States | | | | 10,000,000 | | | | 10,479,784 | |
Celgene Corp., senior bond, 4.00%, 8/15/23 | | | United States | | | | 10,000,000 | | | | 10,660,870 | |
CHS/Community Health Systems Inc., | | | | | | | | | | | | |
senior note, 8.00%, 11/15/19 | | | United States | | | | 10,000,000 | | | | 9,562,500 | |
senior secured note, first lien, 6.25%, 3/31/23 | | | United States | | | | 16,400,000 | | | | 15,805,500 | |
Edwards Lifesciences Corp., senior note, 2.875%, 10/15/18 | | | United States | | | | 10,000,000 | | | | 10,097,164 | |
d Endo Finance LLC/Endo Finco Inc., senior note, 144A, 5.375%, 1/15/23 | | | United States | | | | 15,000,000 | | | | 12,150,000 | |
d Tenet Healthcare Corp., senior secured note, second lien, 144A, 7.50%, 1/01/22 | | | United States | | | | 9,200,000 | | | | 9,717,500 | |
d Valeant Pharmaceuticals International Inc., | | | | | | | | | | | | |
senior bond, 144A, 6.125%, 4/15/25 | | | United States | | | | 6,300,000 | | | | 5,315,625 | |
senior note, 144A, 5.875%, 5/15/23 | | | United States | | | | 8,300,000 | | | | 7,023,875 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 123,912,438 | |
| | | | | | | | | | | | |
Industrials 0.9% | | | | | | | | | | | | |
d Air Canada 2013-1A Pass Through Trust, first lien, 144A, 4.125%, 11/15/26 | | | Canada | | | | 5,831,489 | | | | 6,163,359 | |
e General Electric Co., junior sub. bond, 5.00% to 1/21/21, FRN thereafter, Perpetual | | | United States | | | | 9,876,000 | | | | 10,292,569 | |
Lockheed Martin Corp., senior bond, 3.55%, 1/15/26 | | | United States | | | | 15,000,000 | | | | 15,628,434 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 32,084,362 | |
| | | | | | | | | | | | |
| | | | | | |
franklintempleton.com | | Annual Report | | | 41 | |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
| | | | | | | | | | | | |
Franklin Balanced Fund (continued) | | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | | Value | |
Corporate Bonds (continued) | | | | | | | | | | | | |
Information Technology 2.3% | | | | | | | | | | | | |
d Broadcom Corp./Broadcom Cayman Finance Ltd., senior note, 144A, 3.625%, 1/15/24. | | | United States | | | $ | 20,000,000 | | | $ | 20,656,840 | |
d CommScope Technologies LLC, senior bond, 144A, 5.00%, 3/15/27 | | | United States | | | | 10,000,000 | | | | 9,762,500 | |
d Dell International LLC/EMC Corp., senior secured note, first lien, 144A, 4.42%, 6/15/21 | | | United States | | | | 18,000,000 | | | | 18,940,045 | |
d Western Digital Corp., senior secured note, 144A, 7.375%, 4/01/23 | | | United States | | | | 20,000,000 | | | | 21,950,000 | |
Xilinx Inc., senior note, 2.95%, 6/01/24 | | | United States | | | | 10,000,000 | | | | 10,014,995 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 81,324,380 | |
| | | | | | | | | | | | |
Materials 0.7% | | | | | | | | | | | | |
d FMG Resources (August 2006) Pty. Ltd., | | | | | | | | | | | | |
senior note, 144A, 4.75%, 5/15/22 | | | Australia | | | | 4,400,000 | | | | 4,489,760 | |
senior secured note, 144A, 9.75%, 3/01/22 | | | Australia | | | | 12,500,000 | | | | 14,000,000 | |
Freeport-McMoRan Inc., senior bond, 3.875%, 3/15/23 | | | United States | | | | 7,000,000 | | | | 6,938,750 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 25,428,510 | |
| | | | | | | | | | | | |
Real Estate 2.0% | | | | | | | | | | | | |
HCP Inc., senior bond, 3.875%, 8/15/24 | | | United States | | | | 21,700,000 | | | | 22,375,334 | |
Healthcare Trust of America Holdings LP, senior note, 3.375%, 7/15/21 | | | United States | | | | 10,000,000 | | | | 10,261,563 | |
Prologis LP, senior note, 4.25%, 8/15/23 | | | United States | | | | 12,000,000 | | | | 13,013,452 | |
Realty Income Corp., senior bond, 3.875%, 7/15/24 | | | United States | | | | 15,000,000 | | | | 15,468,870 | |
Senior Housing Properties Trust, senior note, 6.75%, 12/15/21 | | | United States | | | | 7,000,000 | | | | 7,800,547 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 68,919,766 | |
| | | | | | | | | | | | |
Telecommunication Services 1.0% | | | | | | | | | | | | |
AT&T Inc., senior note, 3.95%, 1/15/25 | | | United States | | | | 11,700,000 | | | | 12,029,694 | |
Sprint Corp., senior note, 7.625%, 2/15/25 | | | United States | | | | 10,000,000 | | | | 11,050,000 | |
Telefonica Emisiones S.A.U., senior note, 4.57%, 4/27/23 | | | Spain | | | | 10,000,000 | | | | 10,884,000 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 33,963,694 | |
| | | | | | | | | | | | |
Utilities 2.5% | | | | | | | | | | | | |
d Calpine Corp., senior secured bond, 144A, 5.25%, 6/01/26 | | | United States | | | | 15,000,000 | | | | 15,093,750 | |
Duke Energy Corp., senior bond, 3.15%, 8/15/27 | | | United States | | | | 20,000,000 | | | | 19,895,018 | |
d,e EDF SA, junior sub. note, 144A, 5.25% to 1/29/23, FRN thereafter, Perpetual | | | France | | | | 10,000,000 | | | | 10,407,850 | |
d InterGen NV, secured bond, 144A, 7.00%, 6/30/23 | | | Netherlands | | | | 10,000,000 | | | | 9,751,400 | |
Kinder Morgan Energy Partners LP, senior note, 4.30%, 5/01/24 | | | United States | | | | 12,900,000 | | | | 13,552,744 | |
PSEG Power LLC, senior note, 3.00%, 6/15/21 | | | United States | | | | 20,000,000 | | | | 20,272,657 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 88,973,419 | |
| | | | | | | | | | | | |
Total Corporate Bonds (Cost $1,110,085,254) | | | | | | | | | | | 1,150,457,778 | |
| | | | | | | | | | | | |
Total Investments before Short Term Investments
(Cost $2,986,262,130) | | | | | | | | | | | 3,324,079,049 | |
| | | | | | | | | | | | |
| | | |
Short Term Investments 5.0% | | | | | | | | | | | | |
U.S. Government and Agency Securities 2.1% | | | | | | | | | | | | |
g U.S. Treasury Bill, | | | | | | | | | | | | |
11/09/17 | | | United States | | | | 50,000,000 | | | | 49,989,375 | |
1/25/18 | | | United States | | | | 25,000,000 | | | | 24,935,365 | |
| | | | | | | | | | | | |
Total U.S. Government and Agency Securities
(Cost $74,921,320) | | | | | | | | | | | 74,924,740 | |
| | | | | | | | | | | | |
Total Investments before Money Market Funds
(Cost $3,061,183,450) | | | | | | | | | | | 3,399,003,789 | |
| | | | | | | | | | | | |
| | | | |
| 42 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Balanced Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Shares | | | Value | |
| |
Money Market Funds (Cost $101,275,128) 2.9% | | | | | | | | | | | | |
b,h Institutional Fiduciary Trust Money Market Portfolio, 0.69% | | | United States | | | | 101,275,128 | | | | $ 101,275,128 | |
| | | | | | | | | | | | |
Total Investments (Cost $3,162,458,578) 99.2% | | | | | | | | | | | 3,500,278,917 | |
Other Assets, less Liabilities 0.8% | | | | | | | | | | | 28,207,939 | |
| | | | | | | | | | | | |
Net Assets 100.0% | | | | | | | | | | | $3,528,486,856 | |
| | | | | | | | | | | | |
See Abbreviations on page 91.
*The principal amount is stated in U.S. dollars unless otherwise indicated.
aNon-income producing.
bSee Note 3(f) regarding investments in affiliated management investment companies.
cSee Note 1(e) regarding equity-linked securities.
dSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in a public offering registered under the Securities Act of 1933. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At October 31, 2017, the aggregate value of these securities was $550,155,773, representing 15.6% of net assets.
ePerpetual security with no stated maturity date.
fThe coupon rate shown represents the rate at period end.
gThe security was issued on a discount basis with no stated coupon rate.
hThe rate shown is the annualized seven-day yield at period end.
| | | | | | |
| franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | | 43 | |
FRANKLIN INVESTORS SECURITIES TRUST
Financial Highlights
Franklin Convertible Securities Fund
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Class A | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $18.24 | | | | $18.00 | | | | $18.97 | | | | $17.82 | | | | $14.93 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment incomeb | | | 0.27 | | | | 0.25 | | | | 0.24 | | | | 0.23 | | | | 0.37 | |
| | | | | |
Net realized and unrealized gains (losses) | | | 2.98 | | | | 0.85 | | | | (0.14) | | | | 1.32 | | | | 2.99 | |
| | | | | |
Total from investment operations | | | 3.25 | | | | 1.10 | | | | 0.10 | | | | 1.55 | | | | 3.36 | |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | (0.47) | | | | (0.50) | | | | (0.39) | | | | (0.33) | | | | (0.47) | |
| | | | | |
Net realized gains | | | (0.34) | | | | (0.36) | | | | (0.68) | | | | (0.07) | | | | — | |
| | | | | |
Total distributions | | | (0.81) | | | | (0.86) | | | | (1.07) | | | | (0.40) | | | | (0.47) | |
| | | | | |
Net asset value, end of year | | | $20.68 | | | | $18.24 | | | | $18.00 | | | | $18.97 | | | | $17.82 | |
| | | | | |
Total returnc | | | 18.39% | | | | 6.41% | | | | 0.66% | | | | 8.85% | | | | 22.92% | |
| | | | | |
Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 0.85% | | | | 0.86% | | | | 0.86% | | | | 0.88% | | | | 0.88% | |
| | | | | |
Expenses net of waiver and payments by affiliatesd | | | 0.84% | | | | 0.85% | | | | 0.86%e | | | | 0.88%e | | | | 0.88% | |
| | | | | |
Net investment income | | | 1.39% | | | | 1.44% | | | | 1.33% | | | | 1.23% | | | | 2.25% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $815,491 | | | | $768,553 | | | | $818,082 | | | | $921,134 | | | | $844,498 | |
| | | | | |
Portfolio turnover rate | | | 27.24% | | | | 28.03% | | | | 17.30% | | | | 23.05% | | | | 34.69% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
dBenefit of expense reduction rounds to less than 0.01%.
eBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| | | | |
| 44 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin Convertible Securities Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Class C | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $17.98 | | | | $17.75 | | | | $18.73 | | | | $17.60 | | | | $14.75 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment incomeb | | | 0.12 | | | | 0.12 | | | | 0.11 | | | | 0.09 | | | | 0.24 | |
| | | | | |
Net realized and unrealized gains (losses) | | | 2.93 | | | | 0.84 | | | | (0.16) | | | | 1.31 | | | | 2.97 | |
| | | | | |
Total from investment operations | | | 3.05 | | | | 0.96 | | | | (0.05) | | | | 1.40 | | | | 3.21 | |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | (0.32) | | | | (0.37) | | | | (0.25) | | | | (0.20) | | | | (0.36) | |
| | | | | |
Net realized gains | | | (0.34) | | | | (0.36) | | | | (0.68) | | | | (0.07) | | | | — | |
| | | | | |
Total distributions | | | (0.66) | | | | (0.73) | | | | (0.93) | | | | (0.27) | | | | (0.36) | |
| | | | | |
Net asset value, end of year | | | $20.37 | | | | $17.98 | | | | $17.75 | | | | $18.73 | | | | $17.60 | |
| | | | | |
Total returnc | | | 17.49% | | | | 5.65% | | | | (0.15)% | | | | 8.01% | | | | 22.11% | |
| | | | | |
| Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 1.60% | | | | 1.61% | | | | 1.61% | | | | 1.63% | | | | 1.63% | |
| | | | | |
Expenses net of waiver and payments by affiliatesd | | | 1.59% | | | | 1.60% | | | | 1.61%e | | | | 1.63%e | | | | 1.63% | |
| | | | | |
Net investment income | | | 0.64% | | | | 0.69% | | | | 0.58% | | | | 0.48% | | | | 1.50% | |
| | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $303,243 | | | | $293,038 | | | | $311,951 | | | | $333,034 | | | | $273,132 | |
| | | | | |
Portfolio turnover rate | | | 27.24% | | | | 28.03% | | | | 17.30% | | | | 23.05% | | | | 34.69% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
dBenefit of expense reduction rounds to less than 0.01%.
eBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| | | | | | |
franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | | 45 | |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin Convertible Securities Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014a | |
Class R6 | | | | | | | | | | | | | | | | |
| | | | |
| Per share operating performance | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | |
| | | | |
Net asset value, beginning of year | | | $18.33 | | | | $18.09 | | | | $18.99 | | | | $19.21 | |
| | | | |
Income from investment operationsb: | | | | | | | | | | | | | | | | |
| | | | |
Net investment incomec | | | 0.34 | | | | 0.33 | | | | 0.30 | | | | 0.19 | |
| | | | |
Net realized and unrealized gains (losses) | | | 3.00 | | | | 0.84 | | | | (0.14) | | | | (0.17) | |
| | | | |
Total from investment operations | | | 3.34 | | | | 1.17 | | | | 0.16 | | | | 0.02 | |
| | | | |
Less distributions from: | | | | | | | | | | | | | | | | |
| | | | |
Net investment income. | | | (0.54) | | | | (0.57) | | | | (0.38) | | | | (0.24) | |
| | | | |
Net realized gains | | | (0.34) | | | | (0.36) | | | | (0.68) | | | | — | |
| | | | |
Total distributions | | | (0.88) | | | | (0.93) | | | | (1.06) | | | | (0.24) | |
| | | | |
Net asset value, end of year | | | $20.79 | | | | $18.33 | | | | $18.09 | | | | $18.99 | |
| | | | |
Total returnd | | | 18.84% | | | | 6.78% | | | | 0.99% | | | | 0.11% | |
| | | | |
| Ratios to average net assetse | | | | | | | | | | | | | | | | |
| | | | |
Expenses before waiver and payments by affiliates | | | 0.49% | | | | 0.50% | | | | 0.50% | | | | 0.51% | |
| | | | |
Expenses net of waiver and payments by affiliatesf | | | 0.48% | | | | 0.49% | | | | 0.50%g | | | | 0.51%g | |
| | | | |
Net investment income | | | 1.75% | | | | 1.80% | | | | 1.69% | | | | 1.60% | |
| | | | |
| Supplemental data | | | | | | | | | | | | | | | | |
| | | | |
Net assets, end of year (000’s) | | | $22,950 | | | | $7,154 | | | | $5 | | | | $3,093 | |
| | | | |
Portfolio turnover rate | | | 27.24% | | | | 28.03% | | | | 17.30% | | | | 23.05% | |
aFor the period March 4, 2014 (effective date) to October 31, 2014.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fBenefit of expense reduction rounds to less than 0.01%.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| | | | |
46 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin Convertible Securities Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Advisor Class | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $18.24 | | | | $18.00 | | | | $18.98 | | | | $17.83 | | | | $14.94 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment incomeb | | | 0.32 | | | | 0.30 | | | | 0.29 | | | | 0.28 | | | | 0.41 | |
| | | | | |
Net realized and unrealized gains (losses) | | | 2.98 | | | | 0.85 | | | | (0.15) | | | | 1.32 | | | | 2.99 | |
| | | | | |
Total from investment operations | | | 3.30 | | | | 1.15 | | | | 0.14 | | | | 1.60 | | | | 3.40 | |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | (0.52) | | | | (0.55) | | | | (0.44) | | | | (0.38) | | | | (0.51) | |
| | | | | |
Net realized gains | | | (0.34) | | | | (0.36) | | | | (0.68) | | | | (0.07) | | | | — | |
| | | | | |
Total distributions | | | (0.86) | | | | (0.91) | | | | (1.12) | | | | (0.45) | | | | (0.51) | |
| | | | | |
Net asset value, end of year | | | $20.68 | | | | $18.24 | | | | $18.00 | | | | $18.98 | | | | $17.83 | |
| | | | | |
Total return | | | 18.69% | | | | 6.68% | | | | 0.87% | | | | 9.13% | | | | 23.21% | |
| | | | | |
| Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 0.60% | | | | 0.61% | | | | 0.61% | | | | 0.63% | | | | 0.63% | |
| | | | | |
Expenses net of waiver and payments by affiliatesc | | | 0.59% | | | | 0.60% | | | | 0.61%d | | | | 0.63%d | | | | 0.63% | |
| | | | | |
Net investment income | | | 1.64% | | | | 1.69% | | | | 1.58% | | | | 1.48% | | | | 2.50% | |
| | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $1,542,254 | | | | $1,080,346 | | | | $899,441 | | | | $877,190 | | | | $387,528 | |
| | | | | |
Portfolio turnover rate | | | 27.24% | | | | 28.03% | | | | 17.30% | | | | 23.05% | | | | 34.69% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cBenefit of expense reduction rounds to less than 0.01%.
dBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| | | | | | |
franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | | 47 | |
FRANKLIN INVESTORS SECURITIES TRUST
Statement of Investments, October 31, 2017
Franklin Convertible Securities Fund
| | | | | | | | | | |
| | | Country | | Shares | | | Value | |
Common Stocks 5.1% | | | | | | | | |
Consumer Staples 1.7% | | | | | | | | | | |
Tyson Foods Inc. | | United States | | | 644,280 | | | $ | 46,974,455 | |
| | | | | | | | | | |
Industrials 1.1% | | | | | | | | | | |
Arconic Inc. | | United States | | | 1,177,470 | | | | 29,578,046 | |
| | | | | | | | | | |
Information Technology 0.9% | | | | | | | | | | |
Xilinx Inc. | | United States | | | 320,671 | | | | 23,630,246 | |
| | | | | | | | | | |
Utilities 1.4% | | | | | | | | | | |
Dominion Energy Inc. | | United States | | | 116,194 | | | | 9,427,981 | |
Exelon Corp. | | United States | | | 715,450 | | | | 28,768,245 | |
| | | | | | | | | | |
| | | |
| | | | | | | | | 38,196,226 | |
| | | | | | | | | | |
| | |
Total Common Stocks (Cost $117,970,000) | | | | | | | 138,378,973 | |
| | | | | | | | | | |
| | | |
Convertible Preferred Stocks 15.1% | | | | | | | | | | |
Consumer Staples 1.9% | | | | | | | | | | |
Post Holdings Inc., 2.50%, cvt. pfd | | United States | | | 321,200 | | | | 50,468,550 | |
| | | | | | | | | | |
Health Care 3.0% | | | | | | | | | | |
Allergan PLC, 5.50%, cvt. pfd | | United States | | | 45,500 | | | | 29,287,895 | |
Becton Dickinson and Co., 6.125%, cvt. pfd., A | | United States | | | 675,000 | | | | 38,319,750 | |
Teva Pharmaceutical Industries Ltd., 7.00%, cvt. pfd | | Israel | | | 42,500 | | | | 12,091,250 | |
| | | | | | | | | | |
| | | |
| | | | | | | | | 79,698,895 | |
| | | | | | | | | | |
Industrials 4.7% | | | | | | | | | | |
Rexnord Corp., 5.75%, cvt. pfd | | United States | | | 902,500 | | | | 51,929,850 | |
Stanley Black & Decker Inc., 5.375%, cvt. pfd | | United States | | | 445,000 | | | | 52,630,150 | |
Stericycle Inc., 5.25%, cvt. pfd | | United States | | | 380,000 | | | | 21,637,200 | |
| | | | | | | | | | |
| | | |
| | | | | | | | | 126,197,200 | |
| | | | | | | | | | |
Information Technology 2.3% | | | | | | | | | | |
a Mandatory Exchangeable Trust, 5.75%, cvt. pfd., 144A | | China | | | 291,500 | | | | 61,131,922 | |
| | | | | | | | | | |
Telecommunication Services 1.6% | | | | | | | | | | |
T-Mobile U.S. Inc., 5.50%, cvt. pfd | | United States | | | 455,000 | | | | 44,044,000 | |
| | | | | | | | | | |
Utilities 1.6% | | | | | | | | | | |
Black Hills Corp., 7.75%, cvt. pfd | | United States | | | 606,000 | | | | 42,783,600 | |
| | | | | | | | | | |
Total Convertible Preferred Stocks (Cost $373,357,773) | | | | | | | 404,324,167 | |
| | | | | | | | | | |
| | | | | Principal
Amount* | | | | |
| | | | | | | | | | |
Convertible Bonds 76.9% | | | | | | | | | | |
Consumer Discretionary 14.5% | | | | | | | | | | |
Ctrip.com International Ltd., | | | | | | | | | | |
cvt., senior note, 1.25%, 10/15/18 | | China | | $ | 19,200,000 | | | | 24,336,000 | |
cvt., senior note, 1.25%, 9/15/22 | | China | | | 20,000,000 | | | | 20,979,000 | |
Dish Network Corp., cvt., senior bond, 3.375%, 8/15/26 | | United States | | | 45,900,000 | | | | 49,600,688 | |
GNC Holdings Inc., cvt., senior note, 1.50%, 8/15/20 | | United States | | | 5,000,000 | | | | 3,475,000 | |
a Liberty Expedia Holdings, cvt., 144A, 1.00%, 6/30/47 | | United States | | | 48,450,000 | | | | 49,661,250 | |
a Liberty Interactive LLC, cvt., senior bond, 144A, 1.75%, 9/30/46 | | United States | | | 37,000,000 | | | | 41,918,040 | |
Liberty Media Corp., | | | | | | | | | | |
cvt., senior bond, 2.25%, 9/30/46 | | United States | | | 39,000,000 | | | | 41,023,125 | |
cvt., senior note, 1.375%, 10/15/23 | | United States | | | 21,200,000 | | | | 25,522,680 | |
The Priceline Group Inc., cvt., senior note, 0.35%, 6/15/20 | | United States | | | 35,000,000 | | | | 52,150,000 | |
| | | | |
48 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Convertible Securities Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | | Value | |
Convertible Bonds (continued) | | | | | | | | | | | | |
Consumer Discretionary (continued) | | | | | | | | | | | | |
Shutterfly Inc., cvt., 0.25%, 5/15/18 | | | United States | | | $ | 37,465,000 | | | $ | 37,207,428 | |
a Wayfair Inc., cvt., senior note, 144A, 0.375%, 9/01/22 | | | United States | | | | 45,000,000 | | | | 44,071,875 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 389,945,086 | |
| | | | | | | | | | | | |
Energy 0.1% | | | | | | | | | | | | |
Cobalt International Energy Inc., cvt., senior bond, 3.125%, 5/15/24 | | | United States | | | | 15,200,000 | | | | 2,052,000 | |
| | | | | | | | | | | | |
Health Care 13.3% | | | | | | | | | | | | |
BioMarin Pharmaceutical Inc., cvt., senior sub. note, 1.50%, 10/15/20 | | | United States | | | | 28,200,000 | | | | 32,130,375 | |
Brookdale Senior Living Inc., cvt., senior note, 2.75%, 6/15/18 | | | United States | | | | 26,200,000 | | | | 26,094,728 | |
Depomed Inc., cvt., senior note, 2.50%, 9/01/21 | | | United States | | | | 16,000,000 | | | | 11,620,000 | |
a Dermira Inc., cvt., senior note, 144A, 3.00%, 5/15/22 | | | United States | | | | 41,120,000 | | | | 44,743,700 | |
a DexCom Inc., cvt., senior note, 144A, 0.75%, 5/15/22 | | | United States | | | | 21,600,000 | | | | 19,210,500 | |
Fluidigm Corp., cvt., senior bond, 2.75%, 2/01/34 | | | United States | | | | 14,418,000 | | | | 11,678,580 | |
Illumina Inc., cvt., senior note, 0.50%, 6/15/21 | | | United States | | | | 33,000,000 | | | | 38,053,125 | |
Impax Laboratories Inc., cvt., senior note, 2.00%, 6/15/22 | | | United States | | | | 45,000,000 | | | | 44,775,000 | |
Jazz Investments I Ltd., | | | | | | | | | | | | |
cvt., senior note, 1.875%, 8/15/21 | | | United States | | | | 35,000,000 | | | | 36,137,500 | |
a cvt., senior note, 144A, 1.50%, 8/15/24 | | | United States | | | | 9,750,000 | | | | 9,317,344 | |
a Neurocrine Biosciences Inc., cvt., senior note, 144A, 2.25%, 5/15/24 | | | United States | | | | 44,750,000 | | | | 51,378,594 | |
Novavax Inc., cvt., senior note, 3.75%, 2/01/23 | | | United States | | | | 29,000,000 | | | | 13,249,375 | |
NuVasive Inc., cvt., senior note, 2.25%, 3/15/21 | | | United States | | | | 12,000,000 | | | | 13,950,000 | |
a Pacira Pharmaceuticals Inc., cvt., senior note, 144A, 2.375%, 4/01/22 | | | United States | | | | 6,000,000 | | | | 5,583,750 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 357,922,571 | |
| | | | | | | | | | | | |
Industrials 0.7% | | | | | | | | | | | | |
The keyW Holding Corp., cvt., senior note, 2.50%, 7/15/19 | | | United States | | | | 20,000,000 | | | | 18,837,500 | |
| | | | | | | | | | | | |
Information Technology 45.0% | | | | | | | | | | | | |
Altaba Inc., cvt., zero cpn., 12/01/18 | | | United States | | | | 35,100,000 | | | | 48,350,250 | |
Blackhawk Network Holdings Inc., cvt., senior note, 1.50%, 1/15/22 | | | United States | | | | 42,700,000 | | | | 42,886,813 | |
Bottomline Technologies (de) Inc., cvt., senior note, 1.50%, 12/01/17 | | | United States | | | | 21,400,000 | | | | 23,406,250 | |
Electronics for Imaging Inc., cvt., senior note, 0.75%, 9/01/19 | | | United States | | | | 22,000,000 | | | | 21,505,000 | |
a HubSpot Inc., cvt., 144A, 0.25%, 6/01/22 | | | United States | | | | 43,875,000 | | | | 49,578,750 | |
Inphi Corp., cvt., senior note, 0.75%, 9/01/21 | | | United States | | | | 9,600,000 | | | | 10,014,000 | |
Integrated Device Technology Inc., cvt., senior note, 0.875%, 11/15/22 | | | United States | | | | 4,700,000 | | | | 5,422,625 | |
Intel Corp., | | | | | | | | | | | | |
cvt., junior sub. bond, 3.25%, 8/01/39 | | | United States | | | | 8,000,000 | | | | 17,415,040 | |
a cvt., junior sub. bond, 144A, 2.95%, 12/15/35 | | | United States | | | | 19,000,000 | | | | 31,920,000 | |
cvt., junior sub. deb., 2.95%, 12/15/35 | | | United States | | | | 2,000,000 | | | | 3,360,000 | |
Mercadolibre Inc., cvt., 2.25%, 7/01/19 | | | Argentina | | | | 5,000,000 | | | | 9,698,850 | |
a Microchip Technology Inc., cvt., senior note, 144A, 1.625%, 2/15/27 | | | United States | | | | 45,750,000 | | | | 57,496,312 | |
Micron Technology Inc., cvt., senior bond, G, 3.00%, 11/15/43 | | | United States | | | | 43,000,000 | | | | 66,865,000 | |
Novellus Systems Inc., cvt., senior note, 2.625%, 5/15/41 | | | United States | | | | 10,400,000 | | | | 64,512,500 | |
NXP Semiconductors NV, cvt., senior note, 1.00%, 12/01/19 | | | Netherlands | | | | 35,000,000 | | | | 43,290,625 | |
Palo Alto Networks Inc., cvt., zero cpn., 7/01/19 | | | United States | | | | 28,750,000 | | | | 40,214,063 | |
Proofpoint Inc., cvt., 0.75%, 6/15/20 | | | United States | | | | 39,100,000 | | | | 50,561,187 | |
a Realpage Inc., cvt., 144A, 1.50%, 11/15/22 | | | United States | | | | 40,850,000 | | | | 50,322,094 | |
Red Hat Inc., cvt., senior note, 0.25%, 10/01/19 | | | United States | | | | 29,250,000 | | | | 48,646,406 | |
Salesforce.com Inc., cvt., senior note, 0.25%, 4/01/18. | | | United States | | | | 35,200,000 | | | | 54,164,000 | |
ServiceNow Inc., cvt., zero cpn., 11/01/18 | | | United States | | | | 35,500,000 | | | | 60,971,250 | |
a Silicon Laboratories Inc., cvt., 144A, 1.375%, 3/01/22 | | | United States | | | | 38,700,000 | | | | 46,585,125 | |
a Square Inc., cvt., 144A, 0.375%, 3/01/22 | | | United States | | | | 43,000,000 | | | | 72,938,750 | |
Take-Two Interactive Software Inc., cvt., senior note, 1.00%, 7/01/18 | | | United States | | | | 11,500,000 | | | | 59,124,375 | |
| | | | | | |
franklintempleton.com | | Annual Report | | | 49 | |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Convertible Securities Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | | Value | |
Convertible Bonds (continued) | | | | | | | | | | | | |
Information Technology (continued) | | | | | | | | | | | | |
Twitter Inc., cvt., senior note, 1.00%, 9/15/21 | | | United States | | | $ | 35,000,000 | | | $ | 32,353,125 | |
VeriSign Inc., cvt., junior sub. bond, 3.25%, 8/15/37 | | | United States | | | | 11,000,000 | | | | 34,615,625 | |
Viavi Solutions Inc., cvt., senior bond, 0.625%, 8/15/33 | | | United States | | | | 39,900,000 | | | | 41,845,125 | |
a Weibo Corp., cvt., senior note, 144A, 1.25%, 11/15/22 | | | China | | | | 18,000,000 | | | | 18,675,000 | |
a Workday Inc., cvt., senior note, 144A, 0.25%, 10/01/22 | | | United States | | | | 52,500,000 | | | | 53,189,062 | |
a Zillow Group Inc., cvt., senior note, 144A, 2.00%, 12/01/21 | | | United States | | | | 43,500,000 | | | | 47,383,680 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 1,207,310,882 | |
| | | | | | | | | | | | |
Materials 1.9% | | | | | | | | | | | | |
B2Gold Corp., cvt., senior sub. note, 3.25%, 10/01/18 | | | Canada | | | | 13,900,000 | | | | 14,160,625 | |
Cemex SAB de CV, | | | | | | | | | | | | |
cvt., sub. note, 3.75%, 3/15/18 | | | Mexico | | | | 24,000,000 | | | | 25,620,960 | |
cvt., sub. note, 3.72%, 3/15/20 | | | Mexico | | | | 9,750,000 | | | | 10,402,031 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 50,183,616 | |
| | | | | | | | | | | | |
Real Estate 1.4% | | | | | | | | | | | | |
Forest City Enterprises Inc., | | | | | | | | | | | | |
cvt., senior note, 4.25%, 8/15/18 | | | United States | | | | 17,110,000 | | | | 20,232,575 | |
cvt., senior note, A, 3.625%, 8/15/20 | | | United States | | | | 15,250,000 | | | | 17,213,438 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 37,446,013 | |
| | | | | | | | | | | | |
| | | |
Total Convertible Bonds (Cost $1,729,773,464) | | | | | | | | | | | 2,063,697,668 | |
| | | | | | | | | | | | |
| | | |
| | | | | | Shares | | | | |
| | | | | | | | | | | | |
| | | |
Escrows and Litigation Trusts (Cost $22,362) 0.0% | | | | | | | | | | | | |
b,c Motors Liquidation Co., Escrow Account | | | United States | | | | 376,200 | | | | — | |
| | | | | | | | | | | | |
| | | |
Total Investments before Short Term Investments | | | | | | | | | | | | |
(Cost $2,221,123,599) | | | | | | | | | | | 2,606,400,808 | |
| | | | | | | | | | | | |
| | | |
Short Term Investments (Cost $69,852,661) 2.6% | | | | | | | | | | | | |
Money Market Funds 2.6% | | | | | | | | | | | | |
d,e Institutional Fiduciary Trust Money Market Portfolio, 0.69% | | | United States | | | | 69,852,661 | | | | 69,852,661 | |
| | | | | | | | | | | | |
Total Investments (Cost $2,290,976,260) 99.7% | | | | | | | | | | | 2,676,253,469 | |
Other Assets, less Liabilities 0.3% | | | | | | | | | | | 7,684,499 | |
| | | | | | | | | | | | |
| | | |
Net Assets 100.0% | | | | | | | | | | $ | 2,683,937,968 | |
| | | | | | | | | | | | |
*The principal amount is stated in U.S. dollars unless otherwise indicated.
aSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in a public offering registered under the Securities Act of 1933. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At October 31, 2017, the aggregate value of these securities was $755,105,748, representing 28.1% of net assets.
bNon-income producing.
cFair valued using significant unobservable inputs. See Note 10 regarding fair value measurements.
dSee Note 3(f) regarding investments in affiliated management investment companies.
eThe rate shown is the annualized seven-day yield at period end.
| | | | |
50 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
Financial Highlights
Franklin Equity Income Fund
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Class A | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $22.50 | | | | $22.99 | | | | $23.93 | | | | $22.16 | | | | $18.01 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment incomeb | | | 0.48 | | | | 0.47 | | | | 0.55 | | | | 0.66c | | | | 0.44 | |
| | | | | |
Net realized and unrealized gains (losses) | | | 3.55 | | | | 0.24 | | | | 0.26 | | | | 1.73 | | | | 4.19 | |
| | | | | |
Total from investment operations | | | 4.03 | | | | 0.71 | | | | 0.81 | | | | 2.39 | | | | 4.63 | |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | (0.58) | | | | (0.60) | | | | (0.69) | | | | (0.50) | | | | (0.48) | |
| | | | | |
Net realized gains | | | (0.89) | | | | (0.60) | | | | (1.06) | | | | (0.12) | | | | — | |
| | | | | |
Total distributions | | | (1.47) | | | | (1.20) | | | | (1.75) | | | | (0.62) | | | | (0.48) | |
| | | | | |
Net asset value, end of year | | | $25.06 | | | | $22.50 | | | | $22.99 | | | | $23.93 | | | | $22.16 | |
| | | | | |
Total returnd | | | 18.55% | | | | 3.31% | | | | 3.72% | | | | 10.99% | | | | 26.07% | |
| | | | | |
Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expensese | | | 0.86%f | | | | 0.87%f | | | | 0.86%f | | | | 0.87%f | | | | 0.91% | |
| | | | | |
Net investment income | | | 2.02% | | | | 2.13% | | | | 2.37% | | | | 2.87%c | | | | 2.19% | |
| | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | $ | 1,753,135 | | | $ | 1,700,712 | | | $ | 1,790,392 | | | $ | 1,762,318 | | | $ | 1,637,089 | |
| | | | | |
Portfolio turnover rate | | | 27.18% | | | | 50.05% | | | | 34.09% | | | | 20.15% | | | | 33.18% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cNet investment income per share includes approximately $0.17 per share related to income received in the form of a special dividend in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 2.15%.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
eBenefit of expense reduction rounds to less than 0.01%.
fBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| | | | | | |
franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | | 51 | |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin Equity Income Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Class C | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $22.32 | | | | $22.85 | | | | $23.79 | | | | $22.04 | | | | $17.91 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment incomeb | | | 0.30 | | | | 0.30 | | | | 0.37 | | | | 0.49c | | | | 0.28 | |
| | | | | |
Net realized and unrealized gains (losses) | | | 3.54 | | | | 0.23 | | | | 0.27 | | | | 1.71 | | | | 4.18 | |
| | | | | |
Total from investment operations | | | 3.84 | | | | 0.53 | | | | 0.64 | | | | 2.20 | | | | 4.46 | |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | (0.41) | | | | (0.46) | | | | (0.52) | | | | (0.33) | | | | (0.33) | |
| | | | | |
Net realized gains | | | (0.89) | | | | (0.60) | | | | (1.06) | | | | (0.12) | | | | — | |
| | | | | |
Total distributions | | | (1.30) | | | | (1.06) | | | | (1.58) | | | | (0.45) | | | | (0.33) | |
| | | | | |
Net asset value, end of year | | | $24.86 | | | | $22.32 | | | | $22.85 | | | | $23.79 | | | | $22.04 | |
| | | | | |
Total returnd | | | 17.73% | | | | 2.51% | | | | 2.96% | | | | 10.14% | | | | 25.18% | |
| | | | | |
Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expensese | | | 1.61%f | | | | 1.62%f | | | | 1.61%f | | | | 1.62%f | | | | 1.66% | |
| | | | | |
Net investment income | | | 1.27% | | | | 1.38% | | | | 1.62% | | | | 2.12%c | | | | 1.44% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $267,450 | | | | $257,156 | | | | $250,347 | | | | $241,566 | | | | $208,325 | |
| | | | | |
Portfolio turnover rate | | | 27.18% | | | | 50.05% | | | | 34.09% | | | | 20.15% | | | | 33.18% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cNet investment income per share includes approximately $0.17 per share related to income received in the form of a special dividend in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 1.40%.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
eBenefit of expense reduction rounds to less than 0.01%.
fBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| | | | |
52 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin Equity Income Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Class R | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $22.49 | | | | $22.99 | | | | $23.93 | | | | $22.17 | | | | $18.01 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment incomeb | | | 0.42 | | | | 0.41 | | | | 0.50 | | | | 0.61c | | | | 0.39 | |
| | | | | |
Net realized and unrealized gains (losses) | | | 3.56 | | | | 0.24 | | | | 0.25 | | | | 1.72 | | | | 4.20 | |
| | | | | |
Total from investment operations | | | 3.98 | | | | 0.65 | | | | 0.75 | | | | 2.33 | | | | 4.59 | |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | (0.53) | | | | (0.55) | | | | (0.63) | | | | (0.45) | | | | (0.43) | |
| | | | | |
Net realized gains | | | (0.89) | | | | (0.60) | | | | (1.06) | | | | (0.12) | | | | — | |
| | | | | |
Total distributions | | | (1.42) | | | | (1.15) | | | | (1.69) | | | | (0.57) | | | | (0.43) | |
| | | | | |
Net asset value, end of year | | | $25.05 | | | | $22.49 | | | | $22.99 | | | | $23.93 | | | | $22.17 | |
| | | | | |
Total return | | | 18.29% | | | | 3.05% | | | | 3.45% | | | | 10.67% | | | | 25.81% | |
| | | | | |
| Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expensesd | | | 1.09%e | | | | 1.11%e | | | | 1.11%e | | | | 1.12%e | | | | 1.16% | |
| | | | | |
Net investment income | | | 1.79% | | | | 1.89% | | | | 2.12% | | | | 2.62%c | | | | 1.94% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $7,074 | | | | $6,395 | | | | $6,265 | | | | $7,305 | | | | $5,844 | |
| | | | | |
Portfolio turnover rate | | | 27.18% | | | | 50.05% | | | | 34.09% | | | | 20.15% | | | | 33.18% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cNet investment income per share includes approximately $0.17 per share related to income received in the form of a special dividend in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 1.90%.
dBenefit of expense reduction rounds to less than 0.01%.
eBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| | | | | | |
franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | | 53 | |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin Equity Income Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013a | |
Class R6 | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | |
| | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $22.54 | | | | $23.01 | | | | $23.95 | | | | $22.18 | | | | $20.00 | |
| | | | | |
Income from investment operationsb: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment incomec | | | 0.56 | | | | 0.43 | | | | 0.63 | | | | 0.75d | | | | 0.26 | |
| | | | | |
Net realized and unrealized gains (losses) | | | 3.57 | | | | 0.37 | | | | 0.27 | | | | 1.73 | | | | 2.18 | |
| | | | | |
Total from investment operations | | | 4.13 | | | | 0.80 | | | | 0.90 | | | | 2.48 | | | | 2.44 | |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | (0.67) | | | | (0.67) | | | | (0.78) | | | | (0.59) | | | | (0.26) | |
| | | | | |
Net realized gains | | | (0.89) | | | | (0.60) | | | | (1.06) | | | | (0.12) | | | | — | |
| | | | | |
Total distributions | | | (1.56) | | | | (1.27) | | | | (1.84) | | | | (0.71) | | | | (0.26) | |
| | | | | |
Net asset value, end of year. | | | $25.11 | | | | $22.54 | | | | $23.01 | | | | $23.95 | | | | $22.18 | |
| | | | | |
Total returne | | | 19.00% | | | | 3.72% | | | | 4.10% | | | | 11.38% | | | | 12.30% | |
| | | | | |
Ratios to average net assetsf | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 0.49% | | | | 0.49% | | | | 2.89% | | | | 1.78% | | | | 2.16% | |
| | | | | |
Expenses net of waiver and payments by affiliatesg | | | 0.49%h | | | | 0.49%h | | | | 0.48% | | | | 0.50% | | | | 0.51% | |
| | | | | |
Net investment income | | | 2.39% | | | | 2.51% | | | | 2.75% | | | | 3.24%d | | | | 2.59% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $12,728 | | | | $10,537 | | | | $6 | | | | $6 | | | | $6 | |
| | | | | |
Portfolio turnover rate | | | 27.18% | | | | 50.05% | | | | 34.09% | | | | 20.15% | | | | 33.18% | |
aFor the period May 1, 2013 (effective date) to October 31, 2013.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dNet investment income per share includes approximately $0.17 per share related to income received in the form of a special dividend in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 2.51%.
eTotal return is not annualized for periods less than one year.
fRatios are annualized for periods less than one year.
gBenefit of expense reduction rounds to less than 0.01%.
hBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| | | | |
54 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin Equity Income Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Advisor Class | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $22.53 | | | | $23.02 | | | | $23.96 | | | | $22.19 | | | | $18.02 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment incomeb | | | 0.50 | | | | 0.45 | | | | 0.60 | | | | 0.71c | | | | 0.48 | |
| | | | | |
Net realized and unrealized gains (losses) | | | 3.60 | | | | 0.31 | | | | 0.27 | | | | 1.74 | | | | 4.22 | |
| | | | | |
Total from investment operations | | | 4.10 | | | | 0.76 | | | | 0.87 | | | | 2.45 | | | | 4.70 | |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | (0.64) | | | | (0.65) | | | | (0.75) | | | | (0.56) | | | | (0.53) | |
| | | | | |
Net realized gains | | | (0.89) | | | | (0.60) | | | | (1.06) | | | | (0.12) | | | | — | |
| | | | | |
Total distributions | | | (1.53) | | | | (1.25) | | | | (1.81) | | | | (0.68) | | | | (0.53) | |
| | | | | |
Net asset value, end of year. | | | $25.10 | | | | $22.53 | | | | $23.02 | | | | $23.96 | | | | $22.19 | |
| | | | | |
Total return | | | 18.88% | | | | 3.53% | | | | 3.98% | | | | 11.25% | | | | 26.48% | |
| | | | | |
Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expensesd | | | 0.61%e | | | | 0.62%e | | | | 0.61%e | | | | 0.62%e | | | | 0.66% | |
| | | | | |
Net investment income | | | 2.27% | | | | 2.38% | | | | 2.62% | | | | 3.12%c | | | | 2.44% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $147,681 | | | | $80,422 | | | | $34,577 | | | | $30,166 | | | | $17,534 | |
| | | | | |
Portfolio turnover rate | | | 27.18% | | | | 50.05% | | | | 34.09% | | | | 20.15% | | | | 33.18% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cNet investment income per share includes approximately $0.17 per share related to income received in the form of a special dividend in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 2.40%.
dBenefit of expense reduction rounds to less than 0.01%.
eBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| | | | | | |
franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | | 55 | |
FRANKLIN INVESTORS SECURITIES TRUST
Statement of Investments, October 31, 2017
Franklin Equity Income Fund
| | | | | | | | | | | | | | |
| | | | | Country | | | Shares | | | Value | |
| | | | |
| | Common Stocks 86.0% | | | | | | | | | | | | |
| | Consumer Discretionary 3.4% | | | | | | | | | | | | |
| | Lowe’s Cos. Inc. | | | United States | | | | 440,000 | | | $ | 35,178,000 | |
| | Newell Brands Inc. | | | United States | | | | 615,000 | | | | 25,079,700 | |
| | Target Corp. | | | United States | | | | 258,900 | | | | 15,285,456 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | 75,543,156 | |
| | | | | | | | | | | | | | |
| | Consumer Staples 7.5% | | | | | | | | | | | | |
| | Anheuser-Busch InBev SA/NV, ADR | | | Belgium | | | | 201,100 | | | | 24,691,058 | |
| | The Kraft Heinz Co. | | | United States | | | | 349,100 | | | | 26,995,903 | |
| | PepsiCo Inc. | | | United States | | | | 460,500 | | | | 50,760,915 | |
| | The Procter & Gamble Co. | | | United States | | | | 452,900 | | | | 39,103,386 | |
| | Wal-Mart Stores Inc. | | | United States | | | | 259,600 | | | | 22,665,676 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | 164,216,938 | |
| | | | | | | | | | | | | | |
| | | | |
| | Energy 9.1% | | | | | | | | | | | | |
| | Anadarko Petroleum Corp. | | | United States | | | | 163,200 | | | | 8,057,184 | |
| | Baker Hughes a GE Co., A | | | United States | | | | 275,000 | | | | 8,643,250 | |
| | BP PLC, ADR | | | United Kingdom | | | | 265,000 | | | | 10,777,550 | |
| | Chevron Corp. | | | United States | | | | 502,800 | | | | 58,269,492 | |
| | Exxon Mobil Corp. | | | United States | | | | 367,234 | | | | 30,608,954 | |
| | Occidental Petroleum Corp. | | | United States | | | | 240,000 | | | | 15,496,800 | |
| | Royal Dutch Shell PLC, A, ADR | | | United Kingdom | | | | 385,900 | | | | 24,323,277 | |
| | Schlumberger Ltd. | | | United States | | | | 328,000 | | | | 20,992,000 | |
| | Suncor Energy Inc. | | | Canada | | | | 650,000 | | | | 22,074,000 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | 199,242,507 | |
| | | | | | | | | | | | | | |
| | | | |
| | Financials 18.8% | | | | | | | | | | | | |
| | Arthur J. Gallagher & Co. | | | United States | | | | 331,800 | | | | 21,012,894 | |
| | Bank of America Corp. | | | United States | | | | 667,200 | | | | 18,274,608 | |
| | BB&T Corp. | | | United States | | | | 720,000 | | | | 35,452,800 | |
| | BlackRock Inc. | | | United States | | | | 110,500 | | | | 52,026,715 | |
| | JPMorgan Chase & Co. | | | United States | | | | 866,000 | | | | 87,128,260 | |
| | MetLife Inc. | | | United States | | | | 645,000 | | | | 34,559,100 | |
| | Morgan Stanley | | | United States | | | | 956,000 | | | | 47,800,000 | |
| | U.S. Bancorp | | | United States | | | | 929,300 | | | | 50,535,334 | |
| | Wells Fargo & Co. | | | United States | | | | 1,145,000 | | | | 64,280,300 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | 411,070,011 | |
| | | | | | | | | | | | | | |
| | | | |
| | Health Care 9.3% | | | | | | | | | | | | |
| | Eli Lilly & Co. | | | United States | | | | 330,400 | | | | 27,072,976 | |
| | Gilead Sciences Inc. | | | United States | | | | 169,441 | | | | 12,701,297 | |
| | Johnson & Johnson | | | United States | | | | 144,000 | | | | 20,075,040 | |
| | Medtronic PLC | | | United States | | | | 523,000 | | | | 42,111,960 | |
| | Merck & Co. Inc. | | | United States | | | | 495,000 | | | | 27,269,550 | |
| | Pfizer Inc. | | | United States | | | | 1,174,300 | | | | 41,170,958 | |
| | UnitedHealth Group Inc. | | | United States | | | | 161,500 | | | | 33,950,530 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | 204,352,311 | |
| | | | | | | | | | | | | | |
| | | | |
| | Industrials 16.2% | | | | | | | | | | | | |
| | Cummins Inc. | | | United States | | | | 212,800 | | | | 37,640,064 | |
| | Deere & Co. | | | United States | | | | 121,500 | | | | 16,144,920 | |
| | General Electric Co. | | | United States | | | | 2,210,300 | | | | 44,559,648 | |
| | Illinois Tool Works Inc. | | | United States | | | | 225,400 | | | | 35,279,608 | |
| | Lockheed Martin Corp. | | | United States | | | | 122,600 | | | | 37,780,416 | |
| | Norfolk Southern Corp. | | | United States | | | | 149,500 | | | | 19,647,290 | |
| | Raytheon Co. | | | United States | | | | 293,500 | | | | 52,888,700 | |
| | | | |
56 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Equity Income Fund (continued)
| | | | | | | | | | | | | | |
| | | | | Country | | | Shares | | | Value | |
| | Common Stocks (continued) | | | | | | | | | | | | |
| | Industrials (continued) | | | | | | | | | | | | |
| | | | |
| | Republic Services Inc. | | | United States | | | | 643,500 | | | $ | 41,872,545 | |
| | Stanley Black & Decker Inc. | | | United States | | | | 152,380 | | | | 24,616,989 | |
| | United Parcel Service Inc., B | | | United States | | | | 161,600 | | | | 18,992,848 | |
| | United Technologies Corp. | | | United States | | | | 204,700 | | | | 24,514,872 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | 353,937,900 | |
| | | | | | | | | | | | | | |
| | | | |
| | Information Technology 11.8% | | | | | | | | | | | | |
| | Apple Inc. | | | United States | | | | 225,500 | | | | 38,118,520 | |
| | Broadcom Ltd. | | | United States | | | | 53,500 | | | | 14,119,185 | |
| | Cisco Systems Inc. | | | United States | | | | 901,733 | | | | 30,794,182 | |
| | Intel Corp. | | | United States | | | | 628,402 | | | | 28,586,007 | |
| | Microsoft Corp. | | | United States | | | | 986,700 | | | | 82,073,706 | |
| | Oracle Corp. | | | United States | | | | 323,000 | | | | 16,440,700 | |
| | Texas Instruments Inc. | | | United States | | | | 493,000 | | | | 47,668,170 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | 257,800,470 | |
| | | | | | | | | | | | | | |
| | Materials 4.4% | | | | | | | | | | | | |
| | BASF SE | | | Germany | | | | 286,500 | | | | 31,249,121 | |
| | DowDuPont Inc. | | | United States | | | | 486,900 | | | | 35,207,739 | |
| | International Paper Co. | | | United States | | | | 515,900 | | | | 29,545,593 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | 96,002,453 | |
| | | | | | | | | | | | | | |
| | | | |
| | Real Estate 1.3% | | | | | | | | | | | | |
| | | | |
| | Host Hotels & Resorts Inc. | | | United States | | | | 1,483,000 | | | | 29,007,480 | |
| | | | | | | | | | | | | | |
| | | | |
| | Telecommunication Services 1.6% | | | | | | | | | | | | |
| | | | |
| | Rogers Communications Inc., B | | | Canada | | | | 230,300 | | | | 11,952,570 | |
| | Verizon Communications Inc. | | | United States | | | | 473,000 | | | | 22,642,510 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | 34,595,080 | |
| | | | | | | | | | | | | | |
| | | | |
| | Utilities 2.6% | | | | | | | | | | | | |
| | Dominion Energy Inc. | | | United States | | | | 281,100 | | | | 22,808,454 | |
| | Xcel Energy Inc. | | | United States | | | | 673,500 | | | | 33,351,720 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | 56,160,174 | |
| | | | | | | | | | | | | | |
| | | | |
| | Total Common Stocks (Cost $1,292,574,052) | | | | | | | | | | | 1,881,928,480 | |
| | | | | | | | | | | | | | |
| | | |
| a Equity-Linked Securities 8.7% | | | | | | | | | | | | |
| Consumer Discretionary 1.4% | | | | | | | | | | | | |
b Wells Fargo Bank National Assn. into Amazon.com Inc., 5.00%, 144A | | | United States | | | | 33,300 | | | | 30,738,046 | |
| | | | | | | | | | | | | | |
| | | |
| Energy 1.1% | | | | | | | | | | | | |
b Citigroup Global Markets Holdings Inc. into Anadarko Petroleum Corp., 6.00%, 144A | | | United States | | | | 330,000 | | | | 16,220,462 | |
b Merrill Lynch International & Co. CV into Schlumberger Ltd., 7.00%, 144A | | | United States | | | | 126,000 | | | | 8,226,897 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | 24,447,359 | |
| | | | | | | | | | | | | | |
| | | |
| Financials 2.4% | | | | | | | | | | | | |
b Deutsche Bank AG into Bank of America Corp., 6.50%, 144A | | | United States | | | | 880,000 | | | | 23,055,075 | |
b UBS AG London into The Charles Schwab Corp., 6.50%, 144A | | | United States | | | | 695,000 | | | | 30,600,481 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | 53,655,556 | |
| | | | | | | | | | | | | | |
| | | | | | |
franklintempleton.com | | . Annual Report | | | 57 | |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Equity Income Fund (continued)
| | | | | | | | | | | | | | |
| | | | | Country | | | Shares | | | Value | |
a Equity-Linked Securities (continued) | | | | | | | | | | | | |
| Information Technology 3.8% | | | | | | | | | | | | |
b Barclays Bank PLC into Broadcom Ltd., 7.50%, 144A | | | United States | | | | 99,300 | | | $ | 24,628,558 | |
b Goldman Sachs International into Apple Inc., 6.00%, 144A | | | United States | | | | 140,000 | | | | 22,933,525 | |
b UBS AG London into Intel Corp., 7.00%, 144A | | | United States | | | | 825,000 | | | | 34,849,393 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | 82,411,476 | |
| | | | | | | | | | | | | | |
| | | |
Total Equity-Linked Securities (Cost $177,028,430) | | | | | | | | | | | 191,252,437 | |
| | | | | | | | | | | | | | |
| | | |
Convertible Preferred Stocks 3.7% | | | | | | | | | | | | |
| Health Care 1.8% | | | | | | | | | | | | |
Allergan PLC, 5.50%, cvt. pfd | | | United States | | | | 23,200 | | | | 14,933,608 | |
Becton Dickinson and Co., 6.125%, cvt. pfd., A | | | United States | | | | 440,000 | | | | 24,978,800 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | 39,912,408 | |
| | | | | | | | | | | | | | |
| | | |
| Utilities 1.9% | | | | | | | | | | | | |
| | NextEra Energy Inc., 6.371%, cvt. pfd | | | United States | | | | 575,000 | | | | 40,106,250 | |
| | | | | | | | | | | | | | |
| | | |
Total Convertible Preferred Stocks (Cost $74,349,838) | | | | | | | | | | | 80,018,658 | |
| | | | | | | | | | | | | | |
| | | |
Total Investments before Short Term Investments
(Cost $1,543,952,320) | | | | | | | | | | | 2,153,199,575 | |
| | | | | | | | | | | | | | |
| | | |
Short Term Investments (Cost $36,691,548) 1.7% | | | | | | | | | | | | |
| | | | |
| | Money Market Funds 1.7% | | | | | | | | | | | | |
c,d Institutional Fiduciary Trust Money Market Portfolio, 0.69% | | | United States | | | | 36,691,548 | | | | 36,691,548 | |
| | | | | | | | | | | | | | |
Total Investments (Cost $1,580,643,868) 100.1% | | | | | | | | | | | 2,189,891,123 | |
Other Assets, less Liabilities (0.1)% | | | | | | | | | | | (1,822,450 | ) |
| | | | | | | | | | | | | | |
| | | | |
| | Net Assets 100.0% | | | | | | | | | | $ | 2,188,068,673 | |
| | | | | | | | | | | | | | |
See Abbreviations on page 91.
aSee Note 1(e) regarding equity-linked securities.
bSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in a public offering registered under the Securities Act of 1933. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At October 31, 2017, the aggregate value of these securities was $191,252,437, representing 8.7% of net assets.
cSee Note 3(f) regarding investments in affiliated management investment companies.
dThe rate shown is the annualized seven-day yield at period end.
| | | | |
58 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
Financial Highlights
Franklin Real Return Fund
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, |
| | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | | | | |
Class A | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $10.09 | | | | $9.92 | | | | $10.66 | | | | $10.82 | | | | $10.94 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment incomeb | | | 0.17 | | | | 0.12 | | | | 0.05 | | | | 0.14 | | | | 0.15 | |
| | | | | |
Net realized and unrealized gains (losses) | | | 0.01 | | | | 0.15 | | | | (0.72) | | | | (0.06) | | | | (0.01) | |
| | | | | |
Total from investment operations | | | 0.18 | | | | 0.27 | | | | (0.67) | | | | 0.08 | | | | 0.14 | |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income and net foreign currency gains | | | (0.13) | | | | (0.09) | | | | (0.07) | | | | (0.24) | | | | (0.26) | |
| | | | | |
Tax return of capital | | | — | | | | (0.01) | | | | — | | | | — | | | | — | |
| | | | | |
Total distributions | | | (0.13) | | | | (0.10) | | | | (0.07) | | | | (0.24) | | | | (0.26) | |
| | | | | |
Net asset value, end of year | | | $10.14 | | | | $10.09 | | | | $9.92 | | | | $10.66 | | | | $10.82 | |
| | | | | |
Total returnc | | | 1.77% | | | | 2.77% | | | | (6.32)% | | | | 0.75% | | | | 1.34% | |
| | | | | |
| Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 1.17% | | | | 1.12% | | | | 1.10% | | | | 1.10% | | | | 1.08% | |
| | | | | |
Expenses net of waiver and payments by affiliatesd | | | 0.90% | | | | 0.90% | | | | 0.90% | | | | 0.90% | | | | 0.90% | |
| | | | | |
Net investment income | | | 1.69% | | | | 1.18% | | | | 0.43% | | | | 1.34% | | | | 1.35% | |
| | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $146,866 | | | | $161,541 | | | | $185,743 | | | | $248,313 | | | | $327,285 | |
| | | | | |
Portfolio turnover rate | | | 32.44% | | | | 31.82% | | | | 26.57% | | | | 33.02% | | | | 27.91% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned, adjustments to interest income for the inflation-indexed bonds, and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
dBenefit of expense reduction rounds to less than 0.01%.
| | | | | | |
| franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | | 59 | |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin Real Return Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, |
| | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | | | | |
Class C | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $10.00 | | | | $9.82 | | | | $10.59 | | | | $10.76 | | | | $10.87 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment incomeb | | | 0.13 | | | | 0.08 | | | | —c | | | | 0.10 | | | | 0.10 | |
| | | | | |
Net realized and unrealized gains (losses) | | | —c | | | | 0.16 | | | | (0.71) | | | | (0.07) | | | | 0.01 | |
| | | | | |
Total from investment operations | | | 0.13 | | | | 0.24 | | | | (0.71) | | | | 0.03 | | | | 0.11 | |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income and net foreign currency gains | | | (0.10) | | | | (0.05) | | | | (0.06) | | | | (0.20) | | | | (0.22) | |
| | | | | |
Tax return of capital | | | — | | | | (0.01) | | | | — | | | | — | | | | — | |
| | | | | |
Total distributions | | | (0.10) | | | | (0.06) | | | | (0.06) | | | | (0.20) | | | | (0.22) | |
| | | | | |
Net asset value, end of year | | | $10.03 | | | | $10.00 | | | | $9.82 | | | | $10.59 | | | | $10.76 | |
| | | | | |
Total returnd | | | 1.30% | | | | 2.44% | | | | (6.70)% | | | | 0.22% | | | | 1.03% | |
| | | | | |
| Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 1.57% | | | | 1.52% | | | | 1.50% | | | | 1.50% | | | | 1.48% | |
| | | | | |
Expenses net of waiver and payments by affiliatese | | | 1.30% | | | | 1.30% | | | | 1.30% | | | | 1.30% | | | | 1.30% | |
| | | | | |
Net investment income | | | 1.29% | | | | 0.78% | | | | 0.04% | | | | 0.94% | | | | 0.95% | |
| | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $33,844 | | | | $39,568 | | | | $48,084 | | | | $68,188 | | | | $83,666 | |
| | | | | |
Portfolio turnover rate | | | 32.44% | | | | 31.82% | | | | 26.57% | | | | 33.02% | | | | 27.91% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned, adjustments to interest income for the inflation-indexed bonds, and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cAmount rounds to less than $0.01 per share.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
eBenefit of expense reduction rounds to less than 0.01%.
| | | | |
| 60 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin Real Return Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, |
| | | 2017 | | 2016 | | 2015 | | 2014 | | 2013a |
| | | | | |
Class R6 | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $10.15 | | | | $9.98 | | | | $10.68 | | | | $10.85 | | | | $11.01 | |
| | | | | |
Income from investment operationsb: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment incomec | | | 0.22 | | | | 0.16 | | | | 0.10 | | | | 0.21 | | | | 0.09 | |
| | | | | |
Net realized and unrealized gains (losses) | | | (0.01) | | | | 0.16 | | | | (0.72) | | | | (0.10) | | | | (0.10) | |
| | | | | |
Total from investment operations | | | 0.21 | | | | 0.32 | | | | (0.62) | | | | 0.11 | | | | (0.01) | |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income and net foreign currency gains | | | (0.17) | | | | (0.14) | | | | (0.08) | | | | (0.28) | | | | (0.15) | |
| | | | | |
Tax return of capital | | | — | | | | (0.01) | | | | — | | | | — | | | | — | |
| | | | | |
Total distributions | | | (0.17) | | | | (0.15) | | | | (0.08) | | | | (0.28) | | | | (0.15) | |
| | | | | |
Net asset value, end of year | | | $10.19 | | | | $10.15 | | | | $9.98 | | | | $10.68 | | | | $10.85 | |
| | | | | |
Total returnd | | | 2.09% | | | | 3.25% | | | | (5.87)% | | | | 1.04% | | | | (0.06)% | |
| | | | | |
| Ratios to average net assetse | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 0.72% | | | | 0.71% | | | | 0.71% | | | | 0.70% | | | | 2.43% | |
| | | | | |
Expenses net of waiver and payments by affiliatesf | | | 0.49% | | | | 0.50% | | | | 0.50% | | | | 0.52% | | | | 0.52% | |
| | | | | |
Net investment income | | | 2.11% | | | | 1.58% | | | | 0.83% | | | | 1.72% | | | | 1.73% | |
| | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $5,727 | | | | $5,326 | | | | $1,730 | | | | $2,034 | | | | $5 | |
| | | | | |
Portfolio turnover rate | | | 32.44% | | | | 31.82% | | | | 26.57% | | | | 33.02% | | | | 27.91% | |
aFor the period May 1, 2013 (effective date) to October 31, 2013.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned, adjustments to interest income for the inflation-indexed bonds, and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fBenefit of expense reduction rounds to less than 0.01%.
| | | | | | |
| franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | | 61 | |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin Real Return Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, |
| | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | | | | |
Advisor Class | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $10.13 | | | | $9.96 | | | | $10.68 | | | | $10.85 | | | | $10.97 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment incomeb | | | 0.20 | | | | 0.14 | | | | 0.05 | | | | 0.18 | | | | 0.18 | |
| | | | | |
Net realized and unrealized gains (losses) | | | —c | | | | 0.16 | | | | (0.70) | | | | (0.08) | | | | (0.01) | |
| | | | | |
Total from investment operations | | | 0.20 | | | | 0.30 | | | | (0.65) | | | | 0.10 | | | | 0.17 | |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income and net foreign currency gains | | | (0.15) | | | | (0.12) | | | | (0.07) | | | | (0.27) | | | | (0.29) | |
| | | | | |
Tax return of capital | | | — | | | | (0.01) | | | | — | | | | — | | | | — | |
| | | | | |
Total distributions | | | (0.15) | | | | (0.13) | | | | (0.07) | | | | (0.27) | | | | (0.29) | |
| | | | | |
Net asset value, end of year | | | $10.18 | | | | $10.13 | | | | $9.96 | | | | $10.68 | | | | $10.85 | |
| | | | | |
Total return | | | 2.03% | | | | 3.04% | | | | (6.08)% | | | | 0.91% | | | | 1.60% | |
| | | | | |
| Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 0.92% | | | | 0.87% | | | | 0.85% | | | | 0.85% | | | | 0.83% | |
| | | | | |
Expenses net of waiver and payments by affiliatesd | | | 0.65% | | | | 0.65% | | | | 0.65% | | | | 0.65% | | | | 0.65% | |
| | | | | |
Net investment income | | | 1.94% | | | | 1.43% | | | | 0.68% | | | | 1.59% | | | | 1.60% | |
| | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $40,077 | | | | $35,215 | | | | $37,758 | | | | $65,958 | | | | $28,042 | |
| | | | | |
Portfolio turnover rate | | | 32.44% | | | | 31.82% | | | | 26.57% | | | | 33.02% | | | | 27.91% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned, adjustments to interest income for the inflation-indexed bonds, and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cAmount rounds to less than $0.01 per share.
dBenefit of expense reduction rounds to less than 0.01%.
| | | | |
| 62 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
Statement of Investments, October 31, 2017
Franklin Real Return Fund
| | | | | | | | | | | | | | |
| | | Country | | Shares | | | | | | Value | |
Common Stocks 9.2% | | | | | | | | | | | | | | |
Energy 5.4% | | | | | | | | | | | | | | |
Anadarko Petroleum Corp. | | United States | | | 23,700 | | | | | | | $ | 1,170,069 | |
Canadian Natural Resources Ltd. | | Canada | | | 33,700 | | | | | | | | 1,176,130 | |
Chevron Corp. | | United States | | | 13,700 | | | | | | | | 1,587,693 | |
Exxon Mobil Corp. | | United States | | | 15,277 | | | | | | | | 1,273,338 | |
Halliburton Co. | | United States | | | 33,300 | | | | | | | | 1,423,242 | |
Noble Energy Inc. | | United States | | | 27,400 | | | | | | | | 763,638 | |
Occidental Petroleum Corp. | | United States | | | 18,200 | | | | | | | | 1,175,174 | |
Pioneer Natural Resources Co. | | United States | | | 4,700 | | | | | | | | 703,449 | |
Royal Dutch Shell PLC, A, ADR | | United Kingdom | | | 19,800 | | | | | | | | 1,247,994 | |
Schlumberger Ltd. | | United States | | | 20,850 | | | | | | | | 1,334,400 | |
a Weatherford International PLC | | United States | | | 119,400 | | | | | | | | 414,318 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | 12,269,445 | |
| | | | | | | | | | | | | | |
Materials 3.8% | | | | | | | | | | | | | | |
Agrium Inc. | | Canada | | | 8,800 | | | | | | | | 958,496 | |
BHP Billiton PLC, ADR | | United Kingdom | | | 32,700 | | | | | | | | 1,187,664 | |
DowDuPont Inc. | | United States | | | 26,600 | | | | | | | | 1,923,446 | |
a Freeport-McMoRan Inc. | | United States | | | 53,046 | | | | | | | | 741,583 | |
Goldcorp Inc. | | Canada | | | 101,600 | | | | | | | | 1,326,896 | |
Nucor Corp. | | United States | | | 21,000 | | | | | | | | 1,214,430 | |
Rio Tinto PLC, ADR | | United Kingdom | | | 27,700 | | | | | | | | 1,327,661 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | 8,680,176 | |
| | | | | | | | | | | | | | |
Total Common Stocks (Cost $21,881,536) | | | | | | | | | | | | | 20,949,621 | |
| | | | | | | | | | | | | | |
Management Investment Companies 9.7% | | | | | | | | | | | | | | |
Diversified Financials 1.9% | | | | | | | | | | | | | | |
b Franklin Lower Tier Floating Rate Fund | | United States | | | 305,899 | | | | | | | | 3,187,463 | |
b Franklin Middle Tier Floating Rate Fund | | United States | | | 112,671 | | | | | | | | 1,106,430 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | 4,293,893 | |
| | | | | | | | | | | | | | |
Real Estate 7.8% | | | | | | | | | | | | | | |
SPDR Dow Jones REIT ETF | | United States | | | 193,000 | | | | | | | | 17,653,710 | |
| | | | | | | | | | | | | | |
Total Management Investment Companies | | | | | | | | | | | | | | |
(Cost $13,515,161) | | | | | | | | | | | | | 21,947,603 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | Principal
Amount* | | | | | | | |
| | | | | | | | | | | | | | |
Corporate Bonds 4.4% | | | | | | | | | | | | | | |
Consumer Services 0.1% | | | | | | | | | | | | | | |
MGM Resorts International, senior note, 7.75%, 3/15/22 | | United States | | | 200,000 | | | | | | | | 232,810 | |
| | | | | | | | | | | | | | |
Energy 1.5% | | | | | | | | | | | | | | |
c Chesapeake Energy Corp., secured note, second lien, 144A, 8.00%, 12/15/22 | | United States | | | 196,000 | | | | | | | | 211,619 | |
CONSOL Energy Inc., | | United States | | | 300,000 | | | | | | | | 307,500 | |
senior note, 5.875%, 4/15/22 | | | | | | | | | | | | | | |
senior note, 8.00%, 4/01/23 | | United States | | | 600,000 | | | | | | | | 645,000 | |
Energy Transfer Equity LP, senior note, first lien, 7.50%, 10/15/20 | | United States | | | 1,000,000 | | | | | | | | 1,130,000 | |
Sabine Pass Liquefaction LLC, senior secured note, first lien, 5.625%, 2/01/21 | | United States | | | 1,000,000 | | | | | | | | 1,085,383 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | 3,379,502 | |
| | | | | | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | 63 | |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Real Return Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | Country | | | | | Principal
Amount* | | | | | | Value | |
| Corporate Bonds (continued) | | | | | | | | | | | | | | | | | | |
Health Care Equipment & Services 0.5% | | | | | | | | | | | | | | | | | | |
HCA Inc., senior secured bond, first lien, 5.875%, 3/15/22 | | United States | | | | | | | 1,000,000 | | | | | | | $ | 1,097,500 | |
| | | | | | | | | | | | | | | | | | |
Materials 0.3% | | | | | | | | | | | | | | | | | | |
c Novelis Corp., senior bond, 144A, 5.875%, 9/30/26 | | United States | | | | | | | 700,000 | | | | | | | | 723,184 | |
| | | | | | | | | | | | | | | | | | |
Media 0.6% | | | | | | | | | | | | | | | | | | |
c Altice U.S. Finance I Corp., senior secured bond, 144A, 5.50%, 5/15/26 | | United States | | | | | | | 300,000 | | | | | | | | 312,750 | |
CSC Holdings LLC, senior note, 6.75%, 11/15/21. | | United States | | | | | | | 1,000,000 | | | | | | | | 1,105,000 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 1,417,750 | |
| | | | | | | | | | | | | | | | | | |
Pharmaceuticals, Biotechnology & Life Sciences 0.5% | | | | | | | | | | | | | | | | | | |
c Valeant Pharmaceuticals International Inc., senior note, 144A, 7.50%, 7/15/21 | | United States | | | | | | | 1,000,000 | | | | | | | | 988,750 | |
| | | | | | | | | | | | | | | | | | |
Telecommunication Services 0.9% | | | | | | | | | | | | | | | | | | |
Intelsat Jackson Holdings SA, senior note, 7.25%, 10/15/20 | | Luxembourg | | | | | | | 1,000,000 | | | | | | | | 967,200 | |
c Sprint Communications Inc., senior note, 144A, 7.00%, 3/01/20 | | United States | | | | | | | 1,000,000 | | | | | | | | 1,087,500 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | 2,054,700 | |
| | | | | | | | | | | | | | | | | | |
Total Corporate Bonds (Cost $9,421,222) | | | | | | | | | | | | | | | | | 9,894,196 | |
| | | | | | | | | | | | | | | | | | |
d,e Senior Floating Rate Interests 1.8% | | | | | | | | | | | | | | | | | | |
Automobiles & Components 0.1% | | | | | | | | | | | | | | | | | | |
TI Group Automotive Systems LLC, Initial US Term Loan, 3.992%, (LIBOR + 2.75%), 6/30/22 | | United States | | | | | | | 119,126 | | | | | | | | 119,684 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
Capital Goods 0.1% | | | | | | | | | | | | | | | | | | |
Allison Transmission Inc., Term Loans, 3.25%, (LIBOR + 2.00%), 9/23/22 | | United States | | | | | | | 86,085 | | | | | | | | 86,693 | |
Harsco Corp., Initial Term Loan, 6.25%, (LIBOR + 5.00%), 11/02/23 | | United States | | | | | | | 29,152 | | | | | | | | 29,687 | |
Leidos Innovations Corp., Term Loan B, 3.25%, (LIBOR + 2.00%), 8/16/23 | | United States | | | | | | | 22,578 | | | | | | | | 22,759 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | 139,139 | |
| | | | | | | | | | | | | | | | | | |
Commercial & Professional Services 0.0%† | | | | | | | | | | | | | | | | | | |
KAR Auction Services Inc., Term Loan B, 3.875%, (LIBOR + 2.50%), 3/09/23 | | United States | | | | | | | 71,478 | | | | | | | | 72,044 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
Consumer Services 0.0%† | | | | | | | | | | | | | | | | | | |
Aristocrat Technologies Inc., Term B-2 Loans, 3.363%, (LIBOR + 2.00%), 10/20/21 | | United States | | | | | | | 16,979 | | | | | | | | 17,107 | |
Greektown Holdings LLC, Initial Term Loan, 4.242%, (LIBOR + 3.00%), 4/25/24 | | United States | | | | | | | 31,044 | | | | | | | | 31,204 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | 48,311 | |
| | | | | | | | | | | | | | | | | | |
Diversified Financials 0.0%† | | | | | | | | | | | | | | | | | | |
Russell Investments US Institutional Holdco Inc., Term Loan B, 5.485%, (LIBOR + 4.25%), 6/01/23 | | United States | | | | | | | 34,736 | | | | | | | | 35,206 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
Energy 0.2% | | | | | | | | | | | | | | | | | | |
Bowie Resource Holdings LLC, First Lien Initial Term Loan, 6.992%, (LIBOR + 5.75%), 8/14/20 | | United States | | | | | | | 182,994 | | | | | | | | 180,707 | |
Fieldwood Energy LLC, Loans, 4.208%, (LIBOR + 2.875%), 10/01/18 | | United States | | | | | | | 404,913 | | | | | | | | 389,222 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | 569,929 | |
| | | | | | | | | | | | | | | | | | |
Food, Beverage & Tobacco 0.1% | | | | | | | | | | | | | | | | | | |
JBS USA LUX SA, New Initial Term Loans, 3.739%, (LIBOR + 2.50%), 10/30/22 | | Brazil | | | | | | | 180,393 | | | | | | | | 177,800 | |
| | | | | | | | | | | | | | | | | | |
| | | | |
| 64 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Real Return Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | | | | | Value | |
d,e Senior Floating Rate Interests (continued) | | | | | | | | | | | | | | | | |
Household & Personal Products 0.1% | | | | | | | | | | | | | | | | |
FGI Operating Co. LLC, Term B Loans, 5.50%, (LIBOR + 4.25%), 4/19/19 | | | United States | | | | 357,185 | | | | | | | $ | 262,235 | |
Spectrum Brands Inc., USD Term Loans, 3.242% - 3.312%, (LIBOR + 2.00%), 6/23/22 | | | United States | | | | 3,687 | | | | | | | | 3,716 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | 265,951 | |
| | | | | | | | | | | | | | | | |
Materials 0.2% | | | | | | | | | | | | | | | | |
Chemours Co., Tranche B-1 US Term Loans, 3.75%, (LIBOR + 2.50%), 5/12/22 | | | United States | | | | 202,560 | | | | | | | | 204,776 | |
Cyanco Intermediate Corp., Initial Term Loan, 5.742%, (LIBOR + 4.50%), 5/01/20 | | | United States | | | | 54,305 | | | | | | | | 54,882 | |
OCI Beaumont LLC, Term B-3 Loan, 8.064%, (LIBOR + 6.75%), 8/20/19 | | | United States | | | | 123,439 | | | | | | | | 125,342 | |
Oxbow Carbon LLC, Tranche B Term Loan, 4.742%, (LIBOR + 3.50%), 1/19/20 | | | United States | | | | 60,555 | | | | | | | | 61,387 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | 446,387 | |
| | | | | | | | | | | | | | | | |
Media 0.2% | | | | | | | | | | | | | | | | |
Altice US Finance I Corp., March 2017 Refinancing Term Loan | | | | | | | | | | | | | | | | |
Commitments, 3.492%, (LIBOR + 2.25%), 7/28/25 | | | United States | | | | 25,063 | | | | | | | | 25,083 | |
AMC Entertainment Holdings Inc., | | | United States | | | | 9,718 | | | | | | | | 9,706 | |
2016 Incremental Term Loans, 3.489%, (LIBOR + 2.25%), 12/15/23 | | | | | | | | | | | | | | | | |
Initial Term Loans, 3.489%, (LIBOR + 2.25%), 12/15/22 | | | United States | | | | 15,162 | | | | | | | | 15,192 | |
Charter Communications Operating LLC, Term Loan A-1, 3.00%, (LIBOR + 1.75%), 5/18/21 | | | United States | | | | 129,500 | | | | | | | | 129,673 | |
CSC Holdings LLC (Cablevision), March 2017 Incremental Term Loans, 3.489%, (LIBOR + 2.25%), 7/17/25. | | | United States | | | | 120,480 | | | | | | | | 120,329 | |
Lions Gate Entertainment Corp., Term A Loan, 3.242%, (LIBOR + 2.00%), 12/08/21 | | | United States | | | | 65,402 | | | | | | | | 65,586 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | 365,569 | |
| | | | | | | | | | | | | | | | |
Pharmaceuticals, Biotechnology & Life Sciences 0.2% | | | | | | | | | | | | | | | | |
Endo Luxembourg Finance Co. I S.A.R.L. and Endo LLC, Initial Term Loans, 5.50%, (LIBOR + 4.25%), 4/29/24 | | | United States | | | | 198,251 | | | | | | | | 201,076 | |
Grifols Worldwide Operations USA Inc., Tranche B Term Loan, 3.452%, (LIBOR + 2.25%), 1/31/25 | | | United States | | | | 196,592 | | | | | | | | 197,507 | |
RPI Finance Trust, Term A-3 Loan, 3.083%, (LIBOR + 1.75%), 10/14/21 | | | United States | | | | 36,654 | | | | | | | | 36,723 | |
Valeant Pharmaceuticals International Inc., Series F Tranche B Term Loan, 5.99%, (LIBOR + 4.75%), 4/01/22 | | | United States | | | | 103,611 | | | | | | | | 105,736 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | 541,042 | |
| | | | | | | | | | | | | | | | |
Retailing 0.2% | | | | | | | | | | | | | | | | |
Ascena Retail Group Inc., Tranche B Term Loan, 5.75%, (LIBOR + 4.50%), 8/21/22 | | | United States | | | | 227,105 | | | | | | | | 198,078 | |
Dollar Tree Inc., Term A-1 Loans, 2.75%, (LIBOR + 1.50%), 7/06/20 | | | United States | | | | 50,790 | | | | | | | | 50,678 | |
PetSmart Inc., Tranche B-2 Loans, 4.24%, (LIBOR + 3.00%), 3/11/22 | | | United States | | | | 192,162 | | | | | | | | 165,590 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | 414,346 | |
| | | | | | | | | | | | | | | | |
Semiconductors & Semiconductor Equipment 0.1% | | | | | | | | | | | | | | | | |
MKS Instruments Inc., Tranche B-3 Term Loans, 3.492%, (LIBOR + 2.25%), 4/29/23 | | | United States | | | | 38,417 | | | | | | | | 38,795 | |
ON Semiconductor Corp., 2017 Replacement Term Loans, 3.492%, (LIBOR + 2.25%), 3/31/23 | | | United States | | | | 204,870 | | | | | | | | 206,012 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | 244,807 | |
| | | | | | | | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | 65 | |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Real Return Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | | | | | Value | |
d,e Senior Floating Rate Interests (continued) | | | | | | | | | | | | | | | | |
Software & Services 0.1% | | | | | | | | | | | | | | | | |
Global Payments Inc., Term A-2 Loan, 2.952%, (LIBOR + 1.75%), 5/02/22 | | | United States | | | | 78,728 | | | | | | | $ | 78,777 | |
Rackspace Hosting Inc., 2017 Refinancing Term B Loans, 4.311%, (LIBOR + 3.00%), 11/03/23 | | | United States | | | | 48,710 | | | | | | | | 48,706 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 127,483 | |
| | | | | | | | | | | | | | | | |
Technology Hardware & Equipment 0.0%† | | | | | | | | | | | | | | | | |
Ciena Corp., Refinancing Term Loan, 3.739%, (LIBOR + 2.50%), 1/28/22 | | | United States | | | | 26,110 | | | | | | | | 26,240 | |
Western Digital Corp., US Term B-2 Loan, 3.99%, (LIBOR + 2.75%), 4/29/23 | | | United States | | | | 66,655 | | | | | | | | 67,135 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 93,375 | |
| | | | | | | | | | | | | | | | |
Telecommunication Services 0.0%† | | | | | | | | | | | | | | | | |
Consolidated Communications Inc., Initial Term Loan, 4.25%, (LIBOR + 3.00%), 10/05/23 | | | United States | | | | 24,354 | | | | | | | | 24,004 | |
Global Tel*Link Corp., Term Loan, 5.333%, (LIBOR + 4.00%), 5/23/20 | | | United States | | | | 26,318 | | | | | | | | 26,643 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 50,647 | |
| | | | | | | | | | | | | | | | |
Transportation 0.1% | | | | | | | | | | | | | | | | |
Air Canada, Term Loan, 3.568%, (LIBOR + 2.25%), 10/06/23 | | | Canada | | | | 6,423 | | | | | | | | 6,470 | |
Navios Maritime Midstream Partners LP, Term Loan, 5.83%, (LIBOR + 4.50%), 6/18/20 | | | Marshall Islands | | | | 85,051 | | | | | | | | 84,839 | |
United Airlines Inc., Class B Term Loans, 3.63%, (LIBOR + 2.25%), 4/01/24 . | | | United States | | | | 32,319 | | | | | | | | 32,509 | |
XPO Logistics Inc., Loans, 3.599%, (LIBOR + 2.25%), 11/01/21 | | | United States | | | | 89,706 | | | | | | | | 90,322 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 214,140 | |
| | | | | | | | | | | | | | | | |
Utilities 0.1% | | | | | | | | | | | | | | | | |
EFS Cogen Holdings I LLC (Linden), Term B Advance, 4.84%, (LIBOR + 3.50%), 6/28/23 | | | United States | | | | 15,298 | | | | | | | | 15,432 | |
NRG Energy Inc., Term Loans, 3.583%, (LIBOR + 2.25%), 6/30/23 | | | United States | | | | 118,500 | | | | | | | | 118,871 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 134,303 | |
| | | | | | | | | | | | | | | | |
Total Senior Floating Rate Interests (Cost $4,160,584) | | | | | | | | | | | | | | | 4,060,163 | |
| | | | | | | | | | | | | | | | |
Foreign Government and Agency Securities 8.6% | | | | | | | | | | | | | | | | |
Government of Hungary, senior note, 6.375%, 3/29/21 | | | Hungary | | | | 620,000 | | | | | | | | 694,648 | |
Government of Indonesia, senior bond, FR53, 8.25%, 7/15/21 | | | Indonesia | | | | 58,500,000,000 | | | | IDR | | | | 4,574,320 | |
Government of Malaysia, senior note, 3.58%, 9/28/18 | | | Malaysia | | | | 7,650,000 | | | | MYR | | | | 1,816,043 | |
Government of Mexico, M, 4.75%, 6/14/18 | | | Mexico | | | | 1,124,000 | f | | | MXN | | | | 5,781,413 | |
Nota Do Tesouro Nacional, | | | | | | | | | | | | | | | | |
10.00%, 1/01/21 | | | Brazil | | | | 17,200 | g | | | BRL | | | | 5,395,081 | |
h Index Linked, 6.00%, 8/15/18 | | | Brazil | | | | 1,270 | g | | | BRL | | | | 1,202,491 | |
| | | | | | | | | | | | | | | | |
Total Foreign Government and Agency Securities (Cost $18,665,443) | | | | | | | | | | | | | | | 19,463,996 | |
| | | | | | | | | | | | | | | | |
U.S. Government and Agency Securities 62.6% | | | | | | | | | | | | | | | | |
i U.S. Treasury Note, | | | | | | | | | | | | | | | | |
Index Linked, 1.625%, 1/15/18 | | | United States | | | | 29,881,802 | | | | | | | | 30,023,235 | |
Index Linked, 2.125%, 1/15/19 | | | United States | | | | 38,876,820 | | | | | | | | 39,993,517 | |
Index Linked, 0.125%, 4/15/19 | | | United States | | | | 22,211,117 | | | | | | | | 22,274,525 | |
Index Linked, 1.875%, 7/15/19 | | | United States | | | | 24,145,027 | | | | | | | | 25,114,040 | |
Index Linked, 1.375%, 1/15/20 | | | United States | | | | 2,384,044 | | | | | | | | 2,464,851 | |
Index Linked, 0.125%, 4/15/20 | | | United States | | | | 9,959,002 | | | | | | | | 9,995,757 | |
| | | | |
| 66 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Real Return Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | | | | | Value | |
U.S. Government and Agency Securities (continued) | | | | | | | | | | | | | | | | |
i U.S. Treasury Note, (continued) | | | | | | | | | | | | | | | | |
Index Linked, 0.125%, 4/15/21 | | | United States | | | | 12,015,452 | | | | | | | $ | 12,038,333 | |
| | | | | | | | | | | | | | | | |
Total U.S. Government and Agency Securities (Cost $141,998,485) | | | | | | | | | | | | | | | 141,904,258 | |
| | | | | | | | | | | | | | | | |
Total Investments before Short Term Investments (Cost $209,642,431) | | | | | | | | | | | | | | | 218,219,837 | |
| | | | | | | | | | | | | | | | |
| | | | |
Short Term Investments (Cost $8,548,043) 3.8% | | | | | | | | | | | | | | | | |
| | | | |
Repurchase Agreements 3.8% | | | | | | | | | | | | | | | | |
j Joint Repurchase Agreement, 1.031%, 11/01/17 | | | | | | | | | | | | | | | | |
(Maturity Value $8,548,288) | | | | | | | | | | | | | | | | |
BNP Paribas Securities Corp. (Maturity Value $7,549,249) | | | | | | | | | | | | | | | | |
Deutsche Bank Securities Inc. (Maturity Value $524,523) | | | | | | | | | | | | | | | | |
HSBC Securities (USA) Inc. (Maturity Value $431,347) | | | | | | | | | | | | | | | | |
Merrill Lynch, Pierce, Fenner & Smith Inc. (Maturity Value $43,169) | | | | | | | | | | | | | | | | |
Collateralized by U.S. Government Agency Securities, 1.50% - 2.00%,
1/17/20 - 1/05/22; kU.S. Treasury Bill, 11/24/17; and U.S. Treasury
Note, 0.75% - 2.00%, 2/28/18 - 8/31/22 (valued at $8,742,950) | | | United States | | | | 8,548,043 | | | | | | | | 8,548,043 | |
| | | | | | | | | | | | | | | | |
Total Investments (Cost $218,190,474) 100.1% | | | | | | | | | | | | | | | 226,767,880 | |
Other Assets, less Liabilities (0.1)% | | | | | | | | | | | | | | | (253,807 | ) |
| | | | | | | | | | | | | | | | |
Net Assets 100.0% | | | | | | | | | | | | | | $ | 226,514,073 | |
| | | | | | | | | | | | | | | | |
See Abbreviations on page 91.
†Rounds to less than 0.1% of net assets.
*The principal amount is stated in U.S. dollars unless otherwise indicated.
aNon-income producing.
bSee Note 3(f) regarding investments in affiliated management investment companies.
cSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in a public offering registered under the Securities Act of 1933. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At October 31, 2017, the aggregate value of these securities was $3,323,803, representing 1.5% of net assets.
dThe coupon rate shown represents the rate at period end.
eSee Note 1(f) regarding senior floating rate interests.
fPrincipal amount is stated in 100 Mexican Peso Units.
gPrincipal amount is stated in 1,000 Brazilian Real Units.
hRedemption price at maturity is adjusted for inflation. See Note 1(h).
iPrincipal amount of security is adjusted for inflation. See Note 1(h).
jSee Note 1(c) regarding joint repurchase agreement.
kThe security was issued on a discount basis with no stated coupon rate.
| | | | | | |
| franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | | 67 | |
FRANKLIN INVESTORS SECURITIES TRUST
Financial Statements
Statements of Assets and Liabilities
October 31, 2017
| | | | | | | | | | | | | | | | |
| | | Franklin Balanced Fund | | | Franklin Convertible Securities Fund | | | Franklin Equity
Income Fund | | | Franklin Real
Return Fund | |
Assets: | | | | | | | | | | | | | | | | |
Investments in securities: | | | | | | | | | | | | | | | | |
Cost - Unaffiliated issuers | | | $3,043,185,325 | | | | $2,221,123,599 | | | | $1,543,952,320 | | | | $205,488,648 | |
Cost - Controlled affiliates (Note 3f) | | | 17,998,125 | | | | — | | | | — | | | | — | |
Cost - Non-controlled affiliates (Note 3f) | | | 101,275,128 | | | | 69,852,661 | | | | 36,691,548 | | | | 4,153,783 | |
Cost - Unaffiliated repurchase agreements | | | — | | | | — | | | | — | | | | 8,548,043 | |
| | | | |
Value - Unaffiliated issuers | | | $3,380,418,789 | | | | $2,606,400,808 | | | | $2,153,199,575 | | | | $213,925,944 | |
Value - Controlled affiliates (Note 3f) | | | 18,585,000 | | | | — | | | | — | | | | — | |
Value - Non-controlled affiliates (Note 3f) | | | 101,275,128 | | | | 69,852,661 | | | | 36,691,548 | | | | 4,293,893 | |
Value - Unaffiliated repurchase agreements | | | — | | | | — | | | | — | | | | 8,548,043 | |
Cash | | | 691,602 | | | | — | | | | — | | | | 6,006 | |
Foreign currency, at value (cost $—, $—, $— and $82,750, respectively) | | | — | | | | — | | | | — | | | | 82,640 | |
Receivables: | | | | | | | | | | | | | | | | |
Investment securities sold | | | 17,513,595 | | | | — | | | | — | | | | 15,133 | |
Capital shares sold | | | 3,035,347 | | | | 6,384,441 | | | | 1,127,311 | | | | 66,403 | |
Dividends and interest | | | 15,481,798 | | | | 9,374,928 | | | | 2,193,998 | | | | 1,085,547 | |
Affiliates | | | — | | | | — | | | | — | | | | 80,441 | |
Other assets | | | 1,009 | | | | 654 | | | | 627 | | | | 73 | |
| | | | |
Total assets | | | 3,537,002,268 | | | | 2,692,013,492 | | | | 2,193,213,059 | | | | 228,104,123 | |
| | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Payables: | | | | | | | | | | | | | | | | |
Capital shares redeemed | | | 4,537,103 | | | | 6,013,086 | | | | 2,940,822 | | | | 1,265,640 | |
Management fees | | | 1,865,699 | | | | 1,001,689 | | | | 826,269 | | | | 70,650 | |
Distribution fees | | | 1,107,521 | | | | 428,682 | | | | 602,048 | | | | 50,586 | |
Transfer agent fees | | | 854,338 | | | | 542,226 | | | | 681,049 | | | | 131,841 | |
Distributions to shareholders | | | — | | | | — | | | | — | | | | 22,262 | |
Deferred tax | | | — | | | | — | | | | — | | | | 20,403 | |
Accrued expenses and other liabilities | | | 150,751 | | | | 89,841 | | | | 94,198 | | | | 28,668 | |
| | | | |
Total liabilities | | | 8,515,412 | | | | 8,075,524 | | | | 5,144,386 | | | | 1,590,050 | |
| | | | |
Net assets, at value | | | $3,528,486,856 | | | | $2,683,937,968 | | | | $2,188,068,673 | | | | $226,514,073 | |
| | | | |
Net assets consist of: | | | | | | | | | | | | | | | | |
Paid-in capital | | | $3,128,605,153 | | | | $2,188,789,820 | | | | $1,521,694,518 | | | | $248,745,659 | |
Undistributed net investment income | | | 6,028,150 | | | | — | | | | 3,531,137 | | | | — | |
Distributions in excess of net investment income | | | — | | | | (26,290,348 | ) | | | — | | | | (2,022,005 | ) |
Net unrealized appreciation (depreciation) | | | 337,830,269 | | | | 385,277,209 | | | | 609,246,758 | | | | 8,542,869 | |
Accumulated net realized gain (loss) | | | 56,023,284 | | | | 136,161,287 | | | | 53,596,260 | | | | (28,752,450 | ) |
| | | | |
Net assets, at value | | | $3,528,486,856 | | | | $2,683,937,968 | | | | $2,188,068,673 | | | | $226,514,073 | |
| | | | |
| | | | |
| 68 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS
Statements of Assets and Liabilities (continued)
October 31, 2017
| | | | | | | | | | | | | | | | |
| | | Franklin Balanced Fund | | | Franklin
Convertible
Securities Fund | | | Franklin Equity
Income Fund | | | Franklin Real
Return Fund | |
Class A: | | | | | | | | | | | | | | | | |
Net assets, at value | | $ | 2,646,599,370 | | | $ | 815,491,123 | | | $ | 1,753,135,250 | | | $ | 146,866,027 | |
| | | | |
Shares outstanding | | | 214,127,080 | | | | 39,442,275 | | | | 69,952,997 | | | | 14,489,768 | |
| | | | |
Net asset value per sharea | | | $12.36 | | | | $20.68 | | | | $25.06 | | | | $10.14 | |
| | | | |
Maximum offering price per share (net asset value per
share ÷ 94.25%, 94.25%, 94.25% and 95.75%,
respectively) | | | $13.11 | | | | $21.94 | | | | $26.59 | | | | $10.59 | |
| | | | |
Class C: | | | | | | | | | | | | | | | | |
Net assets, at value | | $ | 633,108,403 | | | $ | 303,242,663 | | | $ | 267,450,131 | | | $ | 33,843,903 | |
| | | | |
Shares outstanding | | | 51,681,820 | | | | 14,886,273 | | | | 10,759,264 | | | | 3,373,014 | |
| | | | |
Net asset value and maximum offering price per sharea | | | $12.25 | | | | $20.37 | | | | $24.86 | | | | $10.03 | |
| | | | |
Class R: | | | | | | | | | | | | | | | | |
Net assets, at value | | $ | 4,762,897 | | | | | | | $ | 7,074,107 | | | | | |
| | | | | | | | | | | | | | | | |
Shares outstanding | | | 384,376 | | | | | | | | 282,349 | | | | | |
| | | | | | | | | | | | | | | | |
Net asset value and maximum offering price per share | | | $12.39 | | | | | | | | $25.05 | | | | | |
| | | | | | | | | | | | | | | | |
Class R6: | | | | | | | | | | | | | | | | |
Net assets, at value | | $ | 342,201 | | | $ | 22,949,933 | | | $ | 12,728,129 | | | $ | 5,727,284 | |
| | | | |
Shares outstanding | | | 27,611 | | | | 1,103,771 | | | | 506,845 | | | | 561,920 | |
| | | | |
Net asset value and maximum offering price per share | | | $12.39 | | | | $20.79 | | | | $25.11 | | | | $10.19 | |
| | | | |
Advisor Class: | | | | | | | | | | | | | | | | |
Net assets, at value | | $ | 243,673,985 | | | $ | 1,542,254,249 | | | $ | 147,681,056 | | | $ | 40,076,859 | |
| | | | |
Shares outstanding | | | 19,673,404 | | | | 74,575,087 | | | | 5,883,289 | | | | 3,938,001 | |
| | | | |
Net asset value and maximum offering price per share | | | $12.39 | | | | $20.68 | | | | $25.10 | | | | $10.18 | |
| | | | |
aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.
| | | | | | |
| franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | | 69 | |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS
Statements of Operations
for the year ended October 31, 2017
| | | | | | | | | | | | | | | | |
| | | Franklin
Balanced Fund | | | Franklin
Convertible
Securities Fund | | | Franklin Equity
Income Fund | | | Franklin Real
Return Fund | |
Investment income: | | | | | | | | | | | | | | | | |
Dividends: | | | | | | | | | | | | | | | | |
Unaffiliated issuers | | | $ 74,689,160 | | | | $ 29,353,254 | | | | $ 61,594,907 | | | | $ 1,280,321 | |
Controlled affiliates (Note 3f) | | | 548,036 | | | | — | | | | — | | | | — | |
Non-controlled affiliates (Note 3f) | | | 530,136 | | | | 395,743 | | | | 163,605 | | | | 344,908 | |
Interest: | | | | | | | | | | | | | | | | |
Unaffiliated issuers: | | | | | | | | | | | | | | | | |
Inflation principal adjustments | | | — | | | | — | | | | — | | | | 2,742,897 | |
Paid in cash | | | 53,570,153 | | | | 23,233,232 | | | | — | | | | 1,880,608 | |
| | | | |
Total investment income | | | 129,337,485 | | | | 52,982,229 | | | | 61,758,512 | | | | 6,248,734 | |
| | | | |
Expenses: | | | | | | | | | | | | | | | | |
Management fees (Note 3a) | | | 21,886,695 | | | | 11,039,402 | | | | 9,924,848 | | | | 1,505,023 | |
Distribution fees: (Note 3c) | | | | | | | | | | | | | | | | |
Class A | | | 6,537,445 | | | | 1,910,362 | | | | 4,354,820 | | | | 398,172 | |
Class C | | | 6,503,582 | | | | 2,965,457 | | | | 2,690,067 | | | | 246,781 | |
Class R | | | 24,501 | | | | — | | | | 34,698 | | | | — | |
Transfer agent fees: (Note 3e) | | | | | | | | | | | | | | | | |
Class A | | | 3,039,983 | | | | 952,751 | | | | 2,330,197 | | | | 325,718 | |
Class C | | | 756,451 | | | | 369,746 | | | | 359,875 | | | | 77,604 | |
Class R | | | 5,705 | | | | — | | | | 9,568 | | | | — | |
Class R6 | | | 470 | | | | 1,546 | | | | 712 | | | | 488 | |
Advisor Class | | | 229,484 | | | | 1,624,512 | | | | 155,120 | | | | 79,883 | |
Custodian fees (Note 4) | | | 34,704 | | | | 19,446 | | | | 20,786 | | | | 16,426 | |
Reports to shareholders | | | 272,789 | | | | 176,008 | | | | 195,634 | | | | 37,261 | |
Registration and filing fees | | | 168,327 | | | | 123,702 | | | | 122,335 | | | | 70,489 | |
Professional fees | | | 77,639 | | | | 64,330 | | | | 73,416 | | | | 52,139 | |
Trustees’ fees and expenses | | | 33,123 | | | | 21,736 | | | | 20,679 | | | | 2,353 | |
Other | | | 83,001 | | | | 26,188 | | | | 46,475 | | | | 16,349 | |
| | | | |
Total expenses | | | 39,653,899 | | | | 19,295,186 | | | | 20,339,230 | | | | 2,828,686 | |
Expense reductions (Note 4) | | | (3,374 | ) | | | (1,219 | ) | | | (627 | ) | | | (835 | ) |
Expenses waived/paid by affiliates (Note 3f and 3g) | | | (574,277 | ) | | | (352,957 | ) | | | (169,895 | ) | | | (626,740 | ) |
| | | | |
Net expenses | | | 39,076,248 | | | | 18,941,010 | | | | 20,168,708 | | | | 2,201,111 | |
| | | | |
Net investment income | | | 90,261,237 | | | | 34,041,219 | | | | 41,589,804 | | | | 4,047,623 | |
| | | | |
Realized and unrealized gains (losses): | | | | | | | | | | | | | | | | |
Net realized gain (loss) from: | | | | | | | | | | | | | | | | |
Investments: | | | | | | | | | | | | | | | | |
Unaffiliated issuers | | | 78,198,737 | | | | 164,567,291 | | | | 69,635,871 | | | | (1,836,081 | ) |
Written options | | | 7,089,033 | | | | — | | | | 72,846 | | | | — | |
Foreign currency transactions | | | 16,849 | | | | — | | | | (10,790 | ) | | | (31,221 | ) |
Forward exchange contracts | | | — | | | | — | | | | — | | | | 249,917 | |
| | | | |
Net realized gain (loss) | | | 85,304,619 | | | | 164,567,291 | | | | 69,697,927 | | | | (1,617,385 | ) |
| | | | |
| | | | |
| 70 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS
Statements of Operations (continued)
for the year ended October 31, 2017
| | | | | | | | | | | | | | | | |
| | | Franklin
Balanced Fund | | | Franklin
Convertible
Securities Fund | | | Franklin Equity
Income Fund | | | Franklin Real
Return Fund | |
Net change in unrealized appreciation (depreciation) on: | | | | | | | | | | | | | | | | |
Investments: | | | | | | | | | | | | | | | | |
Unaffiliated issuers | | | $175,800,208 | | | | $204,363,980 | | | | $251,153,167 | | | | $1,766,124 | |
Controlled affiliates (Note 3f) | | | 586,875 | | | | — | | | | — | | | | — | |
Non-controlled affiliates (Note 3f) | | | — | | | | — | | | | — | | | | (19,510) | |
Translation of other assets and liabilities denominated in foreign currencies | | | 19,325 | | | | — | | | | 18,314 | | | | (15,933) | |
Forward exchange contracts | | | — | | | | — | | | | — | | | | (54,624) | |
Written options | | | 279,921 | | | | — | | | | — | | | | — | |
Change in deferred taxes on unrealized appreciation | | | — | | | | — | | | | — | | | | (1,402) | |
| | | | |
Net change in unrealized appreciation (depreciation) | | | 176,686,329 | | | | 204,363,980 | | | | 251,171,481 | | | | 1,674,655 | |
| | | | |
Net realized and unrealized gain (loss) | | | 261,990,948 | | | | 368,931,271 | | | | 320,869,408 | | | | 57,270 | |
| | | | |
Net increase (decrease) in net assets resulting from operations | | | $352,252,185 | | | | $402,972,490 | | | | $362,459,212 | | | | $4,104,893 | |
| | | | |
| | | | | | |
| franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | | 71 | |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS
Statements of Changes in Net Assets
| | | | | | | | | | | | | | | | |
| | | Franklin Balanced Fund | | | Franklin Convertible Securities Fund | |
| | | Year Ended October 31, | | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Increase (decrease) in net assets: | | | | | | | | | | | | | | | | |
Operations: | | | | | | | | | | | | | | | | |
Net investment income | | $ | 90,261,237 | | | $ | 78,519,243 | | | $ | 34,041,219 | | | $ | 29,650,370 | |
Net realized gain (loss) | | | 85,304,619 | | | | 70,229,504 | | | | 164,567,291 | | | | 70,272,718 | |
Net change in unrealized appreciation (depreciation) | | | 176,686,329 | | | | 22,673,744 | | | | 204,363,980 | | | | 35,403,730 | |
| | | | |
Net increase (decrease) in net assets resulting from operations | | | 352,252,185 | | | | 171,422,491 | | | | 402,972,490 | | | | 135,326,818 | |
| | | | |
Distributions to shareholders from: | | | | | | | | | | | | | | | | |
Net investment income: | | | | | | | | | | | | | | | | |
Class A | | | (78,196,064 | ) | | | (79,181,917 | ) | | | (18,543,170 | ) | | | (21,449,948 | ) |
Class C | | | (14,807,257 | ) | | | (15,011,956 | ) | | | (5,076,900 | ) | | | (6,322,161 | ) |
Class R | | | (133,912 | ) | | | (131,468 | ) | | | — | | | | — | |
Class R6 | | | (24,051 | ) | | | (8,352 | ) | | | (292,682 | ) | | | (89,054 | ) |
Advisor Class | | | (6,366,506 | ) | | | (2,775,337 | ) | | | (34,146,214 | ) | | | (28,889,795 | ) |
Net realized gains: | | | | | | | | | | | | | | | | |
Class A | | | (36,628,258 | ) | | | (196,452 | ) | | | (13,915,081 | ) | | | (15,784,677 | ) |
Class C | | | (9,315,539 | ) | | | (49,077 | ) | | | (5,462,741 | ) | | | (6,225,597 | ) |
Class R | | | (65,313 | ) | | | (340 | ) | | | — | | | | — | |
Class R6 | | | (3,394 | ) | | | (18 | ) | | | (160,359 | ) | | | (98 | ) |
Advisor Class | | | (2,130,727 | ) | | | (10,279 | ) | | | (20,367,621 | ) | | | (15,633,159 | ) |
| | | | |
Total distributions to shareholders | | | (147,671,021 | ) | | | (97,365,196 | ) | | | (97,964,768 | ) | | | (94,394,489 | ) |
| | | | |
Capital share transactions: (Note 2) | | | | | | | | | | | | | | | | |
Class A | | | (40,657,348 | ) | | | 102,305,345 | | | | (49,842,077 | ) | | | (54,566,518 | ) |
Class C | | | (35,085,152 | ) | | | 53,175,745 | | | | (27,199,180 | ) | | | (21,791,985 | ) |
Class R | | | (4,205 | ) | | | (287,996 | ) | | | — | | | | — | |
Class R6 | | | 54,098 | | | | 5,265 | | | | 14,196,058 | | | | 6,867,487 | |
Advisor Class | | | 94,203,381 | | | | 81,786,363 | | | | 292,684,054 | | | | 148,171,070 | |
| | | | |
Total capital share transactions | | | 18,510,774 | | | | 236,984,722 | | | | 229,838,855 | | | | 78,680,054 | |
| | | | |
Net increase (decrease) in net assets | | | 223,091,938 | | | | 311,042,017 | | | | 534,846,577 | | | | 119,612,383 | |
Net assets: | | | | | | | | | | | | | | | | |
Beginning of year | | | 3,305,394,918 | | | | 2,994,352,901 | | | | 2,149,091,391 | | | | 2,029,479,008 | |
| | | | |
End of year | | $ | 3,528,486,856 | | | $ | 3,305,394,918 | | | $ | 2,683,937,968 | | | $ | 2,149,091,391 | |
| | | | |
Undistributed net investment income included in net assets: | | | | | | | | | | | | | | | | |
End of year | | $ | 6,028,150 | | | $ | — | | | $ | — | | | $ | — | |
| | | | |
Distributions in excess of net investment income included in net assets:
| | | | | | | | | | | | | | | | |
End of year | | $ | — | | | $ | (1,700,359 | ) | | $ | (26,290,348 | ) | | $ | (14,288,410 | ) |
| | | | |
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| 72 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS
Statements of Changes in Net Assets (continued)
| | | | | | | | | | | | | | | | |
| | | Franklin Equity Income Fund | | | Franklin Real Return Fund | |
| | | Year Ended October 31, | | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Increase (decrease) in net assets: | | | | | | | | | | | | | | | | |
Operations: | | | | | | | | | | | | | | | | |
Net investment income | | $ | 41,589,804 | | | $ | 42,110,358 | | | $ | 4,047,623 | | | $ | 2,879,106 | |
Net realized gain (loss) | | | 69,697,927 | | | | 94,010,493 | | | | (1,617,385 | ) | | | (17,568,660 | ) |
Net change in unrealized appreciation (depreciation) | | | 251,171,481 | | | | (69,788,269 | ) | | | 1,674,655 | | | | 20,787,529 | |
| | | | |
Net increase (decrease) in net assets resulting from operations | | | 362,459,212 | | | | 66,332,582 | | | | 4,104,893 | | | | 6,097,975 | |
| | | | |
Distributions to shareholders from: | | | | | | | | | | | | | | | | |
Net investment income: | | | | | | | | | | | | | | | | |
Class A | | | (42,489,638 | ) | | | (47,097,269 | ) | | | (1,941,335 | ) | | | (1,562,108 | ) |
Class C | | | (4,618,552 | ) | | | (5,251,049 | ) | | | (353,587 | ) | | | (215,455 | ) |
Class R | | | (158,369 | ) | | | (152,076 | ) | | | — | | | | — | |
Class R6 | | | (321,585 | ) | | | (180,060 | ) | | | (94,114 | ) | | | (21,887 | ) |
Advisor Class | | | (3,122,071 | ) | | | (1,422,902 | ) | | | (611,165 | ) | | | (429,016 | ) |
Net realized gains: | | | | | | | | | | | | | | | | |
Class A | | | (66,068,336 | ) | | | (46,499,582 | ) | | | — | | | | — | |
Class C | | | (10,179,480 | ) | | | (6,537,589 | ) | | | — | | | | — | |
Class R | | | (270,558 | ) | | | (161,343 | ) | | | — | | | | — | |
Class R6 | | | (407,606 | ) | | | (149 | ) | | | — | | | | — | |
Advisor Class | | | (3,358,229 | ) | | | (889,611 | ) | | | — | | | | — | |
Tax return of capital: | | | | | | | | | | | | | | | | |
Class A | | | — | | | | — | | | | — | | | | (243,513 | ) |
Class C | | | — | | | | — | | | | — | | | | (62,428 | ) |
Class R6 | | | — | | | | — | | | | — | | | | (3,525 | ) |
Advisor Class | | | — | | | | — | | | | — | | | | (50,006 | ) |
| | | | |
Total distributions to shareholders | | | (130,994,424 | ) | | | (108,191,630 | ) | | | (3,000,201 | ) | | | (2,587,938 | ) |
| | | | |
Capital share transactions: (Note 2) | | | | | | | | | | | | | | | | |
Class A | | | (135,418,963 | ) | | | (53,673,051 | ) | | | (15,477,267 | ) | | | (26,641,058 | ) |
Class C | | | (18,455,576 | ) | | | 12,513,162 | | | | (5,864,126 | ) | | | (9,129,554 | ) |
Class R | | | (80,399 | ) | | | 252,727 | | | | — | | | | — | |
Class R6 | | | 936,862 | | | | 9,967,087 | | | | 374,554 | | | | 3,570,373 | |
Advisor Class | | | 54,400,800 | | | | 46,433,315 | | | | 4,725,881 | | | | (2,973,664 | ) |
| | | | |
Total capital share transactions | | | (98,617,276 | ) | | | 15,493,240 | | | | (16,240,958 | ) | | | (35,173,903 | ) |
| | | | |
Net increase (decrease) in net assets | | | 132,847,512 | | | | (26,365,808 | ) | | | (15,136,266 | ) | | | (31,663,866 | ) |
Net assets: | | | | | | | | | | | | | | | | |
Beginning of year | | | 2,055,221,161 | | | | 2,081,586,969 | | | | 241,650,339 | | | | 273,314,205 | |
| | | | |
End of year | | $ | 2,188,068,673 | | | $ | 2,055,221,161 | | | $ | 226,514,073 | | | $ | 241,650,339 | |
| | | | |
Undistributed net investment income included in net assets: | | | | | | | | | | | | | | | | |
End of year | | $ | 3,531,137 | | | $ | 2,339,414 | | | $ | — | | | $ | — | |
| | | | |
Distributions in excess of net investment income included in net assets: | | | | | | | | | | | | | | | | |
End of year | | $ | — | | | $ | — | | | $ | (2,022,005 | ) | | $ | (4,592,709 | ) |
| | | | |
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| franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | | 73 | |
FRANKLIN INVESTORS SECURITIES TRUST
Notes to Financial Statements
1. Organization and Significant Accounting Policies
Franklin Investors Securities Trust (Trust) is registered under the Investment Company Act of 1940 (1940 Act) as an open-end management investment company, consisting of eight separate funds, four of which are included in this report (Funds) and applies the specialized accounting and reporting guidance in U.S. Generally Accepted Accounting Principles (U.S. GAAP). The classes of shares offered within each of the Funds are indicated below. Each class of shares may differ by its initial sales load, contingent deferred sales charges, voting rights on matters affecting a single class, its exchange privilege and fees due to differing arrangements for distribution and transfer agent fees.
|
| Class A, Class C, Class R, Class R6 & Advisor Class |
Franklin Balanced Fund |
Franklin Equity Income Fund |
|
| Class A, Class C, Class R6 & Advisor Class |
Franklin Convertible Securities Fund |
Franklin Real Return Fund |
The following summarizes the Funds’ significant accounting policies.
a. Financial Instrument Valuation
The Funds’ investments in financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The Funds calculate the net asset value (NAV) per share as of 4 p.m. Eastern time each day the New York Stock Exchange (NYSE) is open for trading. Under compliance policies and procedures approved by the Trust’s Board of Trustees (the Board), the Funds’ administrator has responsibility for oversight of valuation, including leading the cross-functional Valuation Committee (VC). The VC provides administration and oversight of the Funds’ valuation policies and procedures, which are approved annually by the Board. Among other things, these procedures allow the Funds to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.
Equity securities, exchange traded funds, and derivative financial instruments listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sale price
or the official closing price of the day, respectively. Foreign equity securities are valued as of the close of trading on the foreign stock exchange on which the security is primarily traded, or as of 4 p.m. Eastern time. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at 4 p.m. Eastern time on the day that the value of the security is determined. Over-the-counter (OTC) securities are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities.
Debt and certain preferred securities generally trade in the OTC market rather than on a securities exchange. The Funds’ pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, credit spreads, estimated default rates, anticipated market interest rate volatility, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Securities denominated in a foreign currency are converted into their U.S. dollar equivalent at the foreign exchange rate in effect at 4 p.m. Eastern time on the date that the values of the foreign debt securities are determined.
Investments in open-end mutual funds are valued at the closing NAV. Investments in repurchase agreements are valued at cost, which approximates fair value.
Certain derivative financial instruments trade in the OTC market. The Funds’ pricing services use various techniques including industry standard option pricing models and proprietary discounted cash flow models to determine the fair value of those instruments. The Funds’ net benefit or obligation under the derivative contract, as measured by the fair value of the contract, is included in net assets.
The Funds have procedures to determine the fair value of financial instruments for which market prices are not reliable or readily available. Under these procedures, the VC convenes on
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FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
a regular basis to review such financial instruments and considers a number of factors, including significant unobservable valuation inputs, when arriving at fair value. The VC primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The VC employs various methods for calibrating these valuation approaches including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.
Trading in securities on foreign securities stock exchanges and OTC markets may be completed before 4 p.m. Eastern time. In addition, trading in certain foreign markets may not take place on every Funds’ business day. Occasionally, events occur between the time at which trading in a foreign security is completed and 4 p.m. Eastern time that might call into question the reliability of the value of a portfolio security held by the Fund. As a result, differences may arise between the value of the Funds’ portfolio securities as determined at the foreign market close and the latest indications of value at 4 p.m. Eastern time. In order to minimize the potential for these differences, the VC monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depositary Receipts, futures contracts and exchange traded funds). These price movements are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred that may call into question the reliability of the values of the foreign securities held by the Funds. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services.
When the last day of the reporting period is a non-business day, certain foreign markets may be open on those days that the Funds’ NAV is not calculated, which could result in differences between the value of the Funds’ portfolio securities on the last
business day and the last calendar day of the reporting period. Any significant security valuation changes due to an open foreign market are adjusted and reflected by the Funds for financial reporting purposes.
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. The Funds may enter into foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Board.
The Funds do not separately report the effect of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and unrealized gain or loss from investments in the Statements of Operations.
Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period.
c. Joint Repurchase Agreement
Certain or all Funds enter into a joint repurchase agreement whereby their uninvested cash balance is deposited into a joint cash account with other funds managed by the investment manager or an affiliate of the investment manager and is used to invest in one or more repurchase agreements. The value and face amount of the joint repurchase agreement are allocated to the funds based on their pro-rata interest. A repurchase
| | | | | | |
| franklintempleton.com | | Annual Report | | | 75 | |
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies (continued)
c. Joint Repurchase Agreement (continued)
agreement is accounted for as a loan by the Fund to the seller, collateralized by securities which are delivered to the Funds’ custodian. The fair value, including accrued interest, of the initial collateralization is required to be at least 102% of the dollar amount invested by the funds, with the value of the underlying securities marked to market daily to maintain coverage of at least 100%. Repurchase agreements are subject to the terms of Master Repurchase Agreements (MRAs) with approved counterparties (sellers). The MRAs contain various provisions, including but not limited to events of default and maintenance of collateral for repurchase agreements. In the event of default by either the seller or the Funds, certain MRAs may permit the non-defaulting party to net and close-out all transactions, if any, traded under such agreements. The Funds may sell securities it holds as collateral and apply the proceeds towards the repurchase price and any other amounts owed by the seller to the Funds in the event of default by the seller. This could involve costs or delays in addition to a loss on the securities if their value falls below the repurchase price owed by the seller. The joint repurchase agreement held by the Funds at year end, as indicated in the Statements of Investments, had been entered into on October 31, 2017.
d. Derivative Financial Instruments
Certain or all Funds invested in derivative financial instruments in order to manage risk or gain exposure to various other investments or markets. Derivatives are financial contracts based on an underlying or notional amount, require no initial investment or an initial net investment that is smaller than would normally be required to have a similar response to changes in market factors, and require or permit net settlement. Derivatives contain various risks including the potential inability of the counterparty to fulfill their obligations under the terms of the contract, the potential for an illiquid secondary market, and/or the potential for market movements which expose the Fund to gains or losses in excess of the amounts shown in the Statements of Assets and Liabilities. Realized gain and loss and unrealized appreciation and depreciation on these contracts for the period are included in the Statements of Operations.
Derivative counterparty credit risk is managed through a formal evaluation of the creditworthiness of all potential counter-parties. Certain or all Funds attempt to reduce their exposure to counterparty credit risk on OTC derivatives, whenever possible, by entering into International Swaps and Derivatives Association (ISDA) master agreements with certain counterparties. These agreements contain various provisions, including but not limited to collateral requirements, events of default, or early termination. Termination events applicable to the counterparty include certain deteriorations in the credit quality of the counterparty. Termination events applicable to the Funds include failure of the Funds to maintain certain net asset levels and/or limit the decline in net assets over various periods of time. In the event of default or early termination, the ISDA master agreement gives the non-defaulting party the right to net and close-out all transactions traded, whether or not arising under the ISDA agreement, to one net amount payable by one counterparty to the other. However, absent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Statements of Assets and Liabilities. Early termination by the counterparty may result in an immediate payment by the Funds of any net liability owed to that counterparty under the ISDA agreement.
Collateral requirements differ by type of derivative. Collateral or initial margin requirements are set by the broker or exchange clearing house for exchange traded and centrally cleared derivatives. Initial margin deposited is held at the exchange and can be in the form of cash and/or securities. For OTC derivatives traded under an ISDA master agreement, posting of collateral is required by either the Fund or the applicable counterparty if the total net exposure of all OTC derivatives with the applicable counterparty exceeds the minimum transfer amount, which typically ranges from $100,000 to $250,000, and can vary depending on the counterparty and the type of the agreement. Generally, collateral is determined at the close of Fund business each day and any additional collateral required due to changes in derivative values may be delivered by the Fund or the counterparty the next business day, or within a few business days. Collateral pledged and/or received by the Fund for OTC derivatives, if any, is held in segregated accounts with the Fund’s custodian/counterparty broker and can be in the form of cash and/or securities. Unrestricted cash may be invested according to the Funds’ investment objectives. To the extent that the amounts due to the Fund from its counterparties are not subject to collateralization or are not fully collateralized, the Fund bears the risk of loss from counterparty non-performance.
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FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
Certain or all Funds entered into OTC forward exchange contracts primarily to manage and/or gain exposure to certain foreign currencies. A forward exchange contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency at a specific exchange rate on a future date.
Certain or all Funds purchased or wrote exchange traded option contracts primarily to manage and/or gain exposure to equity price risk. An option is a contract entitling the holder to purchase or sell a specific amount of shares or units of an asset or notional amount of a swap (swaption), at a specified price. When an option is purchased or written, an amount equal to the premium paid or received is recorded as an asset or liability, respectively. Upon exercise of an option, the acquisition cost or sales proceeds of the underlying investment is adjusted by any premium received or paid. Upon expiration of an option, any premium received or paid is recorded as a realized gain or loss. Upon closing an option other than through expiration or exercise, the difference between the premium received or paid and the cost to close the position is recorded as a realized gain or loss.
See Note 8 regarding other derivative information.
e. Equity-Linked Securities
Certain or all Funds invest in equity-linked securities. Equity-linked securities are hybrid financial instruments that generally combine both debt and equity characteristics into a single note form. Income received from equity-linked securities is recorded as realized gains in the Statements of Operations and may be based on the performance of an underlying equity security, an equity index, or an option position. The risks of investing in equity-linked securities include unfavorable price movements in the underlying security and the credit risk of the issuing financial institution. There may be no guarantee of a return of principal with equity-linked securities and the appreciation potential may be limited. Equity-linked securities may be more volatile and less liquid than other investments held by the Funds.
f. Senior Floating Rate Interests
Certain or all Funds invest in senior secured corporate loans that pay interest at rates which are periodically reset by reference to a base lending rate plus a spread. These base lending rates are generally the prime rate offered by a designated U.S. bank or the London InterBank Offered Rate (LIBOR). Senior secured corporate loans often require prepayment of principal from
excess cash flows or at the discretion of the borrower. As a result, actual maturity may be substantially less than the stated maturity. Senior secured corporate loans in which the Funds invest are generally readily marketable, but may be subject to certain restrictions on resale.
g. Income and Deferred Taxes
It is each Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. Each Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.
The Funds may be subject to foreign taxation related to income received, capital gains on the sale of securities and certain foreign currency transactions in the foreign jurisdictions in which the Funds invest. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Funds invest. When a capital gain tax is determined to apply, certain or all Funds record an estimated deferred tax liability in an amount that would be payable if the securities were disposed of on the valuation date.
As a result of several court cases, in certain countries across the European Union, certain or all Funds filed additional tax reclaims for previously withheld taxes on dividends earned in those countries (EU reclaims). These additional filings are subject to various administrative proceedings by the local jurisdictions’ tax authorities within the European Union, as well as a number of related judicial proceedings. Income recognized, if any, for EU reclaims is reflected as other income in the Statements of Operations and any related receivable, if any, is reflected as European Union tax reclaims in the Statements of Assets and Liabilities. When uncertainty exists as to the ultimate resolution of these proceedings, the likelihood of receipt of these EU reclaims, and the potential timing of payment, no amounts are reflected in the financial statements. For U.S. income tax purposes, EU reclaims received by the Funds, if any, reduce the amounts of foreign taxes Fund shareholders can use as tax credits in their individual income tax returns.
Each Fund may recognize an income tax liability related to its uncertain tax positions under U.S. GAAP when the uncertain tax position has a less than 50% probability that it will be sustained upon examination by the tax authorities based on its
| | | | | | |
| franklintempleton.com | | Annual Report | | | 77 | |
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
1. Organization and Significant Accounting
Policies (continued)
g. Income and Deferred Taxes (continued)
technical merits. As of October 31, 2017, each Fund has determined that no tax liability is required in its financial statements related to uncertain tax positions for any open tax years (or expected to be taken in future tax years). Open tax years are those that remain subject to examination and are based on the statute of limitations in each jurisdiction in which the Fund invests.
h. 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. Amortization of premium and accretion of discount on debt securities are included in interest income. Facility fees are recognized as income over the expected term of the loan. Dividend income is recorded on the ex-dividend date except for certain dividends from securities where the dividend rate is not available. In such cases, the dividend is recorded as soon as the information is received by the Funds. Distributions to shareholders are recorded on the ex-dividend date. Distributable earnings are determined according to income tax regulations (tax basis) and may differ from earnings recorded in accordance with U.S. GAAP. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.
Common expenses incurred by the Trust are allocated among the Funds based on the ratio of net assets of each Fund to the combined net assets of the Trust. Fund specific expenses are charged directly to the Fund that incurred the expense.
Realized and unrealized gains and losses and net investment income, excluding class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions by class are generally due to differences in class specific expenses.
Inflation-indexed bonds are adjusted for inflation through periodic increases or decreases in the security’s interest accruals, face amount, or principal redemption value, by amounts corresponding to the rate of inflation as measured by an index. Any increase or decrease in the face amount or principal redemption value will be included as inflation principal adjustments in the Statements of Operations.
i. Accounting Estimates
The preparation of financial statements in accordance with U.S. GAAP 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.
j. Guarantees and Indemnifications
Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Funds, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.
| | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
2. Shares of Beneficial Interest
At October 31, 2017, there were an unlimited number of shares authorized (without par value). Transactions in the Funds’ shares were as follows:
| | | | | | | | | | | | | | | | |
| | | Franklin Balanced Fund | | | Franklin Convertible Securities Fund | |
| | | | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Class A Shares: | | | | | | | | | | | | | | | | |
Year ended October 31, 2017 | | | | | | | | | | | | | | | | |
Shares sold | | | 41,122,848 | | | $ | 493,473,430 | | | | 10,813,117 | | | $ | 208,458,475 | |
Shares issued in reinvestment of distributions | | | 9,374,533 | | | | 112,108,534 | | | | 1,667,207 | | | | 30,768,242 | |
Shares redeemed | | | (53,839,472 | ) | | | (646,239,312 | ) | | | (15,184,687 | ) | | | (289,068,794 | ) |
| | | | |
Net increase (decrease) | | | (3,342,091 | ) | | $ | (40,657,348 | ) | | | (2,704,363 | ) | | $ | (49,842,077 | ) |
| | | | |
Year ended October 31, 2016 | | | | | | | | | | | | | | | | |
Shares sold | | | 59,288,525 | | | $ | 669,112,660 | | | | 9,476,768 | | | $ | 168,154,565 | |
Shares issued in reinvestment of distributions | | | 6,894,113 | | | | 77,791,246 | | | | 2,018,714 | | | | 35,174,653 | |
Shares redeemed | | | (56,715,686 | ) | | | (644,598,561 | ) | | | (14,805,915 | ) | | | (257,895,736 | ) |
| | | | |
Net increase (decrease) | | | 9,466,952 | | | $ | 102,305,345 | | | | (3,310,433 | ) | | $ | (54,566,518 | ) |
| | | | |
Class C Shares: | | | | | | | | | | | | | | | | |
Year ended October 31, 2017 | | | | | | | | | | | | | | | | |
Shares sold | | | 9,430,439 | | | $ | 111,985,968 | | | | 2,390,323 | | | $ | 45,128,905 | |
Shares issued in reinvestment of distributions | | | 1,901,983 | | | | 22,527,563 | | | | 481,988 | | | | 8,729,846 | |
Shares redeemed | | | (14,220,032 | ) | | | (169,598,683 | ) | | | (4,287,078 | ) | | | (81,057,931 | ) |
| | | | |
Net increase (decrease) | | | (2,887,610 | ) | | $ | (35,085,152 | ) | | | (1,414,767 | ) | | $ | (27,199,180 | ) |
| | | | |
Year ended October 31, 2016 | | | | | | | | | | | | | | | | |
Shares sold | | | 17,111,710 | | | $ | 191,037,224 | | | | 1,949,088 | | | $ | 33,909,433 | |
Shares issued in reinvestment of distributions | | | 1,240,417 | | | | 13,880,631 | | | | 589,732 | | | | 10,122,973 | |
Shares redeemed | | | (13,610,128 | ) | | | (151,742,110 | ) | | | (3,808,818 | ) | | | (65,824,391 | ) |
| | | | |
Net increase (decrease) | | | 4,741,999 | | | $ | 53,175,745 | | | | (1,269,998 | ) | | $ | (21,791,985 | ) |
| | | | |
Class R Shares: | | | | | | | | | | | | | | | | |
Year ended October 31, 2017 | | | | | | | | | | | | | | | | |
Shares sold | | | 96,705 | | | $ | 1,160,206 | | | | | | | | | |
Shares issued in reinvestment of distributions | | | 16,618 | | | | 199,225 | | | | | | | | | |
Shares redeemed | | | (112,933 | ) | | | (1,363,636 | ) | | | | | | | | |
| | | | |
Net increase (decrease) | | | 390 | | | $ | (4,205 | ) | | | | | | | | |
| | | | |
Year ended October 31, 2016 | | | | | | | | | | | | | | | | |
Shares sold | | | 132,632 | | | $ | 1,496,201 | | | | | | | | | |
Shares issued in reinvestment of distributions | | | 11,661 | | | | 131,808 | | | | | | | | | |
Shares redeemed | | | (171,599 | ) | | | (1,916,005 | ) | | | | | | | | |
| | | | |
Net increase (decrease) | | | (27,306 | ) | | $ | (287,996 | ) | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | 79 | |
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
2. Shares of Beneficial Interest (continued)
| | | | | | | | | | | | | | | | |
| | | Franklin
Balanced Fund | | | Franklin
Convertible Securities Fund | |
| | | | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Class R6 Shares: | | | | | | | | | | | | | | | | |
Year ended October 31, 2017 | | | | | | | | | | | | | | | | |
Shares sold | | | 101,768 | | | $ | 1,216,479 | | | | 825,661 | | | $ | 16,405,823 | |
Shares issued in reinvestment of distributions | | | 2,272 | | | | 27,446 | | | | 24,212 | | | | 452,646 | |
Shares redeemed | | | (96,433 | ) | | | (1,189,827 | ) | | | (136,289 | ) | | | (2,662,411 | ) |
| | | | |
Net increase (decrease) | | | 7,607 | | | $ | 54,098 | | | | 713,584 | | | $ | 14,196,058 | |
| | | | |
Year ended October 31, 2016 | | | | | | | | | | | | | | | | |
Shares sold | | | 3,047 | | | $ | 34,245 | | | | 788,664 | | | $ | 13,994,019 | |
Shares issued in reinvestment of distributions | | | 740 | | | | 8,369 | | | | 4,845 | | | | 88,899 | |
Shares redeemed | | | (3,180 | ) | | | (37,349 | ) | | | (403,594 | ) | | | (7,215,431 | ) |
| | | | |
Net increase (decrease) | | | 607 | | | $ | 5,265 | | | | 389,915 | | | $ | 6,867,487 | |
| | | | |
Advisor Class Shares: | | | | | | | | | | | | | | | | |
Year ended October 31, 2017 | | | | | | | | | | | | | | | | |
Shares sold | | | 15,399,254 | | | $ | 184,926,370 | | | | 28,693,593 | | | $ | 549,908,666 | |
Shares issued in reinvestment of distributions | | | 634,330 | | | | 7,621,151 | | | | 2,642,306 | | | | 49,040,409 | |
Shares redeemed | | | (8,197,066 | ) | | | (98,344,140 | ) | | | (15,989,308 | ) | | | (306,265,021 | ) |
| | | | |
Net increase (decrease) | | | 7,836,518 | | | $ | 94,203,381 | | | | 15,346,591 | | | $ | 292,684,054 | |
| | | | |
Year ended October 31, 2016 | | | | | | | | | | | | | | | | |
Shares sold | | | 14,391,414 | | | $ | 167,114,896 | | | | 44,182,146 | | | $ | 748,163,852 | |
Shares issued in reinvestment of distributions | | | 204,315 | | | | 2,323,814 | | | | 2,236,760 | | | | 39,111,889 | |
Shares redeemed | | | (7,564,701 | ) | | | (87,652,347 | ) | | | (37,152,701 | ) | | | (639,104,671 | ) |
| | | | |
Net increase (decrease) | | | 7,031,028 | | | $ | 81,786,363 | | | | 9,266,205 | | | $ | 148,171,070 | |
| | | | | | | | | | | | | | | | |
| | | Franklin Equity Income Fund | | | Franklin Real Return Fund | |
| | | | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Class A Shares: | | | | | | | | | | | | | | | | |
Year ended October 31, 2017 | | | | | | | | | | | | | | | | |
Shares sold | | | 7,935,217 | | | $ | 186,557,733 | | | | 3,149,721 | | | $ | 31,981,942 | |
Shares issued in reinvestment of distributions | | | 4,586,199 | | | | 106,137,449 | | | | 186,888 | | | | 1,895,555 | |
Shares redeemed | | | (18,170,067 | ) | | | (428,114,145 | ) | | | (4,857,880 | ) | | | (49,354,764 | ) |
| | | | |
Net increase (decrease) | | | (5,648,651 | ) | | $ | (135,418,963 | ) | | | (1,521,271 | ) | | $ | (15,477,267 | ) |
| | | | |
Year ended October 31, 2016 | | | | | | | | | | | | | | | | |
Shares sold | | | 10,955,507 | | | $ | 240,824,766 | | | | 2,920,637 | | | $ | 28,866,525 | |
Shares issued in reinvestment of distributions | | | 4,189,138 | | | | 91,549,334 | | | | 182,566 | | | | 1,756,283 | |
Shares redeemed | | | (17,422,052 | ) | | | (386,047,151 | ) | | | (5,823,642 | ) | | | (57,263,866 | ) |
| | | | |
Net increase (decrease) | | | (2,277,407 | ) | | $ | (53,673,051 | ) | | | (2,720,439 | ) | | $ | (26,641,058 | ) |
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| 80 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | |
| | | Franklin
Equity Income Fund | | | Franklin
Real Return Fund | |
| | | | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Class C Shares: | | | | | | | | | | | | | | | | |
Year ended October 31, 2017 | | | | | | | | | | | | | | | | |
Shares sold | | | 1,668,212 | | | $ | 38,941,261 | | | | 630,519 | | | $ | 6,345,139 | |
Shares issued in reinvestment of distributions | | | 613,812 | | | | 14,082,715 | | | | 34,431 | | | | 345,545 | |
Shares redeemed | | | (3,042,070 | ) | | | (71,479,552 | ) | | | (1,248,666 | ) | | | (12,554,810 | ) |
| | | | |
Net increase (decrease) | | | (760,046 | ) | | $ | (18,455,576 | ) | | | (583,716 | ) | | $ | (5,864,126 | ) |
| | | | |
Year ended October 31, 2016 | | | | | | | | | | | | | | | | |
Shares sold | | | 2,665,652 | | | $ | 58,334,909 | | | | 625,724 | | | $ | 6,130,419 | |
Shares issued in reinvestment of distributions | | | 516,181 | | | | 11,198,526 | | | | 28,218 | | | | 269,761 | |
Shares redeemed | | | (2,617,595 | ) | | | (57,020,273 | ) | | | (1,591,824 | ) | | | (15,529,734 | ) |
| | | | |
Net increase (decrease) | | | 564,238 | | | $ | 12,513,162 | | | | (937,882 | ) | | $ | (9,129,554 | ) |
| | | | |
Class R Shares: | | | | | | | | | | | | | | | | |
Year ended October 31, 2017 | | | | | | | | | | | | | | | | |
Shares sold | | | 64,993 | | | $ | 1,525,028 | | | | | | | | | |
Shares issued in reinvestment of distributions | | | 16,175 | | | | 374,199 | | | | | | | | | |
Shares redeemed | | | (83,128 | ) | | | (1,979,626 | ) | | | | | | | | |
| | | | |
Net increase (decrease) | | | (1,960 | ) | | $ | (80,399 | ) | | | | | | | | |
| | | | |
Year ended October 31, 2016 | | | | | | | | | | | | | | | | |
Shares sold | | | 83,578 | | | $ | 1,810,529 | | | | | | | | | |
Shares issued in reinvestment of distributions | | | 12,662 | | | | 276,699 | | | | | | | | | |
Shares redeemed | | | (84,438 | ) | | | (1,834,501 | ) | | | | | | | | |
| | | | |
Net increase (decrease) | | | 11,802 | | | $ | 252,727 | | | | | | | | | |
| | | | |
Class R6 Shares: | | | | | | | | | | | | | | | | |
Year ended October 31, 2017 | | | | | | | | | | | | | | | | |
Shares sold | | | 228,564 | | | $ | 5,407,737 | | | | 299,229 | | | $ | 3,051,514 | |
Shares issued in reinvestment of distributions | | | 479 | | | | 11,161 | | | | 5,063 | | | | 51,659 | |
Shares redeemed | | | (189,735 | ) | | | (4,482,036 | ) | | | (267,306 | ) | | | (2,728,619 | ) |
| | | | |
Net increase (decrease) | | | 39,308 | | | $ | 936,862 | | | | 36,986 | | | $ | 374,554 | |
| | | | |
Year ended October 31, 2016 | | | | | | | | | | | | | | | | |
Shares sold | | | 537,262 | | | $ | 11,541,244 | | | | 414,897 | | | $ | 4,196,219 | |
Shares issued in reinvestment of distributions | | | 84 | | | | 1,876 | | | | 9 | | | | 93 | |
Shares redeemed | | | (70,059 | ) | | | (1,576,033 | ) | | | (63,409 | ) | | | (625,939 | ) |
| | | | |
Net increase (decrease) | | | 467,287 | | | $ | 9,967,087 | | | | 351,497 | | | $ | 3,570,373 | |
| | | | |
Advisor Class Shares: | | | | | | | | | | | | | | | | |
Year ended October 31, 2017 | | | | | | | | | | | | | | | | |
Shares sold | | | 4,431,818 | | | $ | 104,388,733 | | | | 1,805,023 | | | $ | 18,433,312 | |
Shares issued in reinvestment of distributions | | | 260,564 | | | | 6,067,460 | | | | 58,212 | | | | 592,952 | |
Shares redeemed | | | (2,378,377 | ) | | | (56,055,393 | ) | | | (1,401,509 | ) | | | (14,300,383 | ) |
| | | | |
Net increase (decrease) | | | 2,314,005 | | | $ | 54,400,800 | | | | 461,726 | | | $ | 4,725,881 | |
| | | | |
Year ended October 31, 2016 | | | | | | | | | | | | | | | | |
Shares sold | | | 4,153,049 | | | $ | 93,471,028 | | | | 1,852,276 | | | $ | 18,341,311 | |
Shares issued in reinvestment of distributions | | | 95,903 | | | | 2,107,308 | | | | 47,451 | | | | 457,432 | |
Shares redeemed | | | (2,181,835 | ) | | | (49,145,021 | ) | | | (2,214,965 | ) | | | (21,772,407 | ) |
| | | | |
Net increase (decrease) | | | 2,067,117 | | | $ | 46,433,315 | | | | (315,238 | ) | | $ | (2,973,664 | ) |
| | | | | | |
| franklintempleton.com | | Annual Report | | | 81 | |
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
3. Transactions with Affiliates
Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Trust are also officers and/or directors of the following subsidiaries:
| | | | |
| Subsidiary | | Affiliation | | |
Franklin Advisers, Inc. (Advisers) | | Investment manager | | |
Franklin Templeton Services, LLC (FT Services) | | Administrative manager | | |
Franklin Templeton Distributors, Inc. (Distributors) | | Principal underwriter | | |
Franklin Templeton Investor Services, LLC (Investor Services) | | Transfer agent | | |
a. Management Fees
Franklin Balanced Fund pays an investment management fee to Advisers based on the average daily net assets of the Fund as follows:
| | | | |
| Annualized Fee Rate | | Net Assets | | |
0.700% | | Up to and including $250 million | | |
0.675% | | Over $250 million, up to and including $500 million | | |
0.650% | | Over $500 million, up to and including $1 billion | | |
0.625% | | Over $1 billion, up to and including $2.5 billion | | |
0.600% | | Over $2.5 billion, up to and including $5 billion | | |
0.575% | | Over $5 billion, up to and including $10 billion | | |
0.550% | | Over $10 billion, up to and including $15 billion | | |
0.525% | | Over $15 billion, up to and including $20 billion | | |
0.500% | | In excess of $20 billion | | |
Franklin Convertible Securities Fund and Franklin Equity Income Fund pay an investment management fee to Advisers based on the month-end net assets of each of the Funds as follows:
| | | | |
| Annualized Fee Rate | | Net Assets | | |
0.625% | | Up to and including $100 million | | |
0.500% | | Over $100 million, up to and including $250 million | | |
0.450% | | Over $250 million, up to and including $7.5 billion | | |
0.440% | | Over $7.5 billion, up to and including $10 billion | | |
0.430% | | Over $10 billion, up to and including $12.5 billion | | |
0.420% | | Over $12.5 billion, up to and including $15 billion | | |
0.400% | | Over $15 billion, up to and including $17.5 billion | | |
0.380% | | Over $17.5 billion, up to and including $20 billion | | |
0.360% | | Over $20 billion, up to and including $35 billion | | |
0.355% | | Over $35 billion, up to and including $50 billion | | |
0.350% | | In excess of $50 billion | | |
| | | | |
| 82 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
Franklin Real Return Fund pays an investment management fee to Advisers based on the average daily net assets of the Fund as follows:
| | | | |
| Annualized Fee Rate | | Net Assets | | |
0.625% | | Up to and including $500 million | | |
0.525% | | Over $500 million, up to and including $1 billion | | |
0.480% | | Over $1 billion, up to and including $1.5 billion | | |
0.435% | | Over $1.5 billion, up to and including $6.5 billion | | |
0.415% | | Over $6.5 billion, up to and including $11.5 billion | | |
0.400% | | Over $11.5 billion, up to and including $16.5 billion | | |
0.390% | | Over $16.5 billion, up to and including $19 billion | | |
0.380% | | Over $19 billion, up to and including $21.5 billion | | |
0.370% | | In excess of $21.5 billion | | |
For the year ended October 31, 2017, each Fund’s effective investment management fee rate based on average daily net assets was as follows:
| | | | | | | | | | | | |
Franklin
Balanced Fund | | Franklin
Convertible
Securities Fund | | | Franklin Equity
Income Fund | | | Franklin Real
Return Fund | |
0.631% | | | 0.464% | | | | 0.462% | | | | 0.625% | |
b. Administrative Fees
Under an agreement with Advisers, FT Services provides administrative services to the Funds. The fee is paid by Advisers based on each of the Funds’ average daily net assets, and is not an additional expense of the Funds.
c. Distribution Fees
The Board has adopted distribution plans for each share class, with the exception of Class R6 and Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Under the Funds’ Class A reimbursement distribution plans, the Funds reimburse Distributors for costs incurred in connection with the servicing, sale and distribution of each Fund’s shares up to the maximum annual plan rate for each class. Under the Class A reimbursement distribution plans, costs exceeding the maximum for the current plan year cannot be reimbursed in subsequent periods. In addition, under the Funds’ Class C and R compensation distribution plans, the Funds pay Distributors for costs incurred in connection with the servicing, sale and distribution of each Fund’s shares up to the maximum annual plan rate for each class. The plan year, for purposes of monitoring compliance with the maximum annual plan rates, is February 1 through January 31 for each Fund.
The maximum annual plan rates, based on the average daily net assets, for each class, are as follows:
| | | | | | | | | | | | | | | | |
| | | Franklin
Balanced Fund | | | Franklin
Convertible
Securities Fund | | | Franklin Equity
Income Fund | | | Franklin Real
Return Fund | |
Reimbursement Plans: | | | | | | | | | | | | | | | | |
Class A | | | 0.35% | | | | 0.25% | | | | 0.25% | | | | 0.25% | |
Compensation Plans: | | | | | | | | | | | | | | | | |
Class C | | | 1.00% | | | | 1.00% | | | | 1.00% | | | | 0.65% | |
Class R | | | 0.50% | | | | — | | | | 0.50% | | | | — | |
For Franklin Balanced Fund, the Board has set the current rate at 0.25% per year for Class A shares until further notice and approval by the Board.
| | | | | | |
| franklintempleton.com | | Annual Report | | | 83 | |
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
3. Transactions with Affiliates (continued)
d. Sales Charges/Underwriting Agreements
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Funds. These charges are deducted from the proceeds of sales of fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. Distributors has advised the Funds of the following commission transactions related to the sales and redemptions of the Funds’ shares for the year:
| | | | | | | | | | | | | | | | |
| | | Franklin
Balanced Fund | | | Franklin
Convertible
Securities Fund | | | Franklin Equity
Income Fund | | | Franklin Real
Return Fund | |
Sales charges retained net of commissions paid to unaffiliated brokers/dealers | | | $1,198,932 | | | | $213,845 | | | | $466,182 | | | | $30,966 | |
CDSC retained | | | $ 84,045 | | | | $ 28,213 | | | | $ 30,156 | | | | $ 5,000 | |
e. Transfer Agent Fees
Each class of shares, except for Class R6, pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations and reimburses Investor Services for out of pocket expenses incurred, including shareholder servicing fees paid to third parties. These fees are allocated daily based upon their relative proportion of such classes’ aggregate net assets. Class R6 pays Investor Services transfer agent fees specific to that class.
For the year ended October 31, 2017, the Funds paid transfer agent fees as noted in the Statements of Operations of which the following amounts were retained by Investor Services:
| | | | | | | | | | | | | | | | |
| | | Franklin
Balanced Fund | | | Franklin
Convertible
Securities Fund | | | Franklin Equity
Income Fund | | | Franklin Real
Return Fund | |
Transfer agent fees | | | $1,244,906 | | | | $842,815 | | | | $938,253 | | | | $174,647 | |
f. Investments in Affiliated Management Investment Companies
Certain or all Funds invest in one or more affiliated management investment companies for purposes other than exercising a controlling influence over the management or policies. Management fees paid by the Funds are waived on assets invested in the affiliated management investment companies, as noted in the Statements of Operations, in an amount not to exceed the management and administrative fees paid directly or indirectly by each affiliate. Prior to November 1, 2013, the waiver was accounted for as a reduction to management fees. During the year ended October 31, 2017, investments in affiliated management investment companies were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Number of
Shares Held
at Beginning
of Year | | Gross
Additions | | Gross
Reductions | | Number of
Shares
Held at End
of Year | | Value at End of Year | | Dividend
Income | | Realized
Gain (Loss) | | Net Change
in Unrealized
Appreciation (Depreciation) |
Franklin Balanced Fund | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Controlled Affiliates | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Franklin Liberty Investment Grade Corporate ETF | | | | — | | | | | 750,000 | | | | | — | | | | | 750,000 | | | | $ | 18,585,000 | | | | $ | 548,036 | | | | $ | — | | | | $ | 586,875 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Non-Controlled Affiliates | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Institutional Fiduciary Trust Money Market Portfolio, 0.69% | | | | 120,863,963 | | | | | 1,246,792,172 | | | | | (1,266,381,007 | ) | | | | 101,275,128 | | | | | 101,275,128 | | | | | 530,136 | | | | | — | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total Affiliated Securities | | | | | | | | | | | | | | | | | | | | | | | $ | 119,860,128 | | | | $ | 1,078,172 | | | | $ | — | | | | $ | 586,875 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Number of
Shares Held
at Beginning
of Year | | | Gross
Additions | | | Gross
Reductions | | | Number of
Shares
Held at End
of Year | | | Value at End of Year | | | Dividend
Income | | | Realized
Gain (Loss) | | | Net Change
in Unrealized
Appreciation (Depreciation) | |
Franklin Convertible Securities Fund | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-Controlled Affiliates | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Institutional Fiduciary Trust Money Market Portfolio, 0.69% | | | 98,515,365 | | | | 387,828,060 | | | | (416,490,764 | ) | | | 69,852,661 | | | | $ 69,852,661 | | | | $ 395,743 | | | | $ — | | | | $ — | |
| | | | | | | | | | | | | | | | | | | | |
Franklin Equity Income Fund | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-Controlled Affiliates | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Institutional Fiduciary Trust Money Market Portfolio, 0.69% | | | 50,191,472 | | | | 479,115,627 | | | | (492,615,551 | ) | | | 36,691,548 | | | | $ 36,691,548 | | | | $ 163,605 | | | | $ — | | | | $ — | |
| | | | | | | | | | | | | | | | | | | | |
Franklin Real Return Fund | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-Controlled Affiliates | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Franklin Lower Tier Floating Rate Fund | | | 280,073 | | | | 25,826 | | | | — | | | | 305,899 | | | | $ 3,187,463 | | | | $ 270,268 | | | | $ — | | | | $ 7,230 | |
Franklin Middle Tier Floating Rate Fund | | | 105,222 | | | | 7,449 | | | | — | | | | 112,671 | | | | 1,106,430 | | | | 74,640 | | | | — | | | | (26,740 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total Affiliated Securities | | | | | | | | | | | | | | | | | | | $ 4,293,893 | | | | $ 344,908 | | | | $ — | | | | $ (19,510 | ) |
| | | | | | | | | | | | | | | | | | | | |
g. Waiver and Expense Reimbursements
Advisers and Investor Services have contractually agreed in advance to waive or limit their respective fees and to assume as their own expense certain expenses otherwise payable by Franklin Real Return Fund so that the expenses (excluding distribution fees, and acquired fund fees and expenses) for Class A, Class C, and Advisor Class of the Fund do not exceed 0.65%, and Class R6 does not exceed 0.49% based on the average net assets of each class (other than certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations, and liquidations) until February 28, 2018. Total expenses waived or paid are not subject to recapture subsequent to the Fund’s fiscal year end. Prior to March 1, 2017, expenses for Class R6 were limited to 0.50%.
For Franklin Balanced Fund, Investor Services has contractually agreed in advance to waive or limit its fees so that the Class R6 transfer agent fees do not exceed 0.01% until February 28, 2018. For Franklin Convertible Securities Fund and Franklin Equity Income Fund, Investor Services has voluntarily agreed in advance to waive or limit its fees so that the Class R6 transfer agent fees do not exceed 0.01%. Investor Services may discontinue this waiver in the future. For Franklin Equity Income Fund, there were no Class R6 transfer agent fees waived during the year ended October 31, 2017.
h. Interfund Transactions
Franklin Convertible Securities Fund engaged in purchases and sales of investments with funds or other accounts that have common investment managers (or affiliated investment managers), directors, trustees or officers. During the year ended October 31, 2017, these purchase and sale transactions aggregated $0 and $20,611,500, respectively.
4. Expense Offset Arrangement
The Funds have entered into an arrangement with their custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Funds’ custodian expenses. During the year ended October 31, 2017, the custodian fees were reduced as noted in the Statements of Operations.
| | | | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
5. Income Taxes
For tax purposes, capital losses may be carried over to offset future capital gains. Capital loss carryforwards with no expiration, if any, must be fully utilized before those losses with expiration dates.
At October 31, 2017, the capital loss carryforwards were as follows:
| | | | |
| | | Franklin Real
Return Fund | |
Capital loss carryforwards subject to expiration: | | | | |
2018 | | $ | 1,206,585 | |
Capital loss carryforwards not subject to expiration: | | | | |
Short term | | | 875,948 | |
Long term | | | 26,665,810 | |
| | | | |
Total capital loss carryforwards | | $ | 28,748,343 | |
| | | | |
On October 31, 2017, the Franklin Real Return Fund had expired capital loss carryforwards of $1,207,907, which were reclassified to paid-in capital.
The tax character of distributions paid during the years ended October 31, 2017 and 2016, was as follows:
| | | | | | | | | | | | | | | | |
| | | Franklin Balanced Fund | | | Franklin Convertible Securities Fund | |
| | | | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Distributions paid from: | | | | | | | | | | | | | | | | |
Ordinary income | | | $ 99,527,790 | | | | $ 97,109,030 | | | | $94,056,058 | | | | $56,750,958 | |
Long term capital gain | | | 48,143,231 | | | | 256,166 | | | | 3,908,710 | | | | 37,643,531 | |
| | | | |
| | | $147,671,021 | | | | $ 97,365,196 | | | | $97,964,768 | | | | $94,394,489 | |
| | | | |
| | |
| | | Franklin Equity Income Fund | | | Franklin Real Return Fund | |
| | | | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Distributions paid from: | | | | | | | | | | | | | | | | |
Ordinary income | | | $ 50,710,215 | | | | $ 54,103,356 | | | | $ 3,000,201 | | | | $ 1,966,064 | |
Long term capital gain | | | 80,284,209 | | | | 54,088,274 | | | | — | | | | — | |
| | | | |
| | | $130,994,424 | | | | $108,191,630 | | | | $ 3,000,201 | | | | $ 1,966,064 | |
Return of capital | | | — | | | | — | | | | — | | | | 359,472 | |
| | | | |
| | | $130,994,424 | | | $108,191,630 | | | $ 3,000,201 | | | $ 2,325,536 | |
| | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
At October 31, 2017, the cost of investments, net unrealized appreciation (depreciation), undistributed ordinary income and undistributed long term capital gains for income tax purposes were as follows:
| | | | | | | | | | | | | | | | |
| | | Franklin
Balanced Fund | | | Franklin
Convertible
Securities Fund | | | Franklin Equity
Income Fund | | | Franklin Real
Return Fund | |
Cost of investments | | $ | 3,165,106,340 | | | $ | 2,333,960,730 | | | $ | 1,581,348,861 | | | $ | 222,323,728 | |
| | | | |
Unrealized appreciation | | $ | 428,619,660 | | | $ | 508,800,705 | | | $ | 647,394,079 | | | $ | 14,654,134 | |
Unrealized depreciation | | | (93,447,083 | ) | | | (166,507,966 | ) | | | (38,851,817 | ) | | | (10,209,982 | ) |
Net unrealized appreciation (depreciation) | | $ | 335,172,577 | | | $ | 342,292,739 | | | $ | 608,542,262 | | | $ | 4,444,152 | |
| | | | |
Undistributed ordinary income | | $ | 22,419,146 | | | $ | 44,580,535 | | | $ | 5,045,580 | | | $ | 2,140,602 | |
Undistributed long term capital gains | | | 43,668,773 | | | | 108,549,576 | | | | 54,047,287 | | | | — | |
Distributable earnings | | $ | 66,087,919 | | | $ | 153,130,111 | | | $ | 59,092,867 | | | $ | 2,140,602 | |
Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of foreign currency transactions, bond discounts and premiums and wash sales.
The Funds except Franklin Real Return Fund, utilized a tax accounting practice to treat a portion of the proceeds from capital shares redeemed as a distribution from realized capital gains.
6. Investment Transactions
Purchases and sales of investments (excluding short term securities) for the year ended October 31, 2017, were as follows:
| | | | | | | | | | | | | | | | |
| | | Franklin
Balanced Fund | | | Franklin
Convertible
Securities Fund | | | Franklin Equity
Income Fund | | | Franklin Real
Return Fund | |
Purchases | | | $1,136,196,863 | | | | $807,761,928 | | | | $568,382,811 | | | | $73,432,014 | |
Sales | | | $1,203,446,469 | | | | $617,103,204 | | | | $723,339,632 | | | | $79,592,686 | |
7. Credit Risk
At October 31, 2017, Franklin Balanced Fund, Franklin Convertible Securities Fund and Franklin Real Return Fund had 9.0%,
67.1% and 21.5%, respectively, of their portfolio invested in high yield securities, senior secured floating rate notes, or other securities rated below investment grade and unrated securities, if any. These securities may be more sensitive to economic conditions causing greater price volatility and are potentially subject to a greater risk of loss due to default than higher rated securities.
| | | | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
8. Other Derivative Information
For the year ended October 31, 2017, the effect of derivative contracts in the Funds’ Statements of Operations was as follows:
| | | | | | | | | | | | |
Derivative Contracts Not Accounted for as Hedging Instruments | | Statements of
Operations Location | | Net Realized
Gain (Loss) for
the Year | | | Statements of Operations Location | | Net Change in
Unrealized
Appreciation
(Depreciation)
for the Year | |
| | Net realized gain (loss) from: | | | | | | Net change in unrealized appreciation (depreciation) on: | | | | |
| | | | |
Franklin Balanced Fund | | | | | | | | | | | | |
Equity contracts | | Investments | | | $(3,197,762 | )a | | Investments | | | $(46,000 | )a |
| | Written options | | | 7,089,033 | | | Written options | | | 279,921 | |
Total | | | | | $ 3,891,271 | | | | | | $233,921 | |
| | | | |
Franklin Equity Income Fund | | | | | | | | | | | | |
Equity contracts | | Written options | | | $ 72,846 | | | Written options | | | $ — | |
| | | | |
Franklin Real Return Fund | | | | | | | | | | | | |
Foreign exchange contracts | | Forward exchange contracts | | | $ 249,917 | | | Forward exchange contracts | | | $(54,624 | ) |
aPurchased option contracts are included in net realized gain (loss) from investments and net change in unrealized appreciation (depreciation) on investments in the Statements of Operations.
For the year ended October 31, 2017, the average month end notional amount of options and the average month end contract value for forward exchange contracts were as follows:
| | | | | | | | | | | | |
| | | Franklin
Balanced Fund | | | Franklin Equity
Income Fund | | | Franklin Real
Return Fund | |
Options | | | $1,430,215 | | | | $48,154 | | | | $ — | |
Forward exchange contracts | | | — | | | | — | | | | 3,495,583 | |
See Note 1(d) regarding derivative financial instruments.
9. Credit Facility
The Funds, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matures on February 9, 2018. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests.
Under the terms of the Global Credit Facility, the Funds shall, in addition to interest charged on any borrowings made by the Funds and other costs incurred by the Funds, pay their share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon their relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.15% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses in the Statements of Operations. During the year ended October 31, 2017, the Funds did not use the Global Credit Facility.
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FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
10. Fair Value Measurements
The Funds follow a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Funds’ own market assumptions (unobservable inputs). These inputs are used in determining the value of the Funds’ financial instruments and are summarized in the following fair value hierarchy:
| | • | | Level 1 – quoted prices in active markets for identical financial instruments |
| | • | | Level 2 – other significant observable inputs (including quoted prices for similar financial instruments, interest rates, prepayment speed, credit risk, etc.) |
| | • | | Level 3 – significant unobservable inputs (including the Funds’ own assumptions in determining the fair value of financial instruments) |
The input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level.
For movements between the levels within the fair value hierarchy, the Funds have adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.
A summary of inputs used as of October 31, 2017, in valuing the Funds’ assets carried at fair value, is as follows:
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Franklin Balanced Fund | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Investments in Securities: | | | | | | | | | | | | | | | | |
Equity Investmentsa,b | | $ | 1,877,102,321 | | | $ | — | | | $ | — | | | $ | 1,877,102,321 | |
Equity-Linked Securities | | | — | | | | 281,350,200 | | | | — | | | | 281,350,200 | |
Convertible Bonds | | | — | | | | 15,168,750 | | | | — | | | | 15,168,750 | |
Corporate Bonds | | | — | | | | 1,150,457,778 | | | | — | | | | 1,150,457,778 | |
Short Term Investments | | | 176,199,868 | | | | — | | | | — | | | | 176,199,868 | |
Total Investments in Securities | | $ | 2,053,302,189 | | | $ | 1,446,976,728 | | | $ | — | | | $ | 3,500,278,917 | |
| | | | |
| Franklin Convertible Securities Fund | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Investments in Securities: | | | | | | | | | | | | | | | | |
Equity Investments:a | | | | | | | | | | | | | | | | |
Consumer Staples | | $ | 46,974,455 | | | $ | 50,468,550 | | | $ | — | | | $ | 97,443,005 | |
Information Technology | | | 23,630,246 | | | | 61,131,922 | | | | — | | | | 84,762,168 | |
All Other Equity Investmentsb | | | 360,497,967 | | | | — | | | | — | | | | 360,497,967 | |
Convertible Bonds | | | — | | | | 2,063,697,668 | | | | — | | | | 2,063,697,668 | |
Escrows and Litigation Trusts | | | — | | | | — | | | | —c | | | | — | |
Short Term Investments | | | 69,852,661 | | | | — | | | | — | | | | 69,852,661 | |
Total Investments in Securities | | $ | 500,955,329 | | | $ | 2,175,298,140 | | | $ | — | | | $ | 2,676,253,469 | |
| | | | |
| Franklin Equity Income Fund | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Investments in Securities: | | | | | | | | | | | | | | | | |
Equity Investmentsa,b | | $ | 1,961,947,138 | | | $ | — | | | $ | — | | | $ | 1,961,947,138 | |
Equity-Linked Securities | | | — | | | | 191,252,437 | | | | — | | | | 191,252,437 | |
Short Term Investments | | | 36,691,548 | | | | — | | | | — | | | | 36,691,548 | |
Total Investments in Securities | | $ | 1,998,638,686 | | | $ | 191,252,437 | | | $ | — | | | $ | 2,189,891,123 | |
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FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
10. Fair Value Measurements (continued)
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | | | |
Franklin Real Return Fund | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Investments in Securities: | | | | | | | | | | | | | | | | |
Equity Investmentsa,b | | $ | 42,897,224 | | | $ | — | | | $ | — | | | $ | 42,897,224 | |
Corporate Bonds | | | — | | | | 9,894,196 | | | | — | | | | 9,894,196 | |
Senior Floating Rate Interests | | | — | | | | 4,060,163 | | | | — | | | | 4,060,163 | |
Foreign Government and Agency Securities | | | — | | | | 19,463,996 | | | | — | | | | 19,463,996 | |
U.S. Government and Agency Securities | | | — | | | | 141,904,258 | | | | — | | | | 141,904,258 | |
Short Term Investments | | | — | | | | 8,548,043 | | | | — | | | | 8,548,043 | |
Total Investments in Securities | | $ | 42,897,224 | | | $ | 183,870,656 | | | $ | — | | | $ | 226,767,880 | |
aIncludes common, preferred, convertible preferred stocks and management investment companies.
bFor detailed categories, see the accompanying Statement of Investments.
cIncludes securities determined to have no value at October 31, 2017.
A reconciliation of assets in which Level 3 inputs are used in determining fair value is presented when there are significant Level 3 financial instruments at the beginning and/or end of the year.
11. New Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in the ASU shorten the amortization period for certain callable debt securities acquired at a premium, to be amortized to the earliest call date. The ASU does not require an accounting change for securities acquired at a discount, which continues to be amortized to maturity. The ASU is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. Management is currently evaluating the impact, if any, of applying this provision.
12. Subsequent Events
The Funds have evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure.
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FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
Abbreviations
| | | | | | |
| Currency | | Selected Portfolio |
BRL | | Brazilian Real | | ADR | | American Depositary Receipt |
IDR | | Indonesian Rupiah | | ETF | | Exchange Traded Fund |
MXN | | Mexican Peso | | FRN | | Floating Rate Note |
MYR | | Malaysian Ringgit | | LIBOR | | London InterBank Offered Rate |
USD | | United States Dollar | | REIT | | Real Estate Investment Trust |
| | | | SPDR | | S&P Depositary Receipt |
| | | | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of Franklin Investors Securities Trust and Shareholders of the Franklin Balanced Fund, Franklin Convertible Securities Fund, Franklin Equity Income Fund and Franklin Real Return Fund:
In our opinion, the accompanying statements of assets and liabilities, including the statements of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Franklin Balanced Fund, Franklin Convertible Securities Fund, Franklin Equity Income Fund, and Franklin Real Return Fund (the “Funds”) as of October 31, 2017, the results of each of their operations for the year then ended, the changes in each of their 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 accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities as of October 31, 2017 by correspondence with the custodian, transfer agent and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
December 18, 2017
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FRANKLIN INVESTORS SECURITIES TRUST
Tax Information (unaudited)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Funds hereby report the maximum amount allowable but no less than the following amounts as long term capital gain dividends for the fiscal year ended October 31, 2017:
| | | | | | | | | | |
Franklin
Balanced Fund | | | Franklin
Convertible
Securities Fund | | | Franklin
Equity Income Fund | |
| | $54,123,383 | | | | $20,201,005 | | | | $86,066,203 | |
Under Section 871(k)(2)(C) of the Code, Franklin Convertible Securities Fund hereby reports the maximum amount allowable but no less than $35,997,093 as short term capital gain dividends for purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the fiscal year ended October 31, 2017.
Under Section 854(b)(1)(A) of the Code, the Funds hereby report the following percentage amounts of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended October 31, 2017:
| | | | | | | | | | | | | | |
Franklin
Balanced Fund | | | Franklin
Convertible
Securities Fund | | | Franklin
Equity
Income Fund | | | Franklin
Real
Return Fund | |
| | 61.05% | | | | 13.60% | | | | 97.16% | | | | 9.39% | |
Under Section 854(b)(1)(B) of the Code, the Funds hereby report the maximum amount allowable but no less than the following amounts as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended October 31, 2017:
| | | | | | | | | | | | | | |
Franklin
Balanced Fund | | | Franklin
Convertible
Securities Fund | | | Franklin
Equity Income Fund | | | Franklin
Real
Return Fund | |
| | $72,643,611 | | | | $19,087,980 | | | | $57,930,273 | | | | $584,451 | |
Distributions, including qualified dividend income, paid during calendar year 2017 will be reported to shareholders on Form 1099-DIV by mid-February 2018. Shareholders are advised to check with their tax advisors for information on the treatment of these amounts on their individual income tax returns.
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FRANKLIN INVESTORS SECURITIES TRUST
Board Members and Officers
The name, year of birth and address of the officers and board members, as well as their affiliations, positions held with the Trust, principal occupations during at least the past five years and number of US registered portfolios overseen in the Franklin Templeton Investments fund complex, are shown below. Generally, each board member serves until that person’s successor is elected and qualified.
Independent Board Members
| | | | | | | | |
Name, Year of Birth and Address | | Position | | Length of Time Served | | Number of Portfolios in
Fund Complex Overseen
by Board Member* | | Other Directorships Held
During at Least the Past 5 Years |
| | | | |
Harris J. Ashton (1932) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 1986 | | 139 | | Bar-S Foods (meat packing company) (1981-2010). |
| | |
| Principal Occupation During at Least the Past 5 Years: | | | | |
Director of various companies; and formerly, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998). |
| | | | |
Mary C. Choksi (1950) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2014 | | 133 | | Avis Budget Group Inc. (car rental) (2007-present), Omnicom Group Inc. (advertising and marketing communications services) (2011-present) and White Mountains Insurance Group, Ltd. (holding company) (August 2017- present). |
| | |
| Principal Occupation During at Least the Past 5 Years: | | | | |
Director of various companies; and formerly, Founder and Senior Advisor, Strategic Investment Group (investment management group) (2015-2017); Founding Partner and Senior Managing Director, Strategic Investment Group (1987–2015); Founding Partner and Managing Director, Emerging Markets Management LLC (investment management firm) (1987-2011); and Loan Officer/Senior Loan Officer/Senior Pension Investment Officer, World Bank Group (international financial institution) (1977-1987). |
| | | | |
Edith E. Holiday (1952) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 1998 | | 139 | | Hess Corporation (exploration of oil and gas) (1993-present), Canadian National Railway (railroad) (2001-present), White Mountains Insurance Group, Ltd. (holding company) (2004-present), Santander Consumer USA Holdings, Inc. (consumer finance) (2016-present), RTI International Metals, Inc. (manufacture and distribution of titanium) (1999-2015) and H.J. Heinz Company (processed foods and allied products) (1994-2013). |
| | |
| Principal Occupation During at Least the Past 5 Years: | | | | |
Director or Trustee of various companies and trusts; and formerly, Assistant to the President of the United States and Secretary of the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989). |
| | | | |
J. Michael Luttig (1954) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2009 | | 139 | | Boeing Capital Corporation (aircraft financing) (2006-2013). |
| | |
| Principal Occupation During at Least the Past 5 Years: | | | | |
Executive Vice President, General Counsel and member of the Executive Council, The Boeing Company (aerospace company) (2006-present); and formerly, Federal Appeals Court Judge, U.S. Court of Appeals for the Fourth Circuit (1991-2006). |
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FRANKLIN INVESTORS SECURITIES TRUST
Independent Board Members (continued)
| | | | | | | | |
Name, Year of Birth and Address | | Position | | Length of Time Served | | Number of Portfolios in
Fund Complex Overseen
by Board Member* | | Other Directorships Held
During at Least the Past 5 Years |
| | | | |
Larry D. Thompson (1945) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2007 | | 139 | | The Southern Company (energy company) (2014-present; previously 2010-2012), Graham Holdings Company (education and media organization) (2011-present) and Cbeyond, Inc. (business communications provider) (2010-2012). |
| | |
| Principal Occupation During at Least the Past 5 Years: | | | | |
Director of various companies; Counsel, Finch McCranie, LLP (law firm) (2015-present); Independent Compliance Monitor and Auditor, Volkswagen AG (manufacturer of automobiles and commercial vehicles) (April 2017 – present); John A. Sibley Professor of Corporate and Business Law, University of Georgia School of Law (2015-present; previously 2011-2012); and formerly, Executive Vice President -Government Affairs, General Counsel and Corporate Secretary, PepsiCo, Inc. (consumer products) (2012-2014); Senior Vice President -Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (2004-2011); Senior Fellow of The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General, U.S. Department of Justice (2001-2003). |
| | | | |
John B. Wilson (1959) One Franklin Parkway San Mateo, CA 94403-1906 | | Lead Independent Trustee | | Trustee since 2007 and Lead Independent Trustee since 2008 | | 113 | | None |
| | |
| Principal Occupation During at Least the Past 5 Years: | | | | |
President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing)(2002-present); serves on private and non-profit boards; and formerly, President, Staples International and Head of Global Transformation (office supplies) (2012-2016); Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000); Chief Financial Officer and Executive Vice President – Finance and Strategy, Staples, Inc. (1992-1996); Senior Vice President – Corporate Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice President and Partner, Bain & Company (consulting firm) (1986-1990). |
Interested Board Members and Officers
| | | | | | | | |
Name, Year of Birth and Address | | Position | | Length of Time Served | | Number of Portfolios in
Fund Complex Overseen
by Board Member* | | Other Directorships Held
During at Least the Past 5 Years |
| | | | |
**Gregory E. Johnson (1961) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2013 | | 155 | | None |
| | |
| Principal Occupation During at Least the Past 5 Years: | | | | |
Chairman of the Board, Member - Office of the Chairman, Director and Chief Executive Officer, Franklin Resources, Inc.; officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 43 of the investment companies in Franklin Templeton Investments; Vice Chairman, Investment Company Institute; and formerly, President, Franklin Resources, Inc. (1994-2015). |
| | | | |
**Rupert H. Johnson, Jr. (1940) One Franklin Parkway San Mateo, CA 94403-1906 | | Chairman of the Board, Trustee and Vice President | | Chairman of the Board since 2013, Trustee since 1987 and Vice President since 1986 | | 139 | | None |
| | |
| Principal Occupation During at Least the Past 5 Years: | | | | |
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 41 of the investment companies in Franklin Templeton Investments. |
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FRANKLIN INVESTORS SECURITIES TRUST
Interested Board Members and Officers (continued)
| | | | | | | | |
Name, Year of Birth
and Address | | Position | | Length of Time Served | | Number of Portfolios in
Fund Complex Overseen
by Board Member* | | Other Directorships Held
During at Least the Past 5 Years |
| | | | |
Alison E. Baur (1964) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2012 | | Not Applicable | | Not Applicable |
| | |
| Principal Occupation During at Least the Past 5 Years: | | | | |
Deputy General Counsel, Franklin Templeton Investments; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
Mark Boyadjian (1964) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2003 | | Not Applicable | | Not Applicable |
| | |
| Principal Occupation During at Least the Past 5 Years: | | | | |
Senior Vice President, Franklin Advisers, Inc.; and officer of two of the investment companies in Franklin Templeton Investments. |
| | | | |
Gaston Gardey (1967) One Franklin Parkway San Mateo, CA 94403-1906 | | Chief Financial Officer, Chief Accounting Officer and Treasurer | | Since 2009 | | Not Applicable | | Not Applicable |
| | |
| Principal Occupation During at Least the Past 5 Years: | | | | |
Treasurer, U.S. Fund Administration & Reporting, Franklin Templeton Investments; and officer of 27 of the investment companies in Franklin Templeton Investments. |
| | | | |
Aliya S. Gordon (1973) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2009 | | Not Applicable | | Not Applicable |
| | |
| Principal Occupation During at Least the Past 5 Years: | | | | |
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
Steven J. Gray (1955) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2009 | | Not Applicable | | Not Applicable |
| | |
| Principal Occupation During at Least the Past 5 Years: | | | | |
Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc. and FT AlphaParity, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
Matthew T. Hinkle (1971) One Franklin Parkway San Mateo, CA 94403-1906 | | Chief Executive Officer – Finance and Administration | | Since June 2017 | | Not Applicable | | Not Applicable |
| | |
| Principal Occupation During at Least the Past 5 Years: | | | | |
Senior Vice President, Franklin Templeton Services, LLC; officer of 45 of the investment companies in Franklin Templeton Investments; and formerly, Vice President, Global Tax (2012-April 2017) and Treasurer/Assistant Treasurer, Franklin Templeton Investments (2009-2017). |
| | | | |
Edward B. Jamieson (1948) One Franklin Parkway San Mateo, CA 94403-1906 | | President and Chief Executive Officer – Investment Management | | President since 1993 and Chief Executive Officer – Investment Management since 2002 | | Not Applicable | | Not Applicable |
| | |
| Principal Occupation During at Least the Past 5 Years: | | | | |
President and Director, Franklin Advisers, Inc.; Executive Vice President, Franklin Templeton Institutional, LLC; and officer and/or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 10 of the investment companies in Franklin Templeton Investments. |
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FRANKLIN INVESTORS SECURITIES TRUST
Interested Board Members and Officers (continued)
| | | | | | | | |
Name, Year of Birth and Address | | Position | | Length of Time Served | | Number of Portfolios in
Fund Complex Overseen
by Board Member* | | Other Directorships Held
During at Least the Past 5 Years |
| | | | |
Madeline Lam (1969) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2010 | | Not Applicable | | Not Applicable |
| | |
| Principal Occupation During at Least the Past 5 Years: | | | | |
Vice President, Franklin Advisers, Inc.; and officer of two of the investment companies in Franklin Templeton Investments. |
| | | | |
Robert Lim (1948) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President – AML Compliance | | Since 2016 | | Not Applicable | | Not Applicable |
| | |
| Principal Occupation During at Least the Past 5 Years: | | | | |
Vice President, Franklin Templeton Companies, LLC; Chief Compliance Officer, Franklin Templeton Distributors, Inc. and Franklin Templeton Investor Services, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
Kimberly H. Novotny (1972) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923 | | Vice President | | Since 2013 | | Not Applicable | | Not Applicable |
| | |
| Principal Occupation During at Least the Past 5 Years: | | | | |
Associate General Counsel, Franklin Templeton Investments; Vice President and Corporate Secretary, Fiduciary Trust International of the South; Vice President, Templeton Investment Counsel, LLC; Assistant Secretary, Franklin Resources, Inc.; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
Robert C. Rosselot (1960) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923 | | Chief Compliance Officer | | Since 2013 | | Not Applicable | | Not Applicable |
| | |
| Principal Occupation During at Least the Past 5 Years: | | | | |
Director, Global Compliance, Franklin Templeton Investments; Vice President, Franklin Templeton Companies, LLC; officer of 45 of the investment companies in Franklin Templeton Investments; and formerly, Senior Associate General Counsel, Franklin Templeton Investments (2007-2013); and Secretary and Vice President, Templeton Group of Funds (2004-2013). |
| | | | |
Karen L. Skidmore (1952) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President and Secretary | | Since 2006 | | Not Applicable | | Not Applicable |
| | |
| Principal Occupation During at Least the Past 5 Years: | | | | |
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
Navid J. Tofigh (1972) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923 | | Vice President | | Since 2015 | | Not Applicable | | Not Applicable |
| | |
| Principal Occupation During at Least the Past 5 Years: | | | | |
Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
Craig S. Tyle (1960) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2005 | | Not Applicable | | Not Applicable |
| | |
| Principal Occupation During at Least the Past 5 Years: | | | | |
General Counsel and Executive Vice President, Franklin Resources, Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments. |
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FRANKLIN INVESTORS SECURITIES TRUST
Interested Board Members and Officers (continued)
| | | | | | | | |
Name, Year of Birth and Address | | Position | | Length of Time Served | | Number of Portfolios in
Fund Complex Overseen
by Board Member* | | Other Directorships Held
During at Least the Past 5 Years |
| | | | |
Lori A. Weber (1964) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923 | | Vice President | | Since 2011 | | Not Applicable | | Not Applicable |
| | |
| Principal Occupation During at Least the Past 5 Years: | | | | |
| Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President and Secretary, Templeton Investment Counsel, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments. |
*We base the number of portfolios on each separate series of the US registered investment companies within the Franklin Templeton Investments fund complex. These portfolios have a common investment manager or affiliated investment managers.
**Gregory E. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as an officer and director of Franklin Resources, Inc. (Resources), which is the parent company of the Fund’s investment manager and distributor. Rupert H. Johnson, Jr. is considered to be an interested person of the Fund under the federal securities laws due to his position as officer and director and major shareholder of Resources.
Note 1: Rupert H. Johnson, Jr. is the uncle of Gregory E. Johnson.
Note 2: Officer information is current as of the date of this report. It is possible that after this date, information about officers may change.
Note 3: Effective November 1, 2016, Frank Olsen ceased to be a trustee of the Trust.
The Sarbanes-Oxley Act of 2002 and Rules adopted by the Securities and Exchange Commission require the Fund to disclose whether the Fund’s Audit Committee includes at least one member who is an audit committee financial expert within the meaning of such Act and Rules. The Fund’s Board has determined that there is at least one such financial expert on the Audit Committee and has designated John B. Wilson as its audit committee financial expert. The Board believes that Mr. Wilson qualifies as such an expert in view of his extensive business background and experience, including service as chief financial officer of Staples, Inc. from 1992 to 1996. Mr. Wilson has been a Member and Chairman of the Fund’s Audit Committee since 2007. As a result of such background and experience, the Board believes that Mr. Wilson has acquired an understanding of generally accepted accounting principles and financial statements, the general application of such principles in connection with the accounting estimates, accruals and reserves, and analyzing and evaluating financial statements that present a breadth and level of complexity of accounting issues generally comparable to those of the Fund, as well as an understanding of internal controls and procedures for financial reporting and an understanding of audit committee functions. Mr. Wilson is an independent Board member as that term is defined under the relevant Securities and Exchange Commission Rules and Releases.
The Statement of Additional Information (SAI) includes additional information about the board members and is available, without charge, upon request. Shareholders may call (800) DIAL BEN/342-5236 to request the SAI.
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FRANKLIN INVESTORS SECURITIES TRUST
Shareholder Information
Proxy Voting Policies and Procedures
The Trust’s investment manager has established Proxy Voting Policies and Procedures (Policies) that the Trust uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Trust’s complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678 or by sending a written request to: Franklin Templeton Companies, LLC, 300 S.E. 2nd Street, Fort Lauderdale, FL 33301, Attention: Proxy Group. Copies of the Trust’s proxy voting records are also made available online at franklintempleton.com and posted on the US Securities and Exchange Commission’s website at sec.gov and reflect the most recent 12-month period ended June 30.
Quarterly Statement of Investments
The Trust files a complete statement of investments with the US Securities and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission’s website at sec.gov. The filed form may also be viewed and copied at the Commission’s Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330.
Householding of Reports and Prospectuses
You will receive each Fund’s financial reports every six months as well as an annual updated summary prospectus (prospectus available upon request). To reduce Fund expenses, we try to identify related shareholders in a household and send only one copy of the financial reports and summary prospectus. This process, called “householding,” will continue indefinitely unless you instruct us otherwise. If you prefer not to have these documents householded, please call us at (800) 632-2301. At any time you may view current prospectuses/summary prospectuses and financial reports on our website. If you choose, you may receive these documents through electronic delivery.
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 | | Annual Report and Shareholder Letter Franklin Investors Securities Trust Investment Manager Franklin Advisers, Inc. Distributor Franklin Templeton Distributors, Inc. (800) DIAL BEN® / 342-5236 franklintempleton.com Shareholder Services (800) 632-2301 |
Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.
To help ensure we provide you with quality service, all calls to and from our service areas are monitored and/or recorded.
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| © 2017 Franklin Templeton Investments. All rights reserved. | | FIST1 A2017 12/17 |
Franklin Templeton Investments
Gain From Our Perspective®
At Franklin Templeton Investments, we’re dedicated to one goal: delivering exceptional asset management for our clients. By bringing together multiple, world-class investment teams in a single firm, we’re able to offer specialized expertise across styles and asset classes, all supported by the strength and resources of one of the world’s largest asset managers. This has helped us to become a trusted partner to individual and institutional investors across the globe.
Dear Shareholder:
During the 12 months ended October 31, 2017, mostly upbeat economic data, improved corporate earnings and supportive monetary policies were positives for the securities markets. The US Federal Reserve increased its target range 0.25% three times during the period, noting improved employment and business spending. The 10-year Treasury yield began the period at 1.84% and ended the period at 2.38%. Investment-grade bonds, as measured by the Bloomberg Barclays US Aggregate Bond Index, posted a +0.90% total return.1
We are committed to our long-term perspective and disciplined investment approach as we conduct a rigorous, fundamental analysis of securities with a regular emphasis on investment risk management.
We believe active, professional investment management serves investors well. We also recognize the important role of financial advisors in today’s markets and encourage investors to continue to seek their advice. Amid changing markets and economic conditions, we are confident investors with a well-diversified portfolio and a patient, long-term outlook should be well positioned for the years ahead.
In addition, Franklin Investors Securities Trust’s annual report includes more detail about prevailing conditions and a
discussion about investment decisions during the period. Please remember all securities markets fluctuate, as do mutual fund share prices.
We thank you for investing with Franklin Templeton, welcome your questions and comments, and look forward to serving your future investment needs.
Sincerely,
Rupert H. Johnson, Jr.
Chairman
Franklin Investors Securities Trust
This letter reflects our analysis and opinions as of October 31, 2017, unless otherwise indicated. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.
1. Source: Morningstar.
See www.franklintempletondatasources.com for additional data provider information.
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| | Not FDIC Insured | May Lose Value | No Bank Guarantee |
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franklintempleton.com | | Not part of the annual report | | 1 |
Contents
Visit franklintempleton.com for fund updates, to access your account, or to find helpful financial planning tools.
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Annual Report
Economic and Market Overview
The US economy expanded during the 12-month period ended October 31, 2017. After moderating in the first quarter, the economy strengthened in 2017’s second quarter, largely due to growth in consumer spending, business investment, net exports, and federal government spending. In 2017’s third quarter, the economy expanded at a faster pace. Consumer and federal government spending slowed, while business investment and net exports improved. The manufacturing and services sectors expanded during the period. The unemployment rate decreased from 4.8% in October 2016 to 4.1% at period-end.1 Monthly retail sales were volatile, but were positive during most of the period. Annual inflation, as measured by the Consumer Price Index, increased from 1.6% in October 2016 to 2.0% at period-end.
The US Federal Reserve (Fed) raised its target range for the federal funds rate 0.25% three times during the period, amid signs of a growing US economy, strengthening labor market, and improving business spending. At its July and September 2017 meetings, the Fed kept its target range unchanged. Furthermore in September, the Fed mentioned that it would begin implementing its balance sheet reduction in October. The minutes of the Fed’s September meeting released in October suggested that many committee members were concerned that low inflation readings this year might not be transitory and could be more persistent than expected.
The 10-year Treasury yield, which moves inversely to its price, shifted throughout the period. The yield increased in November and December 2016, amid a bond market sell-off, based on investor expectations that possible expansionary fiscal policies under the US President Donald Trump could lead to a stronger economy and higher inflation. In July 2017, the yield rose further amid hawkish comments from key central bankers around the world. Easing concerns about Hurricane Irma’s impact, the Fed’s proposed balance sheet normalization in October, and the Senate’s approval of a budget plan, which raised expectations for tax reforms, pushed up yields further toward period-end. However, geopolitical tensions in the Middle East and the Korean peninsula, US political turmoil, and uncertainty on whether the Fed would raise rates again in 2017 resulted in a decline in the yield. The possible appointment of Jerome Powell, viewed as more dovish than other contenders, as the next Fed chair, also dragged on the Treasury yield. Overall, the 10-year Treasury yield rose from 1.84% at the beginning of the period to 2.38% at period-end.
The foregoing information reflects our analysis and opinions as of October 31, 2017. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.
1. Source: Bureau of Labor Statistics.
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franklintempleton.com | | Annual Report | | 3 |
Franklin Adjustable U.S. Government Securities Fund
This annual report for Franklin Adjustable U.S. Government Securities Fund covers the fiscal year ended October 31, 2017.
Your Fund’s Goal and Main Investments
The Fund seeks to provide a high level of current income while providing lower volatility of principal than a fund that invests in fixed-rate securities by investing at least 80% of its net assets in adjustable-rate US government mortgage securities, which are issued or guaranteed by the US government, its agencies or instrumentalities.1 The Fund’s investments may include securities issued by Ginnie Mae (GNMA) and government-sponsored entities, such as Fannie Mae (FNMA) and Freddie Mac (FHLMC).2
Performance Overview
The Fund’s Class A shares had a -0.06% cumulative total return for the 12 months under review. In comparison, the Fund’s benchmark, the Bloomberg Barclays US Government Index: 1-2 Year Component, posted a +0.39% total return.3 The index measures public obligations of the US Treasury with one to two years to final maturity and publicly issued debt of US government agencies, quasi-federal corporations, and corporate or foreign debt guaranteed by the US government. You can find the Fund’s long-term performance data in the Performance Summary beginning on page 6.
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
Investment Strategy
We employ a conservative investment strategy as we strive to produce solid performance in a variety of interest rate climates. We choose securities using a value-oriented approach, emphasizing the bonds’ economic fundamentals in relation to comparable securities as well as their historical prepayment performance.
Portfolio Composition
Based on Total Net Assets as of 10/31/17
Manager’s Discussion
The Fund employed a conservative strategy that invested primarily in adjustable-rate mortgage securities (ARMs) that are either explicitly or implicitly backed by the US government.1 During the period, the Fund invested predominanty in securities issued or guaranteed by FNMA and FHLMC. The Fund took a collateral-intensive research approach to analyze the prepayment behavior of individual ARMs to identify those with the most attractive prepayment profiles and focused on seasoned ARMs. Such securities have typically been through several interest-rate cycles and therefore tend to be less sensitive to changes in interest rates, compared to newer issued counterparts. We have found such securities historically to have experienced lower volatility than comparable maturity Treasuries and have provided more consistent income. We focused on seasoned, post-reset FNMA and FHLMC ARM positions with average coupons above 3%.
Prepayment levels have risen incrementally across the ARM universe, particularly ARMs indexed to the London Interbank Offered Rate (LIBOR), as the yield curve continued to flatten throughout the year. Our focus on diverse, well-seasoned pools helped mitigate some of the prepayment risks, but we remain cautious about the prepayment environment going forward. Consequently, the Fund’s LIBOR indexed ARMs detracted
1. Securities owned by the Fund, but not shares of the Fund, are issued or guaranteed by the US government, its agencies or instrumentalities, including government-sponsored entities, as to timely payment of principal and interest.
2. Although US government-sponsored entities may be chartered by acts of Congress, their securities are neither issued nor guaranteed by the US Government. Please see the Fund’s prospectus for a detailed discussion regarding various levels of credit support for government agency or instrumentality securities. The Fund’s yield and share price are not guaranteed and will vary with market conditions.
3. Source: Morningstar.
The index is unmanaged and includes reinvestment of any income or distributions. It does not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI). The SOI begins on page 37.
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FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
from value, while ARMs indexed to US Treasuries were generally additive.4
Dividend Distributions*
11/1/16–10/31/17
| | | | | | | | | | | | | | | | | | | | |
| | | Dividend per Share (cents) | |
| | | | |
| Month | | Class A | | | Class A1 | | | Class C | | | Class R6 | | | Advisor
Class | |
November | | | 1.1809 | | | | 1.2880 | | | | 0.9056 | | | | 1.4299 | | | | 1.3528 | |
December | | | 1.1900 | | | | 1.2460 | | | | 0.8638 | | | | 1.4020 | | | | 1.3136 | |
January | | | 1.1953 | | | | 1.3507 | | | | 0.9517 | | | | 1.5237 | | | | 1.4309 | |
February | | | 1.2951 | | | | 1.4037 | | | | 1.0381 | | | | 1.5379 | | | | 1.4580 | |
March | | | 1.2599 | | | | 1.3686 | | | | 0.9741 | | | | 1.5263 | | | | 1.4380 | |
April | | | 1.2118 | | | | 1.3112 | | | | 0.9599 | | | | 1.4503 | | | | 1.3707 | |
May | | | 1.4040 | | | | 1.5204 | | | | 1.1027 | | | | 1.6865 | | | | 1.5931 | |
June | | | 1.3532 | | | | 1.4573 | | | | 1.0819 | | | | 1.6064 | | | | 1.5248 | |
July | | | 1.3535 | | | | 1.4624 | | | | 1.0715 | | | | 1.6193 | | | | 1.5307 | |
August | | | 1.3870 | | | | 1.4953 | | | | 1.1052 | | | | 1.6484 | | | | 1.5644 | |
September | | | 1.3848 | | | | 1.4873 | | | | 1.1233 | | | | 1.6303 | | | | 1.5493 | |
October | | | 1.3168 | | | | 1.4301 | | | | 1.0225 | | | | 1.7481 | | | | 1.5034 | |
Total | | | 15.5323 | | | | 16.8210 | | | | 12.2003 | | | | 18.8091 | | | | 17.6297 | |
*The distribution amount is the sum of all net investment income distributions for the period shown. Assumes shares were purchased and held for the entire accrual period. Since dividends accrue daily, your actual distributions will vary depending on the date you purchased your shares and any account activity. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.
Thank you for your continued participation in Franklin Adjustable U.S. Government Securities Fund. We look forward to serving your future investment needs.
| | |
 | | 
Paul Varunok |
| | |
 | | 
Roger A. Bayston, CFA |
| |
| | Portfolio Management Team |
The foregoing information reflects our analysis, opinions and portfolio holdings as of October 31, 2017, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
CFA® is a trademark owned by CFA Institute.
4. The London Interbank Offered Rate (LIBOR) is the interest rate banks charge each other for loans. LIBOR is a widely used benchmark for short-term interest rates.
See www.franklintempletondatasources.com for additional data provider information.
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franklintempleton.com | | Annual Report | | 5 |
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
Performance Summary as of October 31, 2017
The performance tables and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.
Performance as of 10/31/171
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 2.25% and the minimum is 0%. Class A: 2.25% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
Share Class | | Cumulative Total Return2 | | Average Annual Total Return3 |
| | |
A | | | | |
1-Year | | -0.06% | | -2.27% |
5-Year | | -0.62% | | -0.57% |
10-Year | | +13.76% | | +1.07% |
| | |
Advisor4 | | | | |
1-Year | | +0.20% | | +0.20% |
5-Year | | +0.63% | | +0.13% |
10-Year | | +16.63% | | +1.55% |
| | | | | | | | |
| | | Distribution | | 30-Day Standardized Yield6 |
| Share Class | | Rate5 | | (with waiver) | | | (without waiver) |
| | | |
A | | 1.76% | | | 0.80% | | | 0.80% |
Advisor | | 2.06% | | | 1.08% | | | 1.07% |
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
See page 8 for Performance Summary footnotes.
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FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment1
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged index includes reinvestment of any income or distributions. It differs from the Fund in composition and does not pay management fees or expenses. One cannot invest directly in an index.
Class A (11/1/07–10/31/17)
Advisor Class (11/1/07–10/31/17)
See page 8 for Performance Summary footnotes.
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FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
PERFORMANCE SUMMARY
Distributions (11/1/16–10/31/17)
| | | | |
| Share Class | | Net Investment
Income | |
A | | | $0.155323 | |
A1 | | | $0.168210 | |
C | | | $0.122003 | |
R6 | | | $0.188091 | |
Advisor | | | $0.176297 | |
Total Annual Operating Expenses8
| | | | | | |
| Share Class | | With Waiver | | | Without Waiver |
A | | | 0.91% | | | 0.92% |
Advisor | | | 0.66% | | | 0.67% |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
All investments involve risks, including possible loss of principal. Interest rate movements, unscheduled mortgage prepayments and other risk factors will affect the Fund’s share price and yield. Bond prices generally move in the opposite direction of interest rates. As prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Changes in the financial strength of a bond issuer or in a bond’s credit rating may affect its value. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.
1. The Fund has a fee waiver associated with any investment it makes in a Franklin Templeton money fund and/or other Franklin Templeton fund, contractually guaranteed through 2/28/18. Fund investment results reflect the fee waiver; without this waiver, the results would have been lower.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.
4. Effective 5/15/08, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to 5/15/08, a restated figure is used based upon the Fund’s Class A performance, excluding the effect of Class A’s maximum initial sales charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after 5/15/08 actual Advisor Class performance is used reflecting all charges and fees applicable to that class. Since 5/15/08 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were +13.66% and +1.36%.
5. Distribution rate is based on an annualization of the sum of the respective class’s past 30 days’ daily distributions and the maximum offering price (NAV for Advisor Class) per share on 10/31/17.
6. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.
7. Source: Morningstar. The Bloomberg Barclays US Government Index: 1-2 Year Component includes public obligations of the US Treasury with at least one year up to, but not including, two years to final maturity and publicly issued debt of US government agencies, quasi-federal corporations, and corporate or foreign debt guaranteed by the US government.
8. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
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FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated.
Actual Fund Expenses
The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | | | | | | | |
| | | | | | | Actual (actual return after expenses) | | | | Hypothetical (5% annual return before expenses) | | | | |
Share Class | | Beginning
Account Value 5/1/17 | | | | Ending
Account Value 10/31/17 | | Expenses Paid During Period
5/1/17–10/31/171,2 | | | | Ending
Account Value 10/31/17 | | Expenses Paid During
Period 5/1/17–10/31/171,2 | | | | Net Annualized
Expense Ratio2 |
A | | $1,000 | | | | $ 999.00 | | $4.69 | | | | $1,020.52 | | $4.74 | | | | 0.93% |
A1 | | $1,000 | | | | $ 999.80 | | $3.88 | | | | $1,021.32 | | $3.92 | | | | 0.77% |
C | | $1,000 | | | | $ 998.20 | | $6.70 | | | | $1,018.50 | | $6.77 | | | | 1.33% |
R6 | | $1,000 | | | | $1,001.10 | | $2.77 | | | | $1,022.43 | | $2.80 | | | | 0.55% |
Advisor | | $1,000 | | | | $1,000.30 | | $3.43 | | | | $1,021.78 | | $3.47 | | | | 0.68% |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 184/365 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
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franklintempleton.com | | Annual Report | | 9 |
Franklin Floating Rate Daily Access Fund
This annual report for Franklin Floating Rate Daily Access Fund covers the fiscal year ended October 31, 2017.
Your Fund’s Goal and Main Investments
The Fund seeks to provide a high level of current income and, secondarily, preservation of capital by investing at least 80% of its net assets in income-producing floating interest-rate corporate loans and corporate debt securities made to or issued by US companies, non-US entities and US subsidiaries of non-US entities.
What are corporate loans?
Corporate loans are typically floating rate loans to corporate borrowers made by a group, or syndicate, of banks and other financial institutions. These loans provide capital to companies for varied purposes, such as merger and acquisition activity, leveraged buyouts or refinancings. These loans are typically syndicated to a group of investors.
Performance Overview
The Fund’s Class A shares delivered a +3.51% cumulative total return for the 12 months under review. In comparison, the Credit Suisse Leveraged Loan Index (CS LLI), which is designed to mirror the investable universe of the US dollar-denominated leveraged loan market, posted a +5.25% total return.1 You can find more of the Fund’s performance data in the Performance Summary beginning on page 14.
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
Corporate Loan Market Overview
Following robust inflows into loan retail vehicles at the beginning of the period under review, flows eventually decelerated significantly and tempered demand for loans. However, increased collateralized-loan-obligation (CLO) volume and continued low new issue volume provided balance among loan technical conditions. The overall supportive demand and continued strong refinancing activity led to
Portfolio Composition*
Based on Total Net Assets as of 10/31/17
*Figures reflect certain derivatives held in the portfolio (or their underlying reference assets) and may not total 100% or may be negative due to rounding, use of any derivatives, unsettled trades or other factors.
significant demand for lower-rated loans, especially those trading at steeper discounts to par.
New issue volume increased sharply to record levels, but a significant majority of it was related to refinancing, including repricing deals that tightened spreads and lowered or removed the London Interbank Offered Rate (LIBOR) floors. The volume of repricing transactions through refinancing as well as amendments reached record levels at the beginning of the period. Within the net new issuance that did come to the market, a disproportionate amount was rated B, increasing the weighting in the index.
Rising rates and expectations of further rate hikes generated heightened interest in the asset class, especially among retail investors looking for a possible hedge against higher interest rates. The increase in the LIBOR during the course of the period led a large portion of the loan market to use a floating rate as a benchmark, rather than a fixed floor and attracted investors seeking floating rate income. Furthermore, following the US presidential elections, US Treasury yields increased significantly after some investors adjusted their expectations for expansionary fiscal policy and inflation. As the yield curve flattened, however, investor enthusiasm declined. Successive
1. Source: Credit Suisse Group.
The index is unmanaged and includes reinvestment of any income or distributions. It does not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.
See www.franklintempletondatasources.com for additional data provider information.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI).
The SOI begins on page 44.
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FRANKLIN FLOATING RATE DAILY ACCESS FUND
waves of repricing transactions from earlier in the period had also tightened spreads in the loan market, leading to muted coupon increases despite a steady rise in the LIBOR, which helped to reduce interest in the asset class.
Although demand from retail investors was relatively weaker later in the period, CLO volume surged higher. Despite the increase in issuance, technical conditions for the CLO market remained strong as many investors found highly rated tranches attractive compared to other structured vehicles. In addition to the new vehicles launching, refinancing transactions were especially active in the CLO market as managers looked to tighten liability spreads through refinancing to offset the impacts of repriced loans.
Dividend Distributions*
11/1/16–10/31/17
| | | | | | | | | | | | | | | | |
| | | Dividend per Share (cents) | |
| Month | | Class A | | | Class C | | | Class R6 | | | Advisor
Class | |
November | | | 2.7383 | | | | 2.4487 | | | | 2.9840 | | | | 2.9195 | |
December | | | 2.8928 | | | | 2.6018 | | | | 3.1459 | | | | 3.0764 | |
January | | | 2.6851 | | | | 2.3739 | | | | 2.9523 | | | | 2.8811 | |
February | | | 2.1683 | | | | 1.8968 | | | | 2.3993 | | | | 2.3401 | |
March | | | 2.3615 | | | | 2.0603 | | | | 2.6114 | | | | 2.5512 | |
April | | | 2.0531 | | | | 1.7857 | | | | 2.2759 | | | | 2.2226 | |
May | | | 2.4581 | | | | 2.1371 | | | | 2.7261 | | | | 2.6566 | |
June | | | 2.3524 | | | | 2.0631 | | | | 2.6002 | | | | 2.5352 | |
July | | | 2.6012 | | | | 2.3008 | | | | 2.8582 | | | | 2.7904 | |
August | | | 2.6758 | | | | 2.3758 | | | | 2.9357 | | | | 2.8650 | |
September | | | 2.5133 | | | | 2.2349 | | | | 2.7540 | | | | 2.6890 | |
October | | | 3.0653 | | | | 2.8631 | | | | 3.3218 | | | | 3.2025 | |
Total | | | 30.5652 | | | | 27.1420 | | | | 33.5648 | | | | 32.7296 | |
*The distribution amount is the sum of all net investment income distributions for the period shown. Assumes shares were purchased and held for the entire accrual period. Since dividends accrue daily, your actual distributions will vary depending on the date you purchased your shares and any account activity. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.
The default rate declined during the period despite large defaults in the energy, retail, and information technology sectors, as defaults from the prior year rolled off the calculation. However, after the increase in commodity-related defaults from the previous year subsided, investors during the period focused on heightened distress within the retail space amid concerns about competition from online retailers. Fundamental conditions also showed some signs of being later in the credit cycle, as public issuers of loans reported uneven earnings growth, slowing to negative growth in the middle of the period, in part due to weaker earnings among energy and retail issuers.
Waves of repricing transactions from earlier in the year have tightened pricing in the loan market and limited higher income generation despite increases in the LIBOR. Consequently, net outflows from retail investors have provided some balance between supply and demand within the loan market. We believe the increasingly tight pricing and more subdued technical support have increased the vulnerability of the market toward external macroeconomic events. In response, as the market gets further along in the credit cycle, we have maintained our overweighting in loans rated in the upper tier. Additionally, we have invested in a handful of issuers with relatively shorter maturities that we believe would be closer to a near-term catalyst such as repayment or refinancing, while avoiding some longer dated credits that would mature during a more uncertain default environment. Our investment in these shorter tenor loans may contribute to short-term volatility as issuers look to address their near-term maturities. However, we believe holding these loans over a longer time period may realize higher yields.
Investment Strategy
We use a detailed credit analysis process to select corporate loan and corporate debt securities that meet our criteria. We conduct ongoing credit monitoring of our investments. To help manage the credit risk associated with investing in securities rated below investment grade (or if unrated, of comparable quality), we seek to diversify the Fund by investing in a large number of loans of companies that we have identified as having attractive risk/reward profiles, favorable capital structures, strong asset coverage and dominant market shares. This diversification potentially reduces credit risk by spreading assets across many different industries.
In addition, we seek to exploit market inefficiencies by assigning forward-looking credit-risk tiers to issuers based upon our forward-looking analysis of the issuers’ prospects in the near term. This independent analysis enables us to express differences between backward-looking rating assignments of credit-risk tiers and our analysts’ forward-looking assessment of credit risk, thereby allowing us to potentially take advantage of credit risks the market may be overstating or avoid uncompensated credit risks the market may not have adequately identified.
Manager’s Discussion
During the year under review, the Fund underperformed its benchmark, the CS LLI. The Fund maintained an overweighting in the upper tier of the market throughout the period, which detracted from performance as upper tier loans in the index returned +3.88%, middle tier returned +5.27%, and
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franklintempleton.com | | Annual Report | | 11 |
FRANKLIN FLOATING RATE DAILY ACCESS FUND
lower tier returned +11.96%, according to the CS LLI.1 Although the Fund’s overweighting in the metals and minerals sector contributed to relative performance, its overweighting in the retail sector detracted from relative results.
The top contributors to relative performance included term loans that had experienced volatility in previous periods, but traded higher as investors expected near-term transactions that would address upcoming term loan maturities. 99 Cents Only Stores, a value-based retail dollar chain, was a top contributor to performance as investors expected an amendment that would extend the maturities of its term loan and could provide higher spreads to investors. Furthermore, Bowie Resource Holdings, a coal producer, contributed to performance as the company executed an amendment to allow the sponsor to provide additional equity support, which heightened expectations that the company would refinance its term loans.
The top detractors from relative performance included holdings that faced industry-specific trends, which may have helped to lower demand within each sector. FGI Operating , a manufacturer of firearms and ammunition, detracted from performance as firearm sales declined following the US presidential election and expectations for regulation diminished. Furthermore, Ascena Retail Group, a specialty retailer with multiple core brands, detracted from performance after adjusting guidance downward, amid a decline in store sales due to weaker store traffic. Another term loan in the retail space, issued by PetSmart, a leading retailer in the specialty pet market, declined as the company acquired an online competitor, which increased uncertainty surrounding the companies’ integration.
Purchases during the period focused on higher rated loans as the Fund maintained its overweighting in the upper tier relative to the index. Furthermore, we invested in loans with relatively shorter years to maturity, including issuers that we believe would initiate near-term transactions to address their near-term maturities, such as a refinancing or repayment. Our largest sells included positions that we believed had posed elevated credit risk, while we also opted not to participate in a handful of refinancing deals that extended maturities or tightened spreads to levels where we believed we were not being adequately compensated for the risk.
We also continued to increase the Fund’s weighting in AAA-rated collateralized loan obligation tranches and also invested in two open end funds, Franklin Middle Tier Floating Rate Fund and Franklin Lower Tier Floating Rate Fund. These investments allowed the Fund to have further exposure to credit, while providing additional liquidity. The Fund also
Top 10 Holdings
10/31/17
| | | | |
Company
Sector/Industry | | % of Total
Net Assets | |
Fieldwood Energy LLC | | | 3.0 | % |
Oil & Gas Exploration & Production | | | | |
Ascena Retail Group Inc. | | | 2.2 | % |
Apparel Retail | | | | |
PetSmart Inc. | | | 1.9 | % |
Specialty Stores | | | | |
Navistar Inc. | | | 1.8 | % |
Industrial Machinery | | | | |
Lions Gate Entertainment Corp. | | | 1.6 | % |
Movies & Entertainment | | | | |
Delos Finance SARL (ILFC) (Luxembourg) | | | 1.6 | % |
Aerospace & Defense | | | | |
Calpine Construction Finance Co. LP | | | 1.6 | % |
Independent Power Producers & Energy Traders | | | | |
Appvion Inc. | | | 1.6 | %* |
Forest Products | | | | |
The Hertz Corp. | | | 1.6 | % |
Trucking | | | | |
Franklin Lower Tier Floating Rate Fund | | | 1.5 | % |
Other Diversified Financial Services | | | | |
*Does not include unfunded commitments.
bought protection in HYCDX, an index of high-yield bond credit default swaps providing synthetic exposure to the high-yield bond market, to protect against potential volatility in the credit markets.
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FRANKLIN FLOATING RATE DAILY ACCESS FUND
Thank you for your continued participation in Franklin Floating Rate Daily Access Fund. We look forward to serving your future investment needs.
| | |
 | | 
Mark Boyadjian, CFA |
| | |
 | | 
Madeline Lam |
| |
| | Justin Ma, CFA |
| |
| | Portfolio Management Team |
The foregoing information reflects our analysis, opinions and portfolio holdings as of October 31, 2017, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
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franklintempleton.com | | Annual Report | | 13 |
FRANKLIN FLOATING RATE DAILY ACCESS FUND
Performance Summary as of October 31, 2017
The performance tables and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.
Performance as of 10/31/171
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 2.25% and the minimum is 0%. Class A: 2.25% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
| Share Class | | Cumulative
Total Return2 | | Average Annual
Total Return3 |
| | |
A | | | | |
1-Year | | +3.51% | | +1.21% |
5-Year | | +18.40% | | +2.97% |
10-Year | | +37.19% | | +2.97% |
| | |
Advisor | | | | |
1-Year | | +3.64% | | +3.64% |
5-Year | | +19.88% | | +3.69% |
10-Year | | +40.65% | | +3.47% |
| | | | | | |
| | | Distribution
Rate4 | | 30-Day Standardized Yield5 |
| Share Class | | | (with waiver) | | (without waiver) |
A | | 3.88% | | 4.51% | | 4.48% |
Advisor | | 4.14% | | 4.88% | | 4.83% |
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
See page 16 for Performance Summary footnotes.
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FRANKLIN FLOATING RATE DAILY ACCESS FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment1
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged index includes reinvestment of any income or distributions. It differs from the Fund in composition and does not pay management fees or expenses. One cannot invest directly in an index.
Class A (11/1/07–10/31/17)
Advisor Class (11/1/07–10/31/17)
See page 16 for Performance Summary footnotes.
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franklintempleton.com | | Annual Report | | 15 |
FRANKLIN FLOATING RATE DAILY ACCESS FUND
PERFORMANCE SUMMARY
Distributions (11/1/16–10/31/17)
| | | | |
| Share Class | | Net Investment
Income | |
A | | | $0.305652 | |
C | | | $0.271420 | |
R6 | | | $0.335648 | |
Advisor | | | $0.327296 | |
Total Annual Operating Expenses7
| | | | | | | | |
Share Class | | With Waiver | | | Without Waiver | |
A | | | 0.87% | | | | 0.89% | |
Advisor | | | 0.62% | | | | 0.64% | |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus
All investments involve risks, including possible loss of principal. Investors should be aware that the Fund’s share price and yield will fluctuate with market conditions. The Fund should not be considered an alternative to money market funds or certificates of deposit (CDs). The floating rate loans and debt securities in which the Fund invests tend to be rated below investment grade. Investing in higher yielding, lower rated, floating rate loans and debt securities involves greater risk of default, which could result in loss of principal—a risk that may be heightened in a slowing economy. Interest earned on floating rate loans varies with changes in prevailing interest rates. Therefore, while floating rate loans offer higher interest income when interest rates rise, they will also generate less income when interest rates decline. Changes in the financial strength of a bond issuer or in a bond’s credit rating may affect its value. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.
1. The Fund has a fee waiver associated with any investment it makes in a Franklin Templeton money fund and/or other Franklin Templeton fund, contractually guaranteed through 2/28/18. Fund investment results reflect the fee waiver; without this waiver, the results would have been lower.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.
4. Distribution rate is based on an annualization of the sum of the respective class’s past 30 days’ daily distributions and the maximum offering price (NAV for Advisor Class) per share on 10/31/17.
5. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.
6. Source: Credit Suisse Group. The CS LLI is designed to mirror the investable universe of the US dollar-denominated leveraged loan market. Loans must be below investment grade and rated no higher than Baa/BB+ or Ba1/BBB+ by Moody’s or S&P.
7. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
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16 | | Annual Report | | franklintempleton.com |
FRANKLIN FLOATING RATE DAILY ACCESS FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated.
Actual Fund Expenses
The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | | | | | | | |
| | | | | | | Actual (actual return after expenses) | | | | Hypothetical (5% annual return before expenses) | | | | |
Share Class | | Beginning
Account Value 5/1/17 | | | | Ending
Account Value 10/31/17 | | Expenses Paid During
Period 5/1/17–10/31/171,2 | | | | Ending
Account Value 10/31/17 | | Expenses Paid During Period 5/1/17–10/31/171,2 | | | | Net Annualized
Expense Ratio2 |
A | | $1,000 | | | | $1,013.30 | | $4.16 | | | | $1,021.07 | | $4.18 | | | | 0.82% |
C | | $1,000 | | | | $1,011.30 | | $6.18 | | | | $1,019.06 | | $6.21 | | | | 1.22% |
R6 | | $1,000 | | | | $1,015.00 | | $2.39 | | | | $1,022.84 | | $2.40 | | | | 0.47% |
Advisor | | $1,000 | | | | $1,014.50 | | $2.89 | | | | $1,022.33 | | $2.91 | | | | 0.57% |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 184/365 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
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franklintempleton.com | | Annual Report | | 17 |
Franklin Low Duration Total Return Fund
We are pleased to bring you Franklin Low Duration Total Return Fund’s annual report for the fiscal year ended October 31, 2017.
Your Fund’s Goal and Main Investments
The Fund seeks a high level of current income as is consistent with prudent investing, while seeking capital preservation. The Fund invests primarily in investment-grade debt securities and investments, including government and corporate debt securities and mortgage- and asset-backed securities, targeting an estimated average portfolio duration of three years or less.
What is duration?
Duration is a measure of a bond’s price sensitivity to interest-rate changes. In general, a portfolio of securities with a lower duration can be expected to be less sensitive to interest-rate changes than a portfolio with a higher duration.
Performance Overview
The Fund’s Class A shares delivered a +1.50% cumulative total return for the 12 months under review. In comparison, the Fund’s benchmark, the Bloomberg Barclays US Government/ Credit Index: 1-3 Year Component, posted a +0.67% total return.1 The index measures public obligations of the US Treasury with one to three years to final maturity and publicly issued debt of US government agencies, quasi-federal corporations, and corporate or foreign debt guaranteed by the US government. You can find more of the Fund’s performance data in the Performance Summary beginning on page 21.
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
Investment Strategy
We seek to invest in a combination of fixed income securities, primarily from across the investment-grade debt universe. We analyze securities using proprietary and nonproprietary research to help us identify attractive investment opportunities
across the entire fixed income opportunity set, on a relative basis. When making investment decisions, we evaluate
Portfolio Composition*
Based on Total Net Assets as of 10/31/17
*Figures reflect certain derivatives held in the portfolio (or their underlying reference assets) and may not total 100% or may be negative due to rounding, use of derivatives, unsettled trades or other factors.
**Rounds to less than 0.1% of total net assets.
business cycles, yield curves, and values between and within markets. Through a low duration portfolio, we seek to position the Fund to be less affected by interest rate changes than a fund with a higher duration. In addition, we may use derivative transactions, such as forwards, futures contracts and swap agreements to obtain net long or short exposures to select currencies, interest rates, countries, duration or credit risks.
1. Source: Morningstar.
The index is unmanaged and includes reinvestment of any income or distributions. It does not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.
See www.franklintempletondatasources.com for additional data provider information.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI). The SOI begins on page 57.
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18 | | Annual Report | | franklintempleton.com |
FRANKLIN LOW DURATION TOTAL RETURN FUND
What is the yield curve?
A yield curve is a line that plots the yield to maturity of bonds having equal credit quality against their maturity dates.
What is a currency forward contract?
A currency forward contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency in exchange for another currency at a specific exchange rate on a future date.
What is a futures contract?
A futures contract is an agreement between the Fund and a counterparty made through a US or foreign futures exchange to buy or sell an underlying instrument or asset at a specific price on a future date.
What are swap agreements?
Swap agreements, such as interest rate, fixed income total return, currency, inflation index and credit default swaps, are contracts between the Fund and another party (the swap counterparty). In a basic swap transaction, the Fund agrees with the swap counterparty to exchange the returns (or differentials in rates of return) earned or realized on a particular “notional amount” of underlying instruments. The notional amount is the set amount selected by the parties as the basis on which to calculate the obligations that they have agreed to exchange. The parties typically do not actually exchange the notional amount. Instead, they agree to exchange the returns that would be earned or realized if the notional amount were invested in given instruments or at given interest rates.
Manager’s Discussion
From a perspective of excess returns over Treasuries of similar duration, US dollar-denominated high yield corporate credit performed well. Other major fixed income sectors that delivered notable positive excess returns, as measured by Bloomberg Barclays indexes, included emerging market bonds, senior secured floating rate loans and US investment-grade corporate bonds. In contrast, agency mortgage-backed securities underperformed Treasuries.
During the period, the Fund’s non-agency residential mortgage-backed securities (RMBS) and senior secured floating rate loans exposure benefited the Fund’s performance relative to its benchmark. Our allocation to high yield corporate credit and foreign currency also contributed to relative performance. In contrast, the Fund’s exposure to sovereign developed securities were a slight detractor from relative results.
Dividend Distributions*
11/1/16–10/31/17
| | | | | | | | | | | | | | | | |
| | | Dividend per Share (cents) | |
| Month | | Class A | | | Class C | | | Class R6 | | | Advisor
Class | |
November** | | | 3.1581 | | | | 2.8431 | | | | 3.4832 | | | | 3.3746 | |
December** | | | 4.1934 | | | | 3.8594 | | | | 4.5190 | | | | 4.3953 | |
January | | | 1.7447 | | | | 1.4062 | | | | 2.0721 | | | | 1.9612 | |
February | | | 0.9938 | | | | 0.7827 | | | | 1.1915 | | | | 1.1236 | |
March | | | 1.6942 | | | | 1.3801 | | | | 2.0365 | | | | 1.9003 | |
April | | | 1.2530 | | | | 1.0234 | | | | 1.5043 | | | | 1.4046 | |
May | | | 1.0221 | | | | 0.7497 | | | | 1.3008 | | | | 1.1950 | |
June | | | 1.6708 | | | | 1.3659 | | | | 1.9957 | | | | 1.8680 | |
July | | | 1.2879 | | | | 1.0252 | | | | 1.5666 | | | | 1.4567 | |
August | | | 1.0350 | | | | 0.8375 | | | | 1.2461 | | | | 1.1620 | |
September | | | 1.0039 | | | | 0.8069 | | | | 1.2148 | | | | 1.1307 | |
October | | | 0.6120 | | | | 0.4924 | | | | 0.7620 | | | | 0.7077 | |
Total | | | 19.6689 | | | | 16.5725 | | | | 22.8926 | | | | 21.6797 | |
*The distribution amount is the sum of all net investment income distributions for the period shown. Assumes shares were purchased and held for the entire accrual period. Since dividends accrue daily, your actual distributions will vary depending on the date you purchased your shares and any account activity. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.
**Includes additional income distributions made in order to meet excise tax requirements.
At period-end, we were overweighted relative to the benchmark in many spread sectors, including corporate credit and securitized products, based on our belief that valuations remained relatively attractive on a longer term basis. Over the period, we increased our exposure to certain Treasury positions, collateralized loan obligations and RMBS. We decreased our exposures to investment-grade corporate credit, commercial mortgage-backed securities and asset-backed securities.
During the period, the portfolio utilized derivatives, including credit default and currency swaps, inflation linked swaps, currency forwards, Treasury futures, interest rate swaps and credit default swap options, principally as a tool for efficient portfolio management and to manage overall portfolio risk. These derivative transactions may provide the same, or similar, net long or short exposure to select currencies, interest rates, countries, duration or credit risks in a less expensive way than by directly purchasing securities. In those markets where non-derivative securities are readily available, the cost difference in normal market conditions may be small.
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franklintempleton.com | | Annual Report | | 19 |
FRANKLIN LOW DURATION TOTAL RETURN FUND
Thank you for your continued participation in Franklin Low Duration Total Return Fund. We look forward to serving your future investment needs.
| | |
 | | 
Roger A. Bayston, CFA |
| | |
 | | 
Kent Burns, CFA |
| | Christopher J. Molumphy, CFA David Yuen, CFA, FRM Portfolio Management Team |
The foregoing information reflects our analysis, opinions and portfolio holdings as of October 31, 2017, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
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20 | | Annual Report | | franklintempleton.com |
FRANKLIN LOW DURATION TOTAL RETURN FUND
Performance Summary as of October 31, 2017
The performance tables and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.
Performance as of 10/31/171
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 2.25% and the minimum is 0%. Class A: 2.25% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
| Share Class | | Cumulative Total Return2 | | Average Annual Total Return3 |
| | |
A | | | | |
1-Year | | +1.50% | | -0.81% |
5-Year | | +6.14% | | +0.73% |
10-Year | | +30.11% | | +2.43% |
| | |
Advisor4 | | | | |
1-Year | | +1.70% | | +1.70% |
5-Year | | +7.51% | | +1.46% |
10-Year | | +33.37% | | +2.92% |
| | | | | | | | |
| | | Distribution | | 30-Day Standardized Yield6 | |
| Share Class | | Rate5 | | (with waiver) | | (without waiver) | |
A | | 0.73% | | 1.79% | | | 1.67% | |
Advisor | | 0.86% | | 2.08% | | | 1.96% | |
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
See page 23 for Performance Summary footnotes.
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franklintempleton.com | | Annual Report | | 21 |
FRANKLIN LOW DURATION TOTAL RETURN FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment1
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
Class A (11/1/07–10/31/17)
Advisor Class (11/1/07–10/31/17)
See page 23 for Performance Summary footnotes.
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22 | | Annual Report | | franklintempleton.com |
FRANKLIN LOW DURATION TOTAL RETURN FUND
PERFORMANCE SUMMARY
Distributions (11/1/16–10/31/17)
| | | | |
| | | Net Investment | |
| Share Class | | Income | |
A | | | $0.196689 | |
C | | | $0.165725 | |
R6 | | | $0.228926 | |
Advisor | | | $0.216797 | |
Total Annual Operating Expenses9
| | | | | | | | |
| Share Class | | With Waiver | | | Without Waiver | |
A | | | 0.82% | | | | 0.97% | |
Advisor | | | 0.57% | | | | 0.72% | |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus
All investments involve risks, including possible loss of principal. Investors should be aware that the Fund’s share price and yield will fluctuate with market conditions. The Fund should not be considered an alternative to money market funds or certificates of deposit (CDs). The floating rate loans and debt securities in which the Fund invests tend to be rated below investment grade. Investing in higher yielding, lower rated, floating rate loans and debt securities involves greater risk of default, which could result in loss of principal—a risk that may be heightened in a slowing economy. Interest earned on floating rate loans varies with changes in prevailing interest rates. Therefore, while floating rate loans offer higher interest income when interest rates rise, they will also generate less income when interest rates decline. Changes in the financial strength of a bond issuer or in a bond’s credit rating may affect its value. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.
1. The Fund has an expense reduction and a fee waiver associated with any investments it makes in a Franklin Templeton money fund and/or other Franklin Templeton fund, contractually guaranteed through 2/28/18. Fund investment results reflect the expense reduction and fee waiver; without these reductions, the results would have been lower.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.
4. Effective 5/15/08, the Fund began offering Advisor class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to 5/15/08, a restated figure is used based upon the Fund’s Class A performance, excluding the effect of Class A’s maximum initial sales charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after 5/15/08 actual Advisor Class performance is used reflecting all charges and fees applicable to that class. Since 5/15/08 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were +29.35% and +2.76%.
5. Distribution rate is based on an annualization of the sum of the respective class’s past 30 days’ daily distributions and the maximum offering price (NAV for Advisor Class) per share on 10/31/17.
6. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.
7. Source: Morningstar. The Bloomberg Barclays US Government/Credit Index: 1-3 Year Component includes dollar-denominated investment grade corporate debt and non-native currency agency and local authority debt, sovereign, supranational, and taxable municipal debt, public obligations of the US Treasury with at least one year up to, but not including, three years to final maturity, and publicly issued debt of US government agencies, quasi-federal corporations, and corporate or foreign debt guaranteed by the US government.
8. Source: Bureau of Labor Statistics, bls.gov/cpi. The Consumer Price Index (CPI) is a commonly used measure of the inflation rate.
9. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
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franklintempleton.com | | Annual Report | | 23 |
FRANKLIN LOW DURATION TOTAL RETURN FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated.
Actual Fund Expenses
The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | | | | | | | |
| | | | | | | Actual (actual return after expenses) | | | | Hypothetical (5% annual return before expenses) | | | | |
Share Class | | Beginning
Account
Value 5/1/17 | | | | Ending Account
Value 10/31/17 | | Expenses Paid During Period
5/1/17–10/31/171,2 | | | | Ending Account
Value 10/31/17 | | Expenses Paid During Period
5/1/17–10/31/171,2 | | | | Net Annualized
Expense Ratio2 |
A | | $ 1,000 | | | | $ 1,004.70 | | $ 4.04 | | | | $ 1,021.17 | | $ 4.08 | | | | 0.80% |
C | | $ 1,000 | | | | $ 1,002.30 | | $ 6.06 | | | | $ 1,019.16 | | $ 6.11 | | | | 1.20% |
R6 | | $ 1,000 | | | | $ 1,006.20 | | $ 1.92 | | | | $ 1,023.29 | | $ 1.94 | | | | 0.38% |
Advisor | | $ 1,000 | | | | $ 1,005.60 | | $ 2.78 | | | | $ 1,022.43 | | $ 2.80 | | | | 0.55% |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 184/365 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
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24 | | Annual Report | | franklintempleton.com |
Franklin Total Return Fund
We are pleased to bring you Franklin Total Return Fund’s annual report for the fiscal year ended October 31, 2017.
Your Fund’s Goal and Main Investments
The Fund seeks to provide high current income, consistent with preservation of capital. Capital appreciation over the long term is a secondary goal. The Fund invests at least 80% of its assets in investment-grade debt securities and investments. The Fund currently focuses on government and corporate debt securities and mortgage- and asset-backed securities.
Performance Overview
The Fund’s Class A shares produced a +1.47% cumulative total return for the 12 months under review. In comparison, the Fund’s benchmark, the Bloomberg Barclays US Aggregate Bond Index had a +0.90% total return.1 The index measures the US investment-grade, fixed-rate, taxable bond market with index components for government and corporate, mortgage pass-through and asset-backed securities. You can find the Fund’s long-term performance data in the Performance Summary beginning on page 28.
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
Investment Strategy
We seek to invest in a combination of fixed income securities, predominantly from across the investment-grade debt universe. We analyze securities using proprietary and nonproprietary research to help us identify attractive investment opportunities, across the entire fixed income opportunity set, on a relative basis. The Fund may also invest up to 20% of its total assets in noninvestment-grade debt securities. In addition, we may use derivative transactions, such as currency and cross-currency forwards, futures contracts and swap agreements, to obtain net long or short exposures to select currencies, interest rates, countries, duration or credit risks.
Portfolio Composition*
Based on Total Net Assets as of 10/31/17
*Figures reflect certain derivatives held in the portfolio (or their underlying reference assets) and may not total 100% or may be negative due to roundings, use of derivatives, unsettled trades or other factors.
What is a currency forward contract?
A currency forward contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency in exchange for another currency at a specific exchange rate on a future date.
Manager’s Discussion
From a perspective of excess returns over Treasuries of similar duration, US dollar-denominated high yield corporate credit
1. Source: Morningstar.
The index is unmanaged and includes reinvestment of any income or distributions. It does not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.
See www.franklintempletondatasources.com for additional data provider information.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Consolidated Statement of Investments (SOI). The Consolidated SOI begins on page 88.
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franklintempleton.com | | Annual Report | | 25 |
FRANKLIN TOTAL RETURN FUND
What is a futures contract?
A futures contract is an agreement between the Fund and a counterparty made through a US or foreign futures exchange to buy or sell an underlying instrument or asset at a specific price on a future date.
What are swap agreements?
Swap agreements, such as interest rate, fixed income total return, currency, inflation index and credit default swaps, are contracts between the Fund and another party (the swap counterparty). In a basic swap transaction, the Fund agrees with the swap counterparty to exchange the returns (or differentials in rates of return) earned or realized on a particular “notional amount” of underlying instruments. The notional amount is the set amount selected by the parties as the basis on which to calculate the obligations that they have agreed to exchange. The parties typically do not actually exchange the notional amount. Instead, they agree to exchange the returns that would be earned or realized if the notional amount were invested in given instruments or at given interest rates.
performed well. Other major fixed income sectors that delivered notable positive excess returns, as measured by Bloomberg Barclays indexes, included emerging markets bonds, senior secured floating rate loans, US investment-grade corporate bonds and commercial mortgage-backed securities (CMBS). In contrast, agency mortgage-backed securities underperformed Treasuries.
During the period, the Fund’s exposure to high yield corporate credit and non-agency residential mortgage-backed securities (RMBS) were significant contributors to the Fund’s performance relative to its benchmark. Senior secured floating rate loans and collateralized loan obligations (CLOs) also benefited relative performance. In contrast, the Fund’s tax-exempt municipal bonds exposure detracted from relative returns.
What is the yield curve?
A yield curve is a line that plots the yield to maturity of bonds having equal credit quality against their maturity dates.
At period-end, we were overweighted relative to the benchmark in many spread sectors, including corporate credit and securitized products, based on our belief that valuations remained relatively attractive on a longer term basis. Over the period, we increased our exposure to RMBS, high yield corporate credit and CLOs. We pared our exposure to investment-grade corporate credit, certain Treasury positions
Dividend Distributions*
11/1/16–10/31/17
| | | | | | | | | | | | | | | | | | | | |
| | | Dividend per Share (cents) | |
| Month | | Class A | | | Class C | | | Class R | | | Class R6 | | | Advisor
Class | |
November** | | | 4.1184 | | | | 3.7778 | | | | 3.9143 | | | | 4.4466 | | | | 4.3335 | |
December** | | | 5.0337 | | | | 4.6872 | | | | 4.8109 | | | | 5.3537 | | | | 5.2341 | |
January | | | 2.8305 | | | | 2.4798 | | | | 2.6116 | | | | 3.1871 | | | | 3.0563 | |
February | | | 1.2004 | | | | 0.9934 | | | | 1.0711 | | | | 1.4129 | | | | 1.3328 | |
March | | | 1.8946 | | | | 1.5896 | | | | 1.7042 | | | | 2.1959 | | | | 2.0902 | |
April | | | 2.0549 | | | | 1.7619 | | | | 1.8767 | | | | 2.3470 | | | | 2.2430 | |
May | | | 1.2517 | | | | 1.0003 | | | | 1.0945 | | | | 1.5027 | | | | 1.4128 | |
June | | | 2.1161 | | | | 1.8060 | | | | 1.9223 | | | | 2.4233 | | | | 2.3155 | |
July | | | 1.3586 | | | | 1.1377 | | | | 1.2208 | | | | 1.5764 | | | | 1.5002 | |
August | | | 0.4916 | | | | 0.4139 | | | | 0.4432 | | | | 0.5685 | | | | 0.5416 | |
September | | | 0.5023 | | | | 0.4240 | | | | 0.4533 | | | | 0.5794 | | | | 0.5525 | |
October | | | 0.2251 | | | | 0.1910 | | | | 0.2043 | | | | 0.2584 | | | | 0.2469 | |
Total | | | 23.0779 | | | | 20.2626 | | | | 21.3272 | | | | 25.8519 | | | | 24.8594 | |
*The distribution amount is the sum of all net investment income distributions for the period shown. Assumes shares were purchased and held for the entire accrual period. Since dividends accrue daily, your actual distributions will vary depending on the date you purchased your shares and any account activity. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.
**Includes additional income distributions made in order to meet excise tax requirements.
and asset-backed securities as we found better relative opportunities.
During the period, the portfolio utilized derivatives, including credit default and currency swaps, currency forwards, Treasury futures, inflation index swaps and credit default swap options, principally as a tool for efficient portfolio management and to manage overall portfolio risk. These derivative transactions may provide the same, or similar, net long or short exposure to select currencies, interest rates, countries, duration or credit risks in a less expensive way than by directly purchasing securities. In those markets where non-derivative securities are readily available, the cost difference in normal market conditions may be small.
.
What is an option?
An option is a contract to buy or sell a specific financial product known as the option’s underlying instrument at a specific price. The buyer of an option has the right, but not the obligation, to buy or sell the underlying instrument at or until a specified expiration date. Conversely, the seller (“writer”) of an option who opens a transaction is obligated to buy or sell the underlying instrument should the option holder exercise that right.
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26 | | Annual Report | | franklintempleton.com |
FRANKLIN TOTAL RETURN FUND
Thank you for your continued participation in Franklin Total Return Fund. We look forward to serving your future investment needs.
| | |
| |
Roger A. Bayston, CFA |
| | |
| |
Kent Burns, CFA |
| |
| | Christopher J. Molumphy, CFA David Yuen, CFA, FRM Michael J. Materasso |
| |
| | Portfolio Management Team |
The foregoing information reflects our analysis, opinions and portfolio holdings as of October 31, 2017, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
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franklintempleton.com | | Annual Report | | 27 |
FRANKLIN TOTAL RETURN FUND
Performance Summary as of October 31, 2017
The performance tables and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.
Performance as of 10/31/171
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 4.25% and the minimum is 0%. Class A: 4.25% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
| Share Class | | Cumulative Total Return2 | | Average Annual Total Return3 |
| | |
A | | | | |
1-Year | | +1.47% | | -2.83% |
5-Year | | +10.37% | | +1.11% |
10-Year | | +52.04% | | +3.83% |
| | |
Advisor | | | | |
1-Year | | +1.65% | | +1.65% |
5-Year | | +11.74% | | +2.25% |
10-Year | | +55.73% | | +4.53% |
| | | | | | | | | | | | |
| | |
| | | Distribution | | | 30-Day Standardized Yield5 | |
| Share Class | | Rate4 | | | (with waiver) | | | (without waiver) | |
A | | | 0.26 | % | | | 2.38 | % | | | 2.37 | % |
Advisor | | | 0.30 | % | | | 2.75 | % | | | 2.72 | % |
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
See page 30 for Performance Summary footnotes.
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28 | | Annual Report | | franklintempleton.com |
FRANKLIN TOTAL RETURN FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment1
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
Class A (11/1/07–10/31/17)
Advisor Class (11/1/07–10/31/17)
See page 30 for Performance Summary footnotes.
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franklintempleton.com | | Annual Report | | 29 |
FRANKLIN TOTAL RETURN FUND
PERFORMANCE SUMMARY
Distributions (11/1/16–10/31/17)
| | | | |
| Share Class | | Net Investment Income | |
A | | | $0.230779 | |
C | | | $0.202626 | |
| R | | | $0.213272 | |
R6 | | | $0.258519 | |
Advisor | | | $0.248594 | |
Total Annual Operating Expenses8
| | | | | | | | |
| Share Class | | With Waiver | | | Without Waiver | |
A | | | 0.91% | | | | 0.93% | |
Advisor | | | 0.66% | | | | 0.68% | |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
All investments involve risks, including possible loss of principal. Interest rate movements and mortgage prepayments will affect the Fund’s share price and yield. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Changes in the financial strength of a bond issuer or in a bond’s credit rating may affect its value. The risks associated with higher yielding, lower rated securities include higher risk of default and loss of principal. Investment in foreign securities also involves special risks, including currency fluctuations, and political and economic uncertainty. Derivatives, including currency management strategies, involve costs and can create economic leverage in the portfolio which may result in significant volatility and cause the Fund to participate in losses (as well as gains) on an amount that exceeds the Fund’s initial investment. The Fund may not achieve the anticipated benefits and may realize losses when a counterparty fails to perform as promised. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.
1. The Fund has an expense reduction and a fee waiver associated with any investments it makes in a Franklin Templeton money fund and/or other Franklin Templeton fund, contractually guaranteed through 2/28/18. Fund investment results reflect the expense reduction and fee waiver; without these reductions, the results would have been lower.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.
4. Distribution rate is based on an annualization of the sum of the respective class’s past 30 days’ daily distributions and the maximum offering price (NAV for Advisor Class) per share on 10/31/17.
5. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.
6. Source: Morningstar. The Bloomberg Barclays US Aggregate Bond Index is a market capitalization-weighted index representing the US investment-grade, fixed-rate, taxable bond market with index components for government and corporate, mortgage pass-through and asset-backed securities. All issues included are SEC registered, taxable, dollar denominated and nonconvertible, must have at least one year to final maturity and must be rated investment grade (Baa3/BBB-/BBB- or higher) using the middle rating of Moody’s, Standard & Poor’s and Fitch, respectively.
7. Source: Bureau of Labor Statistics, bls.gov/cpi. The Consumer Price Index (CPI), is a commonly used measure of the inflation rate.
8. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
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30 | | Annual Report | | franklintempleton.com |
FRANKLIN TOTAL RETURN FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated.
Actual Fund Expenses
The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | | | | | | | |
| | | | | | | Actual (actual return after expenses) | | | | Hypothetical (5% annual return before expenses) | | | | |
Share Class | | Beginning
Account Value 5/1/17 | | | | Ending Account Value 10/31/17 | | Expenses
Paid During
Period
5/1/17–10/31/171,2 | | | | Ending Account Value 10/31/17 | | Expenses Paid During
Period 5/1/17–10/31/171,2 | | | | Net Annualized
Expense Ratio2 |
A | | $1,000 | | | | $1,015.40 | | $4.47 | | | | $1,020.77 | | $4.48 | | | | 0.88% |
C | | $1,000 | | | | $1,012.40 | | $6.49 | | | | $1,018.75 | | $6.51 | | | | 1.28% |
R | | $1,000 | | | | $1,013.80 | | $5.74 | | | | $1,019.51 | | $5.75 | | | | 1.13% |
R6 | | $1,000 | | | | $1,016.30 | | $2.49 | | | | $1,022.74 | | $2.50 | | | | 0.49% |
Advisor | | $1,000 | | | | $1,015.90 | | $3.20 | | | | $1,022.03 | | $3.21 | | | | 0.63% |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 184/365 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
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franklintempleton.com | | Annual Report | | 31 |
FRANKLIN INVESTORS SECURITIES TRUST
Financial Highlights
Franklin Adjustable U.S. Government Securities Fund
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Class A | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | |
| | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $ 8.40 | | | | $ 8.55 | | | | $ 8.67 | | | | $ 8.72 | | | | $ 8.90 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | 0.026 | | | | 0.025 | | | | 0.019 | | | | 0.043 | | | | 0.048 | |
| | | | | |
Net realized and unrealized gains (losses) | | | (0.031) | | | | (0.053) | | | | (0.040) | | | | 0.006 | | | | (0.098) | |
| | | | | |
Total from investment operations | | | (0.005) | | | | (0.028) | | | | (0.021) | | | | 0.049 | | | | (0.050) | |
| | | | | |
Less distributions from net investment income | | | (0.155) | | | | (0.122) | | | | (0.099) | | | | (0.099) | | | | (0.130) | |
| | | | | |
Net asset value, end of year | | | $ 8.24 | | | | $ 8.40 | | | | $ 8.55 | | | | $ 8.67 | | | | $ 8.72 | |
| | | | | |
Total returnb | | | (0.06)% | | | | (0.32)% | | | | (0.24)% | | | | 0.56% | | | | (0.56)% | |
| | | | | |
Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 0.95% | | | | 0.92% | | | | 0.91% | | | | 0.93% | | | | 0.87% | |
| | | | | |
Expenses net of waiver and payments by affiliates | | | 0.94% | c | | | 0.91% | c | | | 0.91% | c,d | | | 0.93% | c,d | | | 0.87% | |
| | | | | |
Net investment income | | | 0.54% | | | | 0.43% | | | | 0.39% | | | | 0.48% | | | | 0.63% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $492,319 | | | | $667,671 | | | | $848,918 | | | | $1,058,838 | | | | $1,105,674 | |
| | | | | |
Portfolio turnover rate | | | 2.81% | | | | 11.49% | | | | 9.98% | | | | 14.18% | | | | 8.66% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
cBenefit of expense reduction rounds to less than 0.01%.
dBenefit of waiver and payments by affiliates rounds to less than 0.01%.
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32 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin Adjustable U.S. Government Securities Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014a | |
Class A1 | | | | | | | | | | | | | | | | |
| | | | |
Per share operating performance | | | | | | | | | | | | | | | | |
| | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | |
| | | | |
Net asset value, beginning of year | | | $ 8.40 | | | | $ 8.54 | | | | $ 8.67 | | | | $ 8.68 | |
| | | | |
Income from investment operationsb: | | | | | | | | | | | | | | | | |
| | | | |
Net investment income. | | | 0.059 | | | | 0.049 | | | | 0.046 | | | | 0.018 | |
| | | | |
Net realized and unrealized gains (losses) | | | (0.051) | | | | (0.054) | | | | (0.062) | | | | 0.010 | |
| | | | |
Total from investment operations | | | 0.008 | | | | (0.005) | | | | (0.016) | | | | 0.028 | |
| | | | |
Less distributions from net investment income | | | (0.168) | | | | (0.135) | | | | (0.114) | | | | (0.038) | |
| | | | |
Net asset value, end of year | | | $ 8.24 | | | | $ 8.40 | | | | $ 8.54 | | | | $ 8.67 | |
| | | | |
Total returnc | | | 0.10% | | | | (0.05)% | | | | (0.19)% | | | | 0.32% | |
| | | | |
Ratios to average net assetsd | | | | | | | | | | | | | | | | |
| | | | |
Expenses before waiver and payments by affiliates | | | 0.79% | | | | 0.77% | | | | 0.75% | | | | 0.78% | |
| | | | |
Expenses net of waiver and payments by affiliates | | | 0.78% | e | | | 0.76% | e | | | 0.75% | e,f | | | 0.78% | e,f |
| | | | |
Net investment income | | | 0.70% | | | | 0.58% | | | | 0.55% | | | | 0.63% | |
| | | | |
Supplemental data | | | | | | | | | | | | | | | | |
| | | | |
Net assets, end of year (000’s) | | | $121,012 | | | | $160,469 | | | | $198,670 | | | | $253,021 | |
| | | | |
Portfolio turnover rate | | | 2.81% | | | | 11.49% | | | | 9.98% | | | | 14.18% | |
aFor the period June 18, 2014 (effective date) to October 31, 2014.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
dRatios are annualized for periods less than one year.
eBenefit of expense reduction rounds to less than 0.01%.
fBenefit of waiver and payments by affiliates rounds to less than 0.01%.
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franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | 33 |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin Adjustable U.S. Government Securities Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Class C | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | |
| | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $ 8.40 | | | | $ 8.54 | | | | $ 8.66 | | | | $ 8.71 | | | | $ 8.90 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income (loss) | | | (0.014) | | | | (0.011) | | | | (0.013) | | | | (0.004) | | | | 0.006 | |
| | | | | |
Net realized and unrealized gains (losses) | | | (0.024) | | | | (0.041) | | | | (0.043) | | | | 0.018 | | | | (0.101) | |
| | | | | |
Total from investment operations | | | (0.038) | | | | (0.052) | | | | (0.056) | | | | 0.014 | | | | (0.095) | |
| | | | | |
Less distributions from net investment income | | | (0.122) | | | | (0.088) | | | | (0.064) | | | | (0.064) | | | | (0.095) | |
| | | | | |
Net asset value, end of year | | | $ 8.24 | | | | $ 8.40 | | | | $ 8.54 | | | | $ 8.66 | | | | $ 8.71 | |
| | | | | |
Total returnb | | | (0.45)% | | | | (0.61)% | | | | (0.65)% | | | | 0.16% | | | | (1.07)% | |
| | | | | |
Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 1.35% | | | | 1.32% | | | | 1.31% | | | | 1.33% | | | | 1.27% | |
| | | | | |
Expenses net of waiver and payments by affiliates | | | 1.34% | c | | | 1.31% | c | | | 1.31% | c,d | | | 1.33% | c,d | | | 1.27% | |
| | | | | |
Net investment income (loss) | | | 0.14% | | | | 0.03% | | | | (0.01)% | | | | 0.08% | | | | 0.23% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $189,634 | | | | $266,186 | | | | $336,254 | | | | $428,031 | | | | $603,067 | |
| | | | | |
Portfolio turnover rate | | | 2.81% | | | | 11.49% | | | | 9.98% | | | | 14.18% | | | | 8.66% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
cBenefit of expense reduction rounds to less than 0.01%.
dBenefit of waiver and payments by affiliates rounds to less than 0.01%.
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34 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin Adjustable U.S. Government Securities Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013a | |
Class R6 | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | |
| | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $ 8.41 | | | | $ 8.55 | | | | $ 8.68 | | | | $ 8.73 | | | | $ 8.72 | |
| | | | | |
Income from investment operationsb: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | 0.074 | | | | 0.066 | | | | 0.013 | | | | 0.088c | | | | 0.008 | |
| | | | | |
Net realized and unrealized gains (losses) | | | (0.046) | | | | (0.053) | | | | (0.010) | | | | (0.009) | | | | 0.018 | |
| | | | | |
Total from investment operations | | | 0.028 | | | | 0.013 | | | | 0.003 | | | | 0.079 | | | | 0.026 | |
| | | | | |
Less distributions from net investment income | | | (0.188) | | | | (0.153) | | | | (0.133) | | | | (0.129) | | | | (0.016) | |
| | | | | |
Net asset value, end of year | | | $ 8.25 | | | | $ 8.41 | | | | $ 8.55 | | | | $ 8.68 | | | | $ 8.73 | |
| | | | | |
Total returnd | | | 0.34% | | | | 0.15% | | | | 0.03% | | | | 0.92% | | | | 0.30% | |
| | | | | |
Ratios to average net assetse | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 0.58% | | | | 0.56% | | | | 0.53% | | | | 0.56% | | | | 0.53% | |
| | | | | |
Expenses net of waiver and payments by affiliates | | | 0.55% | f | | | 0.55% | f | | | 0.53% | f,g | | | 0.56% | f,g | | | 0.53% | |
| | | | | |
Net investment income | | | 0.93% | | | | 0.79% | | | | 0.77% | | | | 0.85% | | | | 0.97% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $2,196 | | | | $2,374 | | | | $2,176 | | | | $7,193 | | | | $335 | |
| | | | | |
Portfolio turnover rate | | | 2.81% | | | | 11.49% | | | | 9.98% | | | | 14.18% | | | | 8.66% | |
aFor the period September 20, 2013 (effective date) to October 31, 2013.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fBenefit of expense reduction rounds to less than 0.01%.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| | | | |
| | | |
franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | 35 |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin Adjustable U.S. Government Securities Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Advisor Class | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | |
| | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $ 8.41 | | | | $ 8.55 | | | | $ 8.68 | | | | $ 8.73 | | | | $ 8.91 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | 0.052 | | | | 0.046 | | | | 0.040 | | | | 0.068 | | | | 0.073 | |
| | | | | |
Net realized and unrealized gains (losses) | | | (0.036) | | | | (0.043) | | | | (0.049) | | | | 0.003 | | | | (0.101) | |
| | | | | |
Total from investment operations | | | 0.016 | | | | 0.003 | | | | (0.009) | | | | 0.071 | | | | (0.028) | |
| | | | | |
Less distributions from net investment income | | | (0.176) | | | | (0.143) | | | | (0.121) | | | | (0.121) | | | | (0.152) | |
| | | | | |
Net asset value, end of year | | | $ 8.25 | | | | $ 8.41 | | | | $ 8.55 | | | | $ 8.68 | | | | $ 8.73 | |
| | | | | |
Total return | | | 0.20% | | | | 0.05% | | | | (0.11)% | | | | 0.82% | | | | (0.31)% | |
| | | | | |
Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 0.70% | | | | 0.67% | | | | 0.66% | | | | 0.68% | | | | 0.62% | |
| | | | | |
Expenses net of waiver and payments by affiliates | | | 0.69% | b | | | 0.66% | b | | | 0.66% | b,c | | | 0.68% | b,c | | | 0.62% | |
| | | | | |
Net investment income | | | 0.79% | | | | 0.68% | | | | 0.64% | | | | 0.73% | | | | 0.88% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $184,299 | | | | $227,599 | | | | $308,683 | | | | $416,854 | | | | $411,228 | |
| | | | | |
Portfolio turnover rate | | | 2.81% | | | | 11.49% | | | | 9.98% | | | | 14.18% | | | | 8.66% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBenefit of expense reduction rounds to less than 0.01%.
cBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| | | | |
| | | |
36 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
Statement of Investments, October 31, 2017
Franklin Adjustable U.S. Government Securities Fund
| | | | | | | | |
| | | Principal
Amount | | | Value | |
Mortgage-Backed Securities 96.1% | | | | | | | | |
a Federal Home Loan Mortgage Corp. (FHLMC) Adjustable Rate 23.1% | | | | | | | | |
FHLMC, 1.907%, (11th District COF +/- MBS Margin), 2/01/18 - 8/01/18 | | $ | 35,306 | | | $ | 35,156 | |
FHLMC, 3.004%, (US 1 Year CMT T-Note +/- MBS Margin), 4/01/34 | | | 9,429,024 | | | | 9,965,669 | |
FHLMC, 2.814% - 3.044%, (US 1 Year CMT T-Note +/- MBS Margin), 9/01/35 - 11/01/36 | | | 8,422,274 | | | | 8,883,638 | |
FHLMC, 3.065% - 3.093%, (US 1 Year CMT T-Note +/- MBS Margin), 4/01/34 - 4/01/37 | | | 8,549,564 | | | | 9,012,733 | |
FHLMC, 3.099%, (12-month USD LIBOR +/- MBS Margin), 9/01/35 | | | 7,850,722 | | | | 8,135,887 | |
FHLMC, 3.101%, (12-month USD LIBOR +/- MBS Margin), 1/01/36 | | | 4,823,117 | | | | 5,026,522 | |
FHLMC, 3.106%, (US 1 Year CMT T-Note +/- MBS Margin), 6/01/37 | | | 4,487,185 | | | | 4,746,775 | |
FHLMC, 2.836% - 3.109%, (6-month USD LIBOR +/- MBS Margin), 4/01/36 - 1/01/37 | | | 2,181,674 | | | | 2,266,399 | |
FHLMC, 3.194%, (US 1 Year CMT T-Note +/- MBS Margin), 3/01/35 | | | 4,973,276 | | | | 5,256,524 | |
FHLMC, 3.255%, (US 1 Year CMT T-Note +/- MBS Margin), 12/01/35 | | | 4,684,586 | | | | 4,944,689 | |
FHLMC, 3.348%, (12-month USD LIBOR +/- MBS Margin), 12/01/35 | | | 4,353,623 | | | | 4,576,901 | |
FHLMC, 3.364%, (12-month USD LIBOR +/- MBS Margin), 2/01/36 | | | 4,219,560 | | | | 4,448,461 | |
FHLMC, 2.904% - 3.396%, (12-month USD LIBOR +/- MBS Margin), 1/01/36 - 12/01/37 | | | 7,523,064 | | | | 7,865,074 | |
FHLMC, 3.40% - 3.413%, (12-month USD LIBOR +/- MBS Margin), 11/01/35 - 5/01/38 | | | 8,774,943 | | | | 9,229,420 | |
FHLMC, 3.434%, (12-month USD LIBOR +/- MBS Margin), 9/01/37 | | | 28,327,532 | | | | 29,880,850 | |
FHLMC, 3.438%, (12-month USD LIBOR +/- MBS Margin), 12/01/35 | | | 4,660,973 | | | | 4,902,612 | |
FHLMC, 3.42% - 3.453%, (12-month USD LIBOR +/- MBS Margin), 11/01/36 - 10/01/38 | | | 7,306,472 | | | | 7,700,239 | |
FHLMC, 3.462%, (12-month USD LIBOR +/- MBS Margin), 11/01/35 | | | 4,030,667 | | | | 4,255,040 | |
FHLMC, 3.466% - 3.473%, (12-month USD LIBOR +/- MBS Margin), 4/01/37 - 10/01/38 | | | 7,162,104 | | | | 7,528,601 | |
FHLMC, 3.491%, (12-month USD LIBOR +/- MBS Margin), 11/01/37 | | | 5,147,074 | | | | 5,413,816 | |
FHLMC, 3.50% - 3.528%, (12-month USD LIBOR +/- MBS Margin), 12/01/34 - 4/01/40 | | | 8,846,965 | | | | 9,327,899 | |
FHLMC, 3.544%, (12-month USD LIBOR +/- MBS Margin), 7/01/35 | | | 10,781,905 | | | | 11,389,305 | |
FHLMC, 3.529% - 3.555%, (12-month USD LIBOR +/- MBS Margin), 6/01/35 - 5/01/40 | | | 8,724,831 | | | | 9,198,945 | |
FHLMC, 3.116% - 3.605%, (US 1 Year CMT T-Note +/- MBS Margin), 8/01/33 - 3/01/37 | | | 8,552,019 | | | | 9,041,680 | |
FHLMC, 3.555% - 3.607%, (12-month USD LIBOR +/- MBS Margin), 8/01/34 - 11/01/41 | | | 7,510,842 | | | | 7,935,752 | |
FHLMC, 3.612%, (12-month USD LIBOR +/- MBS Margin), 10/01/41 | | | 5,725,975 | | | | 6,021,724 | |
FHLMC, 3.611% - 3.664%, (12-month USD LIBOR +/- MBS Margin), 6/01/35 - 9/01/37 | | | 6,716,270 | | | | 7,095,343 | |
FHLMC, 3.673%, (12-month USD LIBOR +/- MBS Margin), 6/01/37 | | | 10,259,203 | | | | 10,881,652 | |
FHLMC, 3.706%, (12-month USD LIBOR +/- MBS Margin), 11/01/40 | | | 5,334,527 | | | | 5,628,345 | |
FHLMC, 3.858%, (12-month USD LIBOR +/- MBS Margin), 1/01/37 | | | 4,442,797 | | | | 4,746,969 | |
FHLMC, 4.458%, (US 1 Year CMT T-Note +/- MBS Margin), 8/01/34 | | | 2,625,724 | | | | 2,890,557 | |
| | | | | | | | |
| | | | | | | 228,233,177 | |
| | | | | | | | |
a Federal National Mortgage Association (FNMA) Adjustable Rate 72.9% | | | | | | | | |
FNMA, 1.497% - 2.575%, (11th District COF +/- MBS Margin), 12/01/17 - 11/01/40 | | | 7,454,792 | | | | 7,561,402 | |
FNMA, 1.973% - 2.838%, (6-month USD LIBOR +/- MBS Margin), 6/01/21 - 3/01/38 | | | 9,487,937 | | | | 9,779,029 | |
FNMA, 1.652% - 2.859%, (US 1 Year CMT T-Note +/- MBS Margin), 4/01/18 - 2/01/38 | | | 9,317,720 | | | | 9,704,023 | |
FNMA, 2.875%, (US 2 Year CMT T-Note +/- MBS Margin), 8/01/19 | | | 458 | | | | 458 | |
FNMA, 2.887%, (12-month USD LIBOR +/- MBS Margin), 1/01/36 | | | 4,248,482 | | | | 4,396,454 | |
FNMA, 2.909%, (6-month USD LIBOR +/- MBS Margin), 12/01/34 | | | 7,297,101 | | | | 7,565,427 | |
FNMA, 2.841% - 2.921%, (6-month USD LIBOR +/- MBS Margin), 9/01/23 - 7/01/37 | | | 9,082,025 | | | | 9,412,857 | |
FNMA, 2.144% - 2.929%, (1 Year CMT +/- MBS Margin), 12/01/26 - 11/01/44 | | | 9,580,997 | | | | 9,865,138 | |
FNMA, 2.989%, (US 1 Year CMT T-Note +/- MBS Margin), 3/01/38 | | | 5,722,798 | | | | 6,040,822 | |
FNMA, 2.923% - 2.997%, (6-month USD LIBOR +/- MBS Margin), 9/01/21 - 8/01/37 | | | 9,474,382 | | | | 9,842,287 | |
FNMA, 3.018%, (6-month USD LIBOR +/- MBS Margin), 3/01/35 | | | 4,066,551 | | | | 4,223,247 | |
FNMA, 2.05% - 3.022%, (12-month USD LIBOR +/- MBS Margin), 5/01/34 - 12/01/43 | | | 9,510,773 | | | | 9,857,447 | |
FNMA, 2.865% - 3.028%, (US 1 Year CMT T-Note +/- MBS Margin), 10/01/18 - 5/01/38 | | | 8,580,181 | | | | 8,999,161 | |
FNMA, 3.002% - 3.031%, (6-month USD LIBOR +/- MBS Margin), 4/01/33 - 8/01/36 | | | 8,774,095 | | | | 9,110,002 | |
FNMA, 3.035%, (12-month USD LIBOR +/- MBS Margin), 11/01/35 | | | 4,061,345 | | | | 4,222,897 | |
FNMA, 3.042%, (US 1 Year CMT T-Note +/- MBS Margin), 1/01/38 | | | 6,777,676 | | | | 7,133,525 | |
FNMA, 3.028% - 3.046%, (US 1 Year CMT T-Note +/- MBS Margin), 7/01/20 - 7/01/38 | | | 8,411,767 | | | | 8,865,545 | |
FNMA, 1.99% - 3.055%, (1-month USD LIBOR +/- MBS Margin), 10/01/26 - 10/01/34 | | | 627,902 | | | | 639,721 | |
| | | | |
| | | |
franklintempleton.com | | Annual Report | | 37 |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Adjustable U.S. Government Securities Fund (continued)
| | | | | | | | |
| | | Principal
Amount | | | Value | |
Mortgage-Backed Securities (continued) | | | | | | | | |
a Federal National Mortgage Association (FNMA) Adjustable Rate (continued) | | | | | | | | |
FNMA, 3.033% - 3.066%, (6-month USD LIBOR +/- MBS Margin), 9/01/24 - 8/01/37 | | $ | 7,324,787 | | | $ | 7,624,802 | |
FNMA, 3.023% - 3.096%, (12-month USD LIBOR +/- MBS Margin), 3/01/33 - 9/01/38 | | | 9,313,955 | | | | 9,695,309 | |
FNMA, 3.108%, (US 1 Year CMT T-Note +/- MBS Margin), 6/01/36 | | | 5,718,815 | | | | 6,046,722 | |
FNMA, 3.047% - 3.119%, (US 1 Year CMT T-Note +/- MBS Margin), 4/01/18 - 9/01/39 | | | 9,418,370 | | | | 9,882,179 | |
FNMA, 3.141%, (12-month USD LIBOR +/- MBS Margin), 2/01/36 | | | 9,895,301 | | | | 10,324,318 | |
FNMA, 3.097% - 3.156%, (12-month USD LIBOR +/- MBS Margin), 11/01/32 - 10/01/37 | | | 9,468,185 | | | | 9,877,997 | |
FNMA, 3.171%, (US 1 Year CMT T-Note +/- MBS Margin), 10/01/35 | | | 4,612,152 | | | | 4,877,272 | |
FNMA, 3.156% - 3.176%, (12-month USD LIBOR +/- MBS Margin), 1/01/33 - 4/01/38 | | | 8,049,206 | | | | 8,396,594 | |
FNMA, 3.177% - 3.188%, (12-month USD LIBOR +/- MBS Margin), 11/01/32 - 1/01/37 | | | 9,384,276 | | | | 9,804,652 | |
FNMA, 3.12% - 3.20%, (US 1 Year CMT T-Note +/- MBS Margin), 7/01/18 - 7/01/40 | | | 9,262,658 | | | | 9,719,405 | |
FNMA, 3.191% - 3.216%, (12-month USD LIBOR +/- MBS Margin), 12/01/32 - 3/01/42 | | | 9,320,343 | | | | 9,749,018 | |
FNMA, 3.217%, (12-month USD LIBOR +/- MBS Margin), 5/01/39 | | | 8,230,182 | | | | 8,612,559 | |
FNMA, 3.227%, (US 1 Year CMT T-Note +/- MBS Margin), 5/01/36 | | | 22,984,309 | | | | 24,290,647 | |
FNMA, 3.217% - 3.24%, (12-month USD LIBOR +/- MBS Margin), 11/01/32 - 12/01/39 | | | 9,072,082 | | | | 9,480,849 | |
FNMA, 2.491% - 3.25%, (Federal COF +/- MBS Margin), 7/01/18 - 2/01/29 | | | 30,893 | | | | 31,121 | |
FNMA, 3.241% - 3.262%, (12-month USD LIBOR +/- MBS Margin), 1/01/33 - 11/01/42 | | | 9,073,588 | | | | 9,508,769 | |
FNMA, 3.202% - 3.277%, (US 1 Year CMT T-Note +/- MBS Margin), 10/01/19 - 1/01/40 | | | 9,176,611 | | | | 9,666,889 | |
FNMA, 3.288%, (12-month USD LIBOR +/- MBS Margin), 2/01/36 | | | 6,233,863 | | | | 6,545,803 | |
FNMA, 3.303%, (12-month USD LIBOR +/- MBS Margin), 3/01/37 | | | 6,359,820 | | | | 6,666,023 | |
FNMA, 3.264% - 3.31%, (12-month USD LIBOR +/- MBS Margin), 9/01/32 - 12/01/37 | | | 8,596,077 | | | | 9,008,876 | |
FNMA, 3.312%, (11th District COF +/- MBS Margin), 4/01/34 | | | 24,148,901 | | | | 25,322,928 | |
FNMA, 3.31% - 3.312%, (12-month USD LIBOR +/- MBS Margin), 7/01/34 - 7/01/38 | | | 6,698,980 | | | | 6,999,447 | |
FNMA, 3.312% - 3.317%, (12-month USD LIBOR +/- MBS Margin), 4/01/33 - 10/01/37 | | | 8,025,247 | | | | 8,427,188 | |
FNMA, 3.318% - 3.338%, (12-month USD LIBOR +/- MBS Margin), 1/01/33 - 3/01/41 | | | 9,301,724 | | | | 9,757,454 | |
FNMA, 3.338% - 3.346%, (12-month USD LIBOR +/- MBS Margin), 2/01/33 - 8/01/37 | | | 8,876,031 | | | | 9,317,323 | |
FNMA, 3.346% - 3.352%, (12-month USD LIBOR +/- MBS Margin), 1/01/33 - 12/01/37 | | | 7,721,875 | | | | 8,106,832 | |
FNMA, 3.364%, (12-month USD LIBOR +/- MBS Margin), 1/01/39 | | | 6,879,442 | | | | 7,250,844 | |
FNMA, 3.352% - 3.368%, (12-month USD LIBOR +/- MBS Margin), 9/01/32 - 10/01/38 | | | 9,261,470 | | | | 9,745,144 | |
FNMA, 3.369% - 3.377%, (12-month USD LIBOR +/- MBS Margin), 4/01/33 - 7/01/42 | | | 8,622,881 | | | | 9,066,156 | |
FNMA, 3.38%, (12-month USD LIBOR +/- MBS Margin), 11/01/34 | | | 5,533,836 | | | | 5,811,895 | |
FNMA, 3.383%, (12-month USD LIBOR +/- MBS Margin), 2/01/36 | | | 5,305,365 | | | | 5,565,031 | |
FNMA, 3.378% - 3.387%, (12-month USD LIBOR +/- MBS Margin), 4/01/33 - 3/01/39 | | | 8,800,577 | | | | 9,233,869 | |
FNMA, 3.388% - 3.392%, (12-month USD LIBOR +/- MBS Margin), 9/01/33 - 4/01/40 | | | 8,500,326 | | | | 8,940,825 | |
FNMA, 3.397%, (12-month USD LIBOR +/- MBS Margin), 11/01/34 | | | 6,477,937 | | | | 6,833,231 | |
FNMA, 3.397%, (12-month USD LIBOR +/- MBS Margin), 3/01/35 | | | 9,402,657 | | | | 9,912,653 | |
FNMA, 3.392% - 3.413%, (12-month USD LIBOR +/- MBS Margin), 5/01/33 - 7/01/42 | | | 8,737,831 | | | | 9,185,659 | |
FNMA, 3.414% - 3.417%, (12-month USD LIBOR +/- MBS Margin), 5/01/33 - 8/01/38 | | | 8,964,034 | | | | 9,441,753 | |
FNMA, 3.423%, (12-month USD LIBOR +/- MBS Margin), 9/01/39 | | | 4,499,324 | | | | 4,743,791 | |
FNMA, 3.418% - 3.426%, (12-month USD LIBOR +/- MBS Margin), 8/01/33 - 1/01/42 | | | 9,343,193 | | | | 9,824,085 | |
FNMA, 3.426%, (12-month USD LIBOR +/- MBS Margin), 9/01/40 | | | 4,070,984 | | | | 4,285,359 | |
FNMA, 3.277% - 3.442%, (US 1 Year CMT T-Note +/- MBS Margin), 5/01/19 - 7/01/38 | | | 9,442,369 | | | | 9,891,868 | |
FNMA, 3.069% - 3.444%, (6-month USD LIBOR +/- MBS Margin), 5/01/24 - 2/01/37 | | | 8,988,892 | | | | 9,383,615 | |
FNMA, 3.428% - 3.445%, (12-month USD LIBOR +/- MBS Margin), 2/01/32 - 1/01/42 | | | 9,249,570 | | | | 9,734,212 | |
FNMA, 3.448%, (12-month USD LIBOR +/- MBS Margin), 1/01/36 | | | 5,178,861 | | | | 5,477,331 | |
FNMA, 3.451%, (12-month USD LIBOR +/- MBS Margin), 11/01/35 | | | 3,946,617 | | | | 4,160,462 | |
FNMA, 3.445% - 3.456%, (12-month USD LIBOR +/- MBS Margin), 7/01/33 - 2/01/41 | | | 9,144,946 | | | | 9,651,074 | |
FNMA, 3.459%, (12-month USD LIBOR +/- MBS Margin), 9/01/36 | | | 4,357,104 | | | | 4,587,522 | |
FNMA, 3.459% - 3.464%, (12-month USD LIBOR +/- MBS Margin), 4/01/34 - 11/01/37 | | | 8,248,046 | | | | 8,686,693 | |
FNMA, 3.464% - 3.473%, (12-month USD LIBOR +/- MBS Margin), 3/01/33 - 1/01/37 | | | 9,055,743 | | | | 9,541,292 | |
FNMA, 3.473% - 3.476%, (12-month USD LIBOR +/- MBS Margin), 1/01/33 - 6/01/38 | | | 8,120,486 | | | | 8,559,204 | |
FNMA, 3.484%, (12-month USD LIBOR +/- MBS Margin), 8/01/35 | | | 4,100,958 | | | | 4,334,293 | |
| | | | |
| | | |
38 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Adjustable U.S. Government Securities Fund (continued)
| | | | | | | | |
| | | Principal
Amount | | | Value | |
Mortgage-Backed Securities (continued) | | | | | | | | |
a Federal National Mortgage Association (FNMA) Adjustable Rate (continued) | | | | | | | | |
FNMA, 3.488%, (12-month USD LIBOR +/- MBS Margin), 7/01/40 | | $ | 5,545,592 | | | $ | 5,837,921 | |
FNMA, 3.477% - 3.491%, (12-month USD LIBOR +/- MBS Margin), 11/01/33 - 7/01/38 | | | 8,655,800 | | | | 9,131,797 | |
FNMA, 3.50%, (12-month USD LIBOR +/- MBS Margin), 2/01/43 | | | 4,565,672 | | | | 4,797,277 | |
FNMA, 3.491% - 3.512%, (12-month USD LIBOR +/- MBS Margin), 3/01/32 - 10/01/41 | | | 7,582,016 | | | | 7,962,506 | |
FNMA, 3.518%, (12-month USD LIBOR +/- MBS Margin), 3/01/41 | | | 7,585,411 | | | | 7,974,391 | |
FNMA, 3.514% - 3.527%, (12-month USD LIBOR +/- MBS Margin), 9/01/33 - 8/01/39 | | | 9,277,095 | | | | 9,805,230 | |
FNMA, 3.53% - 3.536%, (12-month USD LIBOR +/- MBS Margin), 4/01/34 - 10/01/37 | | | 6,372,108 | | | | 6,731,879 | |
FNMA, 3.537% - 3.548%, (12-month USD LIBOR +/- MBS Margin), 10/01/33 - 8/01/40 | | | 9,257,402 | | | | 9,770,855 | |
FNMA, 3.556%, (12-month USD LIBOR +/- MBS Margin), 1/01/36 | | | 5,902,334 | | | | 6,245,480 | |
FNMA, 3.549% - 3.565%, (12-month USD LIBOR +/- MBS Margin), 10/01/18 - 9/01/40 | | | 7,441,365 | | | | 7,858,398 | |
FNMA, 3.569%, (12-month USD LIBOR +/- MBS Margin), 5/01/40 | | | 5,595,066 | | | | 5,880,992 | |
FNMA, 3.573%, (12-month USD LIBOR +/- MBS Margin), 1/01/37 | | | 6,577,569 | | | | 6,977,378 | |
FNMA, 3.567% - 3.587%, (12-month USD LIBOR +/- MBS Margin), 6/01/34 - 3/01/47 | | | 8,225,359 | | | | 8,704,926 | |
FNMA, 3.588% - 3.605%, (12-month USD LIBOR +/- MBS Margin), 5/01/34 - 5/01/48 | | | 8,500,173 | | | | 8,979,528 | |
FNMA, 3.612%, (12-month USD LIBOR +/- MBS Margin), 6/01/35 | | | 4,791,486 | | | | 5,074,101 | |
FNMA, 3.605% - 3.647%, (12-month USD LIBOR +/- MBS Margin), 4/01/33 - 4/01/44 | | | 9,145,858 | | | | 9,672,795 | |
FNMA, 2.659% - 3.75%, (US 3 Year CMT T-Note +/- MBS Margin), 1/01/19 - 1/01/35 | | | 1,108,169 | | | | 1,153,090 | |
FNMA, 3.018% - 3.90%, (1 Year CMT +/- MBS Margin), 8/01/32 - 10/01/36 | | | 3,516,183 | | | | 3,702,922 | |
FNMA, 2.825% - 4.041%, (US 5 Year CMT T-Note +/- MBS Margin), 5/01/21 - 2/01/30 | | | 148,466 | | | | 154,991 | |
FNMA, 3.651% - 4.173%, (12-month USD LIBOR +/- MBS Margin), 6/01/33 - 5/01/48 | | | 8,789,256 | | | | 9,338,093 | |
FNMA, 4.183% - 5.615%, (12-month USD LIBOR +/- MBS Margin), 6/01/35 - 3/01/38 | | | 824,128 | | | | 856,370 | |
FNMA, 3.449% - 5.722%, (6-month USD LIBOR +/- MBS Margin), 11/01/23 - 11/01/46 | | | 3,372,811 | | | | 3,540,293 | |
FNMA, 3.448% - 6.12%, (US 1 Year CMT T-Note +/- MBS Margin), 1/01/19 - 9/01/37 | | | 5,251,594 | | | | 5,450,174 | |
FNMA, 2.606% - 6.989%, (11th District COF +/- MBS Margin), 1/01/18 - 8/01/37 | | | 6,095,357 | | | | 6,269,346 | |
FNMA, 2.65% - 7.67%, (6-month US T-Bill +/- MBS Margin), 4/01/18 - 11/01/34 | | | 327,763 | | | | 336,025 | |
| | | | | | | | |
| | | | | | | 721,015,037 | |
| | | | | | | | |
a Government National Mortgage Association (GNMA) Adjustable Rate 0.1% | | | | | | | | |
GNMA, 2.125% - 2.625%, (US 1 Year CMT T-Note +/- MBS Margin), 9/20/33 - 5/20/36 | | | 1,339,712 | | | | 1,378,303 | |
| | | | | | | | |
Total Mortgage-Backed Securities (Cost $949,218,442) | | | | | | | 950,626,517 | |
| | | | | | | | |
| | |
| | | Shares | | | | |
Short Term Investments (Cost $33,319,558) 3.3% | | | | | | | | |
Money Market Funds 3.3% | | | | | | | | |
b,c Institutional Fiduciary Trust Money Market Portfolio, 0.69%. | | | 33,319,558 | | | | 33,319,558 | |
| | | | | | | | |
Total Investments (Cost $982,538,000) 99.4% | | | | | | | 983,946,075 | |
Other Assets, less Liabilities 0.6% | | | | | | | 5,513,209 | |
| | | | | | | | |
Net Assets 100.0% | | | | | | $ | 989,459,284 | |
| | | | | | | | |
See Abbreviations on page 146.
aAdjustable Rate Mortgage-Backed Security (ARM); the rate shown is the effective rate at period end. ARM rates are not based on a published reference rate and spread, but instead pass-through weighted average interest income inclusive of any caps or floors, if applicable, from the underlying mortgage loans in which the majority of mortgages pay interest based on the index shown at their designated reset dates plus a spread, less the applicable servicing and guaranty fee (MBS margin).
bSee Note 3(f) regarding investments in affiliated management investment companies.
cThe rate shown is the annualized seven-day yield at period end.
| | | | |
| | | |
franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | 39 |
FRANKLIN INVESTORS SECURITIES TRUST
Financial Highlights
Franklin Floating Rate Daily Access Fund
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, |
| | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Class A | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | |
| | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $ 8.84 | | | | $ 8.61 | | | | $ 9.04 | | | | $ 9.20 | | | | $ 9.11 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | 0.307 | | | | 0.401 | | | | 0.406 | | | | 0.335 | | | | 0.333 | |
| | | | | |
Net realized and unrealized gains (losses) | | | (0.011 | ) | | | 0.228 | | | | (0.434 | ) | | | (0.160 | ) | | | 0.088 | |
| | | | | |
Total from investment operations | | | 0.296 | | | | 0.629 | | | | (0.028 | ) | | | 0.175 | | | | 0.421 | |
| | | | | |
Less distributions from net investment income | | | (0.306 | ) | | | (0.399 | ) | | | (0.402 | ) | | | (0.335 | ) | | | (0.331 | ) |
| | | | | |
Net asset value, end of year | | | $ 8.83 | | | | $ 8.84 | | | | $ 8.61 | | | | $ 9.04 | | | | $ 9.20 | |
| | | | | |
Total returnb | | | 3.51% | | | | 7.60% | | | | (0.37)% | | | | 1.91% | | | | 4.69% | |
| | | | | |
Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 0.87% | | | | 0.88% | | | | 0.85% | | | | 0.84% | | | | 0.83% | |
| | | | | |
Expenses net of waiver and payments by affiliates | | | 0.82% | c | | | 0.86% | c | | | 0.84% | c | | | 0.82% | c | | | 0.83% | c,d |
| | | | | |
Net investment income | | | 3.45% | | | | 4.72% | | | | 4.55% | | | | 3.64% | | | | 3.60% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $1,362,220 | | | | $1,359,862 | | | | $1,553,100 | | | | $1,874,867 | | | | $1,991,138 | |
| | | | | |
Portfolio turnover rate | | | 64.21% | | | | 34.10% | | | | 46.72% | | | | 83.93% | | | | 42.72% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
cBenefit of expense reduction rounds to less than 0.01%.
dBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| | | | |
| | | |
40 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin Floating Rate Daily Access Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, |
| | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Class C | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | |
| | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $ 8.84 | | | | $ 8.61 | | | | $ 9.05 | | | | $ 9.20 | | | | $ 9.11 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | 0.271 | | | | 0.366 | | | | 0.369 | | | | 0.298 | | | | 0.296 | |
| | | | | |
Net realized and unrealized gains (losses) | | | (0.010 | ) | | | 0.229 | | | | (0.443 | ) | | | (0.150 | ) | | | 0.088 | |
| | | | | |
Total from investment operations | | | 0.261 | | | | 0.595 | | | | (0.074 | ) | | | 0.148 | | | | 0.384 | |
| | | | | |
Less distributions from net investment income | | | (0.271 | ) | | | (0.365 | ) | | | (0.366 | ) | | | (0.298 | ) | | | (0.294 | ) |
| | | | | |
Net asset value, end of year | | | $ 8.83 | | | | $ 8.84 | | | | $ 8.61 | | | | $ 9.05 | | | | $ 9.20 | |
| | | | | |
Total returnb | | | 3.11% | | | | 7.18% | | | | (0.87)% | | | | 1.62% | | | | 4.28% | |
| | | | | |
Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 1.27% | | | | 1.28% | | | | 1.25% | | | | 1.24% | | | | 1.23% | |
| | | | | |
Expenses net of waiver and payments by affiliates | | | 1.22% | c | | | 1.26% | c | | | 1.24% | c | | | 1.22% | c | | | 1.23% | c,d |
| | | | | |
Net investment income | | | 3.05% | | | | 4.32% | | | | 4.15% | | | | 3.24% | | | | 3.20% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $550,797 | | | | $551,726 | | | | $627,805 | | | | $742,602 | | | | $765,839 | |
| | | | | |
Portfolio turnover rate | | | 64.21% | | | | 34.10% | | | | 46.72% | | | | 83.93% | | | | 42.72% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
cBenefit of expense reduction rounds to less than 0.01%.
dBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| | | | |
| | | |
franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | 41 |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin Floating Rate Daily Access Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, |
| | | 2017 | | 2016 | | 2015 | | 2014 | | 2013a |
Class R6 | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | |
| | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $ 8.84 | | | | $ 8.60 | | | | $ 9.05 | | | | $ 9.21 | | | | $ 9.21 | |
| | | | | |
Income from investment operationsb: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | 0.338 | | | | 0.422 | | | | 0.437 | | | | 0.364 | | | | 0.175 | |
| | | | | |
Net realized and unrealized gains (losses) | | | (0.002 | ) | | | 0.245 | | | | (0.457 | ) | | | (0.159 | ) | | | (0.001 | ) |
| | | | | |
Total from investment operations | | | 0.336 | | | | 0.667 | | | | (0.020 | ) | | | 0.205 | | | | 0.174 | |
| | | | | |
Less distributions from net investment income | | | (0.336 | ) | | | (0.427 | ) | | | (0.430 | ) | | | (0.365 | ) | | | (0.174 | ) |
| | | | | |
Net asset value, end of year | | | $ 8.84 | | | | $ 8.84 | | | | $ 8.60 | | | | $ 9.05 | | | | $ 9.21 | |
| | | | | |
Total returnc | | | 3.85% | | | | 7.96% | | | | (0.16)% | | | | 2.36% | | | | 1.80% | |
| | | | | |
Ratios to average net assetsd | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 0.52% | | | | 0.53% | | | | 0.72% | | | | 0.52% | | | | 0.51% | |
| | | | | |
Expenses net of waiver and payments by affiliates | | | 0.47% | e | | | 0.51% | e | | | 0.51% | e | | | 0.50% | e | | | 0.51% | e,f |
| | | | | |
Net investment income | | | 3.80% | | | | 5.07% | | | | 4.88% | | | | 3.96% | | | | 3.92% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $130,180 | | | | $12,333 | | | | $7 | | | | $465 | | | | $1,339 | |
| | | | | |
Portfolio turnover rate | | | 64.21% | | | | 34.10% | | | | 46.72% | | | | 83.93% | | | | 42.72% | |
aFor the period May 1, 2013 (effective date) to October 31, 2013.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cTotal return is not annualized for periods less than one year.
dRatios are annualized for periods less than one year.
eBenefit of expense reduction rounds to less than 0.01%.
fBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| | | | |
| | | |
42 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin Floating Rate Daily Access Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, |
| | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Advisor Class | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | |
| | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $ 8.85 | | | | $ 8.61 | | | | $ 9.05 | | | | $ 9.20 | | | | $ 9.11 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | 0.327 | | | | 0.422 | | | | 0.427 | | | | 0.358 | | | | 0.355 | |
| | | | | |
Net realized and unrealized gains (losses) | | | (0.010 | ) | | | 0.239 | | | | (0.443 | ) | | | (0.150 | ) | | | 0.089 | |
| | | | | |
Total from investment operations | | | 0.317 | | | | 0.661 | | | | (0.016 | ) | | | 0.208 | | | | 0.444 | |
| | | | | |
Less distributions from net investment income | | | (0.327 | ) | | | (0.421 | ) | | | (0.424 | ) | | | (0.358 | ) | | | (0.354 | ) |
| | | | | |
Net asset value, end of year | | | $ 8.84 | | | | $ 8.85 | | | | $ 8.61 | | | | $ 9.05 | | | | $ 9.20 | |
| | | | | |
Total return | | | 3.64% | | | | 8.00% | | | | (0.23)% | | | | 2.28% | | | | 4.95% | |
| | | | | |
Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 0.62% | | | | 0.63% | | | | 0.60% | | | | 0.59% | | | | 0.58% | |
| | | | | |
Expenses net of waiver and payments by affiliates | | | 0.57% | b | | | 0.61% | b | | | 0.59% | b | | | 0.57% | b | | | 0.58% | b,c |
| | | | | |
Net investment income | | | 3.70% | | | | 4.97% | | | | 4.80% | | | | 3.89% | | | | 3.85% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $1,672,724 | | | | $1,108,692 | | | | $1,405,281 | | | | $2,019,477 | | | | $2,374,914 | |
| | | | | |
Portfolio turnover rate | | | 64.21% | | | | 34.10% | | | | 46.72% | | | | 83.93% | | | | 42.72% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBenefit of expense reduction rounds to less than 0.01%.
cBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| | | | |
| | | |
franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | 43 |
FRANKLIN INVESTORS SECURITIES TRUST
Statement of Investments, October 31, 2017
Franklin Floating Rate Daily Access Fund
| | | | | | | | | | |
| | | Country | | Shares | | | Value | |
Common Stocks 0.2% | | | | | | | | | | |
Oil & Gas Exploration & Production 0.2% | | | | | | | | | | |
Samson Resources II LLC | | United States | | | 432,778 | | | $ | 6,708,059 | |
| | | | | | | | | | |
Steel 0.0%† | | | | | | | | | | |
Warrior Met Coal Inc. | | United States | | | 35,329 | | | | 919,261 | |
| | | | | | | | | | |
| | |
Total Common Stocks (Cost $6,712,825) | | | | | | | 7,627,320 | |
| | | | | | | | | | |
| | | |
Management Investment Companies 3.0% | | | | | | | | | | |
Other Diversified Financial Services 3.0% | | | | | | | | | | |
a Franklin Lower Tier Floating Rate Fund | | United States | | | 5,419,982 | | | | 56,476,213 | |
a Franklin Middle Tier Floating Rate Fund | | United States | | | 5,706,221 | | | | 56,035,088 | |
| | | | | | | | | | |
| | |
Total Management Investment Companies
(Cost $113,110,827) | | | | | | | 112,511,301 | |
| | | | | | | | | | |
| | | |
| | | | | Principal
Amount* | | | | |
Corporate Bonds (Cost $16,706,859) 0.4% | | | | | | | | | | |
Industrial Machinery 0.4% | | | | | | | | | | |
b Onsite Rental Group Operations Property Ltd., senior note, PIK, 6.10%, 10/26/23 | | Australia | | $ | 19,861,081 | | | | 15,193,727 | |
| | | | | | | | | | |
c,d Senior Floating Rate Interests 76.4% | | | | | | | | | | |
Aerospace & Defense 4.1% | | | | | | | | | | |
Avolon TLB Borrower 1 US LLC, Initial Term B-1 Loans, 3.488%, (LIBOR + 2.25%), 9/16/20 | | United States | | | 14,164,500 | | | | 14,259,912 | |
Delos Finance SARL (ILFC), New Loan, 3.333%, (LIBOR + 2.00%), 10/06/23 | | Luxembourg | | | 59,610,818 | | | | 60,132,413 | |
Doncasters U.S. Finance LLC, | | | | | | | | | | |
Second Lien Term Loan, 9.583%, (LIBOR + 8.25%), 10/09/20 | | United States | | | 6,608,226 | | | | 6,277,814 | |
Term B Loans, 4.833%, (LIBOR + 3.50%), 4/09/20 | | United States | | | 37,912,590 | | | | 36,901,574 | |
Flying Fortress Inc. (ILFC), New Loan, 3.333%, (LIBOR + 2.00%), 10/30/22 | | Luxembourg | | | 30,062,918 | | | | 30,269,601 | |
Leidos Innovations Corp., Term Loan B, 3.25%, (LIBOR + 2.00%), 8/16/23 | | United States | | | 3,302,477 | | | | 3,328,967 | |
| | | | | | | | | | |
| | | |
| | | | | | | | | 151,170,281 | |
| | | | | | | | | | |
Agricultural Products 0.1% | | | | | | | | | | |
Allflex Holdings III Inc., Second Lien Initial Term Loan, 8.363%, (LIBOR + 7.00%), 7/16/21 | | United States | | | 2,244,609 | | | | 2,258,637 | |
| | | | | | | | | | |
Air Freight & Logistics 0.3% | | | | | | | | | | |
XPO Logistics Inc., Loans, 3.599%, (LIBOR + 2.25%), 11/01/21 | | United States | | | 10,923,643 | | | | 10,998,776 | |
| | | | | | | | | | |
Airlines 2.5% | | | | | | | | | | |
Air Canada, Term Loan, 3.568%, (LIBOR + 2.25%), 10/06/23 | | Canada | | | 33,327,459 | | | | 33,570,483 | |
American Airlines Inc., | | | | | | | | | | |
2017 Replacement Term Loans, 3.24%, (LIBOR + 2.00%), 6/27/20 | | United States | | | 9,884,617 | | | | 9,917,187 | |
Class B Term Loans, 3.742%, (LIBOR + 2.50%), 4/28/23 | | United States | | | 14,621,025 | | | | 14,665,707 | |
Class B Term Loans, 3.739%, (LIBOR + 2.50%), 12/14/23 | | United States | | | 28,022,636 | | | | 28,108,273 | |
United Airlines Inc., Class B Term Loans, 3.63%, (LIBOR + 2.25%), 4/01/24 | | United States | | | 4,760,421 | | | | 4,788,388 | |
| | | | | | | | | | |
| | | |
| | | | | | | | | 91,050,038 | |
| | | | | | | | | | |
Apparel Retail 2.2% | | | | | | | | | | |
Ascena Retail Group Inc., Tranche B Term Loan, 5.75%, (LIBOR + 4.50%), 8/21/22 | | United States | | | 95,089,172 | | | | 82,935,635 | |
| | | | | | | | | | |
| | | | |
| | | |
44 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Floating Rate Daily Access Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | | Value | |
| |
c,d Senior Floating Rate Interests (continued) | | | | | | | | | | | | |
Auto Parts & Equipment 1.6% | | | | | | | | | | | | |
Allison Transmission Inc., Term Loans, 3.25%, (LIBOR + 2.00%), 9/23/22 | | | United States | | | $ | 26,672,098 | | | $ | 26,860,590 | |
American Axle and Manufacturing Inc., Tranche B Term Loan, 3.49% - 3.62%, (LIBOR + 2.25%), 4/06/24 | | | United States | | | | 3,909,261 | | | | 3,916,184 | |
TI Group Automotive Systems LLC, Initial US Term Loan, 3.992%, (LIBOR + 2.75%), 6/30/22 | | | United States | | | | 29,434,428 | | | | 29,572,416 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 60,349,190 | |
| | | | | | | | | | | | |
Broadcasting 1.0% | | | | | | | | | | | | |
Gray Television Inc., Term B-2 Loan, 3.735%, (LIBOR + 2.50%), 2/07/24 | | | United States | | | | 18,823,094 | | | | 18,991,165 | |
Mission Broadcasting Inc., Term Loan B-2, 3.735%, (LIBOR + 2.50%), 7/19/24 | | | United States | | | | 1,179,255 | | | | 1,187,249 | |
Nexstar Broadcasting Inc., | | | | | | | | | | | | |
Term A-2 Loan, 3.235%, (LIBOR + 2.00%), 7/19/22 | | | United States | | | | 3,330,182 | | | | 3,334,345 | |
Term Loan B-2, 3.735%, (LIBOR + 2.50%), 7/19/24 | | | United States | | | | 9,392,398 | | | | 9,456,069 | |
Sinclair Television Group Inc., Tranche B Term Loans, 3.50%, (LIBOR + 2.25%), 1/03/24 | | | United States | | | | 3,759,472 | | | | 3,773,570 | |
WXXA-TV LLC and WLAJ-TV LLC, Term Loan A-2, 3.237%, (LIBOR + 2.00%), 7/19/22 | | | United States | | | | 112,514 | | | | 112,655 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 36,855,053 | |
| | | | | | | | | | | | |
Cable & Satellite 2.8% | | | | | | | | | | | | |
Charter Communications Operating LLC, Term Loan A-1, 3.00%, (LIBOR + 1.75%), 5/18/21 | | | United States | | | | 28,525,690 | | | | 28,563,886 | |
CSC Holdings LLC (Cablevision), March 2017 Incremental Term Loans, 3.489%, (LIBOR + 2.25%), 7/17/25 | | | United States | | | | 42,367,791 | | | | 42,314,535 | |
Mediacom Illinois LLC, Tranche K Term Loan, 3.46%, (LIBOR + 2.25%), 2/15/24 | | | United States | | | | 9,010,842 | | | | 9,053,643 | |
Virgin Media Bristol LLC, I Facility, 3.989%, (LIBOR + 2.75%), 1/31/25 | | | United States | | | | 24,326,188 | | | | 24,445,922 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 104,377,986 | |
| | | | | | | | | | | | |
Casinos & Gaming 1.4% | | | | | | | | | | | | |
Boyd Gaming Corp., | | | | | | | | | | | | |
Refinancing Term B Loans, 3.702%, (LIBOR + 2.50%), 9/15/23 | | | United States | | | | 15,501,041 | | | | 15,592,544 | |
Term A Loan, 2.952%, (LIBOR + 1.75%), 9/15/21 | | | United States | | | | 4,748,623 | | | | 4,748,623 | |
CEOC LLC, Term B Loans, 3.742%, (LIBOR + 2.50%), 10/06/24 | | | United States | | | | 2,882,954 | | | | 2,889,034 | |
Eldorado Resorts Inc., Initial Term Loan, 3.50%, (LIBOR + 2.25%), 4/17/24 | | | United States | | | | 8,134,516 | | | | 8,159,936 | |
Greektown Holdings LLC, Initial Term Loan, 4.242%, (LIBOR + 3.00%), 4/25/24 | | | United States | | | | 15,465,625 | | | | 15,545,366 | |
Kingpin Intermediate Holdings LLC, Initial Term Loans, 5.57%, (LIBOR + 4.25%), 7/03/24 | | | United States | | | | 2,793,000 | | | | 2,822,642 | |
Las Vegas Sands LLC, Term B Loans, 3.242%, (LIBOR + 2.00%), 3/29/24 | | | United States | | | | 1,453,750 | | | | 1,463,341 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 51,221,486 | |
| | | | | | | | | | | | |
Coal & Consumable Fuels 2.2% | | | | | | | | | | | | |
Bowie Resource Holdings LLC, | | | | | | | | | | | | |
First Lien Initial Term Loan, 6.992%, (LIBOR + 5.75%), 8/14/20 | | | United States | | | | 28,054,000 | | | | 27,703,326 | |
Second Lien Initial Term Loan, 11.992%, (LIBOR + 10.75%), 2/16/21 | | | United States | | | | 4,464,778 | | | | 4,408,968 | |
Foresight Energy LLC, Term Loans, 7.083%, (LIBOR + 5.75%), 3/28/22 | | | United States | | | | 46,026,826 | | | | 43,552,884 | |
Westmoreland Coal Co., Term Loan, 7.833%, (LIBOR + 6.50%), 12/16/20 | | | United States | | | | 7,899,557 | | | | 5,008,319 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 80,673,497 | |
| | | | | | | | | | | | |
Commodity Chemicals 2.4% | | | | | | | | | | | | |
Cyanco Intermediate Corp., Initial Term Loan, 5.742%, (LIBOR + 4.50%), 5/01/20 | | | United States | | | | 54,400,155 | | | | 54,978,156 | |
Ineos U.S. Finance LLC, | | | | | | | | | | | | |
2024 Dollar Term Loan, 3.941%, (LIBOR + 2.75%), 3/31/24 | | | United States | | | | 16,621,845 | | | | 16,694,566 | |
e,f New 2024 Term Facilities, TBD, 3/31/24 | | | United States | | | | 15,999,696 | | | | 16,069,695 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 87,742,417 | |
| | | | | | | | | | | | |
| | | | |
| | | |
franklintempleton.com | | Annual Report | | 45 |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Floating Rate Daily Access Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | Value | |
| |
c,d Senior Floating Rate Interests (continued) | | | | | | | | | | | | |
Communications Equipment 1.0% | | | | | | | | | | | | |
Ciena Corp., Refinancing Term Loan, 3.739%, (LIBOR + 2.50%), 1/28/22 | | | United States | | | $ | 16,255,692 | | | $ | 16,336,971 | |
Commscope Inc., Tranche 5 Term Loans, 3.242% - 3.38%, (LIBOR + 2.00%), 12/29/22 | | | United States | | | | 19,265,460 | | | | 19,433,550 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 35,770,521 | |
| | | | | | | | | | | | |
Data Processing & Outsourced Services 0.9% | | | | | | | | | | | | |
CIBT Global Inc., Initial Term Loan, 5.333%, (LIBOR + 4.00%), 6/01/24 | | | United States | | | | 7,302,277 | | | | 7,338,788 | |
Global Payments Inc., Term A-2 Loan, 2.952%, (LIBOR + 1.75%), 5/02/22 | | | United States | | | | 20,294,339 | | | | 20,307,023 | |
e Wex Inc., Term Loan B, 3.992%, (LIBOR + 2.75%), 7/01/23 | | | United States | | | | 5,004,113 | | | | 5,062,366 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 32,708,177 | |
| | | | | | | | | | | | |
Diversified Chemicals 1.9% | | | | | | | | | | | | |
Chemours Co., Tranche B-1 US Term Loans, 3.75%, (LIBOR + 2.50%), 5/12/22 | | | United States | | | | 36,874,114 | | | | 37,277,443 | |
OCI Beaumont LLC, Term B-3 Loan, 8.064%, (LIBOR + 6.75%), 8/20/19 | | | United States | | | | 29,877,330 | | | | 30,337,949 | |
Unifrax I LLC, Initial Dollar Term Loans, 5.083%, (LIBOR + 3.75%), 4/04/24 | | | United States | | | | 2,106,053 | | | | 2,127,113 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 69,742,505 | |
| | | | | | | | | | | | |
Diversified Real Estate Activities 0.3% | | | | | | | | | | | | |
Realogy Group LLC, Initial Term A Loans, 3.238%, (LIBOR + 2.00%), 10/23/20 | | | United States | | | | 12,443,419 | | | | 12,497,859 | |
| | | | | | | | | | | | |
Diversified Support Services 0.2% | | | | | | | | | | | | |
Ventia Pty. Ltd., Term B Loans (USD), 4.833%, (LIBOR + 3.50%), 5/21/22 | | | Australia | | | | 7,248,825 | | | | 7,303,191 | |
| | | | | | | | | | | | |
Electric Utilities 0.2% | | | | | | | | | | | | |
EFS Cogen Holdings I LLC (Linden), | | | | | | | | | | | | |
e,f Term B Advance, TBD, 6/28/23 | | | United States | | | | 5,596,759 | | | | 5,643,632 | |
Term B Advance, 4.84%, (LIBOR + 3.50%), 6/28/23 | | | United States | | | | 3,001,224 | | | | 3,027,484 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 8,671,116 | |
| | | | | | | | | | | | |
Fertilizers & Agricultural Chemicals 0.1% | | | | | | | | | | | | |
Mosaic Co., Term Loan A, 2.739%, (LIBOR + 1.50%), 11/18/21 | | | United States | | | | 4,299,217 | | | | 4,291,822 | |
| | | | | | | | | | | | |
Food Distributors 0.5% | | | | | | | | | | | | |
Aramark Corp., U.S. Term A Loan, 2.992%, (LIBOR + 1.75%), 3/28/22 | | | United States | | | | 11,713,952 | | | | 11,776,188 | |
Nutraceutical International Corp., Term Loan, 5.238%, (LIBOR + 4.00%), 8/23/23 | | | United States | | | | 5,120,711 | | | | 5,133,513 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 16,909,701 | |
| | | | | | | | | | | | |
Food Retail 0.3% | | | | | | | | | | | | |
Smart & Final Stores LLC, First Lien Term Loan, 4.833%, (LIBOR + 3.50%), 11/15/22 | | | United States | | | | 10,983,726 | | | | 10,658,794 | |
| | | | | | | | | | | | |
Forest Products 0.8% | | | | | | | | | | | | |
g Appvion Inc., Roll-Up Loans, 7.75%, (LIBOR + 6.50%), 7/01/18 | | | United States | | | | 30,211,103 | | �� | | 30,211,103 | |
| | | | | | | | | | | | |
General Merchandise Stores 2.5% | | | | | | | | | | | | |
99 Cents Only Stores, Tranche B-2 Loan, 4.817% - 4.833%, (LIBOR + 3.50%), 1/11/19 | | | United States | | | | 44,080,016 | | | | 41,600,515 | |
Evergreen AcqCo. 1 LP (Savers), Term Loan, 5.042% - 5.113%, (LIBOR + 3.75%), 7/09/19 | | | United States | | | | 56,393,910 | | | | 51,882,397 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 93,482,912 | |
| | | | | | | | | | | | |
Health Care Distributors 0.4% | | | | | | | | | | | | |
Mallinckrodt International Finance SA/CB LLC, Extended Term Loan B, 4.083%, (LIBOR + 2.75%), 9/24/24 | | | United States | | | | 15,770,750 | | | | 15,823,314 | |
| | | | | | | | | | | | |
Health Care Services 1.7% | | | | | | | | | | | | |
e,f Air Medical Group Holdings Inc., 2017-2 New Term Loans, TBD, 10/31/24 | | | United States | | | | 8,000,000 | | | | 8,014,288 | |
DaVita Healthcare Partners Inc., Tranche A Term Loan, 3.242%, (LIBOR + 2.00%), 6/24/19 | | | United States | | | | 14,258,650 | | | | 14,298,660 | |
Envision Healthcare Corp., Initial Term Loans, 4.25%, (LIBOR + 3.00%), 12/01/23 | | | United States | | | | 16,212,802 | | | | 16,307,371 | |
| | | | |
| | | |
46 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Floating Rate Daily Access Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | Value | |
c,dSenior Floating Rate Interests (continued) | | | | | | | | | | | | |
Health Care Services (continued) | | | | | | | | | | | | |
U.S. Renal Care Inc., Initial Term Loan, 5.583%, (LIBOR + 4.25%), 12/31/22 | | | United States | | | $ | 24,499,614 | | | $ | 23,749,313 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 62,369,632 | |
| | | | | | | | | | | | |
Hotels, Resorts & Cruise Lines 0.5% | | | | | | | | | | | | |
Hilton Worldwide Finance LLC, Series B-2 Term Loans, 3.238%, (LIBOR + 2.00%), 10/25/23 | | | United States | | | | 19,681,050 | | | | 19,820,057 | |
| | | | | | | | | | | | |
Household Products 0.6% | | | | | | | | | | | | |
Spectrum Brands Inc., USD Term Loans, 3.242% - 3.312%, (LIBOR + 2.00%), 6/23/22 | | | United States | | | | 23,741,451 | | | | 23,929,911 | |
| | | | | | | | | | | | |
Independent Power Producers & Energy Traders 5.3% | | | | | | | | | | | | |
Calpine Construction Finance Co. LP, Term B-1 Loan, 3.50%, (LIBOR + 2.25%), 5/03/20 | | | United States | | | | 59,652,508 | | | | 59,848,228 | |
Calpine Corp., Term Loan (B5), 4.09%, (LIBOR + 2.75%), 1/15/24 | | | United States | | | | 19,215,727 | | | | 19,307,847 | |
Helix Gen Funding LLC, Term Loan, 5.083%, (LIBOR + 3.75%), 6/02/24 | | | United States | | | | 35,593,130 | | | | 36,020,248 | |
Lightstone Holdco LLC, | | | | | | | | | | | | |
Initial Term B Loan, 5.742%, (LIBOR + 4.50%), 1/30/24 | | | United States | | | | 22,731,149 | | | | 22,867,899 | |
Initial Term C Loan, 5.742%, (LIBOR + 4.50%), 1/30/24 | | | United States | | | | 1,416,381 | | | | 1,424,902 | |
NRG Energy Inc., Term Loans, 3.583%, (LIBOR + 2.25%), 6/30/23 | | | United States | | | | 55,954,382 | | | | 56,129,408 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 195,598,532 | |
| | | | | | | | | | | | |
Industrial Machinery 2.5% | | | | | | | | | | | | |
Harsco Corp., Initial Term Loan, 6.25%, (LIBOR + 5.00%), 11/02/23 | | | United States | | | | 3,172,479 | | | | 3,230,640 | |
Mueller Water Products Inc., Loans, 3.742% - 3.833%, (LIBOR + 2.50%), 11/25/21 | | | United States | | | | 9,101,637 | | | | 9,186,965 | |
Navistar Inc., Tranche B Term Loans, 5.24%, (LIBOR + 4.00%), 8/07/20 | | | United States | | | | 64,616,250 | | | | 65,181,642 | |
Onsite Rental Group Operations Property Ltd., Term Loan, 5.74%, (LIBOR + 4.50%), 10/25/22 | | | Australia | | | | 14,526,645 | | | | 14,526,645 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 92,125,892 | |
| | | | | | | | | | | | |
Integrated Telecommunication Services 2.1% | | | | | | | | | | | | |
Consolidated Communications Inc., Initial Term Loan, 4.25%, (LIBOR + 3.00%), 10/05/23 | | | United States | | | | 4,273,525 | | | | 4,212,094 | |
Global Tel*Link Corp., | | | | | | | | | | | | |
Second Lien Term Loan, 9.083%, (LIBOR + 7.75%), 5/23/20 | | | United States | | | | 6,033,937 | | | | 6,031,421 | |
Term Loan, 5.333%, (LIBOR + 4.00%), 5/23/20 | | | United States | | | | 9,824,312 | | | | 9,945,583 | |
Securus Technologies Holdings Inc., | | | | | | | | | | | | |
Second Lien Term Loan, 9.00%, (LIBOR + 7.75%), 4/30/21 | | | United States | | | | 666,667 | | | | 673,542 | |
e,fSecond Lien Term Loan, TBD, 11/01/25 | | | United States | | | | 1,042,786 | | | | 1,053,540 | |
Zayo Group LLC, 2017 Incremental Refinancing B-1 Term Loan, 3.239%, (LIBOR + 2.00%), 1/19/21 | | | United States | | | | 55,881,031 | | | | 56,095,782 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 78,011,962 | |
| | | | | | | | | | | | |
Internet Software & Services 0.1% | | | | | | | | | | | | |
Rackspace Hosting Inc., 2017 Refinancing Term B Loans, 4.311%, (LIBOR + 3.00%), 11/03/23 | | | United States | | | | 5,300,817 | | | | 5,300,345 | |
| | | | | | | | | | | | |
Investment Banking & Brokerage 0.6% | | | | | | | | | | | | |
Finco I LLC, Initial Term Loans, 2.75%, (LIBOR + 2.75%), 6/14/22 | | | United States | | | | 20,500,000 | | | | 20,796,819 | |
| | | | | | | | | | | | |
IT Consulting & Other Services 1.3% | | | | | | | | | | | | |
Gartner Inc., Tranche A Term Loans, 3.242%, (LIBOR + 2.00%), 3/20/22 | | | United States | | | | 3,062,089 | | | | 3,081,228 | |
Sungard Availability Services Capital Inc., 2019 Tranche B Term Loan, 6.242%, (LIBOR + 5.00%), 3/29/19 | | | United States | | | | 50,202,181 | | | | 46,939,039 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 50,020,267 | |
| | | | | | | | | | | | |
| | | | |
| | | |
franklintempleton.com | | Annual Report | | 47 |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Floating Rate Daily Access Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | Value | |
c,d Senior Floating Rate Interests (continued) | | | | | | | | | | | | |
Leisure Facilities 2.0% | | | | | | | | | | | | |
24 Hour Fitness Worldwide Inc., Term Loan, 5.085%, (LIBOR + 3.75%), 5/28/21 | | | United States | | | $ | 35,572,341 | | | $ | 35,650,173 | |
Fitness International LLC, Term A Loan, 4.492%, (LIBOR + 3.25%), 4/01/20 | | | United States | | | | 38,547,073 | | | | 38,595,450 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 74,245,623 | |
| | | | | | | | | | | | |
Life Sciences Tools & Services 0.8% | | | | | | | | | | | | |
INC Research Holdings Inc., Initial Term B Loans, 3.492%, (LIBOR + 2.25%), 8/01/24 | | | United States | | | | 12,019,707 | | | | 12,096,080 | |
Quintiles IMS Inc., Term B-1 Dollar Loans, 3.333%, (LIBOR + 2.00%), 3/07/24 | | | United States | | | | 18,857,500 | | | | 18,995,009 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 31,091,089 | |
| | | | | | | | | | | | |
Marine 0.4% | | | | | | | | | | | | |
Navios Maritime Partners LP, Initial Term Loan, 6.32%, (LIBOR + 5.00%), 9/14/20 | | | Greece | | | | 16,190,948 | | | | 16,174,077 | |
| | | | | | | | | | | | |
Metal & Glass Containers 0.6% | | | | | | | | | | | | |
Owens-Brockway Glass Container Inc., Term A Loan, 2.989% - 3.097%, (LIBOR + 1.75%), 4/22/20 | | | United States | | | | 21,869,664 | | | | 21,919,789 | |
| | | | | | | | | | | | |
Movies & Entertainment 2.8% | | | | | | | | | | | | |
AMC Entertainment Holdings Inc., 2016 Incremental Term Loans, 3.489%, (LIBOR + 2.25%), 12/15/23 | | | United States | | | | 3,341,655 | | | | 3,337,825 | |
Cinemark USA Inc., Amended Term Loan Facility, 3.28%, (LIBOR + 2.00%), 5/08/22 | | | United States | | | | 1,221,818 | | | | 1,229,346 | |
Global Eagle Entertainment Inc., Initial Term Loans, 8.456%, (LIBOR + 7.00%), 1/06/23 | | | United States | | | | 3,434,264 | | | | 3,371,304 | |
Lions Gate Entertainment Corp., Term A Loan, 3.242%, (LIBOR + 2.00%), 12/08/21 | | | United States | | | | 60,364,988 | | | | 60,534,794 | |
Live Nation Entertainment Inc., Term B-3 Loans, 3.50%, (LIBOR + 2.25%), 10/21/23 | | | United States | | | | 6,786,579 | | | | 6,824,754 | |
Regal Cinemas Corp., Term Loan, 3.242%, (LIBOR + 2.00%), 4/01/22 | | | United States | | | | 30,144,000 | | | | 30,171,220 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 105,469,243 | |
| | | | | | | | | | | | |
Office Services & Supplies 0.2% | | | | | | | | | | | | |
Conduent Business Services LLC, Delayed Draw Term A Loan, 3.492%, (LIBOR + 2.25%), 12/07/21 | | | United States | | | | 8,000,000 | | | | 8,010,000 | |
| | | | | | | | | | | | |
Oil & Gas Exploration & Production 4.7% | | | | | | | | | | | | |
Cantium LLC, Commitment, 7.34%, (LIBOR + 6.00%), 6/13/20 | | | United States | | | | 22,895,833 | | | | 22,781,354 | |
e Fieldwood Energy LLC, Loans, 4.208%, (LIBOR + 2.875%), 10/01/18 | | | United States | | | | 116,082,505 | | | | 111,584,308 | |
UTEX Industries Inc., First Lien Initial Term Loan, 5.242%, (LIBOR + 4.00%), 5/21/21 | | | United States | | | | 43,013,388 | | | | 41,024,019 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 175,389,681 | |
| | | | | | | | | | | | |
Oil & Gas Storage & Transportation 0.9% | | | | | | | | | | | | |
International Seaways Operating Corp., Initial Term Loans, 6.75%, (LIBOR + 5.50%), 6/22/22 | | | United States | | | | 7,287,435 | | | | 7,332,982 | |
OSG Bulk Ships Inc., Initial Term Loan, 5.57%, (LIBOR + 4.25%), 8/05/19 | | | United States | | | | 21,276,970 | | | | 20,612,065 | |
Strike LLC, Term Loan, 9.333% - 9.504%, (LIBOR + 8.00%), 11/30/22 | | | United States | | | | 5,967,500 | | | | 6,049,553 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 33,994,600 | |
| | | | | | | | | | | | |
Packaged Foods & Meats 2.6% | | | | | | | | | | | | |
American Seafoods Group LLC, Tranche B Term Loan, 4.49% - 4.62%, (LIBOR + 3.25%), 8/21/23 | | | United States | | | | 5,760,000 | | | | 5,832,000 | |
CSM Bakery Supplies LLC, | | | | | | | | | | | | |
Second Lien Term Loan, 9.08%, (LIBOR + 7.75%), 7/03/21 | | | United States | | | | 15,590,519 | | | | 14,713,553 | |
Term Loans, 5.34%, (LIBOR + 4.00%), 7/03/20 | | | United States | | | | 4,787,154 | | | | 4,711,359 | |
JBS USA LUX SA, New Initial Term Loans, 3.739%, (LIBOR + 2.50%), 10/30/22 | | | Brazil | | | | 52,742,999 | | | | 51,984,818 | |
Pinnacle Foods Finance LLC, Initial Term Loans, 3.232%, (LIBOR + 2.00%), 2/03/24 | | | United States | | | | 2,297,869 | | | | 2,311,801 | |
Post Holdings Inc., Series A Incremental Term Loan, 3.492%, (LIBOR + 2.25%), 5/24/24 | | | United States | | | | 15,239,534 | | | | 15,324,311 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 94,877,842 | |
| | | | | | | | | | | | |
| | | | |
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48 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Floating Rate Daily Access Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | Value | |
c,d Senior Floating Rate Interests (continued) | | | | | | | | | | | | |
Paper Packaging 0.6% | | | | | | | | | | | | |
Caraustar Industries Inc., Refinancing Term Loans, 6.833%, (LIBOR + 5.50%), 3/14/22 | | | United States | | | $ | 23,903,858 | | | $ | 24,132,928 | |
| | | | | | | | | | | | |
Personal Products 2.3% | | | | | | | | | | | | |
Coty Inc., Term A Loan, 2.982%, (LIBOR + 1.75%), 10/27/20 | | | United States | | | | 32,002,598 | | | | 31,842,584 | |
FGI Operating Co. LLC, Term B Loans, 5.50%, (LIBOR + 4.25%), 4/19/19 | | | United States | | | | 73,493,573 | | | | 53,956,778 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 85,799,362 | |
| | | | | | | | | | | | |
Pharmaceuticals 3.6% | | | | | | | | | | | | |
Endo Luxembourg Finance Co. I S.A.R.L. and Endo LLC, Initial Term Loans, 5.50%, (LIBOR + 4.25%), 4/29/24 | | | United States | | | | 39,896,901 | | | | 40,465,432 | |
Grifols Worldwide Operations USA Inc., Tranche B Term Loan, 3.452%, (LIBOR + 2.25%), 1/31/25 | | | United States | | | | 30,971,374 | | | | 31,115,670 | |
Horizon Pharma Inc., Second Amendment Refinancing Term Loans, 5.00%, (LIBOR + 3.75%), 3/29/24 | | | United States | | | | 10,928,919 | | | | 10,989,257 | |
Innoviva Inc., Initial Term Loan, 5.817%, (LIBOR + 4.50%), 8/18/22 | | | United States | | | | 3,144,903 | | | | 3,180,283 | |
RPI Finance Trust, | | | | | | | | | | | | |
Term A-3 Loan, 3.083%, (LIBOR + 1.75%), 10/14/21 | | | United States | | | | 9,004,233 | | | | 9,021,116 | |
Term B-6 Term Loan, 3.333%, (LIBOR + 2.00%), 3/27/23 | | | United States | | | | 4,337,104 | | | | 4,358,491 | �� |
Valeant Pharmaceuticals International Inc., Series F Tranche B Term Loan, 5.99%, (LIBOR + 4.75%), 4/01/22 | | | United States | | | | 34,839,522 | | | | 35,553,732 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 134,683,981 | |
| | | | | | | | | | | | |
Restaurants 0.5% | | | | | | | | | | | | |
KFC Holding Co./Pizza Hut Holdings LLC/Taco Bell of America LLC, Term B Loans, 3.237%, (LIBOR + 2.00%), 6/16/23 | | | United States | | | | 9,066,187 | | | | 9,127,710 | |
NPC International Inc., Second Lien Initial Term Loan, 8.742%, (LIBOR + 7.50%), 4/20/25 | | | United States | | | | 8,228,426 | | | | 8,372,424 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 17,500,134 | |
| | | | | | | | | | | | |
Retail REITs 0.2% | | | | | | | | | | | | |
Capital Automotive LP, Tranche B-2 Term Loan, 4.25%, (LIBOR + 3.00%), 3/24/24 | | | United States | | | | 8,334,876 | | | | 8,382,627 | |
| | | | | | | | | | | | |
Semiconductor Equipment 0.1% | | | | | | | | | | | | |
MKS Instruments Inc., Tranche B-3 Term Loans, 3.492%, (LIBOR + 2.25%), 4/29/23 | | | United States | | | | 2,378,980 | | | | 2,402,398 | |
| | | | | | | | | | | | |
Semiconductors 0.5% | | | | | | | | | | | | |
ON Semiconductor Corp., 2017 Replacement Term Loans, 3.492%, (LIBOR + 2.25%), 3/31/23 | | | United States | | | | 16,744,023 | | | | 16,837,337 | |
| | | | | | | | | | | | |
Specialized Consumer Services 1.6% | | | | | | | | | | | | |
Avis Budget Car Rental LLC, Tranche B Term Loan, 3.34%, (LIBOR + 2.00%), 3/15/22 | | | United States | | | | 29,094,553 | | | | 29,035,461 | |
NVA Holdings Inc., | | | | | | | | | | | | |
Second Lien Term Loan, 8.333%, (LIBOR + 7.00%), 8/14/22 | | | United States | | | | 2,007,870 | | | | 2,027,949 | |
Term B-2 Loans, 4.833%, (LIBOR + 3.50%), 8/14/21 | | | United States | | | | 11,407,119 | | | | 11,526,541 | |
Sabre GLBL Inc., | | | | | | | | | | | | |
2017 B-1 Incremental Term, 3.492%, (LIBOR + 2.25%), 2/22/24 | | | United States | | | | 1,887,129 | | | | 1,896,397 | |
2017 Other Term A Loans, 3.492%, (LIBOR + 2.25%), 7/01/22 | | | United States | | | | 13,486,985 | | | | 13,529,132 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 58,015,480 | |
| | | | | | | | | | | | |
Specialty Chemicals 1.8% | | | | | | | | | | | | |
Ashland LLC, Term B Loan, 3.264% - 3.319%, (LIBOR + 2.00%), 5/17/24 | | | United States | | | | 3,576,211 | | | | 3,601,541 | |
Axalta Coating Systems U.S. Holdings Inc., Term B-2 Dollar Loans, 3.333%, (LIBOR + 2.00%), 6/01/24 | | | United States | | | | 14,574,218 | | | | 14,671,385 | |
KMG Chemicals Inc., Initial Term Loan, 5.492%, (LIBOR + 4.25%), 6/15/24 | | | United States | | | | 3,060,892 | | | | 3,099,153 | |
| | | | |
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franklintempleton.com | | Annual Report | | 49 |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Floating Rate Daily Access Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | Value | |
c,d Senior Floating Rate Interests (continued) | | | | | | | | | | | | |
Specialty Chemicals (continued) | | | | | | | | | | | | |
Oxbow Carbon LLC, | | | | | | | | | | | | |
Second Lien Initial Term Loan, 8.242%, (LIBOR + 7.00%), 1/17/20 | | | United States | | | $ | 26,864,314 | | | $ | 26,981,845 | |
Tranche B Term Loan, 4.742%, (LIBOR + 3.50%), 1/19/20 | | | United States | | | | 11,090,749 | | | | 11,243,247 | |
Solenis International LP and Solenis Holdings 3 LLC, Second Lien Term Loan, 8.067%, (LIBOR + 6.75%), 7/31/22 | | | United States | | | | 7,800,000 | | | | 7,797,567 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 67,394,738 | |
| | | | | | | | | | | | |
Specialty Stores 3.2% | | | | | | | | | | | | |
Container Store Inc., Term B-1 Loan, 8.333%, (LIBOR + 7.00%), 8/18/21 | | | United States | | | | 2,881,875 | | | | 2,773,805 | |
General Nutrition Centers Inc., Tranche B Term Loans, 3.75%, (LIBOR + 2.50%), 3/04/19 | | | United States | | | | 40,274,665 | | | | 38,492,511 | |
e Jo-Ann Stores Inc., Initial Loans, 6.551%, (LIBOR + 5.00%), 10/21/23 | | | United States | | | | 7,611,556 | | | | 7,292,821 | |
PetSmart Inc., Tranche B-2 Loans, 4.24%, (LIBOR + 3.00%), 3/11/22 | | | United States | | | | 82,875,157 | | | | 71,415,098 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 119,974,235 | |
| | | | | | | | | | | | |
Technology Hardware, Storage & Peripherals 0.7% | | | | | | | | | | | | |
Western Digital Corp., | | | | | | | | | | | | |
Term A Loan, 2.99%, (LIBOR + 1.75%), 4/29/21 | | | United States | | | | 18,603,795 | | | | 18,708,441 | |
US Term B-2 Loan, 3.99%, (LIBOR + 2.75%), 4/29/23 | | | United States | | | | 6,801,243 | | | | 6,850,131 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 25,558,572 | |
| | | | | | | | | | | | |
Tires & Rubber 0.4% | | | | | | | | | | | | |
The Goodyear Tire & Rubber Co., Second Lien Term Loan, 3.24%, (LIBOR + 2.00%), 4/30/19 | | | United States | | | | 13,681,318 | | | | 13,752,571 | |
| | | | | | | | | | | | |
Trucking 1.5% | | | | | | | | | | | | |
The Hertz Corp., Tranche B-1 Term Loan, 4.00%, (LIBOR + 2.75%), 6/30/23 | | | United States | | | | 57,543,425 | | | | 57,458,031 | |
| | | | | | | | | | | | |
Total Senior Floating Rate Interests (Cost $2,876,476,855) | | | | | | | | | | | 2,838,741,766 | |
| | | | | | | | | | | | |
Asset-Backed Securities 9.6% | | | | | | | | | | | | |
Other Diversified Financial Services 9.6% | | | | | | | | | | | | |
h,i Ballyrock CLO LLC, 2014-1A, BR, 144A, FRN, 3.463%, (3-month USD LIBOR + 2.10%), 10/20/26 | | | United States | | | | 5,200,000 | | | | 5,223,712 | |
h,i Birchwood Park CLO Ltd., 2014-1A, AR, 144A, FRN, 2.539%, (3-month USD LIBOR + 1.18%), 7/15/26 | | | United States | | | | 8,625,000 | | | | 8,658,034 | |
h,i BlueMountain CLO Ltd., 2012-2A, AR, 144A, FRN, 2.736%, (3-month USD LIBOR + 1.42%), 11/20/28 | | | United States | | | | 22,160,000 | | | | 22,381,600 | |
h,i Bristol Park CLO Ltd., 2016-1A, A, 144A, FRN, 2.779%, (3-month USD LIBOR + 1.42%), 4/15/29 | | | United States | | | | 40,000,000 | | | | 40,536,000 | |
h,i Carlyle Global Market Strategies CLO Ltd., | | | | | | | | | | | | |
2014-2A, AR, 144A, FRN, 2.565%,(3-month USD LIBOR + 1.25%), 5/15/25 | | | United States | | | | 5,000,000 | | | | 5,040,600 | |
2015-2A, A1, 144A, FRN, 2.844%,(3-month USD LIBOR + 1.47%), 4/27/27 | | | United States | | | | 16,535,000 | | | | 16,710,932 | |
h,i Carlyle U.S. CLO Ltd., 2017-1A, A1A, 144A, FRN, 2.663%, (3-month USD LIBOR + 1.30%), 4/20/31 | | | United States | | | | 24,000,000 | | | | 24,164,880 | |
h,i Cent CLO LP, | | | | | | | | | | | | |
2013-17A, B, 144A, FRN, 4.378%,(3-month USD LIBOR + 3.00%), 1/30/25 | | | United States | | | | 3,850,000 | | | | 3,860,896 | |
2014-22A, A1R, 144A, FRN, 2.722%,(3-month USD LIBOR + 1.41%), 11/07/26 | | | United States | | | | 5,000,000 | | | | 5,042,900 | |
2014-22A, BR, 144A, FRN, 4.262%,(3-month USD LIBOR + 2.95%), 11/07/26 | | | United States | | | | 7,400,000 | | | | 7,582,632 | |
| | | | |
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50 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Floating Rate Daily Access Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | Value | |
Asset-Backed Securities (continued) | | | | | | | | | | | | |
Other Diversified Financial Services (continued) | | | | | | | | | | | | |
h,i Eaton Vance CDO Ltd., 2014-1A, AR, 144A, FRN, 2.559%, (3-month USD LIBOR + 1.20%),
7/15/26 | | | United States | | | $ | 6,510,000 | | | $ | 6,539,295 | |
h Emerson Park CLO Ltd., 2013-1A, C2R, 144A, 4.055%, 7/15/25 | | | United States | | | | 3,600,000 | | | | 3,615,876 | |
h,i Flatiron CLO Ltd., 2014-1A, A1R, 144A, FRN, 2.533%, (3-month USD LIBOR + 1.18%), 7/17/26 | | | United States | | | | 16,400,000 | | | | 16,447,396 | |
h,i LCM XXI LP, 21A, A, 144A, FRN, 2.913%, (3-month USD LIBOR + 1.55%), 4/20/28 | | | United States | | | | 30,320,000 | | | | 30,684,446 | |
h,i LCM XXIV Ltd., 24A, A, 144A, FRN, 2.673%, (3-month USD LIBOR + 1.31%), 3/20/30 | | | United States | | | | 52,000,000 | | | | 52,238,680 | |
h,i Madison Park Funding Ltd., 2016-21A, A1, 144A, FRN, 2.897%, (3-month USD LIBOR +
1.53%), 7/25/29 | | | United States | | | | 17,200,000 | | | | 17,460,064 | |
h,i Magnetite XIV Ltd., 2015-14A, A, 144A, FRN, 2.744%, (3-month USD LIBOR + 1.39%), 7/18/28 | | | United States | | | | 3,140,000 | | | | 3,170,646 | |
h,i Octagon Investment Partners 30 Ltd., 144A, FRN, 2.683%, (3-month USD LIBOR + 1.32%),
3/17/30 | | | United States | | | | 23,071,429 | | | | 23,130,953 | |
h,i Octagon Investment Partners 31 LLC, 2017-1A, C, 144A, FRN, 3.763%, (3-month USD LIBOR
+ 2.40%), 7/20/30 | | | United States | | | | 4,208,540 | | | | 4,232,950 | |
h,i TCI-Cent CLO Income Note Issuer Ltd., 2017-1A, B, 144A, FRN, 3.717%, (3-month USD LIBOR
+ 2.35%), 7/25/30 | | | United States | | | | 9,671,118 | | | | 9,743,168 | |
h,i Venture XXIV CLO Ltd., 2016-24A, A1D, 144A, FRN, 2.783%, (3-month USD LIBOR + 1.42%),
10/20/28 | | | United States | | | | 34,000,000 | | | | 34,330,820 | |
h,i Voya CLO Ltd., | | | | | | | | | | | | |
2015-1A, A1, 144A, FRN, 2.834%,(3-month USD LIBOR + 1.48%), 4/18/27 | | | United States | | | | 6,900,000 | | | | 6,913,800 | |
2017-3A, B, 144A, FRN, 3.668%,(3-month USD LIBOR + 2.35%), 7/20/30 | | | United States | | | | 8,362,537 | | | | 8,415,472 | |
| | | | | | | | | | | | |
Total Asset-Backed Securities (Cost $353,464,096) | | | | | | | | | | | 356,125,752 | |
| | | | | | | | | | | | |
Total Investments before Short Term Investments | | | | | | | | | | | | |
(Cost $3,366,471,462) | | | | | | | | | | | 3,330,199,866 | |
| | | | | | | | | | | | |
| | | |
Short Term Investments 10.7% | | | | | | | | | | | | |
Senior Floating Rate Interests 0.8% | | | | | | | | | | | | |
Broadcasting 0.0%† | | | | | | | | | | | | |
Marshall Broadcasting Group Inc., Term Loan A-2, 3.235%, (LIBOR + 2.00%), 6/28/18 | | | United States | | | | 232,741 | | | | 233,032 | |
| | | | | | | | | | | | |
Forest Products 0.8% | | | | | | | | | | | | |
g,j Appvion Inc., NM Term Loans, 10.492% - 10.627%, (LIBOR + 9.25%), 7/01/18 | | | United States | | | | 27,529,412 | | | | 27,942,353 | |
| | | | | | | | | | | | |
Total Senior Floating Rate Interests | | | | | | | | | | | | |
(Cost $27,266,561) | | | | | | | | | | | 28,175,385 | |
| | | | | | | | | | | | |
| | | | | | Shares | | | |
Money Market Funds (Cost $368,263,476) 9.9% | | | | | | | | | | | | |
a,k Institutional Fiduciary Trust Money Market Portfolio, 0.69% | | | United States | | | | 368,263,476 | | | | 368,263,476 | |
| | | | | | | | | | | | |
Total Investments (Cost $3,762,001,499) 100.3% | | | | | | | | | | | 3,726,638,727 | |
Other Assets, less Liabilities (0.3)% | | | | | | | | | | | (10,718,398 | ) |
| | | | | | | | | | | | |
Net Assets 100.0% | | | | | | | | | | $ | 3,715,920,329 | |
| | | | | | | | | | | | |
| | | | |
| | | |
franklintempleton.com | | Annual Report | | 51 |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Floating Rate Daily Access Fund (continued)
†Rounds to less than 0.1% of net assets.
*The principal amount is stated in U.S. dollars unless otherwise indicated.
aSee Note 3(f) regarding investments in affiliated management investment companies.
bIncome may be received in additional securities and/or cash.
cThe coupon rate shown represents the rate at period end.
dSee Note 1(i) regarding senior floating rate interests.
eA portion or all of the security purchased on a delayed delivery basis. See Note 1(c).
fA portion or all of the security represents an unsettled loan commitment. The coupon rate is to-be determined (TBD) at the time of settlement and will be based upon a reference index/floor plus a spread.
gFair valued using significant unobservable inputs. See Note 12 regarding fair value measurements.
hSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in a public offering registered under the Securities Act of 1933. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees.
iThe coupon rate shown represents the rate inclusive of any caps or floors, if applicable, in effect at period end.
jSee Note 9 regarding unfunded loan commitments.
kThe rate shown is the annualized seven-day yield at period end.
At October 31, 2017, the Fund had the following credit default swap contracts outstanding. See Note 1(d).
Credit Default Swap Contracts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Periodic
Payment Rate
Received
(Paid) | | | Payment
Frequency | | | Maturity
Date | | | Notional
Amount | | | Value | | | Unamortized
Upfront
Payments
(Receipts) | | | Unrealized
Appreciation
(Depreciation) | | | Rating | |
Centrally Cleared Swap Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contracts to Buy Protectiona | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Traded Index | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX.NA.HY.26 | | | (5.00)% | | | | Quarterly | | | | 6/20/21 | | | | $50,176,000 | | | | $(4,614,090) | | | | $(3,435,070) | | | | $(1,179,020) | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
aPerformance triggers for settlement of contract include failure to pay or bankruptcy of the underlying securities for traded index swaps.
See Note 10 regarding other derivative information.
See Abbreviations on page 146.
| | | | |
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52 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
Financial Highlights
Franklin Low Duration Total Return Fund
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
| | | | | | |
Class A | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | |
| | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $ 9.89 | | | | $ 9.91 | | | | $ 10.11 | | | | $ 10.16 | | | | $ 10.29 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | 0.170 | | | | 0.151 | | | | 0.134 | | | | 0.144 | | | | 0.166 | |
| | | | | |
Net realized and unrealized gains (losses) | | | (0.023 | ) | | | 0.031 | | | | (0.135 | ) | | | (0.011 | ) | | | (0.032 | ) |
| | | | | |
Total from investment operations | | | 0.147 | | | | 0.182 | | | | (0.001 | ) | | | 0.133 | | | | 0.134 | |
| | | | | |
Less distributions from net investment income and net foreign currency gains | | | (0.197 | ) | | | (0.202 | ) | | | (0.199 | ) | | | (0.183 | ) | | | (0.264 | ) |
| | | | | |
Net asset value, end of year | | | $ 9.84 | | | | $ 9.89 | | | | $ 9.91 | | | | $ 10.11 | | | | $ 10.16 | |
| | | | | |
Total returnb | | | 1.50% | | | | 1.88% | | | | (0.02)% | | | | 1.32% | | | | 1.32% | |
| | | | | |
Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 0.96% | | | | 0.95% | | | | 0.96% | | | | 0.93% | | | | 0.98% | |
| | | | | |
Expenses net of waiver and payments by affiliatesc | | | 0.80% | | | | 0.80% | | | | 0.80% | | | | 0.80% | | | | 0.80% | |
| | | | | |
Net investment income | | | 1.73% | | | | 1.57% | | | | 1.27% | | | | 1.24% | | | | 1.25% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $1,519,902 | | | | $1,524,437 | | | | $1,656,001 | | | | $1,589,854 | | | | $1,296,612 | |
| | | | | |
Portfolio turnover rate | | | 50.40% | | | | 44.76% | | | | 41.28% | | | | 78.63% | | | | 64.86% | |
| | | | | |
Portfolio turnover rate excluding mortgage dollar rollsd | | | 45.29% | | | | 44.76% | | | | 41.28% | | | | 78.63% | | | | 64.86% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
cBenefit of expense reduction rounds to less than 0.01%.
dSee Note 1(h) regarding mortgage dollar rolls.
| | | | |
| | | |
franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | 53 |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin Low Duration Total Return Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
| | | | | | |
Class C | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | |
| | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $ 9.86 | | | | $ 9.90 | | | | $ 10.11 | | | | $ 10.16 | | | | $ 10.29 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | 0.121 | | | | 0.113 | | | | 0.104 | | | | 0.098 | | | | 0.189 | |
| | | | | |
Net realized and unrealized gains (losses) | | | (0.015 | ) | | | 0.024 | | | | (0.145 | ) | | | (0.001 | ) | | | (0.090 | ) |
| | | | | |
Total from investment operations | | | 0.106 | | | | 0.137 | | | | (0.041 | ) | | | 0.097 | | | | 0.099 | |
| | | | | |
Less distributions from net investment income and net foreign currency gains | | | (0.166 | ) | | | (0.177 | ) | | | (0.169 | ) | | | (0.147 | ) | | | (0.229 | ) |
| | | | | |
Net asset value, end of year | | | $ 9.80 | | | | $ 9.86 | | | | $ 9.90 | | | | $ 10.11 | | | | $ 10.16 | |
| | | | | |
Total returnb | | | 1.08% | | | | 1.41% | | | | (0.41)% | | | | 0.96% | | | | 0.97% | |
| | | | | |
Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 1.36% | | | | 1.35% | | | | 1.36% | | | | 1.33% | | | | 1.38% | |
| | | | | |
Expenses net of waiver and payments by affiliatesc | | | 1.20% | | | | 1.20% | | | | 1.20% | | | | 1.20% | | | | 1.20% | |
| | | | | |
Net investment income | | | 1.33% | | | | 1.17% | | | | 0.87% | | | | 0.84% | | | | 0.84% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $174,754 | | | | $218,066 | | | | $211,354 | | | | $165,952 | | | | $114,200 | |
| | | | | |
Portfolio turnover rate | | | 50.40% | | | | 44.76% | | | | 41.28% | | | | 78.63% | | | | 64.86% | |
| | | | | |
Portfolio turnover rate excluding mortgage dollar rollsd | | | 45.29% | | | | 44.76% | | | | 41.28% | | | | 78.63% | | | | 64.86% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
cBenefit of expense reduction rounds to less than 0.01%.
dSee Note 1(h) regarding mortgage dollar rolls.
| | | | |
| | | |
54 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin Low Duration Total Return Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013a | |
| | | | | | |
Class R6 | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | |
| | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $ 9.94 | | | | $ 9.95 | | | | $ 10.14 | | | | $ 10.19 | | | | $ 10.27 | |
| | | | | |
Income from investment operationsb: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | 0.214 | | | | 0.195 | | | | 0.165 | | | | 0.164 | c | | | 0.089 | |
| | | | | |
Net realized and unrealized gains (losses) | | | (0.025 | ) | | | 0.021 | | | | (0.130 | ) | | | 0.003 | | | | (0.046 | ) |
| | | | | |
Total from investment operations | | | 0.189 | | | | 0.216 | | | | 0.035 | | | | 0.167 | | | | 0.043 | |
| | | | | |
Less distributions from net investment income and net foreign currency gains | | | (0.229 | ) | | | (0.226 | ) | | | (0.228 | ) | | | (0.217 | ) | | | (0.123 | ) |
| | | | | |
Net asset value, end of year | | | $ 9.90 | | | | $ 9.94 | | | | $ 9.95 | | | | $ 10.14 | | | | $ 10.19 | |
| | | | | |
Total returnd | | | 1.92% | | | | 2.22% | | | | 0.37% | | | | 1.66% | | | | 0.43% | |
| | | | | |
Ratios to average net assetse | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 0.53% | | | | 0.53% | | | | 0.54% | | | | 0.55% | | | | 0.62% | |
| | | | | |
Expenses net of waiver and payments by affiliatesf | | | 0.39% | | | | 0.42% | | | | 0.42% | | | | 0.42% | | | | 0.43% | |
| | | | | |
Net investment income | | | 2.14% | | | | 1.95% | | | | 1.65% | | | | 1.62% | | | | 1.61% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $591,622 | | | | $553,233 | | | | $508,675 | | | | $418,539 | | | | $943 | |
| | | | | |
Portfolio turnover rate | | | 50.40% | | | | 44.76% | | | | 41.28% | | | | 78.63% | | | | 64.86% | |
| | | | | |
Portfolio turnover rate excluding mortgage dollar rollsg | | | 45.29% | | | | 44.76% | | | | 41.28% | | | | 78.63% | | | | 64.86% | |
aFor the period May 1, 2013 (effective date) to October 31, 2013.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fBenefit of expense reduction rounds to less than 0.01%.
gSee Note 1(h) regarding mortgage dollar rolls.
| | | | |
| | | |
franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | 55 |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin Low Duration Total Return Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
| | | | | | |
Advisor Class | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | |
| | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $ 9.94 | | | | $ 9.95 | | | | $ 10.14 | | | | $ 10.19 | | | | $ 10.31 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | 0.209 | | | | 0.184 | | | | 0.134 | | | | 0.166 | | | | 0.231 | |
| | | | | |
Net realized and unrealized gains (losses) | | | (0.042 | ) | | | 0.025 | | | | (0.106 | ) | | | (0.010 | ) | | | (0.064 | ) |
| | | | | |
Total from investment operations | | | 0.167 | | | | 0.209 | | | | 0.028 | | | | 0.156 | | | | 0.167 | |
| | | | | |
Less distributions from net investment income and net foreign currency gains | | | (0.217 | ) | | | (0.219 | ) | | | (0.218 | ) | | | (0.206 | ) | | | (0.287 | ) |
| | | | | |
Net asset value, end of year | | | $ 9.89 | | | | $ 9.94 | | | | $ 9.95 | | | | $ 10.14 | | | | $ 10.19 | |
| | | | | |
Total return | | | 1.70% | | | | 2.14% | | | | 0.27% | | | | 1.54% | | | | 1.64% | |
| | | | | |
Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 0.71% | | | | 0.70% | | | | 0.71% | | | | 0.68% | | | | 0.73% | |
| | | | | |
Expenses net of waiver and payments by affiliatesb | | | 0.55% | | | | 0.55% | | | | 0.55% | | | | 0.55% | | | | 0.55% | |
| | | | | |
Net investment income | | | 1.98% | | | | 1.82% | | | | 1.52% | | | | 1.49% | | | | 1.50% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $428,838 | | | | $224,887 | | | | $150,464 | | | | $198,694 | | | | $156,129 | |
| | | | | |
Portfolio turnover rate | | | 50.40% | | | | 44.76% | | | | 41.28% | | | | 78.63% | | | | 64.86% | |
| | | | | |
Portfolio turnover rate excluding mortgage dollar rollsc | | | 45.29% | | | | 44.76% | | | | 41.28% | | | | 78.63% | | | | 64.86% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBenefit of expense reduction rounds to less than 0.01%.
cSee Note 1(h) regarding mortgage dollar rolls.
| | | | |
| | | |
56 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
Statement of Investments, October 31, 2017
Franklin Low Duration Total Return Fund
| | | | | | | | | | | | | | | | |
| | | Country | | | Shares/
Warrants | | | | | Value | |
Common Stocks and Other Equity Interests 0.0%† | | | | | | | | | | | | | | | | |
Energy 0.0%† | | | | | | | | | | | | | | | | |
a Energy XXI Gulf Coast Inc. | | | United States | | | | 57,719 | | | | | | | | $ 493,498 | |
a Halcon Resources Corp. | | | United States | | | | 98,168 | | | | | | | | 645,945 | |
a Halcon Resources Corp., wts., 9/09/20 | | | United States | | | | 8,753 | | | | | | | | 4,377 | |
a Linn Energy Inc. | | | United States | | | | 8,053 | | | | | | | | 310,443 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 1,454,263 | |
Materials 0.0%† | | | | | | | | | | | | | | | | |
a Verso Corp., A | | | United States | | | | 1,387 | | | | | | | | 9,723 | |
a Verso Corp., wts., 7/25/23 | | | United States | | | | 146 | | | | | | | | 1 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 9,724 | |
| | | | | | | | | | | | | | | | |
Retailing 0.0%† | | | | | | | | | | | | | | | | |
a,b,c Holdco 2, A | | | South Africa | | | | 12,326,925 | | | | | | | | 8,726 | |
a,b,c Holdco 2, B | | | South Africa | | | | 1,226,701 | | | | | | | | 869 | |
| | | | |
| | | | | | | | | | | | | | | 9,595 | |
Total Common Stocks and Other Equity Interests
(Cost $5,980,586) | | | | | | | | | | | | | | | 1,473,582 | |
| | | | | | | | | | | | | | | | |
| | | | |
Management Investment Companies 3.4% | | | | | | | | | | | | | | | | |
Diversified Financials 3.4% | | | | | | | | | | | | | | | | |
d Franklin Lower Tier Floating Rate Fund | | | United States | | | | 1,893,663 | | | | | | | | 19,731,971 | |
d Franklin Middle Tier Floating Rate Fund | | | United States | | | | 2,389,308 | | | | | | | | 23,463,000 | |
PowerShares Senior Loan Portfolio ETF | | | United States | | | | 2,100,000 | | | | | | | | 48,552,000 | |
| | | | | | | | | | | | | | | | |
Total Management Investment Companies
(Cost $90,035,648) | | | | | | | | | | | | | | | 91,746,971 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | Principal
Amount* | | | | | | |
Corporate Bonds 34.5% | | | | | | | | | | | | | | | | |
Automobiles & Components 0.4% | | | | | | | | | | | | | | | | |
Delphi Automotive PLC, senior note, 3.15%, 11/19/20 | | | United States | | | | 10,500,000 | | | | | | | | 10,760,925 | |
| | | | | | | | | | | | | | | | |
Banks 8.3% | | | | | | | | | | | | | | | | |
e ANZ New Zealand International Ltd. of London, senior note, 144A, 2.85%, 8/06/20 | | | New Zealand | | | | 7,500,000 | | | | | | | | 7,612,410 | |
f Banca Monte dei Paschi di Siena SpA, secured note, Reg S, 2.875%, 4/16/21 | | | Italy | | | | 6,300,000 | | | | EUR | | | | 8,010,710 | |
f Banco Popular Espanol SA, secured note, Reg S, 1.00%, 3/03/22 | | | Spain | | | | 2,800,000 | | | | EUR | | | | 3,379,218 | |
Bank of America Corp.,
senior note, 2.65%, 4/01/19 | | | United States | | | | 9,300,000 | | | | | | | | 9,378,713 | |
senior note, 2.151%, 11/09/20 | | | United States | | | | 6,600,000 | | | | | | | | 6,574,214 | |
g senior note, FRN, 2.399%, (3-month USD LIBOR + 1.04%), 1/15/19 | | | United States | | | | 16,671,000 | | | | | | | | 16,837,545 | |
Barclays PLC, senior note, 3.25%, 1/12/21 | | | United Kingdom | | | | 7,000,000 | | | | | | | | 7,121,100 | |
BB&T Corp., | | | | | | | | | | | | | | | | |
senior note, 2.05%, 6/19/18 | | | United States | | | | 1,000,000 | | | | | | | | 1,002,078 | |
g senior note, FRN, 1.971%, (3-month USD LIBOR + 0.66%), 2/01/19 | | | United States | | | | 2,000,000 | | | | | | | | 2,012,690 | |
Citigroup Inc., | | | | | | | | | | | | | | | | |
senior note, 2.40%, 2/18/20 | | | United States | | | | 11,300,000 | | | | | | | | 11,362,612 | |
g senior note, FRN, 2.247%, (3-month USD LIBOR + 0.93%), 6/07/19 | | | United States | | | | 5,000,000 | | | | | | | | 5,049,271 | |
HSBC Holdings PLC, senior note, 3.40%, 3/08/21 | | | United Kingdom | | | | 3,300,000 | | | | | | | | 3,404,874 | |
HSBC USA Inc., senior note, 2.00%, 8/07/18 | | | United States | | | | 7,500,000 | | | | | | | | 7,518,413 | |
| | | | |
| | | |
franklintempleton.com | | Annual Report | | 57 |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Low Duration Total Return Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | Value | |
Corporate Bonds (continued) | | | | | | | | | | | | |
Banks (continued) | | | | | | | | | | | | |
Industrial and Commercial Bank of China Ltd./New York, senior note, 3.231%, 11/13/19 | | | China | | | | 5,400,000 | | | | $ 5,479,218 | |
e,g ING Bank NV, senior note, 144A, FRN, 2.025%, (3-month USD LIBOR + 0.69%), 10/01/19 | | | Netherlands | | | | 5,000,000 | | | | 5,032,575 | |
Intesa Sanpaolo SpA, | | | | | | | | | | | | |
senior note, 3.875%, 1/16/18 | | | Italy | | | | 5,900,000 | | | | 5,924,137 | |
senior note, 3.875%, 1/15/19 | | | Italy | | | | 10,100,000 | | | | 10,303,767 | |
JPMorgan Chase & Co., | | | | | | | | | | | | |
senior note, 1.85%, 3/22/19 | | | United States | | | | 8,000,000 | | | | 7,998,424 | |
senior note, 2.20%, 10/22/19 | | | United States | | | | 21,400,000 | | | | 21,507,086 | |
senior note, 2.40%, 6/07/21 | | | United States | | | | 2,600,000 | | | | 2,605,375 | |
e Norddeutsche Landesbank Girozentrale, secured note, 144A, 2.00%, 2/05/19 | | | Germany | | | | 6,500,000 | | | | 6,509,360 | |
PHH Corp., senior note, 7.375%, 9/01/19 | | | United States | | | | 1,800,000 | | | | 1,944,000 | |
Regions Financial Corp., senior note, 2.00%, 5/15/18 | | | United States | | | | 4,500,000 | | | | 4,501,109 | |
Royal Bank of Canada, secured note, 2.10%, 10/14/20 | | | Canada | | | | 6,300,000 | | | | 6,291,988 | |
e The Toronto-Dominion Bank, secured note, 144A, 2.25%, 3/15/21 | | | Canada | | | | 12,700,000 | | | | 12,697,555 | |
Wells Fargo & Co.,
senior note, 2.50%, 3/04/21 | | | United States | | | | 2,600,000 | | | | 2,611,557 | |
g senior note, FRN, 2.243%, (3-month USD LIBOR + 0.88%), 7/22/20 | | | United States | | | | 21,600,000 | | | | 21,948,830 | |
e Westpac Banking Corp.,
secured note, 144A, 2.10%, 2/25/22 | | | Australia | | | | 9,700,000 | | | | 9,657,611 | |
senior secured note, 144A, 2.25%, 11/09/20 | | | Australia | | | | 6,300,000 | | | | 6,313,356 | |
e Woori Bank, sub. note, 144A, 4.75%, 4/30/24 | |
| South
Korea |
| | | 5,300,000 | | | | 5,562,271 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 226,152,067 | |
| | | | | | | | | | | | |
Capital Goods 0.8% | | | | | | | | | | | | |
CNH Industrial Capital LLC, senior note, 3.875%, 10/15/21 | | | United States | | | | 4,600,000 | | | | 4,761,000 | |
John Deere Capital Corp.,
senior note, 1.30%, 3/12/18 | | | United States | | | | 1,700,000 | | | | 1,698,445 | |
senior note, 1.95%, 3/04/19 | | | United States | | | | 3,750,000 | | | | 3,761,863 | |
Lockheed Martin Corp., senior note, 1.85%, 11/23/18 | | | United States | | | | 4,200,000 | | | | 4,205,513 | |
United Technologies Corp., senior note, 4.50%, 4/15/20 | | | United States | | | | 7,500,000 | | | | 7,946,611 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 22,373,432 | |
| | | | | | | | | | | | |
Commercial & Professional Services 0.0%† | | | | | | | | | | | | |
Republic Services Inc., senior note, 3.80%, 5/15/18 | | | United States | | | | 1,035,000 | | | | 1,046,826 | |
| | | | | | | | | | | | |
Consumer Durables & Apparel 0.3% | | | | | | | | | | | | |
Beazer Homes USA Inc., senior note, 5.75%, 6/15/19 | | | United States | | | | 3,651,000 | | | | 3,842,678 | |
KB Home, senior note, 4.75%, 5/15/19 | | | United States | | | | 4,500,000 | | | | 4,635,000 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 8,477,678 | |
| | | | | | | | | | | | |
Consumer Services 0.4% | | | | | | | | | | | | |
Marriott International Inc., senior note, 2.875%, 3/01/21 | | | United States | | | | 10,000,000 | | | | 10,111,210 | |
| | | | | | | | | | | | |
Diversified Financials 4.5% | | | | | | | | | | | | |
g Bank of New York Mellon Corp., senior note, FRN, 2.184%, (3-month USD LIBOR + 0.87%), 8/17/20 | | | United States | | | | 6,400,000 | | | | 6,515,061 | |
Capital One Bank USA NA, senior note, 2.30%, 6/05/19 | | | United States | | | | 11,900,000 | | | | 11,925,867 | |
Capital One Financial Corp., | | | | | | | | | | | | |
senior note, 2.50%, 5/12/20 | | | United States | | | | 3,900,000 | | | | 3,915,723 | |
senior note, 3.05%, 3/09/22 | | | United States | | | | 9,600,000 | | | | 9,744,739 | |
| | | | |
| | | |
58 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Low Duration Total Return Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | Value | |
Corporate Bonds (continued) | | | | | | | | | | | | |
Diversified Financials (continued) | | | | | | | | | | | | |
g Deutsche Bank AG, senior note, FRN, 2.626%, (3-month USD LIBOR + 1.31%), 8/20/20 | | | Germany | | | | 7,500,000 | | | | $ 7,600,350 | |
e Dexia Credit Local SA, senior note, 144A, 2.375%, 9/20/22 | | | France | | | | 4,550,000 | | | | 4,538,898 | |
g The Goldman Sachs Group Inc., senior note, FRN, 2.52%, (3-month USD LIBOR + 1.20%), 9/15/20 | | | United States | | | | 23,000,000 | | | | 23,451,934 | |
e Lincoln Finance Ltd., senior secured note, 144A, 7.375%, 4/15/21 | | | Netherlands | | | | 3,400,000 | | | | 3,608,250 | |
Morgan Stanley,
senior note, 2.80%, 6/16/20 | | | United States | | | | 6,600,000 | | | | 6,699,202 | |
g senior note, FRN, 2.514%, (3-month USD LIBOR + 1.14%), 1/27/20 | | | United States | | | | 22,400,000 | | | | 22,755,576 | |
Navient Corp.,
senior note, 5.50%, 1/15/19 | | | United States | | | | 3,400,000 | | | | 3,514,750 | |
senior note, 5.00%, 10/26/20 | | | United States | | | | 1,000,000 | | | | 1,032,500 | |
e Pricoa Global Funding I, secured note, 144A, 2.55%, 11/24/20 | | | United States | | | | 5,600,000 | | | | 5,665,177 | |
e Protective Life Global Funding,
secured note, 144A, 2.262%, 4/08/20 | | | United States | | | | 7,000,000 | | | | 7,017,315 | |
senior secured note, 144A, 1.722%, 4/15/19 | | | United States | | | | 4,300,000 | | | | 4,292,920 | |
e,g Seven and Seven Ltd., senior note, 144A, FRN, 2.452%, (6-month USD LIBOR + 1.00%), 9/11/19 | | | South Korea | | | | 800,000 | | | | 798,758 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 123,077,020 | |
| | | | | | | | | | | | |
Energy 2.5% | | | | | | | | | | | | |
Anadarko Petroleum Corp., senior note, 4.85%, 3/15/21 | | | United States | | | | 6,100,000 | | | | 6,481,733 | |
e California Resources Corp., secured note, second lien, 144A, 8.00%, 12/15/22 | | | United States | | | | 1,656,000 | | | | 1,103,310 | |
e CNPC General Capital Ltd., senior note, 144A, 1.95%, 4/16/18 | | | China | | | | 1,500,000 | | | | 1,499,130 | |
Devon Energy Corp., senior bond, 3.25%, 5/15/22 | | | United States | | | | 5,300,000 | | | | 5,383,121 | |
Enable Midstream Partners LP, senior note, 2.40%, 5/15/19 | | | United States | | | | 3,700,000 | | | | 3,693,402 | |
Energy Transfer Equity LP, first lien, 4.25%, 3/15/23 | | | United States | | | | 3,600,000 | | | | 3,672,036 | |
EnLink Midstream Partners LP, senior note, 2.70%, 4/01/19 | | | United States | | | | 800,000 | | | | 801,885 | |
Enterprise Products Operating LLC, senior note, 2.55%, 10/15/19 | | | United States | | | | 7,500,000 | | | | 7,560,615 | |
e Kinder Morgan Finance Co. LLC, senior secured note, 144A, 6.00%, 1/15/18 | | | United States | | | | 2,500,000 | | | | 2,521,169 | |
Kinder Morgan Inc., senior note, 3.05%, 12/01/19 | | | United States | | | | 4,500,000 | | | | 4,582,780 | |
e Petrofac Ltd., senior note, 144A, 3.40%, 10/10/18 | | | United Kingdom | | | | 1,300,000 | | | | 1,292,850 | |
Sabine Pass Liquefaction LLC, senior secured note, first lien, 5.625%, 2/01/21 | | | United States | | | | 5,000,000 | | | | 5,426,915 | |
Sanchez Energy Corp., senior note, 7.75%, 6/15/21 | | | United States | | | | 1,900,000 | | | | 1,776,500 | |
e Sinopec Group Overseas Development 2015 Ltd., senior note, 144A, 2.50%, 4/28/20 | | | China | | | | 7,400,000 | | | | 7,413,690 | |
e Sinopec Group Overseas Development 2017 Ltd., senior note, 144A, 2.375%, 4/12/20 | | | China | | | | 5,100,000 | | | | 5,098,337 | |
g Statoil ASA, senior note, FRN, 1.772%, (3-month USD LIBOR + 0.46%), 11/08/18 | | | Norway | | | | 6,900,000 | | | | 6,925,909 | |
Williams Partners LP, senior note, 4.125%, 11/15/20 | | | United States | | | | 1,700,000 | | | | 1,774,553 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 67,007,935 | |
| | | | | | | | | | | | |
Food & Staples Retailing 0.5% | | | | | | | | | | | | |
The Kroger Co., senior note, 2.60%, 2/01/21 | | | United States | | | | 7,500,000 | | | | 7,534,223 | |
Walgreen Co., senior bond, 3.10%, 9/15/22 | | | United States | | | | 5,300,000 | | | | 5,377,516 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 12,911,739 | |
| | | | | | | | | | | | |
| | | | |
| | | |
franklintempleton.com | | Annual Report | | 59 |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Low Duration Total Return Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | | Value | |
Corporate Bonds (continued) | | | | | | | | | | | | |
Food, Beverage & Tobacco 1.5% | | | | | | | | | | | | |
Anheuser-Busch InBev Finance Inc., senior note, 2.65%, 2/01/21 | | | Belgium | | | | 8,500,000 | | | $ | 8,603,785 | |
Coca-Cola Femsa SAB de CV, senior note, 2.375%, 11/26/18 | | | Mexico | | | | 2,500,000 | | | | 2,508,909 | |
e Imperial Brands Finance PLC, senior note, 144A, 2.95%, 7/21/20 | | | United Kingdom | | | | 6,000,000 | | | | 6,098,784 | |
Kraft Heinz Foods Co., | | | | | | | | | | | | |
senior bond, 3.50%, 6/06/22 | | | United States | | | | 7,900,000 | | | | 8,169,411 | |
senior note, 2.00%, 7/02/18 | | | United States | | | | 6,400,000 | | | | 6,409,180 | |
g Mondelez International Inc., senior note, FRN, 1.831%, (3-month USD LIBOR + 0.52%), 2/01/19 | | | United States | | | | 500,000 | | | | 501,414 | |
Reynolds American Inc., senior note, 2.30%, 6/12/18 | | | United Kingdom | | | | 8,800,000 | | | | 8,827,824 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 41,119,307 | |
| | | | | | | | | | | | |
Health Care Equipment & Services 1.1% | | | | | | | | | | | | |
Aetna Inc., senior note, 1.50%, 11/15/17 | | | United States | | | | 1,000,000 | | | | 999,950 | |
CHS/Community Health Systems Inc., senior note, 7.125%, 7/15/20 | | | United States | | | | 3,500,000 | | | | 3,049,375 | |
Edwards Lifesciences Corp., senior note, 2.875%, 10/15/18 | | | United States | | | | 1,600,000 | | | | 1,615,546 | |
HCA Inc., senior secured note, first lien, 4.25%, 10/15/19 | | | United States | | | | 3,500,000 | | | | 3,613,750 | |
Stryker Corp., senior note, 2.00%, 3/08/19 | | | United States | | | | 10,100,000 | | | | 10,124,404 | |
Tenet Healthcare Corp., senior note, 5.50%, 3/01/19 | | | United States | | | | 1,825,000 | | | | 1,859,219 | |
Zimmer Holdings Inc., senior note, 2.70%, 4/01/20 | | | United States | | | | 7,500,000 | | | | 7,567,104 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 28,829,348 | |
| | | | | | | | | | | | |
Household & Personal Products 0.6% | | | | | | | | | | | | |
Avon Products Inc., senior note, 6.60%, 3/15/20 | | | United Kingdom | | | | 10,000,000 | | | | 9,900,000 | |
Colgate-Palmolive Co., senior note, 0.90%, 5/01/18 | | | United States | | | | 2,200,000 | | | | 2,192,915 | |
The Procter & Gamble Co., senior note, 1.70%, 11/03/21 | | | United States | | | | 3,200,000 | | | | 3,148,857 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 15,241,772 | |
| | | | | | | | | | | | |
Insurance 1.5% | | | | | | | | | | | | |
e Jackson National Life Global Funding, secured note, 144A, 2.25%, 4/29/21 | | | United States | | | | 7,600,000 | | | | 7,574,279 | |
e Metropolitan Life Global Funding I, senior secured bond, 144A, 3.875%, 4/11/22 | | | United States | | | | 5,900,000 | | | | 6,229,830 | |
e New York Life Global Funding, | | | | | | | | | | | | |
secured note, 144A, 2.10%, 1/02/19 | | | United States | | | | 10,000,000 | | | | 10,041,693 | |
secured note, 144A, 2.15%, 6/18/19 | | | United States | | | | 6,400,000 | | | | 6,432,879 | |
e Nuveen Finance LLC, senior note, 144A, 2.95%, 11/01/19 | | | United States | | | | 4,200,000 | | | | 4,266,581 | |
g Prudential Financial Inc., senior note, FRN, 2.095%, (3-month USD LIBOR + 0.78%), 8/15/18 | | | United States | | | | 5,700,000 | | | | 5,732,937 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 40,278,199 | |
Materials 0.4% | | | | | | | | | | | | |
e BlueScope Steel Ltd./BlueScope Steel Finance, senior note, 144A, 6.50%, 5/15/21 | | | Australia | | | | 4,000,000 | | | | 4,186,260 | |
e FMG Resources (August 2006) Pty. Ltd., senior note, 144A, 4.75%, 5/15/22 | | | Australia | | | | 1,100,000 | | | | 1,122,440 | |
e Glencore Funding LLC, senior note, 144A, 3.00%, 10/27/22 | | | Switzerland | | | | 2,200,000 | | | | 2,201,573 | |
e Owens-Brockway Glass Container Inc., senior note, 144A, 5.00%, 1/15/22 | | | United States | | | | 3,000,000 | | | | 3,183,750 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 10,694,023 | |
| | | | | | | | | | | | |
| | | | |
| | | |
60 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Low Duration Total Return Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | Value | |
| Corporate Bonds (continued) | | | | | | | | | | | | |
Media 1.2% | | | | | | | | | | | | |
CBS Corp., senior note, 2.30%, 8/15/19 | | | United States | | | | 8,437,000 | | | | $ 8,492,586 | |
CSC Holdings LLC, | | | | | | | | | | | | |
senior bond, 7.625%, 7/15/18 | | | United States | | | | 3,500,000 | | | | 3,613,750 | |
senior note, 8.625%, 2/15/19 | | | United States | | | | 3,000,000 | | | | 3,221,250 | |
e NBCUniversal Enterprise Inc., senior note, 144A, 1.974%, 4/15/19 | | | United States | | | | 10,000,000 | | | | 10,022,345 | |
Time Warner Inc., senior note, 2.10%, 6/01/19 | | | United States | | | | 8,500,000 | | | | 8,509,374 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 33,859,305 | |
| | | | | | | | | | | | |
Pharmaceuticals, Biotechnology & Life Sciences 2.6% | | | | | | | | | | | | |
AbbVie Inc., senior note, 1.80%, 5/14/18 | | | United States | | | | 8,600,000 | | | | 8,605,302 | |
Actavis Funding SCS, | | | | | | | | | | | | |
3.45%, 3/15/22 | | | United States | | | | 5,300,000 | | | | 5,451,901 | |
senior note, 2.35%, 3/12/18 | | | United States | | | | 6,200,000 | | | | 6,214,658 | |
g Amgen Inc., senior note, FRN, 1.915%, (3-month USD LIBOR + 0.60%), 5/22/19 | | | United States | | | | 6,200,000 | | | | 6,233,619 | |
Baxalta Inc.,
senior note, 2.00%, 6/22/18 | | | United States | | | | 10,200,000 | | | | 10,218,053 | |
senior note, 2.875%, 6/23/20 | | | United States | | | | 7,900,000 | | | | 8,017,973 | |
Biogen Inc., senior note, 2.90%, 9/15/20 | | | United States | | | | 7,500,000 | | | | 7,660,877 | |
Celgene Corp., | | | | | | | | | | | | |
senior note, 2.30%, 8/15/18 | | | United States | | | | 3,000,000 | | | | 3,013,124 | |
senior note, 2.25%, 8/15/21 | | | United States | | | | 7,900,000 | | | | 7,823,973 | |
h senior note, 2.75%, 2/15/23 | | | United States | | | | 3,700,000 | | | | 3,700,000 | |
e Valeant Pharmaceuticals International Inc., senior note, 144A, 5.375%, 3/15/20 | | | United States | | | | 3,800,000 | | | | 3,757,250 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 70,696,730 | |
| | | | | | | | | | | | |
Real Estate 0.2% | | | | | | | | | | | | |
American Tower Corp., senior note, 3.40%, 2/15/19 | | | United States | | | | 6,200,000 | | | | 6,307,562 | |
| | | | | | | | | | | | |
Retailing 0.9% | | | | | | | | | | | | |
e Amazon.com Inc., senior note, 144A, 2.40%, 2/22/23 | | | United States | | | | 4,150,000 | | | | 4,125,797 | |
Dollar General Corp., senior note, 1.875%, 4/15/18 | | | United States | | | | 8,200,000 | | | | 8,202,613 | |
JD.com Inc., senior note, 3.125%, 4/29/21 | | | China | | | | 5,300,000 | | | | 5,319,133 | |
c,i K2016470219 South Africa Ltd., senior secured note, 144A, PIK, 3.00%, 12/31/22 | | | South Africa | | | | 920,500 | | | | 27,342 | |
c,i K2016740260 South Africa Ltd., senior secured note, 144A, PIK, 25.00%, 12/31/22 | | | South Africa | | | | 144,913 | | | | 123,733 | |
Penske Automotive Group Inc., senior sub. note, 3.75%, 8/15/20 | | | United States | | | | 4,000,000 | | | | 4,090,000 | |
e PetSmart Inc., senior note, 144A, 7.125%, 3/15/23 | | | United States | | | | 4,700,000 | | | | 3,595,500 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 25,484,118 | |
| | | | | | | | | | | | |
Semiconductors & Semiconductor Equipment 0.5% | | | | | | | | | | | | |
e Broadcom Corp / Cayman Finance Ltd., senior note, 144A, 2.375%, 1/15/20 | | | United States | | | | 8,700,000 | | | | 8,753,948 | |
Maxim Integrated Products Inc., senior note, 2.50%, 11/15/18 | | | United States | | | | 5,200,000 | | | | 5,229,480 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 13,983,428 | |
| | | | | | | | | | | | |
Software & Services 0.9% | | | | | | | | | | | | |
Alibaba Group Holding Ltd., senior note, 2.50%, 11/28/19 | | | China | | | | 11,900,000 | | | | 11,980,622 | |
Fiserv Inc., senior note, 2.70%, 6/01/20 | | | United States | | | | 11,300,000 | | | | 11,428,651 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 23,409,273 | |
| | | | | | | | | | | | |
| | | | |
| | | |
franklintempleton.com | | Annual Report | | 61 |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Low Duration Total Return Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | | | | Value | |
Corporate Bonds (continued) | | | | | | | | | | | | | | | | |
Technology Hardware & Equipment 1.4% | | | | | | | | | | | | | | | | |
g Apple Inc., senior note, FRN, 1.561%, (3-month USD LIBOR + 0.25%), 5/03/18 | | | United States | | | | 7,300,000 | | | | | | | | $ 7,309,818 | |
e Dell International LLC/EMC Corp., senior secured note, first lien, 144A, 3.48%, 6/01/19 | | | United States | | | | 6,400,000 | | | | | | | | 6,516,693 | |
g Hewlett Packard Enterprise Co., senior note, FRN, 3.273%, (3-month USD LIBOR + 1.93%), 10/05/18 | | | United States | | | | 8,100,000 | | | | | | | | 8,230,437 | |
Juniper Networks Inc., | | | | | | | | | | | | | | | | |
senior note, 3.125%, 2/26/19 | | | United States | | | | 7,500,000 | | | | | | | | 7,606,412 | |
senior note, 3.30%, 6/15/20 | | | United States | | | | 500,000 | | | | | | | | 511,707 | |
e Sanmina Corp., senior note, first lien, 144A, 4.375%, 6/01/19 | | | United States | | | | 6,500,000 | | | | | | | | 6,692,270 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 36,867,337 | |
| | | | | | | | | | | | | | | | |
Telecommunication Services 1.0% | | | | | | | | | | | | | | | | |
AT&T Inc., senior note, 2.45%, 6/30/20 | | | United States | | | | 7,400,000 | | | | | | | | 7,473,437 | |
Intelsat Jackson Holdings SA, senior note, 7.25%, 10/15/20 | | | Luxembourg | | | | 2,000,000 | | | | | | | | 1,934,400 | |
e Sprint Communications Inc., senior note, 144A, 9.00%, 11/15/18 | | | United States | | | | 371,000 | | | | | | | | 393,724 | |
e Sprint Spectrum Co. LLC/Sprint Spectrum Co. II LLC, first lien, 144A, 3.36%, 3/20/23 | | | United States | | | | 2,500,000 | | | | | | | | 2,542,500 | |
Telefonica Emisiones S.A.U., senior note, 3.192%, 4/27/18 | | | Spain | | | | 2,300,000 | | | | | | | | 2,317,146 | |
T-Mobile USA Inc., senior note, 4.00%, 4/15/22 | | | United States | | | | 1,800,000 | | | | | | | | 1,866,375 | |
Verizon Communications Inc., | | | | | | | | | | | | | | | | |
senior note, 2.625%, 2/21/20 | | | United States | | | | 5,180,000 | | | | | | | | 5,259,524 | |
g senior note, FRN, 3.069%, (3-month USD LIBOR + 1.75%), 9/14/18 | | | United States | | | | 4,800,000 | | | | | | | | 4,870,315 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 26,657,421 | |
| | | | | | | | | | | | | | | | |
Transportation 0.5% | | | | | | | | | | | | | | | | |
e DAE Funding LLC, senior note, 144A, 4.00%, 8/01/20 | | | United Arab Emirates | | | | 2,100,000 | | | | | | | | 2,144,625 | |
FedEx Corp., senior note, 0.50%, 4/09/20 | | | United States | | | | 7,100,000 | | | | EUR | | | | 8,377,114 | |
e Park Aerospace Holdings Ltd., senior note, 144A, 5.25%, 8/15/22 | | | Ireland | | | | 2,200,000 | | | | | | | | 2,288,176 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 12,809,915 | |
| | | | | | | | | | | | | | | | |
Utilities 2.5% | | | | | | | | | | | | | | | | |
Calpine Corp., senior note, 5.375%, 1/15/23 | | | United States | | | | 15,000,000 | | | | | | | | 14,643,750 | |
Dominion Energy Inc., senior note, 2.50%, 12/01/19 | | | United States | | | | 9,500,000 | | | | | | | | 9,568,607 | |
Duke Energy Corp., senior note, 2.10%, 6/15/18 | | | United States | | | | 5,100,000 | | | | | | | | 5,109,532 | |
PSEG Power LLC, senior note, 3.00%, 6/15/21 | | | United States | | | | 7,700,000 | | | | | | | | 7,804,973 | |
Sempra Energy, senior note, 2.85%, 11/15/20 | | | United States | | | | 9,600,000 | | | | | | | | 9,778,521 | |
The Southern Co., | | | | | | | | | | | | | | | | |
senior note, 2.45%, 9/01/18 | | | United States | | | | 7,000,000 | | | | | | | | 7,038,320 | |
senior note, 2.35%, 7/01/21 | | | United States | | | | 6,500,000 | | | | | | | | 6,470,732 | |
e State Grid Overseas Investment 2013 Ltd., senior note, 144A, 1.75%, 5/22/18 | | | China | | | | 2,000,000 | | | | | | | | 1,996,020 | |
e State Grid Overseas Investment 2014 Ltd., senior note, 144A, 2.75%, 5/07/19 | | | China | | | | 2,200,000 | | | | | | | | 2,217,952 | |
e Talen Energy Supply LLC, senior note, 144A, 9.50%, 7/15/22 | | | United States | | | | 2,400,000 | | | | | | | | 2,478,000 | |
Virginia Electric & Power Co., senior note, 1.20%, 1/15/18 | | | United States | | | | 900,000 | | | | | | | | 899,595 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 68,006,002 | |
| | | | | | | | | | | | | | | | |
| | | | |
Total Corporate Bonds (Cost $931,058,054) | | | | | | | | | | | | | | | 936,162,572 | |
| | | | | | | | | | | | | | | | |
g,j Senior Floating Rate Interests 3.8% | | | | | | | | | | | | | | | | |
Automobiles & Components 0.1% | | | | | | | | | | | | | | | | |
TI Group Automotive Systems LLC, Initial US Term Loan, 3.992%, (LIBOR + 2.75%), 6/30/22 | | | United States | | | | 1,293,631 | | | | | | | | 1,299,695 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | |
62 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Low Duration Total Return Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | Value | |
g,j Senior Floating Rate Interests (continued) | | | | | | | | | | | | |
Capital Goods 0.0%† | | | | | | | | | | | | |
Allison Transmission Inc., Term Loans, 3.25%, (LIBOR + 2.00%), 9/23/22 | | | United States | | | | 870,416 | | | | $ 876,567 | |
Harsco Corp., Initial Term Loan, 6.25%, (LIBOR + 5.00%), 11/02/23 | | | United States | | | | 134,541 | | | | 137,008 | |
Leidos Innovations Corp., Term Loan B, 3.25%, (LIBOR + 2.00%), 8/16/23 | | | United States | | | | 210,727 | | | | 212,417 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 1,225,992 | |
| | | | | | | | | | | | |
Commercial & Professional Services 0.0%† | | | | | | | | | | | | |
KAR Auction Services Inc., Term Loan B, 3.875%, (LIBOR + 2.50%), 3/09/23 | | | United States | | | | 708,286 | | | | 713,894 | |
| | | | | | | | | | | | |
Consumer Services 0.5% | | | | | | | | | | | | |
Aristocrat Technologies Inc., k,l New 2017 Term Loans, TBD, 10/19/24 | | | United States | | | | 1,107,000 | | | | 1,112,535 | |
Term B-2 Loans, 3.363%, (LIBOR + 2.00%), 10/20/21 | | | United States | | | | 2,557,244 | | | | 2,576,433 | |
Avis Budget Car Rental LLC, Tranche B Term Loan, 3.34%, (LIBOR + 2.00%), 3/15/22 | | | United States | | | | 1,551,755 | | | | 1,548,603 | |
Eldorado Resorts Inc., Initial Term Loan, 3.50%, (LIBOR + 2.25%), 4/17/24 | | | United States | | | | 1,629,038 | | | | 1,634,129 | |
Fitness International LLC, Term A Loan, 4.492%, (LIBOR + 3.25%), 4/01/20 | | | United States | | | | 3,068,923 | | | | 3,072,775 | |
Greektown Holdings LLC, Initial Term Loan, 4.242%, (LIBOR + 3.00%), 4/25/24 | | | United States | | | | 3,333,987 | | | | 3,351,177 | |
k Tropicana Entertainment Inc., Term Loans, 4.242%, (LIBOR + 3.00%), 11/27/20 | | | United States | | | | 339,513 | | | | 342,272 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 13,637,924 | |
| | | | | | | | | | | | |
Diversified Financials 0.1% | | | | | | | | | | | | |
First Eagle Holdings Inc., Initial Term Loans, 4.365%, (LIBOR + 3.00%), 12/01/22 | | | United States | | | | 888,017 | | | | 896,481 | |
Russell Investments US Institutional Holdco Inc., Term Loan B, 5.485%, (LIBOR + 4.25%), 6/01/23 | | | United States | | | | 599,188 | | | | 607,302 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 1,503,783 | |
| | | | | | | | | | | | |
Energy 0.4% | | | | | | | | | | | | |
Bowie Resource Holdings LLC, First Lien Initial Term Loan, 6.992%, (LIBOR + 5.75%), 8/14/20 | | | United States | | | | 1,911,857 | | | | 1,887,959 | |
Fieldwood Energy LLC, Loans, 4.208%, (LIBOR + 2.875%), 10/01/18 | | | United States | | | | 5,036,382 | | | | 4,841,222 | |
Foresight Energy LLC, Term Loans, 7.083%, (LIBOR + 5.75%), 3/28/22 | | | United States | | | | 1,302,736 | | | | 1,232,714 | |
International Seaways Operating Corp., Initial Term Loans, 6.75%, (LIBOR + 5.50%), 6/22/22 | | | United States | | | | 869,531 | | | | 874,966 | |
OSG Bulk Ships Inc., Initial Term Loan, 5.57%, (LIBOR + 4.25%), 8/05/19 | | | United States | | | | 1,038,624 | | | | 1,006,167 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 9,843,028 | |
| | | | | | | | | | | | |
Food & Staples Retailing 0.1% | | | | | | | | | | | | |
Aramark Corp., U.S. Term A Loan, 2.992%, (LIBOR + 1.75%), 3/28/22 | | | United States | | | | 153,180 | | | | 153,994 | |
Smart & Final Stores LLC, First Lien Term Loan, 4.833%, (LIBOR + 3.50%), 11/15/22 | | | United States | | | | 1,217,454 | | | | 1,181,438 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 1,335,432 | |
| | | | | | | | | | | | |
Food, Beverage & Tobacco 0.2% | | | | | | | | | | | | |
JBS USA LUX SA, New Initial Term Loans, 3.739%, (LIBOR + 2.50%), 10/30/22 | | | Brazil | | | | 6,666,500 | | | | 6,570,669 | |
| | | | | | | | | | | | |
| | | | |
| | | |
franklintempleton.com | | Annual Report | | 63 |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Low Duration Total Return Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | Value | |
g,j Senior Floating Rate Interests (continued) | | | | | | | | | | | | |
Health Care Equipment & Services 0.1% | | | | | | | | | | | | |
U.S. Renal Care Inc., Initial Term Loan, 5.583%, (LIBOR + 4.25%), 12/31/22 | | | United States | | | | 2,481,266 | | | | $ 2,405,277 | |
| | | | | | | | | | | | |
Household & Personal Products 0.2% | | | | | | | | | | | | |
FGI Operating Co. LLC, Term B Loans, 5.50%, (LIBOR + 4.25%), 4/19/19 | | | United States | | | | 3,631,379 | | | | 2,666,050 | |
Spectrum Brands Inc., USD Term Loans, 3.242% - 3.312%, (LIBOR + 2.00%), 6/23/22 | | | United States | | | | 1,845,996 | | | | 1,860,649 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 4,526,699 | |
| | | | | | | | | | | | |
Materials 0.2% | | | | | | | | | | | | |
Ashland LLC, Term B Loan, 3.264% - 3.319%, (LIBOR + 2.00%), 5/17/24 | | | United States | | | | 389,326 | | | | 392,084 | |
k Chemours Co., Tranche B-1 US Term Loans, 3.75%, (LIBOR + 2.50%), 5/12/22 | | | United States | | | | 3,555,699 | | | | 3,594,591 | |
Cyanco Intermediate Corp., Initial Term Loan, 5.742%, (LIBOR + 4.50%), 5/01/20 | | | United States | | | | 534,001 | | | | 539,675 | |
OCI Beaumont LLC, Term B-3 Loan, 8.064%, (LIBOR + 6.75%), 8/20/19 | | | United States | | | | 816,977 | | | | 829,573 | |
Oxbow Carbon LLC, Tranche B Term Loan, 4.742%, (LIBOR + 3.50%), 1/19/20 | | | United States | | | | 592,092 | | | | 600,233 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 5,956,156 | |
| | | | | | | | | | | | |
Media 0.3% | | | | | | | | | | | | |
Altice US Finance I Corp., March 2017 Refinancing Term Loan Commitments, 3.492%, (LIBOR + 2.25%), 7/28/25 | | | United States | | | | 115,805 | | | | 115,895 | |
AMC Entertainment Holdings Inc., | | | | | | | | | | | | |
2016 Incremental Term Loans, 3.489%, (LIBOR + 2.25%), 12/15/23 | | | United States | | | | 509,326 | | | | 508,742 | |
k Initial Term Loans, 3.489%, (LIBOR + 2.25%), 12/15/22 | | | United States | | | | 4,113,411 | | | | 4,121,490 | |
Charter Communications Operating LLC, Term Loan A-1, 3.00%, (LIBOR + 1.75%), 5/18/21 | | | United States | | | | 1,239,500 | | | | 1,241,160 | |
CSC Holdings LLC (Cablevision), March 2017 Incremental Term Loans, 3.489%, (LIBOR + 2.25%), 7/17/25 | | | United States | | | | 2,237,860 | | | | 2,235,047 | |
Lions Gate Entertainment Corp., Term A Loan, 3.242%, (LIBOR + 2.00%), 12/08/21 | | | United States | | | | 302,569 | | | | 303,420 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 8,525,754 | |
| | | | | | | | | | | | |
Pharmaceuticals, Biotechnology & Life Sciences 0.4% | | | | | | | | | | | | |
k Endo Luxembourg Finance Co. I S.A.R.L. and Endo LLC, Initial Term Loans, 5.50%, (LIBOR + 4.25%), 4/29/24 | | | United States | | | | 3,446,195 | | | | 3,495,303 | |
Grifols Worldwide Operations USA Inc., Tranche B Term Loan, 3.452%, (LIBOR + 2.25%), 1/31/25 | | | United States | | | | 1,449,643 | | | | 1,456,396 | |
INC Research Holdings Inc., Initial Term B Loans, 3.492%, (LIBOR + 2.25%), 8/01/24 | | | United States | | | | 162,919 | | | | 163,954 | |
Quintiles IMS Inc., Term B-2 Dollar Loans, 3.321%, (LIBOR + 2.00%), 1/01/25 | | | United States | | | | 3,604,280 | | | | 3,630,563 | |
RPI Finance Trust, Term A-3 Loan, 3.083%, (LIBOR + 1.75%), 10/14/21 | | | United States | | | | 339,022 | | | | 339,657 | |
k Valeant Pharmaceuticals International Inc., Series F Tranche B Term Loan, 5.99%, (LIBOR + 4.75%), 4/01/22 | | | United States | | | | 1,633,163 | | | | 1,687,047 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 10,772,920 | |
| | | | | | | | | | | | |
| | | | |
| | | |
64 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Low Duration Total Return Fund (continued)
| | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | | | Value | |
g,j Senior Floating Rate Interests (continued) | | | | | | | | | | | | | | |
Retailing 0.4% | | | | | | | | | | | | | | |
Ascena Retail Group Inc., Tranche B Term Loan, 5.75%, (LIBOR + 4.50%), 8/21/22 | | | United States | | | | 3,215,812 | | | | | | $ 2,804,792 | |
Dollar Tree Inc., Term A-1 Loans, 2.75%, (LIBOR + 1.50%), 7/06/20 | | | United States | | | | 370,040 | | | | | | 369,227 | |
k Harbor Freight Tools USA Inc., Term Loan B, 4.492%, (LIBOR + 3.25%), 8/16/23 | | | United States | | | | 2,765,000 | | | | | | 2,782,856 | |
k Jo-Ann Stores Inc., Initial Loans, 6.551%, (LIBOR + 5.00%), 10/21/23 | | | United States | | | | 2,070,858 | | | | | | 1,987,115 | |
k PetSmart Inc., Tranche B-2 Loans, 4.24%, (LIBOR + 3.00%), 3/11/22 | | | United States | | | | 4,646,790 | | | | | | 4,004,731 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | 11,948,721 | |
| | | | | | | | | | | | | | |
Semiconductors & Semiconductor Equipment 0.2% | | | | | | | | | | | | | | |
MKS Instruments Inc., Tranche B-3 Term Loans, 3.492%, (LIBOR + 2.25%), 4/29/23 | | | United States | | | | 144,700 | | | | | | 146,124 | |
ON Semiconductor Corp., 2017 Replacement Term Loans, 3.492%, (LIBOR + 2.25%), 3/31/23 | | | United States | | | | 4,574,259 | | | | | | 4,599,751 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | 4,745,875 | |
| | | | | | | | | | | | | | |
Software & Services 0.1% | | | | | | | | | | | | | | |
Global Payments Inc., Term A-2 Loan, 2.952%, (LIBOR + 1.75%), 5/02/22 | | | United States | | | | 363,585 | | | | | | 363,812 | |
Rackspace Hosting Inc., 2017 Refinancing Term B Loans, 4.311%, (LIBOR + 3.00%), 11/03/23 | | | United States | | | | 1,721,052 | | | | | | 1,720,899 | |
Wex Inc., Term Loan B, 3.992%, (LIBOR + 2.75%), 7/01/23 | | | United States | | | | 388,075 | | | | | | 392,593 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | 2,477,304 | |
| | | | | | | | | | | | | | |
Technology Hardware & Equipment 0.1% | | | | | | | | | | | | | | |
Ciena Corp., Refinancing Term Loan, 3.739%, (LIBOR + 2.50%), 1/28/22 | | | United States | | | | 188,573 | | | | | | 189,515 | |
Commscope Inc., Tranche 5 Term Loans, 3.242% - 3.38%, (LIBOR + 2.00%), 12/29/22 | | | United States | | | | 645,214 | | | | | | 650,844 | |
k Western Digital Corp., US Term B-2 Loan, 3.99%, (LIBOR + 2.75%), 4/29/23 | | | United States | | | | 1,583,698 | | | | | | 1,595,082 | |
| | | | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | 2,435,441 | |
| | | | | | | | | | | | | | |
Telecommunication Services 0.1% | | | | | | | | | | | | | | |
Consolidated Communications Inc., Initial Term Loan, 4.25%, (LIBOR + 3.00%), 10/05/23 | | | United States | | | | 3,221,605 | | | | | | 3,175,295 | |
Global Tel*Link Corp., Term Loan, 5.333%, (LIBOR + 4.00%), 5/23/20 | | | United States | | | | 263,181 | | | | | | 266,429 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | 3,441,724 | |
| | | | | | | | | | | | | | |
Transportation 0.1% | | | | | | | | | | | | | | |
Air Canada, Term Loan, 3.568%, (LIBOR + 2.25%), 10/06/23 | | | Canada | | | | 46,798 | | | | | | 47,139 | |
Navios Maritime Midstream Partners LP, Term Loan, 5.83%, (LIBOR + 4.50%), 6/18/20 | | | Marshall Islands | | | | 1,209,619 | | | | | | 1,206,595 | |
Navios Maritime Partners LP, Initial Term Loan, 6.32%, (LIBOR + 5.00%), 9/14/20 | | | Greece | | | | 2,193,751 | | | | | | 2,191,465 | |
United Airlines Inc., Class B Term Loans, 3.63%, (LIBOR + 2.25%), 4/01/24 | | | United States | | | | 355,510 | | | | | | 357,599 | |
XPO Logistics Inc., Loans, 3.599%, (LIBOR + 2.25%), 11/01/21 | | | United States | | | | 88,294 | | | | | | 88,901 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | 3,891,699 | |
| | | | | | | | | | | | | | |
| | | | |
| | | |
franklintempleton.com | | Annual Report | | 65 |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Low Duration Total Return Fund (continued)
| | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | | | Value | |
g,j Senior Floating Rate Interests (continued) | | | | | | | | | | | | | | |
Utilities 0.2% | | | | | | | | | | | | | | |
Calpine Construction Finance Co. LP, Term B-1 Loan, 3.50%, (LIBOR + 2.25%), 5/03/20 | | | United States | | | | 2,709,594 | | | | | | $ 2,718,484 | |
EFS Cogen Holdings I LLC (Linden), Term B Advance, 4.84%, (LIBOR + 3.50%), 6/28/23 | | | United States | | | | 152,980 | | | | | | 154,319 | |
NRG Energy Inc., Term Loans, 3.583%, (LIBOR + 2.25%), 6/30/23 | | | United States | | | | 2,133,100 | | | | | | 2,139,772 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | 5,012,575 | |
| | | | | | | | | | | | | | |
| | | | |
Total Senior Floating Rate Interests
(Cost $103,662,573) | | | | | | | | | | | | | 102,270,562 | |
| | | | | | | | | | | | | | |
| | | | |
Foreign Government and Agency Securities 1.5% | | | | | | | | | | | | | | |
e The Export-Import Bank of China, senior note, 144A, 2.50%, 7/31/19 | | | China | | | | 8,000,000 | | | | | | 8,037,120 | |
The Export-Import Bank of Korea, senior note, 2.25%, 1/21/20 | | | South Korea | | | | 11,200,000 | | | | | | 11,148,816 | |
Government of Mexico, | | | | | | | | | | | | | | |
7.75%, 12/14/17 | | | Mexico | | | | 930,000 | m | | MXN | | | 4,854,939 | |
M, 4.75%, 6/14/18 | | | Mexico | | | | 720,000 | m | | MXN | | | 3,703,396 | |
senior note, 8.50%, 12/13/18 | | | Mexico | | | | 1,060,000 | m | | MXN | | | 5,609,100 | |
e Government of Serbia, senior note, 144A, 5.25%, 11/21/17 | | | Serbia | | | | 1,800,000 | | | | | | 1,804,545 | |
Japan Bank for International Cooperation, 2.125%, 6/01/20 | | | Japan | | | | 4,100,000 | | | | | | 4,097,212 | |
Nota Do Tesouro Nacional, 10.00%, 1/01/21 | | | Brazil | | | �� | 2,350 | n | | BRL | | | 737,119 | |
o Index Linked, 6.00%, 8/15/18 | | | Brazil | | | | 1,810 | n | | BRL | | | 1,713,786 | |
| | | | | | | | | | | | | | |
| | | | |
Total Foreign Government and Agency Securities
(Cost $43,968,683) | | | | | | | | | | | | | 41,706,033 | |
| | | | | | | | | | | | | | |
U.S. Government and Agency Securities 24.9% | | | | | | | | | | | | | | |
p U.S. Treasury Bond, Index Linked, 0.125%, 7/15/22 | | | United States | | | | 10,568,672 | | | | | | 10,604,222 | |
U.S. Treasury Note, | | | | | | | | | | | | | | |
1.50%, 12/31/18 | | | United States | | | | 10,000,000 | | | | | | 10,000,000 | |
1.375%, 2/28/19 | | | United States | | | | 40,000,000 | | | | | | 39,925,781 | |
1.50%, 2/28/19 | | | United States | | | | 76,000,000 | | | | | | 75,974,766 | |
1.625%, 3/31/19 | | | United States | | | | 80,000,000 | | | | | | 80,110,938 | |
3.125%, 5/15/19 | | | United States | | | | 90,000,000 | | | | | | 92,156,836 | |
1.625%, 6/30/19 | | | United States | | | | 50,000,000 | | | | | | 50,043,945 | |
3.625%, 8/15/19 | | | United States | | | | 75,000,000 | | | | | | 77,712,891 | |
1.625%, 8/31/19 | | | United States | | | | 37,000,000 | | | | | | 37,020,957 | |
3.375%, 11/15/19 | | | United States | | | | 60,000,000 | | | | | | 62,116,406 | |
2.25%, 4/30/21 | | | United States | | | | 17,000,000 | | | | | | 17,241,719 | |
2.25%, 7/31/21 | | | United States | | | | 13,000,000 | | | | | | 13,178,242 | |
p Index Linked, 1.875%, 7/15/19 | | | United States | | | | 24,420,970 | | | | | | 25,401,058 | |
p Index Linked, 1.375%, 1/15/20 | | | United States | | | | 24,816,764 | | | | | | 25,657,925 | |
p Index Linked, 0.125%, 4/15/21 | | | United States | | | | 18,644,666 | | | | | | 18,680,171 | |
p Index Linked, 0.125%, 1/15/22 | | | United States | | | | 39,047,619 | | | | | | 39,105,654 | |
| | | | | | | | | | | | | | |
| | | | |
Total U.S. Government and Agency Securities
(Cost $678,071,878) | | | | | | | | | | | | | 674,931,511 | |
| | | | | | | | | | | | | | |
| | | | |
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66 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Low Duration Total Return Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | Value | |
Asset-Backed Securities and Commercial Mortgage-Backed
Securities 24.6% | | | | | | | | | | | | |
Automobiles & Components 0.0%† | | | | | | | | | | | | |
q Countrywide Asset-Backed Certificates,
| | | | | | | | | | | | |
2001-BC3, A, FRN, 1.718%, (1-month USD LIBOR + 0.48%), 12/25/31 | | | United States | | | | 1,357 | | | $ | 1,094 | |
2002-3, 1A1, FRN, 1.978%, (1-month USD LIBOR + 0.74%), 5/25/32 | | | United States | | | | 1,595 | | | | 1,541 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 2,635 | |
| | | | | | | | | | | | |
Banks 1.0% | | | | | | | | | | | | |
Banc of America Commercial Mortgage Trust, 2006-4, AJ, 5.695%, 7/10/46 | | | United States | | | | 640,730 | | | | 644,814 | |
r Bear Stearns Commercial Mortgage Securities Trust, 2005-T20, E, FRN, 5.11%, 10/12/42 | | | United States | | | | 2,000,000 | | | | 1,829,365 | |
r CD Commercial Mortgage Trust, 2005-CD1, E, FRN, 5.261%, 7/15/44 | | | United States | | | | 749,981 | | | | 748,815 | |
Citibank Credit Card Issuance Trust, 2017-A3, A3, 1.92%, 4/07/22 | | | United States | | | | 11,000,000 | | | | 10,987,177 | |
Citigroup Commercial Mortgage Trust, 2006-C5, AJ, 5.482%, 10/15/49 | | | United States | | | | 773,410 | | | | 727,469 | |
r Commercial Mortgage Trust, 2006-GG7, AJ, FRN, 5.766%, 7/10/38 | | | United States | | | | 4,448,000 | | | | 4,169,288 | |
Credit Suisse First Boston Mortgage Securities Corp., 2004-6, 3A1, 5.00%, 9/25/19 | | | United States | | | | 482,365 | | | | 496,711 | |
q CWABS Asset-Backed Certificates Trust, 2004-7, MV3, FRN, 2.288%, | | | | | | | | | | | | |
(1-month USD LIBOR + 1.05%), 12/25/34 | | | United States | | | | 200,999 | | | | 202,137 | |
q CWABS Inc. Asset-Backed Certificates, 2004-1, M1, FRN, 1.988%, | | | | | | | | | | | | |
(1-month USD LIBOR + 0.75%), 3/25/34 | | | United States | | | | 252,345 | | | | 254,270 | |
r GE Capital Commercial Mortgage Corp. Trust, 2007-C1, AM, FRN, 5.606%, 12/10/49 | | | United States | | | | 2,200,000 | | | | 2,232,017 | |
r Greenwich Capital Commercial Funding Corp., 2006-GG7, AM, FRN, 5.766%, 7/10/38 | | | United States | | | | 273,682 | | | | 275,885 | |
q Impac Secured Assets Corp., 2004-4, M1, FRN, 2.003%, (1-month USD | | | | | | | | | | | | |
LIBOR + 0.765%), 2/25/35 | | | United States | | | | 1,120,000 | | | | 1,123,159 | |
r LB-UBS Commercial Mortgage Trust, 2006-C1, AJ, FRN, 5.276%, 2/15/41 | | | United States | | | | 8,766 | | | | 8,767 | |
Merrill Lynch Mortgage Investors Trust, | | | | | | | | | | | | |
q 2003-A, 1A, FRN, 1.978%, (1-month USD LIBOR + 0.74%), 3/25/28 | | | United States | | | | 445,129 | | | | 429,011 | |
r 2005-1, 2A2, FRN, 3.146%, 4/25/35 | | | United States | | | | 332,880 | | | | 324,503 | |
q Morgan Stanley ABS Capital I Inc. Trust, 2005-WMC, M2, FRN, 1.973%, | | | | | | | | | | | | |
(1-month USD LIBOR + 0.735%), 1/25/35 | | | United States | | | | 189,590 | | | | 190,031 | |
e,r Wachovia Bank Commercial Mortgage Trust, 2003-C7, F, 144A, FRN, 5.941%, 10/15/35 | | | United States | | | | 331,427 | | | | 330,900 | |
r Wells Fargo Mortgage Backed Securities Trust, | | | | | | | | | | | | |
2005-AR, 1A1, FRN, 3.122%, 2/25/35 | | | United States | | | | 1,392,281 | | | | 1,421,818 | |
2005-AR9, 2A2, FRN, 3.625%, 10/25/33 | | | United States | | | | 152,880 | | | | 152,590 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 26,548,727 | |
| | | | | | | | | | | | |
Diversified Financials 23.5% | | | | | | | | | | | | |
American Express Credit Account Master Trust, | | | | | | | | | | | | |
q 2008-2, A, FRN, 2.499%, (1-month USD LIBOR + 1.26%), 9/15/20 | | | United States | | | | 2,900,000 | | | | 2,910,279 | |
2017-6, A, 2.04%, 5/15/23 | | | United States | | | | 16,300,000 | | | | 16,323,886 | |
q American Home Mortgage Investment Trust, | | | | | | | | | | | | |
2004-3, 4A, FRN, 2.953%, (6-month USD LIBOR + 1.50%), 10/25/34 | | | United States | | | | 2,511,433 | | | | 2,490,912 | |
2005-1, 6A, FRN, 3.491%, (6-month USD LIBOR + 2.00%), 6/25/45 | | | United States | | | | 1,243,742 | | | | 1,262,590 | |
| | | | |
| | | |
franklintempleton.com | | Annual Report | | 67 |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Low Duration Total Return Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | | | | Value | |
Asset-Backed Securities and Commercial Mortgage-Backed
Securities (continued) | | | | | | | | | | | | | | | | |
Diversified Financials (continued) | | | | | | | | | | | | | | | | |
q Ameriquest Mortgage Securities Inc. Asset-Backed Pass-Through Certificates, 2004-R4, M1, FRN, 2.063%, (1-month USD LIBOR + 0.825%), 6/25/34 | | | United States | | | | 796,304 | | | | | | | $ | 802,732 | |
e ARCap REIT Inc., 2004-RR3, A2, 144A, 4.76%, 9/21/45 | | | United States | | | | 1,061,709 | | | | | | | | 1,070,702 | |
q Argent Securities Inc. Asset-Backed Pass-Through Certificates, 2005-W2, A2C, FRN, 1.598%, (1-month USD LIBOR + 0.36%), 10/25/35 | | | United States | | | | 592,867 | | | | | | | | 595,674 | |
e,q Atrium IX, 9A, AR, 144A, FRN, 2.557%, (3-month USD LIBOR + 1.24%), 5/28/30 | | | United States | | | | 2,000,000 | | | | | | | | 2,016,260 | |
e,q Atrium X, 10A, CR, 144A, FRN, 3.309%, (3-month USD LIBOR + 1.95%), 7/16/25 | | | United States | | | | 2,230,000 | | | | | | | | 2,240,369 | |
e,q Atrium XI, 11A, CR, 144A, FRN, 3.513%, (3-month USD LIBOR + 2.15%), 10/23/25 | | | United States | | | | 6,750,000 | | | | | | | | 6,775,042 | |
e,h,q Atrium XIII, | | | | | | | | | | | | | | | | |
2013A, C, 144A, FRN, 3.171%, (3-month USD LIBOR + 1.80%), 11/21/30 | | | United States | | | | 1,000,000 | | | | | | | | 1,000,000 | |
2013-A, B, 144A, FRN, 2.871%, (3-month USD LIBOR + 1.50%), 11/21/30 | | | United States | | | | 1,000,000 | | | | | | | | 1,000,000 | |
e BAMLL Commercial Mortgage Securities Trust, 2012-PARK, A, 144A, 2.959%, 12/10/30 | | | United States | | | | 3,200,000 | | | | | | | | 3,263,500 | |
q Bear Stearns ALT-A Trust, | | | | | | | | | | | | | | | | |
2004-10, 1A3, FRN, 2.238%, (1-month USD LIBOR + 1.00%), 9/25/34 | | | United States | | | | 439,317 | | | | | | | | 443,024 | |
2004-13, A2, FRN, 2.118%, (1-month USD LIBOR + 0.88%), 11/25/34 | | | United States | | | | 64,007 | | | | | | | | 63,558 | |
e,q BlueMountain Fuji U.S. CLO I Ltd., 2017-1A, C, 144A, FRN, 3.637%, (3-month USD LIBOR + 2.35%), 7/20/29 | | | United States | | | | 1,361,000 | | | | | | | | 1,376,270 | |
e,q BlueMountain Fuji U.S. CLO II Ltd., | | | | | | | | | | | | | | | | |
2017-2A, A1A, 144A, FRN, 2.531%, (3-month USD LIBOR + 1.20%), 10/20/30 | | | United States | | | | 3,500,000 | | | | | | | | 3,500,105 | |
2017-2A, B, 144A, FRN, 3.481%, (3-month USD LIBOR + 2.15%), 10/20/30 | | | United States | | | | 1,000,000 | | | | | | | | 1,002,470 | |
e,q Burnham Park CLO Ltd., 2016-1A, A, 144A, FRN, 2.793%, (3-month USD LIBOR + 1.43%), 10/20/29 | | | United States | | | | 2,240,000 | | | | | | | | 2,264,685 | |
Capital One Multi-Asset Execution Trust, 2017-A4, A4, 1.99%, 7/17/23 | | | United States | | | | 14,230,000 | | | | | | | | 14,240,371 | |
e,q Carlyle Global Market Strategies CLO Ltd., 2012-4A, AR, 144A, FRN, 2.813%, (3-month USD LIBOR + 1.45%), 1/20/29 | | | United States | | | | 2,800,000 | | | | | | | | 2,850,204 | |
e,q Carlyle U.S. CLO Ltd., | | | | | | | | | | | | | | | | |
2017-1A, A1A, 144A, FRN, 2.663%, (3-month USD LIBOR + 1.30%), 4/20/31 | | | United States | | | | 1,000,000 | | | | | | | | 1,006,870 | |
2017-2A, B, 144A, FRN, 3.731%, (3-month USD LIBOR + 2.40%), 7/20/31 | | | United States | | | | 2,110,000 | | | | | | | | 2,127,724 | |
2017-3A, B, 144A, FRN, 3.638%, (3-month USD LIBOR + 2.35%), 7/20/29 | | | United States | | | | 1,250,000 | | | | | | | | 1,261,638 | |
e,q Catamaran CLO Ltd., | | | | | | | | | | | | | | | | |
2013-1A, A, 144A, FRN, 2.524%, (3-month USD LIBOR + 1.15%), 1/27/25 | | | United States | | | | 2,532,679 | | | | | | | | 2,543,393 | |
2014-2A, BR, 144A, FRN, 4.304%, (3-month USD LIBOR + 2.95%), 10/18/26 | | | United States | | | | 3,011,300 | | | | | | | | 3,037,197 | |
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68 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Low Duration Total Return Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | | | | | Value | |
Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) | | | | | | | | | | | | | | | | |
Diversified Financials (continued) | | | | | | | | | | | | | | | | |
e,q Cent CLO, 2013-17A, A1, 144A, FRN, 2.678%, (3-month USD LIBOR + 1.30%), 1/30/25 | | | United States | | | | 5,245,294 | | | | | | | $ | 5,251,956 | |
e,q Cent CLO 20 Ltd., 13-20A, AR, 144A, FRN, 2.467%, (3-month USD LIBOR + 1.10%), 1/25/26 | | | United States | | | | 4,000,000 | | | | | | | | 4,007,960 | |
e,q Cent CLO LP, | | | | | | | | | | | | | | | | |
2014-22A, A1R, 144A, FRN, 2.722%, (3-month USD LIBOR + 1.41%), 11/07/26 | | | United States | | | | 2,800,000 | | | | | | | | 2,824,024 | |
2014-22A, BR, 144A, FRN, 4.262%, (3-month USD LIBOR + 2.95%), 11/07/26 | | | United States | | | | 4,050,000 | | | | | | | | 4,149,954 | |
e Centerline REIT Inc., 2004-RR3, B, 144A, 5.04%, 9/21/45 | | | United States | | | | 2,227,000 | | | | | | | | 2,101,486 | |
q Chase Funding Trust, 2004-2, 2A2, FRN, 1.738%, (1-month USD LIBOR + 0.50%), 2/26/35 | | | United States | | | | 12,256 | | | | | | | | 11,928 | |
Chase Issuance Trust, | | | | | | | | | | | | | | | | |
q 2013-A3, A3, FRN, 1.519%, (1-month USD LIBOR + 0.28%), 4/15/20 | | | United States | | | | 6,147,000 | | | | | | | | 6,154,712 | |
q 2014-A5, A5, FRN, 1.609%, (1-month USD LIBOR + 0.37%), 4/15/21 | | | United States | | | | 7,310,000 | | | | | | | | 7,342,177 | |
2015-A2, A2, 1.59%, 2/18/20 | | | United States | | | | 8,200,000 | | | | | | | | 8,204,190 | |
2015-A7, A7, 1.62%, 7/15/20 | | | United States | | | | 5,005,000 | | | | | | | | 5,006,992 | |
e,q Colony American Homes, | | | | | | | | | | | | | | | | |
2014-1A, A, 144A, FRN, 2.387%, (1-month USD LIBOR + 1.15%), 5/17/31 | | | United States | | | | 4,283,910 | | | | | | | | 4,302,078 | |
2014-1A, C, 144A, FRN, 3.087%, (1-month USD LIBOR + 1.85%), 5/17/31 | | | United States | | | | 700,000 | | | | | | | | 703,937 | |
2014-2A, A, 144A, FRN, 2.186%, (1-month USD LIBOR + 0.95%), 7/17/31 | | | United States | | | | 2,446,734 | | | | | | | | 2,457,650 | |
2015-1A, A, 144A, FRN, 2.437%, (1-month USD LIBOR + 1.20%), 7/17/32 | | | United States | | | | 9,582,368 | | | | | | | | 9,608,083 | |
r Conseco Finance Securitizations Corp., 2002-2, M1, FRN, 7.424%, 3/01/33 | | | United States | | | | 862,712 | | | | | | | | 949,791 | |
Conseco Financial Corp., | | | | | | | | | | | | | | | | |
1997-3, A7, 7.64%, 3/15/28 | | | United States | | | | 372,586 | | | | | | | | 377,202 | |
1998-6, A8, 6.66%, 6/01/30 | | | United States | | | | 6,048,268 | | | | | | | | 6,425,051 | |
e Core Industrial Trust, 2015-CALW, A, 144A, 3.04%, 2/10/34 | | | United States | | | | 5,290,000 | | | | | | | | 5,415,730 | |
r Countrywide Home Loans, 2004-11, 2A1, FRN, 3.134%, 7/25/34 | | | United States | | | | 2,011,236 | | | | | | | | 2,019,250 | |
e,r CSMC Trust, 2014-IVR3, A1, 144A, FRN, 3.50%, 7/25/44 | | | United States | | | | 2,474,157 | | | | | | | | 2,504,117 | |
q Discover Card Execution Note Trust, | | | | | | | | | | | | | | | | |
2013-A6, A6, FRN, 1.689%, (1-month USD LIBOR + 0.45%), 4/15/21 | | | United States | | | | 5,520,000 | | | | | | | | 5,541,519 | |
2014-A1, A1, FRN, 1.669%, (1-month USD LIBOR + 0.43%), 7/15/21 | | | United States | | | | 7,690,000 | | | | | | | | 7,725,672 | |
e,q Dryden 33 Senior Loan Fund, 2014-33A, AR, 144A, FRN, 2.789%, (3-month USD LIBOR + 1.43%),
10/15/28 | | | United States | | | | 12,415,000 | | | | | | | | 12,603,211 | |
e,q Dryden 34 Senior Loan Fund, 14-34A, AR, 144A, FRN, 2.519%, (3-month USD LIBOR + 1.16%),
10/15/26 | | | United States | | | | 3,000,000 | | | | | | | | 3,013,500 | |
e,q Dryden 38 Senior Loan Fund, 2015-38A, A, 144A, FRN, 2.789%, (3-month USD LIBOR + 1.43%),
7/15/27 | | | United States | | | | 9,642,857 | | | | | | | | 9,728,293 | |
e,q Dryden 49 Senior Loan Fund, 2017-49A, C, 144A, FRN, 3.704%, (3-month USD LIBOR + 2.35%),
7/18/30 | | | United States | | | | 870,000 | | | | | | | | 876,429 | |
| | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Low Duration Total Return Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | | | | Value | |
Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) | | | | | | | | | | | | | | | | |
Diversified Financials (continued) | | | | | | | | | | | | | | | | |
e,q Dryden 50 Senior Loan Fund, | | | | | | | | | | | | | | | | |
2017-50A, A1, 144A, FRN, 2.477%, (3-month USD LIBOR + 1.22%), 7/15/30 | | | United States | | | | 2,640,000 | | | | | | | $ | 2,639,340 | |
2017-50A, C, 144A, FRN, 3.507%, (3-month USD LIBOR + 2.25%), 7/15/30 | | | United States | | | | 2,150,000 | | | | | | | | 2,165,759 | |
e,q Eaton Vance CDO Ltd., 2014-1A, AR, 144A, FRN, 2.559%, (3-month USD LIBOR + 1.20%), 7/15/26 | | | United States | | | | 5,266,000 | | | | | | | | 5,289,697 | |
q FHLMC Structured Agency Credit Risk Debt Notes, | | | | | | | | | | | | | | | | |
2014-DN1, M2, FRN, 3.438%, (1-month USD LIBOR + 2.20%), 2/25/24 | | | United States | | | | 1,649,910 | | | | | | | | 1,700,658 | |
2014-DN3, M3, FRN, 5.238%, (1-month USD LIBOR + 4.00%), 8/25/24 | | | United States | | | | 2,667,414 | | | | | | | | 2,884,522 | |
2014-HQ1, M2, FRN, 3.738%, (1-month USD LIBOR + 2.50%), 8/25/24 | | | United States | | | | 2,768,324 | | | | | | | | 2,797,678 | |
2014-HQ3, M2, FRN, 3.888%, (1-month USD LIBOR + 2.65%), 10/25/24 | | | United States | | | | 1,323,531 | | | | | | | | 1,327,481 | |
2015-DN1, M2, FRN, 3.638%, (1-month USD LIBOR + 2.40%), 1/25/25 | | | United States | | | | 665,127 | | | | | | | | 665,955 | |
2015-DN1, M3, FRN, 5.388%, (1-month USD LIBOR + 4.15%), 1/25/25 | | | United States | | | | 10,920,000 | | | | | | | | 11,779,769 | |
2015-DNA1, M2, FRN, 3.088%, (1-month USD LIBOR + 1.85%), 10/25/27 | | | United States | | | | 10,530,000 | | | | | | | | 10,775,906 | |
2015-DNA1, M3, FRN, 4.538%, (1-month USD LIBOR + 3.30%), 10/25/27 | | | United States | | | | 1,300,000 | | | | | | | | 1,447,782 | |
2015-DNA2, M2, FRN, 3.838%, (1-month USD LIBOR + 2.60%), 12/25/27 | | | United States | | | | 9,297,967 | | | | | | | | 9,503,225 | |
2015-DNA2, M3, FRN, 5.138%, (1-month USD LIBOR + 3.90%), 12/25/27 | | | United States | | | | 13,156,000 | | | | | | | | 14,452,600 | |
2015-DNA3, M2, FRN, 4.088%, (1-month USD LIBOR + 2.85%), 4/25/28 | | | United States | | | | 7,653,984 | | | | | | | | 7,932,936 | |
2015-HQ1, M2, FRN, 3.438%, (1-month USD LIBOR + 2.20%), 3/25/25 | | | United States | | | | 4,655,953 | | | | | | | | 4,692,986 | |
2015-HQ1, M3, FRN, 5.038%, (1-month USD LIBOR + 3.80%), 3/25/25 | | | United States | | | | 12,795,000 | | | | | | | | 13,892,171 | |
2015-HQA1, M2, FRN, 3.888%, (1-month USD LIBOR + 2.65%), 3/25/28 | | | United States | | | | 9,591,736 | | | | | | | | 9,811,350 | |
2015-HQA2, M2, FRN, 4.038%, (1-month USD LIBOR + 2.80%), 5/25/28 | | | United States | | | | 10,554,404 | | | | | | | | 10,909,429 | |
2016-DNA1, M2, FRN, 4.138%, (1-month USD LIBOR + 2.90%), 7/25/28 | | | United States | | | | 330,000 | | | | | | | | 340,445 | |
2016-DNA1, M3, FRN, 6.788%, (1-month USD LIBOR + 5.55%), 7/25/28 | | | United States | | | | 2,130,000 | | | | | | | | 2,488,849 | |
2016-DNA2, M2, FRN, 3.438%, (1-month USD LIBOR + 2.20%), 10/25/28 | | | United States | | | | 2,270,000 | | | | | | | | 2,305,284 | |
2016-HQ1, M1, FRN, 2.988%, (1-month USD LIBOR + 1.75%), 9/25/28 | | | United States | | | | 1,151,866 | | | | | | | | 1,155,402 | |
2016-HQA1, M2, FRN, 3.988%, (1-month USD LIBOR + 2.75%), 9/25/28 | | | United States | | | | 1,103,000 | | | | | | | | 1,137,520 | |
2016-HQA2, M2, FRN, 3.488%, (1-month USD LIBOR + 2.25%), 11/25/28 | | | United States | | | | 1,160,000 | | | | | | | | 1,193,553 | |
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70 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Low Duration Total Return Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | | | | | Value | |
Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) | | | | | | | | | | | | | | | | |
Diversified Financials (continued) | | | | | | | | | | | | | | | | |
q FHLMC Structured Agency Credit Risk Debt Notes, (continued) | | | | | | | | | | | | | | | | |
2016-HQA3, M2, FRN, 2.588%, (1-month USD LIBOR + 1.35%), 3/25/29 | | | United States | | | | 250,000 | | | | | | | $ | 253,089 | |
e,q Flagship CLO VIII Ltd., 2014-8A, AR, 144A, FRN, 2.609%, (3-month USD LIBOR + 1.25%), 1/16/26 | | | United States | | | | 5,545,000 | | | | | | | | 5,569,453 | |
q FNMA Connecticut Avenue Securities, | | | | | | | | | | | | | | | | |
2013-C01, M1, FRN, 3.238%, (1-month USD LIBOR + 2.00%), 10/25/23 | | | United States | | | | 2,048,057 | | | | | | | | 2,064,605 | |
2014-C02, 1M2, FRN, 3.838%, (1-month USD LIBOR + 2.60%), 5/25/24 | | | United States | | | | 3,180,000 | | | | | | | | 3,337,633 | |
2014-C02, 2M1, FRN, 2.188%, (1-month USD LIBOR + 0.95%), 5/25/24 | | | United States | | | | 46,899 | | | | | | | | 46,927 | |
2014-C03, 1M2, FRN, 4.238%, (1-month USD LIBOR + 3.00%), 7/25/24 | | | United States | | | | 12,579,000 | | | | | | | | 13,298,587 | |
2014-C03, 2M2, FRN, 4.138%, (1-month USD LIBOR + 2.90%), 7/25/24 | | | United States | | | | 4,650,893 | | | | | | | | 4,886,819 | |
2014-C04, 1M1, FRN, 6.138%, (1-month USD LIBOR + 4.90%), 11/25/24 | | | United States | | | | 7,560,993 | | | | | | | | 8,592,400 | |
2014-C04, 2M2, FRN, 6.238%, (1-month USD LIBOR + 5.00%), 11/25/24 | | | United States | | | | 3,737,946 | | | | | | | | 4,199,754 | |
2015-C01, 1M2, FRN, 5.538%, (1-month USD LIBOR + 4.30%), 2/25/25 | | | United States | | | | 9,227,011 | | | | | | | | 9,929,796 | |
2015-C01, 2M2, FRN, 5.788%, (1-month USD LIBOR + 4.55%), 2/25/25 | | | United States | | | | 9,990,138 | | | | | | | | 10,678,151 | |
2015-C02, 1M2, FRN, 5.238%, (1-month USD LIBOR + 4.00%), 5/25/25 | | | United States | | | | 2,650,073 | | | | | | | | 2,842,037 | |
2015-C02, 2M2, FRN, 5.238%, (1-month USD LIBOR + 4.00%), 5/25/25 | | | United States | | | | 11,641,795 | | | | | | | | 12,334,878 | |
2015-C03, 1M2, FRN, 6.238%, (1-month USD LIBOR + 5.00%), 7/25/25 | | | United States | | | | 11,416,429 | | | | | | | | 12,626,049 | |
2015-C03, 2M2, FRN, 6.238%, (1-month USD LIBOR + 5.00%), 7/25/25 | | | United States | | | | 10,915,527 | | | | | | | | 11,942,170 | |
2017-C01, 1M2, FRN, 4.788%, (1-month USD LIBOR + 3.55%), 7/25/29 | | | United States | | | | 6,805,000 | | | | | | | | 7,249,337 | |
e,q Galaxy CLO Ltd., 2014-17A, AR, 144A, FRN, 2.759%, (3-month USD LIBOR + 1.40%), 7/15/26 | | | United States | | | | 1,710,000 | | | | | | | | 1,721,560 | |
s GMAC Commercial Mortgage Securities Inc. Trust, 2005-C1, B, 4.936%, 5/10/43 | | | United States | | | | 601,131 | | | | | | | | 30,745 | |
r Greenpoint Manufactured Housing, 1999-5, M1A, FRN, 8.30%, 10/15/26 | | | United States | | | | 763,894 | | | | | | | | 830,398 | |
r,t GS Mortgage Securities Corp. II, 2015-GC30, XA, IO, FRN, 0.887%, 5/10/50 | | | United States | | | | 7,952,312 | | | | | | | | 355,520 | |
q GSAA Home Equity Trust, | | | | | | | | | | | | | | | | |
2005-5, M3, FRN, 2.183%, (1-month USD LIBOR + 0.945%), 2/25/35 | | | United States | | | | 4,568,276 | | | | | | | | 4,541,746 | |
2005-6, A3, FRN, 1.608%, (1-month USD LIBOR + 0.37%), 6/25/35 | | | United States | | | | 263,494 | | | | | | | | 266,087 | |
| | | | |
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franklintempleton.com | | Annual Report | | 71 |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Low Duration Total Return Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | | | | Value | |
Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) | | | | | | | | | | | | | | | | |
Diversified Financials (continued) | | | | | | | | | | | | | | | | |
q GSAMP Trust, 2005-HE3, M2, FRN, 2.243%, (1-month USD LIBOR + 1.005%), 6/25/35 | | | United States | | | | 635,864 | | | | | | | $ | 640,597 | |
r GSR Mortgage Loan Trust, 2005-AR1, 1A1, FRN, 3.797%, 1/25/35 | | | United States | | | | 450,923 | | | | | | | | 446,188 | |
e,q Invitation Homes Trust, | | | | | | | | | | | | | | | | |
2014-SFR2, A, 144A, FRN, 2.337%, (1-month USD LIBOR + 1.10%), 9/17/31 | | | United States | | | | 5,078,424 | | | | | | | | 5,101,987 | |
2014-SFR2, B, 144A, FRN, 2.837%, (1-month USD LIBOR + 1.60%), 9/17/31 | | | United States | | | | 8,500,000 | | | | | | | | 8,508,626 | |
2015-SFR1, A, 144A, FRN, 2.687%, (1-month USD LIBOR + 1.45%), 3/17/32 | | | United States | | | | 2,355,765 | | | | | | | | 2,373,057 | |
2015-SFR2, A, 144A, FRN, 2.587%, (1-month USD LIBOR + 1.35%), 6/17/32 | | | United States | | | | 7,896,351 | | | | | | | | 7,917,229 | |
2015-SFR3, A, 144A, FRN, 2.537%, (1-month USD LIBOR + 1.30%), 8/17/32 | | | United States | | | | 8,725,602 | | | | | | | | 8,796,911 | |
e,q Jay Park CLO Ltd., 2016-1A, A2, 144A, FRN, 3.163%, (3-month USD LIBOR + 1.80%), 10/20/27 | | | United States | | | | 17,290,000 | | | | | | | | 17,471,199 | |
e,r Jefferies & Co., 2009-R2, 4A, 144A, FRN, 3.426%, 5/26/37 | | | United States | | | | 532,429 | | | | | | | | 537,284 | |
JP Morgan Chase Commercial Mortgage Securities Trust, | | | | | | | | | | | | | | | | |
2004-LN2, A2, 5.115%, 7/15/41 | | | United States | | | | 5,054 | | | | | | | | 5,060 | |
r 2005-LPD5, F, FRN, 5.701%, 12/15/44 | | | United States | | | | 2,909,565 | | | | | | | | 2,902,171 | |
r JP Morgan Mortgage Trust, 2004-A1, 5A1, FRN, 3.49%, 2/25/34 | | | United States | | | | 77,133 | | | | | | | | 77,799 | |
e,r,s LB-UBS Commercial Mortgage Trust, 2001-C3, E, 144A, FRN, 6.95%, 6/15/36 | | | United States | | | | 700,000 | | | | | | | | 686,739 | |
e,q LCM XXIII Ltd., 23A, A2, 144A, FRN, 3.213%, (3-month USD LIBOR + 1.85%), 10/20/29 | | | United States | | | | 1,000,000 | | | | | | | | 1,011,970 | |
q Lehman XS Trust, 2005-4, 1A4, FRN, 1.798%, (1-month USD LIBOR + 0.56%), 10/25/35 | | | United States | | | | 703,405 | | | | | | | | 688,797 | |
e,r Mach One ULC, | | | | | | | | | | | | | | | | |
2004-1A, K, 144A, FRN, 5.45%, 5/28/40 | | | United States | | | | 4,293,400 | | | | | | | | 4,290,549 | |
2004-1A, L, 144A, FRN, 5.45%, 5/28/40 | | | United States | | | | 3,470,500 | | | | | | | | 3,476,047 | |
2004-1A, M, 144A, FRN, 5.45%, 5/28/40 | | | United States | | | | 640,000 | | | | | | | | 638,715 | |
q Madison Avenue Manufactured Housing Contract Trust, 2002-A, B1, FRN, 4.488%, (1-month USD LIBOR + 3.25%), 3/25/32 | | | United States | | | | 1,058,477 | | | | | | | | 1,080,955 | |
e,q Madison Park Funding XXIII Ltd., | | | | | | | | | | | | | | | | |
2017-23A, B, 144A, FRN, 3.009%, (3-month USD LIBOR + 1.70%), 7/27/30 | | | United States | | | | 4,000,000 | | | | | | | | 4,042,520 | |
2017-23A, C, 144A, FRN, 3.659%, (3-month USD LIBOR + 2.35%), 7/27/30 | | | United States | | | | 1,300,000 | | | | | | | | 1,306,339 | |
e,q Magnetite XVIII Ltd., 2016-18A, B, 144A, FRN, 3.065%, (3-month USD LIBOR + 1.75%), 11/15/28 | | | United States | | | | 3,000,000 | | | | | | | | 3,022,740 | |
q Manufactured Housing Contract Trust Pass Through Certificates, 2001-1, IIM2, FRN, 2.689%, (1-month USD LIBOR + 1.45%), 4/20/32 | | | United States | | | | 6,193,200 | | | | | | | | 5,886,688 | |
MASTR Alternative Loan Trust, | | | | | | | | | | | | | | | | |
2003-1, 3A1, 5.00%, 2/25/18 | | | United States | | | | 38,544 | | | | | | | | 39,910 | |
2003-6, 2A1, 5.00%, 8/25/18 | | | United States | | | | 212,971 | | | | | | | | 214,124 | |
2003-9, 1A1, 5.50%, 12/25/18 | | | United States | | | | 79,138 | | | | | | | | 79,526 | |
r 2004-11, 2A1, FRN, 5.521%, 11/25/19 | | | United States | | | | 466,201 | | | | | | | | 473,324 | |
2004-4, 5A1, 5.50%, 4/25/19 | | | United States | | | | 354,482 | | | | | | | | 358,954 | |
| | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Low Duration Total Return Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | | | Value | |
| |
Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) | | | | | | | | | | | | | | | | |
Diversified Financials (continued) | | | | | | | | | | | | | | | | |
q Merrill Lynch Mortgage Investors Trust, | | | | | | | | | | | | | | | | |
2003-G, A2, FRN, 2.094%, (6-month USD LIBOR + 0.68%), 1/25/29 | | | United States | | | | 748,238 | | | | | | | $ | 746,576 | |
2005-A10, A, FRN, 1.448%, (1-month USD LIBOR + 0.21%), 2/25/36 | | | United States | | | | 3,075,764 | | | | | | | | 2,963,695 | |
q Merrill Lynch Mortgage Investors Trust Inc., 2003-E, A1, FRN, 1.858%, (1-month USD LIBOR + 0.62%), 10/25/28 | | | United States | | | | 735,731 | | | | | | | | 721,356 | |
r Merrill Lynch Mortgage Trust, 2005-CKI1, D, FRN, 5.362%, 11/12/37 | | | United States | | | | 761,457 | | | | | | | | 760,499 | |
e,r Multi Security Asset Trust LP Commercial Mortgage, | | | | | | | | | | | | | | | | |
2005-RR4A, J, 144A, FRN, 5.88%, 11/28/35 | | | United States | | | | 6,097,200 | | | | | | | | 6,109,943 | |
2005-RR4A, K, 144A, FRN, 5.88%, 11/28/35 | | | United States | | | | 3,866,000 | | | | | | | | 3,919,834 | |
e,h,q Neuberger Berman CLO Ltd., 2017-26A, B, 144A, FRN, 2.871%, (3-month USD LIBOR + 1.50%), 10/18/30 | | | United States | | | | 1,078,945 | | | | | | | | 1,078,945 | |
q New York Mortgage Trust, 2005-3, M1, FRN, 1.913%, (1-month USD LIBOR + 0.675%), 2/25/36 | | | United States | | | | 371,269 | | | | | | | | 334,537 | |
q Novastar Home Equity Loan, 2004-4, M4, FRN, 2.888%, (1-month USD LIBOR + 1.65%), 3/25/35 | | | United States | | | | 120,068 | | | | | | | | 120,520 | |
e,q NZCG Funding Ltd., 2015-2A, A1, 144A, FRN, 2.924%, (3-month USD LIBOR + 1.55%), 4/01/27 | | | United States | | | | 8,101,875 | | | | | | | | 8,171,551 | |
e OBP Depositor LLC Trust, 2010-OBP, A, 144A, 4.646%, 7/15/45 | | | United States | | | | 1,700,000 | | | | | | | | 1,789,458 | |
e,q Octagon Investment Partners 31 LLC, 2017-1A, C, 144A, FRN, 3.763%, (3-month USD LIBOR +
2.40%), 7/20/30 | | | United States | | | | 280,761 | | | | | | | | 282,389 | |
e,q Octagon Investment Partners XX Ltd., 2014-1A, AR, 144A, FRN, 2.439%, (3-month USD LIBOR + 1.13%), 8/12/26 | | | United States | | | | 3,000,000 | | | | | | | | 3,016,110 | |
e,q Octagon Investment Partners XXIII Ltd., | | | | | | | | | | | | | | | | |
2015-1A, A1, 144A, FRN, 2.779%, (3-month USD LIBOR + 1.42%), 7/15/27 | | | United States | | | | 4,160,328 | | | | | | | | 4,186,164 | |
2015-1A, A2, 144A, FRN, 2.779%, (3-month USD LIBOR + 1.42%), 7/15/27 | | | United States | | | | 3,949,678 | | | | | | | | 3,973,218 | |
q Ownit Mortgage Loan Asset-Backed Certificates, 2005-2, M4, FRN, 2.168%, (1-month USD LIBOR + 0.93%), 3/25/36 | | | United States | | | | 307,544 | | | | | | | | 308,752 | |
q Park Place Securities Inc. Asset-Backed Pass-Through Certificates, 2004-WHQ2, M2, FRN, 2.183%, (1-month USD LIBOR + 0.945%), 2/25/35 | | | United States | | | | 291,669 | | | | | | | | 292,741 | |
q RAAC, 2004-SP1, AII, FRN, 1.938%, (1-month USD LIBOR + 0.70%), 3/25/34 | | | United States | | | | 468,770 | | | | | | | | 459,324 | |
r Residential Funding Mortgage Securities II, 2004-HI3, A5, FRN, 5.98%, 6/25/34 | | | United States | | | | 228,300 | | | | | | | | 235,372 | |
e,q Resource Capital Corp. Ltd., 2015-CRE4, A, 144A, FRN, 2.639%, (1-month USD LIBOR +
1.40%), 8/15/32 | | | United States | | | | 497,107 | | | | | | | | 496,555 | |
r Structured ARM Loan Trust, 2004-12, 3A1, FRN, 3.464%, 9/25/34 | | | United States | | | | 2,680,821 | | | | | | | | 2,681,593 | |
q Structured Asset Investment Loan Trust, 2004-BNC2, A2, FRN, 2.278%, (1-month USD LIBOR + 1.04%), 12/25/34 | | | United States | | | | 400,871 | | | | | | | | 402,639 | |
q Structured Asset Mortgage Investments II Trust, 2004-AR6, A1A, FRN, 1.938%, (1-month USD LIBOR + 0.70%), 2/19/35 | | | United States | | | | 1,710,973 | | | | | | | | 1,694,908 | |
q Structured Asset Mortgage Investments Trust, | | | | | | | | | | | | | | | | |
2003-AR1, A1, FRN, 1.978%, (1-month USD LIBOR + 0.74%), 10/19/33 | | | United States | | | | 319,186 | | | | | | | | 303,319 | |
s 2003-AR2, A1, FRN, 1.978%, (1-month USD LIBOR + 0.74%), 12/19/33 | | | United States | | | | 708,246 | | | | | | | | 689,021 | |
| | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Low Duration Total Return Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | | Value | |
Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) | | | | | |
Diversified Financials (continued) | | | | | | | | | | | | |
e,q TCI-Cent CLO Income Note Issuer Ltd., 2017-1A, B, 144A, FRN, 3.717%, (3-month USD LIBOR + 2.35%), 7/25/30 | | | United States | | | | 583,989 | | | $ | 588,340 | |
e,h,u TCI-Flatiron CLO Ltd., 2017-1A, C, 144A, FRN, , 11/17/30 | | | United States | | | | 500,000 | | | | 500,000 | |
Thornburg Mortgage Securities Trust, | | | | | | | | | | | | |
q 2003-4, A1, FRN, 1.878%, (1-month USD LIBOR + 0.64%), 9/25/43 | | | United States | | | | 1,978,827 | | | | 1,922,365 | |
q 2004-3, A, FRN, 1.978%, (1-month USD LIBOR + 0.74%), 9/25/44 | | | United States | | | | 1,024,879 | | | | 979,184 | |
r 2005-1, A3, FRN, 3.028%, 4/25/45 | | | United States | | | | 343,601 | | | | 345,691 | |
e Towd Point Mortgage Trust, | | | | | | | | | | | | |
r 2015-3, A1B, 144A, FRN, 3.00%, 3/25/54 | | | United States | | | | 2,089,469 | | | | 2,112,311 | |
r 2016-1, A1, 144A, FRN, 3.50%, 2/25/55 | | | United States | | | | 8,424,895 | | | | 8,610,366 | |
r 2016-5, A1, 144A, FRN, 2.50%, 10/25/56 | | | United States | | | | 5,560,360 | | | | 5,560,291 | |
r 2017-1, A1, 144A, FRN, 2.75%, 10/25/56 | | | United States | | | | 5,168,614 | | | | 5,198,807 | |
r 2017-2, A1, 144A, FRN, 2.75%, 4/25/57 | | | United States | | | | 7,653,507 | | | | 7,701,593 | |
r 2017-4, A1, 144A, FRN, 2.75%, 6/25/57 | | | United States | | | | 6,910,574 | | | | 6,943,160 | |
q 2017-5, 144A, FRN, 1.838%, (1-month USD LIBOR + 0.60%), 2/25/57 | | | United States | | | | 5,400,000 | | | | 5,400,000 | |
e,q Voya CLO Ltd., | | | | | | | | | | | | |
2012-4A, A2R, 144A, FRN, 3.209%, (3-month USD LIBOR + 1.85%), 10/15/28 | | | United States | | | | 7,660,000 | | | | 7,765,478 | |
2015-1A, A1, 144A, FRN, 2.834%, (3-month USD LIBOR + 1.48%), 4/18/27 | | | United States | | | | 5,280,000 | | | | 5,290,560 | |
2017-3A, B, 144A, FRN, 3.668%, (3-month USD LIBOR + 2.35%), 7/20/30 | | | United States | | | | 507,690 | | | | 510,904 | |
q WaMu Mortgage Pass-Through Certificates, | | | | | | | | | | | | |
2005-AR19, A1A1, FRN, 1.508%, (1-month USD LIBOR + 0.27%), 12/25/45 | | | United States | | | | 3,161,714 | | | | 3,075,374 | |
2005-AR8, 1A1A, FRN, 1.528%, (1-month USD LIBOR + 0.29%), 7/25/45 | | | United States | | | | 1,227,252 | | | | 1,212,688 | |
r,t Wells Fargo Commercial Mortgage Trust, 2016-NXS6, XA, IO, FRN, 1.656%, 11/15/49 | | | United States | | | | 54,113,049 | | | | 5,338,480 | |
r Wells Fargo Mortgage Backed Securities Trust, | | | | | | | | | | | | |
2004-W, A9, FRN, 3.616%, 11/25/34 | | | United States | | | | 110,101 | | | | 112,771 | |
2005-AR10, 2A3, FRN, 3.369%, 6/25/35 | | | United States | | | | 616,382 | | | | 620,862 | |
e,q West CLO Ltd., | | | | | | | | | | | | |
2014-1A, A2R, 144A, FRN, 2.704%, (3-month USD LIBOR + 1.35%), 7/18/26 | | | United States | | | | 1,360,000 | | | | 1,368,595 | |
2014-1A, BR, 144A, FRN, 3.204%, (3-month USD LIBOR + 1.85%), 7/18/26 | | | United States | | | | 2,410,000 | | | | 2,427,979 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 639,065,208 | |
| | | | | | | | | | | | |
Real Estate 0.1% | | | | | | | | | | | | |
e Colony MFM Trust, 2014-1, A, 144A, 2.543%, 4/20/50 | | | United States | | | | 1,518,571 | | | | 1,511,840 | |
| | | | | | | | | | | | |
| | | |
Total Asset-Backed Securities and Commercial Mortgage-Backed
Securities (Cost $662,918,343) | | | | | | | | | | | 667,128,410 | |
| | | | | | | | | | | | |
Mortgage-Backed Securities 3.6% | | | | | | | | | | | | |
v Federal Home Loan Mortgage Corp. (FHLMC) Adjustable Rate 0.1% | | | | | | | | | | | | |
FHLMC, 3.439% - 3.673%, (12-month USD LIBOR +/- MBS Margin), 10/01/36 - 6/01/37 | | | United States | | | | 2,549,115 | | | | 2,700,686 | |
| | | | | | | | | | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Low Duration Total Return Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | Value | |
| |
Mortgage-Backed Securities (continued) | | | | | | | | | | | | |
Federal Home Loan Mortgage Corp. (FHLMC) Fixed Rate 0.0%† | | | | | | | | | | | | |
FHLMC Gold 15 Year, 5.00%, 10/01/23 | | | United States | | | | 138,554 | | | | $ 143,391 | |
FHLMC Gold 15 Year, 6.00%, 6/01/23 | | | United States | | | | 32,502 | | | | 34,370 | |
FHLMC Gold 30 Year, 5.00%, 1/01/39 | | | United States | | | | 151,495 | | | | 165,406 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 343,167 | |
| | | | | | | | | | | | |
v Federal National Mortgage Association (FNMA) Adjustable Rate 0.9% | | | | | | | | | | | | |
FNMA, 2.35% - 2.419%, (1-month USD LIBOR +/- MBS Margin), 4/01/28 - 7/01/34 | | | United States | | | | 304,779 | | | | 314,761 | |
FNMA, 2.841% - 3.196%, (Federal COF +/- MBS Margin), 2/01/18 -10/01/29 | | | United States | | | | 30,267 | | | | 31,023 | |
FNMA, 2.144% - 3.383%, (1 Year CMT +/- MBS Margin), 11/01/30 -10/01/44 | | | United States | | | | 529,395 | | | | 544,370 | |
FNMA, 2.872% - 3.481%, (US 3 Year CMT T-Note +/- MBS Margin), 3/01/21 - 6/01/34 | | | United States | | | | 119,800 | | | | 123,511 | |
FNMA, 3.487%, (US 5 Year CMT T-Note +/- MBS Margin), 2/01/30 | | | United States | | | | 74,026 | | | | 78,444 | |
FNMA, 2.145% - 3.748%, (US 1 Year CMT T-Note +/- MBS Margin), 8/01/18 - 10/01/43 | | | United States | | | | 3,850,223 | | | | 3,999,142 | |
FNMA, 3.75%, (6-month US T-Bill +/- MBS Margin), 8/01/32 | | | United States | | | | 109,992 | | | | 112,140 | |
FNMA, 2.42% - 4.381%, (6-month USD LIBOR +/- MBS Margin), 9/01/22 - 8/01/37 | | | United States | | | | 1,704,037 | | | | 1,755,139 | |
FNMA, 2.793% - 5.262%, (12-month USD LIBOR +/- MBS Margin), 11/01/32 - 2/01/44 | | | United States | | | | 16,824,232 | | | | 17,719,346 | |
FNMA, 1.875% - 5.75%, (11th District COF +/- MBS Margin), 3/01/18 -12/01/36 | | | United States | | | | 182,524 | | | | 189,641 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 24,867,517 | |
| | | | | | | | | | | | |
Federal National Mortgage Association (FNMA) Fixed Rate 2.6% | | | | | | | | | | | | |
w FNMA 15 Year, 3.00%, 11/01/32 | | | United States | | | | 64,250,000 | | | | 65,820,490 | |
FNMA 15 Year, 3.50%, 10/01/25 | | | United States | | | | 1,125,781 | | | | 1,169,739 | |
FNMA 15 Year, 4.00%, 12/01/25 | | | United States | | | | 1,697,628 | | | | 1,784,252 | |
FNMA 15 Year, 4.50%, 5/01/23 - 6/01/25 | | | United States | | | | 1,235,189 | | | | 1,290,402 | |
FNMA 30 Year, 5.00%, 3/01/38 | | | United States | | | | 30,628 | | | | 33,245 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 70,098,128 | |
| | | | | | | | | | | | |
v Government National Mortgage Association (GNMA) Adjustable Rate 0.0%† | | | | | | | | | | | | |
GNMA, 2.125% - 2.625%, (US 1 Year CMT T-Note +/- MBS Margin), 4/20/26 - 9/20/26 | | | United States | | | | 24,186 | | | | 24,904 | |
| | | | | | | | | | | | |
| | | |
Total Mortgage-Backed Securities (Cost $97,744,113) | | | | | | | | | | | 98,034,402 | |
| | | | | | | | | | | | |
| | | |
Municipal Bonds 0.6% | | | | | | | | | | | | |
Industry Public Facilities Authority Tax Allocation Revenue, Transportation District, Industrial Redevelopment Project No. 2, Refunding, Series B, AGMC Insured, 3.389%, 1/01/20 | | | United States | | | | 5,900,000 | | | | 6,011,392 | |
Pennsylvania State GO, Refunding, Second Series, 5.00%, 1/15/20 | | | United States | | | | 6,500,000 | | | | 7,010,120 | |
Texas State GO, Transportation Commission-Highway Improvement, Series A, 5.00%, 4/01/21 | | | United States | | | | 2,685,000 | | | | 3,018,531 | |
| | | | | | | | | | | | |
| | | |
Total Municipal Bonds (Cost $15,847,609) | | | | | | | | | | | 16,040,043 | |
| | | | | | | | | | | | |
| | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Low Duration Total Return Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Shares | | Value | |
| |
Escrows and Litigation Trusts (Cost $—) 0.0% | | | | | | | | | | | | |
a,b NewPage Corp., Litigation Trust | | | United States | | | | 500,000 | | | $ | — | |
| | | | | | | | | | | | |
| | | |
Total Investments before Short Term Investments (Cost $2,629,287,487) | | | | | | | | | | | 2,629,494,086 | |
| | | | | | | | | | | | |
| | | |
Short Term Investments (Cost $79,803,015) 2.9% | | | | | | | | | | | | |
Money Market Funds 2.9% | | | | | | | | | | | | |
d,x Institutional Fiduciary Trust Money Market Portfolio, 0.69% | | | United States | | | | 79,803,015 | | | | 79,803,015 | |
| | | | | | | | | | | | |
Total Investments (Cost $2,709,090,502) 99.8% | | | | | | | | | | | 2,709,297,101 | |
TBA Sale Commitments (1.7)% | | | | | | | | | | | (46,220,729 | ) |
Other Assets, less Liabilities 1.9% | | | | | | | | | | | 52,040,252 | |
| | | | | | | | | | | | |
Net Assets 100.0% | | | | | | | | | | $ | 2,715,116,624 | |
| | | | | | | | | | | | |
| | | |
| | | | | | Principal
Amount* | | | |
TBA Sale Commitments (Proceeds $46,006,418) | | | | | | | | | | | | |
Federal National Mortgage Association (FNMA) Fixed Rate (1.7)% | | | | | | | | | | | | |
y FNMA 30 Year, 3.50%, 11/01/47 | | | United States | | | | 44,970,000 | | | $ | (46,220,729 | ) |
| | | | | | | | | | | | |
| | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Low Duration Total Return Fund (continued)
†Rounds to less than 0.1% of net assets.
*The principal amount is stated in U.S. dollars unless otherwise indicated.
aNon-income producing.
bFair valued using significant unobservable inputs. See Note 12 regarding fair value measurements.
cSee Note 8 regarding restricted securities.
dSee Note 3(f) regarding investments in affiliated management investment companies.
eSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in a public offering registered under the Securities Act of 1933. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At October 31, 2017, the aggregate value of these securities was $506,237,325, representing 18.6% of net assets.
fSecurity was purchased pursuant to Regulation S under the Securities Act of 1933, which exempts from registration securities offered and sold outside of the United States. Such a security cannot be sold in the United States without either an effective registration statement filed pursuant to the Securities Act of 1933, or pursuant to an exemption from registration. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At October 31, 2017, the aggregate value of these securities was $11,389,928, representing 0.4% of net assets.
gThe coupon rate shown represents the rate at period end.
hA portion or all of the security purchased on a when-issued basis. See Note 1(c).
iIncome may be received in additional securities and/or cash.
jSee Note 1(i) regarding senior floating rate interests.
kA portion or all of the security purchased on a delayed delivery basis. See Note 1(c).
lA portion or all of the security represents an unsettled loan commitment. The coupon rate is to-be determined (TBD) at the time of settlement and will be based upon a reference index/floor plus a spread.
mPrincipal amount is stated in 100 Mexican Peso Units.
nPrincipal amount is stated in 1,000 Brazilian Real Units.
oRedemption price at maturity is adjusted for inflation. See Note 1(k).
pPrincipal amount of security is adjusted for inflation. See Note 1(k).
qThe coupon rate shown represents the rate inclusive of any caps or floors, if applicable, in effect at period end.
rAdjustable rate security with an interest rate that is not based on a published reference index and spread. The rate is based on the structure of the agreement and current market conditions. The coupon rate shown represents the rate at period end.
sThe bond pays interest and/or principal based upon the issuer’s ability to pay, which may be less than the stated interest rate or principal paydown.
tInvestment in an interest-only security entitles holders to receive only the interest payment on the underlying instruments. The principal amount shown is the notional amount of the underlying instruments.
uThe coupon rate will be determined at time of issue.
vAdjustable Rate Mortgage-Backed Security (ARM); the rate shown is the effective rate at period end. ARM rates are not based on a published reference rate and spread, but instead pass-through weighted average interest income inclusive of any caps or floors, if applicable, from the underlying mortgage loans in which the majority of mortgages pay interest based on the index shown at their designated reset dates plus a spread, less the applicable servicing and guaranty fee (MBS margin).
wA portion or all of the security purchased on a to-be-announced (TBA) basis. See Note 1(c).
xThe rate shown is the annualized seven-day yield at period end.
ySecurity sold on a to-be-announced (TBA) basis resulting in a short position. As such, the Fund is not subject to fees and expenses associated with short sale transactions.
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franklintempleton.com | | Annual Report | | 77 |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Low Duration Total Return Fund (continued)
At October 31, 2017, the Fund had the following futures contracts outstanding. See Note 1(d).
Futures Contracts
| | | | | | | | | | | | | | | | | | | | |
| Description | | | Type | | |
| Number of
Contracts |
| |
| Notional
Amount* |
| |
| Expiration
Date |
| |
| Value/
Unrealized
Appreciation
(Depreciation) |
|
Interest Rate Contracts | | | | | | | | | | | | | | | | | | | | |
Canadian 10 Yr. Bond | | | Long | | | | 49 | | | | $ 5,222,031 | | | | 12/18/17 | | | | $ (20,640 | ) |
CME Ultra Long Term U.S. Treasury Bond | | | Short | | | | 5 | | | | 823,906 | | | | 12/19/17 | | | | 17,799 | |
U.S. Treasury 2 Yr. Note | | | Long | | | | 2,430 | | | | 523,323,284 | | | | 12/29/17 | | | | (1,883,524 | ) |
U.S. Treasury 5 Yr. Note | | | Short | | | | 310 | | | | 36,328,125 | | | | 12/29/17 | | | | 380,642 | |
U.S. Treasury 10 Yr. Note | | | Short | | | | 84 | | | | 10,494,750 | | | | 12/19/17 | | | | 155,965 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total Futures Contracts | | | | | | | | | | | | | | | | | | | $(1,349,758 | ) |
| | | | | | | | | | | | | | | | | | | | |
*As of period end.
At October 31, 2017, the Fund had the following forward exchange contracts outstanding. See Note 1(d).
Forward Exchange Contracts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Currency | | Counterpartya | | | Type | | | Quantity | | | Contract
Amount | | | Settlement
Date | | | Unrealized
Appreciation | | | Unrealized
Depreciation | |
OTC Forward Exchange Contracts | | | | | | | | | | | | | | | | | | | | | | | | | |
Indian Rupee | | | JPHQ | | | | Buy | | | | 217,000,000 | | | $ | 3,246,559 | | | | 4/12/18 | | | $ | 47,650 | | | $ | — | |
Indonesian Rupiah | | | JPHQ | | | | Buy | | | | 26,200,000,000 | | | | 1,899,927 | | | | 4/12/18 | | | | — | | | | (5,046 | ) |
Mexican Peso | | | JPHQ | | | | Buy | | | | 62,300,000 | | | | 3,267,254 | | | | 4/12/18 | | | | — | | | | (106,006 | ) |
Australian Dollar | | | DBAB | | | | Sell | | | | 2,570,144 | | | | 2,013,913 | | | | 4/19/18 | | | | 48,650 | | | | — | |
Australian Dollar | | | JPHQ | | | | Sell | | | | 11,750,000 | | | | 9,208,358 | | | | 4/19/18 | | | | 223,708 | | | | — | |
Brazilian Real | | | JPHQ | | | | Buy | | | | 7,500,000 | | | | 2,320,904 | | | | 4/19/18 | | | | — | | | | (75,843 | ) |
British Pound | | | DBAB | | | | Sell | | | | 3,000,000 | | | | 3,969,480 | | | | 4/19/18 | | | | — | | | | (37,434 | ) |
Canadian Dollar | | | JPHQ | | | | Sell | | | | 9,010,000 | | | | 7,178,734 | | | | 4/19/18 | | | | 180,278 | | | | — | |
Euro | | | BZWS | | | | Sell | | | | 194,860 | | | | 231,247 | | | | 4/19/18 | | | | 1,874 | | | | — | |
Euro | | | CITI | | | | Sell | | | | 391,262 | | | | 464,397 | | | | 4/19/18 | | | | 3,836 | | | | — | |
Euro | | | DBAB | | | | Buy | | | | 2,250,000 | | | | 2,657,250 | | | | 4/19/18 | | | | — | | | | (8,736 | ) |
Euro | | | DBAB | | | | Sell | | | | 22,630,136 | | | | 26,859,482 | | | | 4/19/18 | | | | 221,159 | | | | — | |
Euro | | | GSCO | | | | Sell | | | | 420,000 | | | | 498,422 | | | | 4/19/18 | | | | 4,033 | | | | — | |
Euro | | | HSBK | | | | Sell | | | | 6,000 | | | | 7,122 | | | | 4/19/18 | | | | 59 | | | | — | |
Euro | | | JPHQ | | | | Sell | | | | 9,745,354 | | | | 11,568,028 | | | | 4/19/18 | | | | 96,604 | | | | — | |
Indian Rupee | | | DBAB | | | | Buy | | | | 135,900,000 | | | | 2,058,467 | | | | 4/19/18 | | | | 3,018 | | | | — | |
Indian Rupee | | | JPHQ | | | | Buy | | | | 78,000,000 | | | | 1,181,997 | | | | 4/19/18 | | | | 1,195 | | | | — | |
Indonesian Rupiah | | | JPHQ | | | | Buy | | | | 41,430,000,000 | | | | 3,017,480 | | | | 4/19/18 | | | | — | | | | (23,719 | ) |
Japanese Yen | | | JPHQ | | | | Buy | | | | 294,000,000 | | | | 2,610,317 | | | | 4/19/18 | | | | — | | | | (120 | ) |
Japanese Yen | | | JPHQ | | | | Sell | | | | 1,403,000,000 | | | | 12,645,525 | | | | 4/19/18 | | | | 189,383 | | | | — | |
Mexican Peso | | | JPHQ | | | | Buy | | | | 56,200,000 | | | | 2,858,582 | | | | 4/19/18 | | | | — | | | | (9,966 | ) |
Philippine Peso | | | JPHQ | | | | Buy | | | | 94,860,000 | | | | 1,822,128 | | | | 4/19/18 | | | | — | | | | (15,959 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total Forward Exchange Contracts | | | | | | | | | | | | | | | $ | 1,021,447 | | | $ | (282,829 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Net unrealized appreciation (depreciation) | | | | | | | | | | | | | | | | | | | $ | 738,618 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
aMay be comprised of multiple contracts with the same counterparty, currency and settlement date.
| | | | |
| | | |
78 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Low Duration Total Return Fund (continued)
At October 31, 2017, the Fund had the following credit default swap contracts outstanding. See Note 1(d).
Credit Default Swap Contracts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Periodic
Payment Rate
Received
(Paid) | | | Payment
Frequency | | | Counter-
party | | | Maturity
Date | | | Notional
Amounta | | | | | | Value | | | Unamortized
Upfront
Payments
(Receipts) | | | Unrealized
Appreciation
(Depreciation) | | | Ratingb | |
| | | | | | | | | |
Centrally Cleared Swap Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contracts to Buy Protectionc | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Single Name | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Olin Corp. | | | (1.00 | )% | | | Quarterly | | | | | | | | 12/20/21 | | | | 2,400,000 | | | | | | | $ | (32,458 | ) | | $ | 52,409 | | | $ | (84,867) | | | | | |
Traded Index | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX.NA.HY.29 | | | (5.00 | )% | | | Quarterly | | | | | | | | 12/20/22 | | | | 11,400,000 | | | | | | | | (1,020,397 | ) | | | (828,345 | ) | | | (192,052) | | | | | |
ITRX.EUR.28 | | | (1.00 | )% | | | Quarterly | | | | | | | | 12/20/22 | | | | 49,800,000 | | | | EUR | | | | (1,544,894 | ) | | | (1,308,317 | ) | | | (236,577) | | | | | |
Contracts to Sell Protectionc,d | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Traded Index | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX.NA.IG.29 | | | 1.00 | % | | | Quarterly | | | | | | | | 12/20/22 | | | | 86,850,000 | | | | | | | | 2,096,390 | | | | 1,780,180 | | | | 316,210 | | | | Investment | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Grade | |
Total Centrally Cleared Swap Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | $ | (501,359 | ) | | $ | (304,073 | ) | | $ | (197,286) | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
OTC Swap Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contracts to Buy Protectionc | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Single Name | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The AES Corp. | | | (5.00 | )% | | | Quarterly | | | | JPHQ | | | | 6/20/21 | | | | 7,400,000 | | | | | | | $ | (1,098,077 | ) | | $ | (598,569 | ) | | $ | (499,508 | ) | | | | |
The AES Corp. | | | (5.00 | )% | | | Quarterly | | | | JPHQ | | | | 6/20/22 | | | | 7,600,000 | | | | | | | | (1,233,272 | ) | | | (953,967 | ) | | | (279,305 | ) | | | | |
Ally Financial Inc. | | | (5.00 | )% | | | Quarterly | | | | CITI | | | | 12/20/22 | | | | 1,500,000 | | | | | | | | (294,914 | ) | | | (281,245 | ) | | | (13,669 | ) | | | | |
Ally Financial Inc. | | | (5.00 | )% | | | Quarterly | | | | JPHQ | | | | 12/20/22 | | | | 2,700,000 | | | | | | | | (530,846 | ) | | | (509,780 | ) | | | (21,066 | ) | | | | |
Avon Products Inc. | | | (5.00 | )% | | | Quarterly | | | | GSCO | | | | 3/20/20 | | | | 10,000,000 | | | | | | | | (5,331 | ) | | | 718,468 | | | | (723,799 | ) | | | | |
Best Buy Co. Inc. | | | (5.00 | )% | | | Quarterly | | | | BZWS | | | | 6/20/22 | | | | 950,000 | | | | | | | | (170,508 | ) | | | (151,020 | ) | | | (19,488 | ) | | | | |
Best Buy Co. Inc. | | | (5.00 | )% | | | Quarterly | | | | CITI | | | | 6/20/22 | | | | 2,800,000 | | | | | | | | (502,549 | ) | | | (427,228 | ) | | | (75,321 | ) | | | | |
Best Buy Co. Inc. | | | (5.00 | )% | | | Quarterly | | | | JPHQ | | | | 6/20/22 | | | | 1,500,000 | | | | | | | | (269,223 | ) | | | (246,055 | ) | | | (23,168 | ) | | | | |
CSC Holdings LLC | | | (5.00 | )% | | | Quarterly | | | | GSCO | | | | 9/20/18 | | | | 3,500,000 | | | | | | | | (169,642 | ) | | | (63,945 | ) | | | (105,697 | ) | | | | |
CSC Holdings LLC | | | (5.00 | )% | | | Quarterly | | | | GSCO | | | | 3/20/19 | | | | 3,000,000 | | | | | | | | (212,664 | ) | | | (49,454 | ) | | | (163,210 | ) | | | | |
The Gap Inc. | | | (1.00 | )% | | | Quarterly | | | | CITI | | | | 6/20/22 | | | | 2,350,000 | | | | | | | | 42,386 | | | | 139,184 | | | | (96,798 | ) | | | | |
Kohl’s Corp. | | | (1.00 | )% | | | Quarterly | | | | BZWS | | | | 6/20/22 | | | | 2,500,000 | | | | | | | | 85,357 | | | | 137,020 | | | | (51,663 | ) | | | | |
L Brands Inc. | | | (1.00 | )% | | | Quarterly | | | | CITI | | | | 6/20/22 | | | | 2,350,000 | | | | | | | | 86,244 | | | | 147,901 | | | | (61,657 | ) | | | | |
Macy’s Retail Holdings Inc. | | | (1.00 | )% | | | Quarterly | | | | BZWS | | | | 6/20/22 | | | | 2,250,000 | | | | | | | | 167,193 | | | | 156,891 | | | | 10,302 | | | | | |
Nabors Industries Inc. | | | (1.00 | )% | | | Quarterly | | | | JPHQ | | | | 6/20/20 | | | | 6,600,000 | | | | | | | | 119,976 | | | | 162,543 | | | | (42,567 | ) | | | | |
Olin Corp. | | | (1.00 | )% | | | Quarterly | | | | CITI | | | | 6/20/21 | | | | 1,430,000 | | | | | | | | (23,719 | ) | | | 81,271 | | | | (104,990 | ) | | | | |
Olin Corp. | | | (1.00 | )% | | | Quarterly | | | | GSCO | | | | 6/20/21 | | | | 3,570,000 | | | | | | | | (59,215 | ) | | | 208,612 | | | | (267,827 | ) | | | | |
PHH Corp. | | | (5.00 | )% | | | Quarterly | | | | GSCO | | | | 9/20/19 | | | | 1,800,000 | | | | | | | | (169,172 | ) | | | 8,756 | | | | (177,928 | ) | | | | |
Sanmina Corp. | | | (5.00 | )% | | | Quarterly | | | | GSCO | | | | 6/20/19 | | | | 6,500,000 | | | | | | | | (552,183 | ) | | | (467,518 | ) | | | (84,665 | ) | | | | |
Target Corp. | | | (1.00 | )% | | | Quarterly | | | | CITI | | | | 6/20/22 | | | | 5,250,000 | | | | | | | | (137,449 | ) | | | (79,844 | ) | | | (57,605 | ) | | | | |
Tenet Healthcare Corp. | | | (5.00 | )% | | | Quarterly | | | | DBAB | | | | 3/20/19 | | | | 1,825,000 | | | | | | | | (96,655 | ) | | | (66,162 | ) | | | (30,493 | ) | | | | |
Contracts to Sell Protectionc,d | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Single Name | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
American Tower Corp. | | | 1.00 | % | | | Quarterly | | | | GSCO | | | | 3/20/21 | | | | 6,500,000 | | | | | | | | (54,833 | ) | | | (82,399 | ) | | | 27,566 | | | | BBB- | |
| | | | |
| | | |
franklintempleton.com | | Annual Report | | 79 |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Low Duration Total Return Fund (continued)
Credit Default Swap Contracts (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Periodic
Payment Rate
Received
(Paid) | | | Payment
Frequency | | | Counter-
party | | | Maturity
Date | | | Notional
Amounta | | | Value | | | Unamortized
Upfront
Payments
(Receipts) | | | Unrealized
Appreciation
(Depreciation) | | | Ratingb | |
OTC Swap Contracts (continued) | | | | | | | | | | | | | | | | | | | | | | | | | |
Contracts to Sell Protectionc,d (continued) | | | | | | | | | | | | | | | | | | | | | | | | | |
Single Name (continued) | | | | | | | | | | | | | | | | | | | | | | | | | |
Enterprise Products Operating LLC | | | 1.00% | | | | Quarterly | | | | MSCO | | | | 12/20/19 | | | | 3,500,000 | | | $ | 55,771 | | | $ | (10,818 | ) | | $ | 66,589 | | | | BBB+ | |
Government of Brazil | | | 1.00% | | | | Quarterly | | | | FBCO | | | | 12/20/22 | | | | 8,700,000 | | | | (278,308 | ) | | | (428,178 | ) | | | 149,870 | | | | BB | |
Government of Mexico | | | 1.00% | | | | Quarterly | | | | CITI | | | | 6/20/20 | | | | 2,500,000 | | | | 30,625 | | | | (15,774 | ) | | | 46,399 | | | | BBB+ | |
Nabors Industries Inc. | | | 1.00% | | | | Quarterly | | | | JPHQ | | | | 6/20/22 | | | | 6,600,000 | | | | (733,355 | ) | | | (808,288 | ) | | | 74,933 | | | | BB | |
Simon Property Group LP | | | 1.00% | | | | Quarterly | | | | CITI | | | | 6/20/22 | | | | 4,500,000 | | | | 77,813 | | | | 11,642 | | | | 66,171 | | | | A | |
Simon Property Group LP | | | 1.00% | | | | Quarterly | | | | JPHQ | | | | 6/20/22 | | | | 5,475,000 | | | | 94,673 | | | | 50,068 | | | | 44,605 | | | | A | |
Traded Index | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
eCitibank Bespoke | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Hong Kong Index, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mezzanine | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tranche 3-5% | | | 1.00% | | | | Quarterly | | | | CITI | | | | 12/20/18 | | | | 7,000,000 | | | | 6,930 | | | | (170,350 | ) | | | 177,280 | | | | Non- | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Investment | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Grade | |
eCitibank Bespoke | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Index, Mezzanine | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tranche 5-8% | | | 0.50% | | | | Quarterly | | | | CITI | | | | 6/20/18 | | | | 8,000,000 | | | | (26,145 | ) | | | - | | | | (26,145 | ) | | | Non- | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Investment | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Grade | |
eCitibank Bespoke | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Index, Mezzanine | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tranche 6-10% | | | 0.63% | | | | Quarterly | | | | CITI | | | | 12/20/18 | | | | 10,000,000 | | | | 3,447 | | | | - | | | | 3,447 | | | | Non- | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Investment | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Grade | |
eCitibank Bespoke | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Lisbon Index, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity Tranche 0-3% | | | 0.00% | | | | Quarterly | | | | CITI | | | | 6/20/19 | | | | 1,300,000 | | | | (153,617 | ) | | | (251,557 | ) | | | 97,940 | | | | Non- | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Investment | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Grade | |
eCitibank Bespoke | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Verona Index, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity Tranche 0-3% | | | 0.00% | | | | Quarterly | | | | CITI | | | | 12/20/19 | | | | 2,100,000 | | | | (385,090 | ) | | | (450,910 | ) | | | 65,820 | | | | Non- | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Investment | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Grade | |
| | | | |
| | | |
80 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Low Duration Total Return Fund (continued)
Credit Default Swap Contracts (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Periodic
Payment Rate
Received
(Paid) | | | Payment
Frequency | | | Counter-
party | | | Maturity
Date | | | Notional
Amounta | | | Value | | | Unamortized
Upfront
Payments
(Receipts) | | | Unrealized
Appreciation
(Depreciation) | | | Ratingb | |
OTC Swap Contracts (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contracts to Sell Protectionc,d (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Traded Index (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
eCitibank Bespoke | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Verona Index, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mezzanine | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tranche 7-15% | | | 0.40 | % | | | Quarterly | | | | CITI | | | | 12/20/19 | | | | 4,000,000 | | | $ | 3,633 | | | $ | — | | | $ | 3,633 | | | | Non- | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Investment | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Grade | |
Total OTC Swap Contracts | | | | | | | $ | (6,382,719 | ) | | $ | (4,290,705 | ) | | $ | (2,092,014 | ) | | | | |
| | | | | |
Total Credit Default Swap Contracts | | | | | | | $ | (6,884,078 | ) | | $ | (4,594,778 | ) | | $ | (2,289,300 | ) | | | | |
aIn U.S. dollars unless otherwise indicated. For contracts to sell protection, the notional amount is equal to the maximum potential amount of the future payments and no recourse provisions have been entered into in association with the contracts.
bBased on Standard and Poor’s (S&P) Rating for single name swaps and internal ratings for index swaps. Internal ratings based on mapping into equivalent ratings from external vendors.
cPerformance triggers for settlement of contract include default, bankruptcy or restructuring for single name swaps, and failure to pay or bankruptcy of the underlying securities for traded index swaps.
dThe fund enters contracts to sell protection to create a long credit position.
eRepresents a custom index comprised of a basket of underlying issuers.
At October 31, 2017, the Fund had the following cross-currency swap contracts outstanding. See Note 1(d).
Cross-Currency Swap Contracts
| | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Payment
Frequency | | | Counter-
party | | | Maturity
Date | | | Notional
Amount | | | | | | Value/
Unrealized
Appreciation (Depreciation) | |
OTC Swap Contracts | | | | | | | | | | | | | | | | | |
Receive Fixed 2.393% | | | Semi-Annual | | | | | | | | | | | | 7,916,500 | | | | USD | | | | | |
Pay Fixed 0.50% | | | Annual | | | | JPHQ | | | | 4/09/20 | | | | 7,100,000 | | | | EUR | | | | $(484,260) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
At October 31, 2017, the Fund had the following interest rate swap contracts outstanding. See Note 1(d).
Interest Rate Swap Contracts
| | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Payment
Frequency | | | Maturity
Date | | | Notional
Amount | | | Value | | | Unamortized
Upfront
Payments
(Receipts) | | | Unrealized
Appreciation (Depreciation) | |
Centrally Cleared Swap Contracts | | | | | | | | | | | | | | | | | | | | | | | | |
Receive Fixed 2.00% | | | Semi-Annual | | | | | | | | | | | | | | | | | | | | | |
Pay Floating 3-month USD LIBOR | | | Quarterly | | | | 12/20/19 | | | $ | 52,700,000 | | | $ | 122,415 | | | $ | 297,128 | | | $ | (174,713 | ) |
Receive Fixed 2.00% | | | Semi-Annual | | | | | | | | | | | | | | | | | | | | | |
Pay Floating 3-month USD LIBOR | | | Quarterly | | | | 12/20/19 | | | | 52,600,000 | | | | 122,183 | | | | 196,503 | | | | (74,320 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | |
Total Centrally Cleared Swap Contracts | | | | | | | | | | | | | | $ | 244,598 | | | $ | 493,631 | | | $ | (249,033 | ) |
| | | | | | | | | | | | | | | | |
| | | | |
| | | |
franklintempleton.com | | Annual Report | | 81 |
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS
Franklin Low Duration Total Return Fund (continued)
At October 31, 2017, the Fund had the following inflation index swap contracts outstanding. See Note 1(d).
Inflation Index Swap Contracts
| | | | | | | | | | | | | | | | |
| Description | | Payment
Frequency | | | Maturity
Date | | | Notional
Amount | | | Value/
Unrealized
Appreciation
(Depreciation) | |
Centrally Cleared Swap Contracts | | | | | | | | | | | | | | | | |
Receive variable change in USA-CPI-U | | | At maturity | | | | | | | | | | | | | |
Pay Fixed 1.96% | | | At maturity | | | | 8/31/24 | | | $ | 52,700,000 | | | | $457,294 | |
| | | | | | | | | | | | | | | | |
At October 31, 2017, the Fund had the following total return swap contracts outstanding. See Note 1(d).
Total Return Swap Contracts
| | | | | | | | | | | | | | | | |
| Underlying Instruments | | Financing Rate | | Payment
Frequency | | Counterparty | | Maturity Date | | | Notional
Value | | | Value/
Unrealized
Appreciation
(Depreciation) |
OTC Swap Contracts | | | | | | | | | | | | | | | | |
Longa | | | | | | | | | | | | | | | | |
iBoxx USD Liquid High Yield Index | | 3-month USD LIBOR | | Quarterly | | CITI | | | 3/20/18 | | | $ | 5,700,000 | | | $147,577 |
iBoxx USD Liquid High Yield Index | | 3-month USD LIBOR | | Quarterly | | CITI | | | 6/20/18 | | | | 5,700,000 | | | 185,445 |
| | | | | | | | | | | | | | | | |
Total Return Swap Contracts | | | | | | | | | | | | | | | | $333,022 |
| | | | | | | | | | | | | | | | |
aThe Fund receives the total return on the underlying instrument and pays a variable financing rate.
See Note 10 regarding other derivative information.
See Abbreviations on page 146.
| | | | |
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82 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
Consolidated Financial Highlights
Franklin Total Return Fund
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Class A | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $ 9.93 | | | | $ 9.87 | | | | $ 10.18 | | | | $ 10.05 | | | | $ 10.53 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | 0.251 | b | | | 0.231 | | | | 0.217 | | | | 0.257 | | | | 0.236 | |
| | | | | |
Net realized and unrealized gains (losses) | | | (0.110 | ) | | | 0.107 | | | | (0.220 | ) | | | 0.214 | | | | (0.205 | ) |
| | | | | |
Total from investment operations | | | 0.141 | | | | 0.338 | | | | (0.003 | ) | | | 0.471 | | | | 0.031 | |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income and net foreign currency gains | | | (0.231 | ) | | | (0.278 | ) | | | (0.307 | ) | | | (0.341 | ) | | | (0.351 | ) |
| | | | | |
Net realized gains | | | — | | | | — | | | | — | | | | — | | | | (0.160 | ) |
| | | | | |
Total distributions | | | (0.231 | ) | | | (0.278 | ) | | | (0.307 | ) | | | (0.341 | ) | | | (0.511 | ) |
| | | | | |
Net asset value, end of year | | | $ 9.84 | | | | $ 9.93 | | | | $ 9.87 | | | | $ 10.18 | | | | $ 10.05 | |
| | | | | |
Total returnc | | | 1.47% | | | | 3.53% | | | | (0.05)% | | | | 4.80% | | | | 0.30% | |
| | | | | |
Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 0.91% | | | | 0.90% | | | | 0.91% | | | | 0.93% | | | | 0.91% | |
| | | | | |
Expenses net of waiver and payments by affiliatesd | | | 0.87% | | | | 0.85% | | | | 0.87% | | | | 0.88% | | | | 0.88% | |
| | | | | |
Net investment income | | | 2.58% | | | | 2.32% | | | | 2.08% | | | | 2.46% | | | | 2.36% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $3,153,751 | | | | $3,623,035 | | | | $3,527,479 | | | | $3,213,446 | | | | $3,019,228 | |
| | | | | |
Portfolio turnover rate | | | 101.07% | | | | 287.38% | | | | 294.80% | | | | 273.96% | | | | 371.54% | |
| | | | | |
Portfolio turnover rate excluding mortgage dollar rollse | | | 78.46% | | | | 146.15% | | | | 95.06% | | | | 85.03% | | | | 156.49% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
dBenefit of expense reduction rounds to less than 0.01%.
eSee Note 1(h) regarding mortgage dollar rolls.
| | | | |
| | | |
franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | 83 |
FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin Total Return Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Class C | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $ 9.87 | | | | $ 9.84 | | | | $ 10.16 | | | | $ 10.03 | | | | $ 10.51 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | 0.212 | b | | | 0.189 | | | | 0.172 | | | | 0.201 | | | | 0.174 | |
| | | | | |
Net realized and unrealized gains (losses) | | | (0.109 | ) | | | 0.100 | | | | (0.214 | ) | | | 0.232 | | | | (0.182 | ) |
| | | | | |
Total from investment operations | | | 0.103 | | | | 0.289 | | | | (0.042 | ) | | | 0.433 | | | | (0.008 | ) |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income and net foreign currency gains | | | (0.203 | ) | | | (0.259 | ) | | | (0.278 | ) | | | (0.303 | ) | | | (0.312 | ) |
| | | | | |
Net realized gains | | | — | | | | — | | | | — | | | | — | | | | (0.160 | ) |
| | | | | |
Total distributions | | | (0.203 | ) | | | (0.259 | ) | | | (0.278 | ) | | | (0.303 | ) | | | (0.472 | ) |
| | | | | |
Net asset value, end of year | | | $ 9.77 | | | | $ 9.87 | | | | $ 9.84 | | | | $ 10.16 | | | | $ 10.03 | |
| | | | | |
Total returnc | | | 0.98% | | | | 3.13% | | | | (0.43)% | | | | 4.42% | | | | (0.08)% | |
| | | | | |
Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 1.31% | | | | 1.30% | | | | 1.31% | | | | 1.33% | | | | 1.31% | |
| | | | | |
Expenses net of waiver and payments by affiliatesd | | | 1.27% | | | | 1.25% | | | | 1.27% | | | | 1.28% | | | | 1.28% | |
| | | | | |
Net investment income | | | 2.18% | | | | 1.92% | | | | 1.68% | | | | 2.06% | | | | 1.96% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $354,269 | | | | $449,274 | | | | $444,253 | | | | $432,767 | | | | $455,720 | |
| | | | | |
Portfolio turnover rate | | | 101.07% | | | | 287.38% | | | | 294.80% | | | | 273.96% | | | | 371.54% | |
| | | | | |
Portfolio turnover rate excluding mortgage dollar rollse | | | 78.46% | | | | 146.15% | | | | 95.06% | | | | 85.03% | | | | 156.49% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
dBenefit of expense reduction rounds to less than 0.01%.
eSee Note 1(h) regarding mortgage dollar rolls.
| | | | |
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84 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin Total Return Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Class R | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $ 9.90 | | | | $ 9.85 | | | | $ 10.17 | | | | $ 10.04 | | | | $ 10.52 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | 0.228 | b | | | 0.199 | | | | 0.198 | | | | 0.209 | | | | 0.204 | |
| | | | | |
Net realized and unrealized gains (losses) | | | (0.115 | ) | | | 0.117 | | | | (0.229 | ) | | | 0.238 | | | | (0.197 | ) |
| | | | | |
Total from investment operations | | | 0.113 | | | | 0.316 | | | | (0.031 | ) | | | 0.447 | | | | 0.007 | |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income and net foreign currency gains | | | (0.213 | ) | | | (0.266 | ) | | | (0.289 | ) | | | (0.317 | ) | | | (0.327 | ) |
| | | | | |
Net realized gains | | | — | | | | — | | | | — | | | | — | | | | (0.160 | ) |
| | | | | |
Total distributions | | | (0.213 | ) | | | (0.266 | ) | | | (0.289 | ) | | | (0.317 | ) | | | (0.487 | ) |
| | | | | |
Net asset value, end of year | | | $ 9.80 | | | | $ 9.90 | | | | $ 9.85 | | | | $ 10.17 | | | | $ 10.04 | |
| | | | | |
Total return | | | 1.19% | | | | 3.31% | | | | (0.32)% | | | | 4.56% | | | | 0.06% | |
| | | | | |
Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 1.16% | | | | 1.15% | | | | 1.16% | | | | 1.18% | | | | 1.16% | |
| | | | | |
Expenses net of waiver and payments by affiliatesc | | | 1.12% | | | | 1.10% | | | | 1.12% | | | | 1.13% | | | | 1.13% | |
| | | | | |
Net investment income | | | 2.33% | | | | 2.07% | | | | 1.83% | | | | 2.21% | | | | 2.11% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $36,337 | | | | $58,715 | | | | $70,506 | | | | $59,307 | | | | $65,601 | |
| | | | | |
Portfolio turnover rate | | | 101.07% | | | | 287.38% | | | | 294.80% | | | | 273.96% | | | | 371.54% | |
| | | | | |
Portfolio turnover rate excluding mortgage dollar rollsd | | | 78.46% | | | | 146.15% | | | | 95.06% | | | | 85.03% | | | | 156.49% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cBenefit of expense reduction rounds to less than 0.01%.
dSee Note 1(h) regarding mortgage dollar rolls.
| | | | |
| | | |
franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | 85 |
FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin Total Return Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013a | |
Class R6 | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $ 9.98 | | | | $ 9.91 | | | | $ 10.20 | | | | $ 10.07 | | | | $ 10.44 | |
| | | | | |
Income from investment operationsb: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | 0.296 | c | | | 0.195 | | | | 0.255 | c | | | 0.317 | c | | | 0.145 | |
| | | | | |
Net realized and unrealized gains (losses) | | | (0.117 | ) | | | 0.173 | | | | (0.209 | ) | | | 0.191 | | | | (0.348 | ) |
| | | | | |
Total from investment operations | | | 0.179 | | | | 0.368 | | | | 0.046 | | | | 0.508 | | | | (0.203 | ) |
| | | | | |
Less distributions from net investment income and net foreign currency gains | | | (0.259 | ) | | | (0.298 | ) | | | (0.336 | ) | | | (0.378 | ) | | | (0.167 | ) |
| | | | | |
Net asset value, end of year | | | $ 9.90 | | | | $ 9.98 | | | | $ 9.91 | | | | $ 10.20 | | | | $ 10.07 | |
| | | | | |
Total returnd | | | 1.75% | | | | 3.94% | | | | 0.44% | | | | 5.18% | | | | (1.92)% | |
| | | | | |
Ratios to average net assetse | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 0.50% | | | | 0.51% | | | | 0.50% | | | | 0.50% | | | | 0.50% | |
| | | | | |
Expenses net of waiver and payments by affiliatesf | | | 0.48% | | | | 0.46% | | | | 0.46% | | | | 0.48% | | | | 0.49% | |
| | | | | |
Net investment income | | | 2.97% | | | | 2.71% | | | | 2.49% | | | | 2.86% | | | | 2.75% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $398,732 | | | | $93,892 | | | | $68,848 | | | | $26,123 | | | | $329,806 | |
| | | | | |
Portfolio turnover rate | | | 101.07% | | | | 287.38% | | | | 294.80% | | | | 273.96% | | | | 371.54% | |
| | | | | |
Portfolio turnover rate excluding mortgage dollar rollsg | | | 78.46% | | | | 146.15% | | | | 95.06% | | | | 85.03% | | | | 156.49% | |
aFor the period May 1, 2013 (effective date) to October 31, 2013.
bThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fBenefit of expense reduction rounds to less than 0.01%.
gSee Note 1(h) regarding mortgage dollar rolls.
| | | | |
| | | |
86 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin Total Return Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Advisor Class | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | $ | 9.98 | | | $ | 9.91 | | | $ | 10.20 | | | $ | 10.07 | | | $ | 10.55 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | 0.275 | b | | | 0.218 | | | | 0.127 | | | | 0.288 | | | | 0.242 | |
| | | | | |
Net realized and unrealized gains (losses) | | | (0.116 | ) | | | 0.142 | | | | (0.092 | ) | | | 0.206 | | | | (0.186 | ) |
| | | | | |
Total from investment operations | | | 0.159 | | | | 0.360 | | | | 0.035 | | | | 0.494 | | | | 0.056 | |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income and net foreign currency gains | | | (0.249 | ) | | | (0.290 | ) | | | (0.325 | ) | | | (0.364 | ) | | | (0.376 | ) |
| | | | | |
Net realized gains | | | — | | | | — | | | | — | | | | — | | | | (0.160 | ) |
| | | | | |
Total distributions | | | (0.249 | ) | | | (0.290 | ) | | | (0.325 | ) | | | (0.364 | ) | | | (0.536 | ) |
| | | | | |
Net asset value, end of year | | $ | 9.89 | | | $ | 9.98 | | | $ | 9.91 | | | $ | 10.20 | | | $ | 10.07 | |
| | | | | |
Total return | | | 1.65% | | | | 3.75% | | | | 0.33% | | | | 5.03% | | | | 0.54% | |
| | | | | |
Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 0.66% | | | | 0.65% | | | | 0.66% | | | | 0.68% | | | | 0.66% | |
| | | | | |
Expenses net of waiver and payments by affiliatesc | | | 0.62% | | | | 0.60% | | | | 0.62% | | | | 0.63% | | | | 0.63% | |
| | | | | |
Net investment income | | | 2.83% | | | | 2.57% | | | | 2.33% | | | | 2.71% | | | | 2.61% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | $ | 595,239 | | | $ | 740,046 | | | $ | 526,749 | | | $ | 1,281,151 | | | $ | 1,148,451 | |
| | | | | |
Portfolio turnover rate | | | 101.07% | | | | 287.38% | | | | 294.80% | | | | 273.96% | | | | 371.54% | |
| | | | | |
Portfolio turnover rate excluding mortgage dollar rollsd | | | 78.46% | | | | 146.15% | | | | 95.06% | | | | 85.03% | | | | 156.49% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cBenefit of expense reduction rounds to less than 0.01%.
dSee Note 1(h) regarding mortgage dollar rolls.
| | | | |
| | | |
franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | 87 |
FRANKLIN INVESTORS SECURITIES TRUST
Consolidated Statement of Investments, October 31, 2017
Franklin Total Return Fund
| | | | | | | | | | | | | | | | | | |
| | | | | Country | | | Shares/
Warrants | | | | | | Value | |
| | | Common Stocks and Other Equity Interests 0.2% | | | | | | | |
| | | Consumer Services 0.1% | | | | | | | | | | | | |
| a,aa,ab | | Turtle Bay Resort | | | United States | | | | 1,550,568 | | | | | | | $ | 7,210,139 | |
| | | | | | | | | | | | | | | | | | |
| | | Energy 0.1% | | | | | | | | | | | | |
| a | | Energy XXI Gulf Coast Inc. | | | United States | | | | 115,438 | | | | | | | | 986,995 | |
| a | | Halcon Resources Corp. | | | United States | | | | 229,059 | | | | | | | | 1,507,208 | |
| a | | Halcon Resources Corp., wts., 9/09/20 | | | United States | | | | 20,425 | | | | | | | | 10,213 | |
| a | | Linn Energy Inc. | | | United States | | | | 35,793 | | | | | | | | 1,379,820 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 3,884,236 | |
| | | | | | | | | | | | | | | | | | |
| | | Materials 0.0%† | | | | | | | | | | | | |
| a | | Verso Corp., A | | | United States | | | | 6,954 | | | | | | | | 48,748 | |
| a | | Verso Corp., wts., 7/25/23 | | | United States | | | | 732 | | | | | | | | 7 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 48,755 | |
| | | | | | | | | | | | | | | | | | |
| | | Retailing 0.0%† | | | | | | | | | | | | |
| a,ab,ac | | Holdco 2, A | | | South Africa | | | | 28,762,824 | | | | | | | | 20,361 | |
| a,ab,ac | | Holdco 2, B | | | South Africa | | | | 2,862,311 | | | | | | | | 2,026 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 22,387 | |
| | | | | | | | | | | | | | | | | | |
| | Total Common Stocks and Other Equity Interests
(Cost $15,051,463) | | | | | | | | | | | | | | | 11,165,517 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | Management Investment Companies 3.6% | | | | | | | | | | | | | | | | |
| | | Diversified Financials 3.6% | | | | | | | | | | | | |
| ad | | Franklin Flexible Alpha Bond Fund, Class R6 | | | United States | | | | 10,172,940 | | | | | | | | 100,203,459 | |
| ad | | Franklin Liberty Investment Grade Corporate ETF | | | United States | | | | 400,000 | | | | | | | | 9,912,000 | |
| ad | | Franklin Lower Tier Floating Rate Fund | | | United States | | | | 997,589 | | | | | | | | 10,394,878 | |
| ad | | Franklin Middle Tier Floating Rate Fund | | | United States | | | | 1,889,310 | | | | | | | | 18,553,026 | |
| | PowerShares Senior Loan Portfolio ETF | | | United States | | | | 1,000,000 | | | | | | | | 23,120,000 | |
| | | | | | | | | | | | | | | | | | |
| | Total Management Investment Companies
(Cost $160,841,460) | | | | | | | | | | | | | | | 162,183,363 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | Preferred Stocks (Cost $2,325,000) 0.1% | | | | | | | | | | | | | | | | |
| | | Diversified Financials 0.1% | | | | | | | | | | | | |
| b | | Citigroup Capital XIII, 7.681%, pfd. | | | United States | | | | 93,000 | | | | | | | | 2,531,460 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | Principal
Amount* | | | | | | | |
| | Corporate Bonds 36.7% | | | | | | | | | | | | | | | | |
| | | Automobiles & Components 0.3% | | | | | | | | | | | | |
| | Delphi Corp., senior bond, 4.15%, 3/15/24 | | | United Kingdom | | | | 5,100,000 | | | | | | | | 5,417,912 | |
| | Fiat Chrysler Automobiles NV, senior note, 4.50%, 4/15/20 | | | United Kingdom | | | | 3,000,000 | | | | | | | | 3,135,000 | |
| | Ford Motor Credit Co. LLC, senior note, 3.096%, 5/04/23 | | | United States | | | | 3,700,000 | | | | | | | | 3,698,634 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 12,251,546 | |
| | | | | | | | | | | | | | | | | | |
| | | Banks 6.0% | | | | | | | | | | | | |
| c | | Banca Monte dei Paschi di Siena SpA, secured note, Reg S, 2.125%, 11/26/25 | | | Italy | | | | 20,000,000 | | | | EUR | | | | 24,861,001 | |
| | Bank of America Corp., | | | | | | | | | | | | | | | | |
| | senior bond, 3.875%, 8/01/25 | | | United States | | | | 6,000,000 | | | | | | | | 6,297,656 | |
| | senior note, 3.50%, 4/19/26 | | | United States | | | | 20,400,000 | | | | | | | | 20,802,847 | |
| c | | Barclays Bank PLC, senior sub. bond, Reg S, 6.00%, 1/14/21 | | | United Kingdom | | | | 8,000,000 | | | | EUR | | | | 10,875,415 | |
| | Barclays PLC, sub. note, 4.375%, 9/11/24 | | | United Kingdom | | | | 500,000 | | | | | | | | 515,442 | |
| | CIT Group Inc., senior note, 5.00%, 8/15/22 | | | United States | | | | 1,647,000 | | | | | | | | 1,774,642 | |
| | Citigroup Inc., | | | | | | | | | | | | | | | | |
| | senior bond, 8.125%, 7/15/39 | | | United States | | | | 4,400,000 | | | | | | | | 6,912,739 | |
| | senior note, 3.40%, 5/01/26 | | | United States | | | | 20,000,000 | | | | | | | | 20,216,831 | |
| | | | |
| | | |
88 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin Total Return Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | | | | | Value | |
Corporate Bonds (continued) | | | | | | | | | | | | | | | | |
Banks (continued) | | | | | | | | | | | | | | | | |
HSBC Holdings PLC, | | | | | | | | | | | | | | | | |
senior note, 3.60%, 5/25/23 | | | United Kingdom | | | | 12,700,000 | | | | | | | $ | 13,237,908 | |
senior note, 4.30%, 3/08/26 | | | United Kingdom | | | | 14,800,000 | | | | | | | | 15,894,238 | |
Intesa Sanpaolo SpA, senior note, 3.875%, 1/16/18 | | | Italy | | | | 4,300,000 | | | | | | | | 4,317,591 | |
JPMorgan Chase & Co., | | | | | | | | | | | | | | | | |
d junior sub. bond, X, 6.10% to 10/01/24, FRN thereafter, Perpetual | | | United States | | | | 10,400,000 | | | | | | | | 11,609,000 | |
senior bond, 3.30%, 4/01/26 | | | United States | | | | 22,000,000 | | | | | | | | 22,191,035 | |
senior bond, 3.20%, 6/15/26 | | | United States | | | | 10,800,000 | | | | | | | | 10,800,988 | |
senior note, 2.40%, 6/07/21 | | | United States | | | | 10,000,000 | | | | | | | | 10,020,673 | |
senior note, 3.25%, 9/23/22 | | | United States | | | | 11,400,000 | | | | | | | | 11,738,082 | |
e Norddeutsche Landesbank Girozentrale, secured note, 144A, 2.00%, 2/05/19 | | | Germany | | | | 7,000,000 | | | | | | | | 7,010,080 | |
PHH Corp., senior note, 7.375%, 9/01/19 | | | United States | | | | 5,400,000 | | | | | | | | 5,832,000 | |
Royal Bank of Canada, secured note, 2.10%, 10/14/20 | | | Canada | | | | 11,500,000 | | | | | | | | 11,485,376 | |
e Shinhan Bank, senior note, 144A, 1.875%, 7/30/18 | | | South Korea | | | | 10,000,000 | | | | | | | | 9,965,250 | |
SVB Financial Group, senior note, 3.50%, 1/29/25 | | | United States | | | | 6,000,000 | | | | | | | | 6,041,885 | |
Wells Fargo & Co., | | | | | | | | | | | | | | | | |
d junior sub. bond, S, 5.90% to 6/15/24, FRN thereafter, Perpetual | | | United States | | | | 5,500,000 | | | | | | | | 6,037,900 | |
senior note, 3.00%, 4/22/26 | | | United States | | | | 4,200,000 | | | | | | | | 4,123,414 | |
sub. bond, 4.65%, 11/04/44 | | | United States | | | | 10,000,000 | | | | | | | | 10,758,009 | |
e Westpac Banking Corp., senior secured note, 144A, 2.25%, 11/09/20 | | | Australia | | | | 10,800,000 | | | | | | | | 10,822,896 | |
e Woori Bank, sub. note, 144A, 4.75%, 4/30/24 | | | South Korea | | | | 9,750,000 | | | | | | | | 10,232,479 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 274,375,377 | |
| | | | | | | | | | | | | | | | |
Capital Goods 1.8% | | | | | | | | | | | | | | | | |
Aircastle Ltd., senior note, 4.125%, 5/01/24 | | | United States | | | | 4,000,000 | | | | | | | | 4,100,000 | |
e Amcor Finance USA Inc., senior note, 144A, 3.625%, 4/28/26 | | | Australia | | | | 11,800,000 | | | | | | | | 11,719,170 | |
e Beacon Escrow Corp., senior note, 144A, 4.875%, 11/01/25 | | | United States | | | | 2,600,000 | | | | | | | | 2,648,750 | |
CNH Industrial Capital LLC, senior note, 3.875%, 10/15/21 | | | United States | | | | 3,400,000 | | | | | | | | 3,519,000 | |
General Electric Co., senior note, A, 8.50%, 4/06/18 | | | United States | | | | 135,000,000 | | | | MXN | | | | 7,057,140 | |
Lockheed Martin Corp., senior bond, 4.70%, 5/15/46 | | | United States | | | | 13,900,000 | | | | | | | | 15,830,363 | |
e Tennant Co., senior note, 144A, 5.625%, 5/01/25 | | | United States | | | | 2,600,000 | | | | | | | | 2,726,750 | |
e Terex Corp., senior note, 144A, 5.625%, 2/01/25 | | | United States | | | | 1,100,000 | | | | | | | | 1,172,875 | |
TransDigm Inc., senior sub. bond, 6.50%, 7/15/24 | | | United States | | | | 13,500,000 | | | | | | | | 13,972,500 | |
United Technologies Corp., senior note, 1.125%, 12/15/21 | | | United States | | | | 10,500,000 | | | | EUR | | | | 12,731,337 | |
e Vertiv Group Corp., senior note, 144A, 9.25%, 10/15/24 | | | United States | | | | 4,100,000 | | | | | | | | 4,510,000 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 79,987,885 | |
| | | | | | | | | | | | | | | | |
Commercial & Professional Services 0.4% | | | | | | | | | | | | | | | | |
e Multi-Color Corp., senior note, 144A, 4.875%, 11/01/25 | | | United States | | | | 6,000,000 | | | | | | | | 6,075,000 | |
e West Corp., senior note, 144A, 8.50%, 10/15/25 | | | United States | | | | 8,100,000 | | | | | | | | 7,963,312 | |
Republic Services Inc., senior note, 2.90%, 7/01/26 | | | United States | | | | 4,500,000 | | | | | | | | 4,410,971 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 18,449,283 | |
| | | | | | | | | | | | | | | | |
Consumer Durables & Apparel 0.2% | | | | | | | | | | | | | | | | |
Beazer Homes USA Inc., senior note, 5.75%, 6/15/19 | | | United States | | | | 5,252,000 | | | | | | | | 5,527,730 | |
PulteGroup Inc., senior bond, 5.00%, 1/15/27 | | | United States | | | | 4,900,000 | | | | | | | | 5,181,750 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 10,709,480 | |
| | | | | | | | | | | | | | | | |
Consumer Services 0.8% | | | | | | | | | | | | | | | | |
e 1011778 BC ULC/New Red Finance Inc., secured note, second lien, 144A, 5.00%, 10/15/25 | | | Canada | | | | 5,500,000 | | | | | | | | 5,610,000 | |
e Ascend Learning LLC, senior note, 144A, 6.875%, 8/01/25 | | | United States | | | | 1,500,000 | | | | | | | | 1,575,000 | |
Marriott International Inc., senior bond, 3.75%, 10/01/25 | | | United States | | | | 18,400,000 | | | | | | | | 19,087,426 | |
| | | | |
| | | |
franklintempleton.com | | Annual Report | | 89 |
FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin Total Return Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | | | | | Value | |
Corporate Bonds (continued) | | | | | | | | | | | | | | | | |
Consumer Services (continued) | | | | | | | | | | | | | | | | |
e Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., senior bond,
144A, 5.25%, 5/15/27 | | | United States | | | | 5,500,000 | | | | | | | $ | 5,623,750 | |
Yum! Brands Inc., senior note, 5.30%, 9/15/19 | | | United States | | �� | | 3,000,000 | | | | | | | | 3,161,250 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 35,057,426 | |
| | | | | | | | | | | | | | | | |
Diversified Financials 2.6% | | | | | | | | | | | | | | | | |
American Airlines Pass Through Trust, first lien, 2016-2, AA, 3.20%, 6/15/28 | | | United States | | | | 6,428,400 | | | | | | | | 6,442,542 | |
Capital One Bank USA NA, sub. bond, 3.375%, 2/15/23 | | | United States | | | | 6,000,000 | | | | | | | | 6,109,595 | |
Capital One Financial Corp., senior note, 3.20%, 2/05/25 | | | United States | | | | 9,700,000 | | | | | | | | 9,662,590 | |
e FirstCash Inc., senior note, 144A, 5.375%, 6/01/24 | | | United States | | | | 2,800,000 | | | | | | | | 2,939,160 | |
GE Capital International Funding Co., senior bond, 3.373%, 11/15/25 | | | United States | | | | 17,000,000 | | | | | | | | 17,435,429 | |
The Goldman Sachs Group Inc., | | | | | | | | | | | | | | | | |
senior note, 3.75%, 5/22/25 | | | United States | | | | 7,700,000 | | | | | | | | 7,948,500 | |
senior note, 3.75%, 2/25/26 | | | United States | | | | 21,300,000 | | | | | | | | 21,889,314 | |
Morgan Stanley, | | | | | | | | | | | | | | | | |
senior bond, 4.30%, 1/27/45 | | | United States | | | | 10,000,000 | | | | | | | | 10,565,618 | |
senior note, 3.875%, 1/27/26 | | | United States | | | | 20,500,000 | | | | | | | | 21,397,609 | |
Navient Corp., senior note, 7.25%, 9/25/23 | | | United States | | | | 4,000,000 | | | | | | | | 4,352,500 | |
Springleaf Finance Corp., senior note, 6.00%, 6/01/20 | | | United States | | | | 700,000 | | | | | | | | 735,875 | |
United Airlines Pass Through Trust, first lien, 2016-1, AA, 3.10%, 1/07/30 | | | United States | | | | 6,300,000 | | | | | | | | 6,342,336 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 115,821,068 | |
| | | | | | | | | | | | | | | | |
Energy 3.7% | | | | | | | | | | | | | | | | |
Anadarko Petroleum Corp., senior note, 6.45%, 9/15/36 | | | United States | | | | 2,260,000 | | | | | | | | 2,750,644 | |
e BG Energy Capital PLC, senior note, 144A, 5.125%, 10/15/41 | | | United Kingdom | | | | 500,000 | | | | | | | | 581,596 | |
e California Resources Corp., secured note, second lien, 144A, 8.00%, 12/15/22 | | | United States | | | | 4,000,000 | | | | | | | | 2,665,000 | |
Cheniere Corpus Christi Holdings LLC, | | | | | | | | | | | | | | | | |
senior secured note, first lien, 7.00%, 6/30/24 | | | United States | | | | 2,300,000 | | | | | | | | 2,636,375 | |
senior secured note, first lien, 5.875%, 3/31/25 | | | United States | | | | 1,600,000 | | | | | | | | 1,738,000 | |
e Cheniere Energy Partners LP, senior secured note, first lien, 144A, 5.25%, 10/01/25 | | | United States | | | | 4,000,000 | | | | | | | | 4,130,000 | |
CNOOC Finance 2013 Ltd., senior note, 3.00%, 5/09/23 | | | China | | | | 14,000,000 | | | | | | | | 14,076,370 | |
Enable Midstream Partners LP, | | | | | | | | | | | | | | | | |
senior bond, 5.00%, 5/15/44 | | | United States | | | | 1,200,000 | | | | | | | | 1,190,756 | |
senior note, 3.90%, 5/15/24 | | | United States | | | | 3,600,000 | | | | | | | | 3,634,640 | |
Energy Transfer Partners LP, senior bond, 5.15%, 2/01/43 | | | United States | | | | 6,000,000 | | | | | | | | 5,889,033 | |
EnLink Midstream Partners LP, senior bond, 5.05%, 4/01/45 | | | United States | | | | 6,200,000 | | | | | | | | 6,088,749 | |
Ensco PLC, senior bond, 5.75%, 10/01/44 | | | United States | | | | 3,700,000 | | | | | | | | 2,543,750 | |
Enterprise Products Operating LLC, senior bond, 4.45%, 2/15/43 | | | United States | | | | 6,000,000 | | | | | | | | 6,185,807 | |
Exxon Mobil Corp., senior note, 2.709%, 3/06/25 | | | United States | | | | 21,500,000 | | | | | | | | 21,664,940 | |
e,f Gaz Capital SA (OJSC Gazprom), loan participation, senior note, 144A, 3.85%, 2/06/20 | | | Russia | | | | 10,000,000 | | | | | | | | 10,163,950 | |
MPLX LP, senior bond, 4.00%, 2/15/25 | | | United States | | | | 4,600,000 | | | | | | | | 4,746,264 | |
Oceaneering International Inc., senior note, 4.65%, 11/15/24 | | | United States | | | | 7,900,000 | | | | | | | | 7,862,348 | |
e Petrofac Ltd., senior note, 144A, 3.40%, 10/10/18 | | | United Kingdom | | | | 7,600,000 | | | | | | | | 7,558,200 | |
Sabine Pass Liquefaction LLC, senior secured bond, first lien,
5.00%, 3/15/27 | | | United States | | | | 3,700,000 | | | | | | | | 3,983,399 | |
Sanchez Energy Corp., senior note, 6.125%, 1/15/23 | | | United States | | | | 3,000,000 | | | | | | | | 2,520,000 | |
e Sinopec Group Overseas Development 2014 Ltd., senior note,
144A, 4.375%, 4/10/24 | | | China | | | | 9,300,000 | | | | | | | | 10,018,100 | |
e Sinopec Group Overseas Development 2015 Ltd., senior note,
144A, 3.25%, 4/28/25 | | | China | | | | 16,400,000 | | | | | | | | 16,491,840 | |
| | | | |
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90 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin Total Return Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | | | | | Value | |
Corporate Bonds (continued) | | | | | | | | | | | | | | | | |
Energy (continued) | | | | | | | | | | | | | | | | |
Sunoco Logistics Partners Operations LP, senior note, 4.25%, 4/01/24 | | | United States | | | | 9,300,000 | | | | | | | $ | 9,631,467 | |
Transcontinental Gas Pipe Line Corp., senior note, 6.05%, 6/15/18 | | | United States | | | | 550,000 | | | | | | | | 562,929 | |
Valero Energy Corp., senior bond, 4.90%, 3/15/45 | | | United States | | | | 6,700,000 | | | | | | | | 7,377,570 | |
Weatherford International Ltd., | | | | | | | | | | | | | | | | |
senior note, 7.75%, 6/15/21 | | | United States | | | | 1,600,000 | | | | | | | | 1,654,000 | |
senior note, 8.25%, 6/15/23 | | | United States | | | | 2,000,000 | | | | | | | | 2,015,000 | |
e Woodside Finance Ltd., | | | | | | | | | | | | | | | | |
senior bond, 144A, 3.70%, 3/15/28 | | | Australia | | | | 5,500,000 | | | | | | | | 5,530,498 | |
senior note, 144A, 3.70%, 9/15/26 | | | Australia | | | | 4,000,000 | | | | | | | | 4,052,943 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 169,944,168 | |
| | | | | | | | | | | | | | | | |
Food & Staples Retailing 0.6% | | | | | | | | | | | | | | | | |
The Kroger Co., senior note, 4.00%, 2/01/24 | | | United States | | | | 15,400,000 | | | | | | | | 16,061,761 | |
Walgreen Co., senior bond, 3.10%, 9/15/22 | | | United States | | | | 9,100,000 | | | | | | | | 9,233,093 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 25,294,854 | |
| | | | | | | | | | | | | | | | |
Food, Beverage & Tobacco 1.5% | | | | | | | | | | | | | | | | |
Anheuser-Busch Inbev Finance Inc., senior bond, 3.65%, 2/01/26 | | | Belgium | | | | 17,000,000 | | | | | | | | 17,569,480 | |
Bunge Ltd. Finance Corp., senior note, 3.25%, 8/15/26 | | | United States | | | | 12,000,000 | | | | | | | | 11,666,226 | |
Coca-Cola Femsa SAB de CV, senior bond, 5.25%, 11/26/43 | | | Mexico | | | | 1,700,000 | | | | | | | | 1,984,717 | |
Kraft Heinz Foods Co., senior note, 3.50%, 7/15/22 | | | United States | | | | 21,400,000 | | | | | | | | 22,130,834 | |
e Lamb Weston Holdings Inc., | | | | | | | | | | | | | | | | |
senior note, 144A, 4.625%, 11/01/24 | | | United States | | | | 1,500,000 | | | | | | | | 1,575,000 | |
senior note, 144A, 4.875%, 11/01/26 | | | United States | | | | 1,600,000 | | | | | | | | 1,686,000 | |
Reynolds American Inc., senior bond, 5.70%, 8/15/35 | | | United Kingdom | | | | 9,300,000 | | | | | | | | 11,002,609 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 67,614,866 | |
| | | | | | | | | | | | | | | | |
Health Care Equipment & Services 1.0% | | | | | | | | | | | | | | | | |
Anthem Inc., senior bond, 3.30%, 1/15/23 | | | United States | | | | 1,900,000 | | | | | | | | 1,950,865 | |
e Avantor Inc., senior secured note, first lien, 144A, 6.00%, 10/01/24 | | | United States | | | | 2,400,000 | | | | | | | | 2,451,000 | |
e Catalent Pharma Solutions Inc., senior note, 144A, 4.875%, 1/15/26 | | | United States | | | | 5,700,000 | | | | | | | | 5,799,750 | |
CHS/Community Health Systems Inc., senior secured note, first lien, 6.25%, 3/31/23 | | | United States | | | | 5,000,000 | | | | | | | | 4,818,750 | |
HCA Inc., | | | | | | | | | | | | | | | | |
senior bond, 5.875%, 5/01/23 | | | United States | | | | 4,000,000 | | | | | | | | 4,295,000 | |
senior secured bond, first lien, 5.50%, 6/15/47 | | | United States | | | | 9,000,000 | | | | | | | | 9,180,000 | |
Medco Health Solutions Inc., senior note, 4.125%, 9/15/20 | | | United States | | | | 3,500,000 | | | | | | | | 3,669,998 | |
e MPH Acquisition Holdings LLC, senior note, 144A, 7.125%, 6/01/24 | | | United States | | | | 1,000,000 | | | | | | | | 1,078,750 | |
Stryker Corp., senior bond, 3.50%, 3/15/26 | | | United States | | | | 3,000,000 | | | | | | | | 3,100,163 | |
Tenet Healthcare Corp., senior note, 5.50%, 3/01/19 | | | United States | | | | 9,660,000 | | | | | | | | 9,841,125 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 46,185,401 | |
| | | | | | | | | | | | | | | | |
Household & Personal Products 0.6% | | | | | | | | | | | | | | | | |
Avon Products Inc., senior note, 6.60%, 3/15/20 | | | United Kingdom | | | | 16,500,000 | | | | | | | | 16,335,000 | |
The Clorox Co., senior bond, 3.10%, 10/01/27 | | | United States | | | | 12,500,000 | | | | | | | | 12,479,668 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 28,814,668 | |
| | | | | | | | | | | | | | | | |
Insurance 1.4% | | | | | | | | | | | | | | | | |
Aflac Inc., senior note, 0.932%, 1/25/27 | | | United States | | | | 1,400,000,000 | | | | JPY | | | | 12,267,820 | |
e Liberty Mutual Group Inc., senior note, 144A, 4.95%, 5/01/22 | | | United States | | | | 12,000,000 | | | | | | | | 13,117,481 | |
e Nuveen Finance LLC, senior note, 144A, 2.95%, 11/01/19 | | | United States | | | | 5,800,000 | | | | | | | | 5,891,945 | |
Prudential Financial Inc., senior note, 3.50%, 5/15/24 | | | United States | | | | 7,000,000 | | | | | | | | 7,304,803 | |
e Teachers Insurance & Annuity Assn. of America, sub. bond, 144A, 4.90%, 9/15/44 | | | United States | | | | 20,400,000 | | | | | | | | 23,210,294 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 61,792,343 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | |
franklintempleton.com | | Annual Report | | 91 |
FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin Total Return Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | | | | | Value | |
Corporate Bonds (continued) | | | | | | | | | | | | | | | | |
Materials 1.9% | | | | | | | | | | | | | | | | |
ArcelorMittal, senior note, 6.00%, 3/01/21 | | | France | | | | 5,000,000 | | | | | | | $ | 5,500,200 | |
e Ardagh Packaging Finance PLC/Ardagh MP Holdings USA Inc.,senior note, 144A, 6.00%, 2/15/25 | | | Luxembourg | | | | 6,000,000 | | | | | | | | 6,375,000 | |
e BWAY Holding Co., senior note, 144A, 7.25%, 4/15/25 | | | United States | | | | 7,000,000 | | | | | | | | 7,280,000 | |
e Cemex SAB de CV, senior secured bond, first lien, 144A, 5.70%, 1/11/25 | | | Mexico | | | | 6,000,000 | | | | | | | | 6,346,290 | |
The Chemours Co., senior note, 5.375%, 5/15/27 | | | United States | | | | 5,000,000 | | | | | | | | 5,350,000 | |
e First Quantum Minerals Ltd., senior note, 144A, 7.25%, 4/01/23 | | | Zambia | | | | 6,100,000 | | | | | | | | 6,481,250 | |
e FMG Resources (August 2006) Pty. Ltd., senior note, 144A, 5.125%, 5/15/24 | | | Australia | | | | 1,900,000 | | | | | | | | 1,951,547 | |
Freeport-McMoRan Inc., senior bond, 3.875%, 3/15/23 | | | United States | | | | 6,500,000 | | | | | | | | 6,443,125 | |
e Glencore Finance Canada Ltd., senior bond, 144A, 4.95%, 11/15/21 | | | Switzerland | | | | 4,700,000 | | | | | | | | 5,085,366 | |
LYB International Finance BV, senior note, 4.00%, 7/15/23 | | | United States | | | | 18,400,000 | | | | | | | | 19,461,680 | |
e New Gold Inc., senior note, 144A, 6.375%, 5/15/25 | | | Canada | | | | 1,800,000 | | | | | | | | 1,917,000 | |
e Northwest Acquisitions ULC/Dominion Finco Inc., secured note,second lien, 144A, 7.125%, 11/01/22 | | | United States | | | | 1,300,000 | | | | | | | | 1,355,250 | |
Reliance Steel & Aluminum Co., senior note, 4.50%, 4/15/23 | | | United States | | | | 5,600,000 | | | | | | | | 5,962,889 | |
e Reynolds Group Issuer Inc./Reynolds Group Issuer LLC/Reynolds | | | | | | | | | | | | | | | | |
Group Issuer Luxembourg SA,senior note, 144A, 7.00%, 7/15/24 | | | United States | | | | 800,000 | | | | | | | | 855,500 | |
senior secured note, first lien, 144A, 5.125%, 7/15/23 | | | United States | | | | 1,600,000 | | | | | | | | 1,668,000 | |
e SunCoke Energy Partners LP/SunCoke Energy Partners Finance | | | | | | | | | | | | | | | | |
Corp., senior note, 144A, 7.50%, 6/15/25 | | | United States | | | | 2,200,000 | | | | | | | | 2,321,000 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 84,354,097 | |
| | | | | | | | | | | | | | | | |
Media 1.3% | | | | | | | | | | | | | | | | |
21st Century Fox America Inc., | | | | | | | | | | | | | | | | |
senior bond, 6.90%, 8/15/39 | | | United States | | | | 1,800,000 | | | | | | | | 2,445,043 | |
senior bond, 7.90%, 12/01/95 | | | United States | | | | 500,000 | | | | | | | | 718,047 | |
senior note, 3.00%, 9/15/22 | | | United States | | | | 5,100,000 | | | | | | | | 5,197,753 | |
senior note, 3.70%, 10/15/25 | | | United States | | | | 2,300,000 | | | | | | | | 2,371,251 | |
e Altice U.S. Finance I Corp., senior secured bond, 144A, 5.50%, 5/15/26 | | | United States | | | | 7,000,000 | | | | | | | | 7,297,500 | |
e CCO Holdings LLC/CCO Holdings Capital Corp., | | | | | | | | | | | | | | | | |
senior bond, 144A, 5.375%, 5/01/25 | | | United States | | | | 4,000,000 | | | | | | | | 4,160,000 | |
senior bond, 144A, 5.00%, 2/01/28 | | | United States | | | | 1,500,000 | | | | | | | | 1,496,250 | |
CSC Holdings LLC, | | | | | | | | | | | | | | | | |
senior bond, 7.625%, 7/15/18 | | | United States | | | | 3,000,000 | | | | | | | | 3,097,500 | |
senior note, 8.625%, 2/15/19 | | | United States | | | | 9,000,000 | | | | | | | | 9,663,750 | |
NBCUniversal Media LLC, senior bond, 4.45%, 1/15/43 | | | United States | | | | 8,100,000 | | | | | | | | 8,660,290 | |
e Nexstar Broadcasting Inc., senior note, 144A, 5.625%, 8/01/24 | | | United States | | | | 1,600,000 | | | | | | | | 1,646,000 | |
Time Warner Inc., senior bond, 6.10%, 7/15/40 | | | United States | | | | 8,600,000 | | | | | | | | 9,955,923 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 56,709,307 | |
| | | | | | | | | | | | | | | | |
Pharmaceuticals, Biotechnology & Life Sciences 1.5% | | | | | | | | | | | | | | | | |
Actavis Funding SCS, senior bond, 4.55%, 3/15/35 | | | United States | | | | 13,400,000 | | | | | | | | 14,125,844 | |
Baxalta Inc., senior note, 3.60%, 6/23/22 | | | United States | | | | 8,300,000 | | | | | | | | 8,599,141 | |
Biogen Inc., senior bond, 5.20%, 9/15/45 | | | United States | | | | 18,200,000 | | | | | | | | 20,983,048 | |
g Celgene Corp., senior bond, 3.45%, 11/15/27 | | | United States | | | | 6,500,000 | | | | | | | | 6,500,000 | |
PerkinElmer Inc., senior note, 5.00%, 11/15/21 | | | United States | | | | 13,200,000 | | | | | | | | 14,263,382 | |
e Valeant Pharmaceuticals International Inc., | | | | | | | | | | | | | | | | |
senior bond, 144A, 6.125%, 4/15/25 | | | United States | | | | 4,800,000 | | | | | | | | 4,050,000 | |
senior note, first lien, 144A, 7.00%, 3/15/24 | | | United States | | | | 400,000 | | | | | | | | 434,000 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 68,955,415 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | |
92 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin Total Return Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | | | | | Value | |
Corporate Bonds (continued) | | | | | | | | | | | | | | | | |
Real Estate 1.7% | | | | | | | | | | | | | | | | |
American Tower Corp., | | | | | | | | | | | | | | | | |
senior bond, 3.50%, 1/31/23 | | | United States | | | | 12,700,000 | | | | | | | $ | 13,097,177 | |
senior bond, 4.40%, 2/15/26 | | | United States | | | | 9,400,000 | | | | | | | | 9,978,262 | |
Kimco Realty Corp., senior note, 3.30%, 2/01/25 | | | United States | | | | 7,800,000 | | | | | | | | 7,827,093 | |
MPT Operating Partnership LP/MPT Finance Corp., | | | | | | | | | | | | | | | | |
senior bond, 5.25%, 8/01/26 | | | United States | | | | 1,100,000 | | | | | | | | 1,150,798 | |
senior bond, 5.00%, 10/15/27 | | | United States | | | | 3,000,000 | | | | | | | | 3,090,000 | |
Prologis LP, senior bond, 3.75%, 11/01/25 | | | United States | | | | 9,400,000 | | | | | | | | 9,909,737 | |
Realty Income Corp., | | | | | | | | | | | | | | | | |
senior bond, 3.25%, 10/15/22 | | | United States | | | | 1,350,000 | | | | | | | | 1,379,852 | |
senior bond, 4.125%, 10/15/26 | | | United States | | | | 12,500,000 | | | | | | | | 13,037,291 | |
Senior Housing Properties Trust, senior note, 6.75%, 12/15/21 | | | United States | | | | 14,500,000 | | | | | | | | 16,158,276 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 75,628,486 | |
| | | | | | | | | | | | | | | | |
Retailing 1.3% | | | | | | | | | | | | | | | | |
e Amazon.com Inc., senior note, 144A, 2.80%, 8/22/24 | | | United States | | | | 6,400,000 | | | | | | | | 6,416,097 | |
Dollar General Corp., senior bond, 4.15%, 11/01/25 | | | United States | | | | 12,700,000 | | | | | | | | 13,565,150 | |
Home Depot Inc., senior note, 2.125%, 9/15/26 | | | United States | | | | 16,800,000 | | | | | | | | 15,812,546 | |
JD.com Inc., senior note, 3.125%, 4/29/21 | | | China | | | | 1,900,000 | | | | | | | | 1,906,859 | |
ac,h K2016470219 South Africa Ltd., senior secured note, 144A, PIK, 3.00%, 12/31/22 | | | South Africa | | | | 2,147,835 | | | | | | | | 63,797 | |
ac,h K2016740260 South Africa Ltd., senior secured note, 144A, PIK, 25.00%, 12/31/22 | | | South Africa | | | | 338,133 | | | | | | | | 288,713 | |
e PetSmart Inc., senior note, 144A, 7.125%, 3/15/23 | | | United States | | | | 16,500,000 | | | | | | | | 12,622,500 | |
Tiffany & Co., senior bond, 4.90%, 10/01/44 | | | United States | | | | 10,300,000 | | | | | | | | 10,148,626 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 60,824,288 | |
| | | | | | | | | | | | | | | | |
Semiconductors & Semiconductor Equipment 0.8% | | | | | | | | | | | | | | | | |
e Broadcom Corp./Broadcom Cayman Finance Ltd., senior note, 144A, 3.625%, 1/15/24 | | | United States | | | | 14,000,000 | | | | | | | | 14,459,788 | |
Maxim Integrated Products Inc., senior note, 3.375%, 3/15/23 | | | United States | | | | 22,000,000 | | | | | | | | 22,498,211 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 36,957,999 | |
| | | | | | | | | | | | | | | | |
Software & Services 0.8% | | | | | | | | | | | | | | | | |
Alibaba Group Holding Ltd., senior bond, 4.50%, 11/28/34 | | | China | | | | 10,000,000 | | | | | | | | 11,124,100 | |
e First Data Corp., secured note, first lien, 144A, 5.00%, 1/15/24 | | | United States | | | | 4,000,000 | | | | | | | | 4,170,000 | |
Fiserv Inc., senior bond, 3.85%, 6/01/25 | | | United States | | | | 9,300,000 | | | | | | | | 9,753,620 | |
Microsoft Corp., senior note, 2.40%, 8/08/26 | | | United States | | | | 12,000,000 | | | | | | | | 11,604,695 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 36,652,415 | |
| | | | | | | | | | | | | | | | |
Technology Hardware & Equipment 1.0% | | | | | | | | | | | | | | | | |
e Dell International LLC/EMC Corp., senior secured note, first lien, 144A, 3.48%, 6/01/19 | | | United States | | | | 12,000,000 | | | | | | | | 12,218,799 | |
Juniper Networks Inc., | | | | | | | | | | | | | | | | |
senior bond, 4.50%, 3/15/24 | | | United States | | | | 4,500,000 | | | | | | | | 4,776,894 | |
senior bond, 4.35%, 6/15/25 | | | United States | | | | 9,300,000 | | | | | | | | 9,766,622 | |
e Sanmina Corp., senior note, first lien, 144A, 4.375%, 6/01/19 | | | United States | | | | 11,100,000 | | | | | | | | 11,428,338 | |
Tech Data Corp., senior bond, 4.95%, 2/15/27 | | | United States | | | | 1,800,000 | | | | | | | | 1,893,346 | |
e Tempo Acquisition LLC/Tempo Acquisition Finance Corp., senior note, 144A, 6.75%, 6/01/25 | | | United States | | | | 5,500,000 | | | | | | | | 5,582,500 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 45,666,499 | |
| | | | | | | | | | | | | | | | |
Telecommunication Services 1.2% | | | | | | | | | | | | | | | | |
AT&T Inc., senior bond, 4.50%, 5/15/35 | | | United States | | | | 16,200,000 | | | | | | | | 15,829,079 | |
Hughes Satellite Systems Corp., senior bond, 6.625%, 8/01/26 | | | United States | | | | 4,500,000 | | | | | | | | 4,758,750 | |
Sprint Communications Inc., senior note, 6.00%, 11/15/22 | | | United States | | | | 3,000,000 | | | | | | | | 3,157,500 | |
Telefonica Emisiones S.A.U., senior note, 4.57%, 4/27/23 | | | Spain | | | | 9,000,000 | | | | | | | | 9,795,600 | |
| | | | |
| | | |
franklintempleton.com | | Annual Report | | 93 |
FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin Total Return Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | | Country | | | Principal
Amount* | | | | | | Value | |
| | | Corporate Bonds (continued) | | | | | | | | | | | | |
| | | Telecommunication Services (continued) | | | | | | | | | | | | |
| | Verizon Communications Inc., | | | | | | | | | | | | | | | | |
| | senior bond, 4.812%, 3/15/39 | | | United States | | | | 11,065,000 | | | | | | | $ | 11,397,858 | |
| | senior bond, 4.522%, 9/15/48 | | | United States | | | | 10,700,000 | | | | | | | | 10,302,280 | |
e Wind Acquisition Finance SA, secured note, second lien, 144A, 7.375%, 4/23/21 | | | Italy | | | | 800,000 | | | | | | | | 831,592 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 56,072,659 | |
| | | | | | | | | | | | | | | | | | |
| | | Transportation 0.7% | | | | | | | | | | | | |
e Aviation Capital Group Corp., senior bond, 144A, 7.125%, 10/15/20 | | | United States | | | | 6,000,000 | | | | | | | | 6,784,421 | |
| | Burlington Northern and Santa Fe 99-2 Trust, secured bond, 7.57%, 1/02/21 | | | United States | | | | 70,322 | | | | | | | | 73,849 | |
e DAE Funding LLC, | | | | | | | | | | | | | | | | |
| | senior note, 144A, 4.50%, 8/01/22 | | | United Arab Emirates | | | | 1,500,000 | | | | | | | | 1,520,820 | |
| | senior note, 144A, 5.00%, 8/01/24 | | | United Arab Emirates | | | | 1,900,000 | | | | | | | | 1,942,047 | |
e DP World Ltd., senior bond, 144A, 6.85%, 7/02/37 | | | United Arab Emirates | | | | 3,700,000 | | | | | | | | 4,591,052 | |
e Park Aerospace Holdings Ltd., | | | | | | | | | | | | | | | | |
| | senior note, 144A, 5.25%, 8/15/22 | | | Ireland | | | | 1,200,000 | | | | | | | | 1,248,096 | |
| | senior note, 144A, 5.50%, 2/15/24 | | | Ireland | | | | 1,800,000 | | | | | | | | 1,865,250 | |
e Sydney Airport Finance Co. Pty. Ltd., senior secured bond, first lien, 144A, 3.90%, 3/22/23 | | | Australia | | | | 5,800,000 | | | | | | | | 6,066,800 | |
e Transurban Finance Co. Pty. Ltd., senior secured bond, 144A, 4.125%, 2/02/26 | | | Australia | | | | 8,200,000 | | | | | | | | 8,571,829 | |
| | Union Pacific Railroad Co. 2005 Pass Through Trust, 2005-1, 5.082%, 1/02/29 | | | United States | | | | 159,647 | | | | | | | | 171,470 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 32,835,634 | |
| | | | | | | | | | | | | | | | | | |
| | | Utilities 3.6% | | | | | | | | | | | | |
| | Calpine Corp., senior note, 5.375%, 1/15/23 | | | United States | | | | 27,375,000 | | | | | | | | 26,724,844 | |
e Colbun SA, senior note, 144A, 3.95%, 10/11/27 | | | Chile | | | | 4,300,000 | | | | | | | | 4,306,407 | |
| | Commonwealth Edison Co., secured bond, 6.45%, 1/15/38 | | | United States | | | | 700,000 | | | | | | | | 963,223 | |
| | Dominion Energy Inc., senior bond, 3.90%, 10/01/25 | | | United States | | | | 12,200,000 | | | | | | | | 12,791,252 | |
| | Duke Energy Corp., senior bond, 3.15%, 8/15/27 | | | United States | | | | 18,400,000 | | | | | | | | 18,303,416 | |
e Dynegy Inc., senior note, 144A, 8.00%, 1/15/25 | | | United States | | | | 6,400,000 | | | | | | | | 7,032,000 | |
| d,e EDF SA, junior sub. note, 144A, 5.25% to 1/29/23, FRN thereafter, Perpetual | | | France | | | | 24,000,000 | | | | | | | | 24,978,840 | |
e Enogex LLC, senior note, 144A, 6.25%, 3/15/20 | | | United States | | | | 5,000,000 | | | | | | | | 5,328,026 | |
| | Georgia Power Co., senior bond, 4.30%, 3/15/42 | | | United States | | | | 9,000,000 | | | | | | | | 9,430,542 | |
| | Kinder Morgan Energy Partners LP, senior bond, 6.50%, 9/01/39 | | | United States | | | | 1,700,000 | | | | | | | | 1,973,320 | |
| | Sempra Energy, senior note, 3.75%, 11/15/25 | | | United States | | | | 8,200,000 | | | | | | | | 8,507,362 | |
| | The Southern Co., senior bond, 3.25%, 7/01/26 | | | United States | | | | 14,350,000 | | | | | | | | 14,295,957 | |
e State Grid Overseas Invesments 2016 Ltd., senior note, 144A, 3.50%, 5/04/27 | | | China | | | | 10,700,000 | | | | | | | | 10,937,593 | |
e Talen Energy Supply LLC, senior note, 144A, 9.50%, 7/15/22 | | | United States | | | | 6,100,000 | | | | | | | | 6,298,250 | |
e Three Gorges Finance I Cayman Islands Ltd., senior note, 144A, 3.70%, 6/10/25 | | | China | | | | 12,800,000 | | | | | | | | 13,272,000 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 165,143,032 | |
| | | | | | | | | | | | | | | | | | |
| | Total Corporate Bonds (Cost $1,626,463,430) | | | | | | | | | | | | | | | 1,666,098,196 | |
| | | | | | | | | | | | | | | | | | |
| i,j Senior Floating Rate Interests 2.6% | | | | | | | | | | | | |
| | | Automobiles & Components 0.0%† | | | | | | | | | | | | |
| | TI Group Automotive Systems LLC, Initial US Term Loan, 3.992%, (LIBOR + 2.75%), 6/30/22 | | | United States | | | | 1,199,210 | | | | | | | | 1,204,832 | |
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | |
94 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin Total Return Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | | | | | Value | |
| i,j Senior Floating Rate Interests (continued) | | | | | | | | | | | | |
Capital Goods 0.2% | | | | | | | | | | | | | | | | |
Allison Transmission Inc., Term Loans, 3.25%, (LIBOR + 2.00%), 9/23/22 | | | United States | | | | 6,217,255 | | | | | | | $ | 6,261,192 | |
Harsco Corp., Initial Term Loan, 6.25%, (LIBOR + 5.00%), 11/02/23 | | | United States | | | | 272,543 | | | | | | | | 277,539 | |
Leidos Innovations Corp., Term Loan B, 3.25%, (LIBOR + 2.00%), 8/16/23 | | | United States | | | | 193,166 | | | | | | | | 194,716 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 6,733,447 | |
| | | | | | | | | | | | | | | | |
Consumer Services 0.3% | | | | | | | | | | | | | | | | |
Aristocrat Technologies Inc., | | | | | | | | | | | | | | | | |
k,l New 2017 Term Loans, TBD, 10/19/24 | | | United States | | | | 630,000 | | | | | | | | 633,150 | |
Term B-2 Loans, 3.363%, (LIBOR + 2.00%), 10/20/21 | | | United States | | | | 158,005 | | | | | | | | 159,191 | |
Avis Budget Car Rental LLC, Tranche B Term Loan, 3.34%, (LIBOR + 2.00%), 3/15/22 | | | United States | | | | 5,076,730 | | | | | | | | 5,066,419 | |
Eldorado Resorts Inc., Initial Term Loan, 3.50%, (LIBOR + 2.25%), 4/17/24 | | | United States | | | | 3,404,937 | | | | | | | | 3,415,577 | |
Fitness International LLC, Term A Loan, 4.492%, (LIBOR + 3.25%), 4/01/20 | | | United States | | | | 1,996,136 | | | | | | | | 1,998,641 | |
Greektown Holdings LLC, Initial Term Loan, 4.242%, (LIBOR + 3.00%), 4/25/24 | | | United States | | | | 380,292 | | | | | | | | 382,253 | |
NVA Holdings Inc., Second Lien Term Loan, 8.333%, (LIBOR + 7.00%), 8/14/22 | | | United States | | | | 333,824 | | | | | | | | 337,162 | |
h Turtle Bay Holdings LLC, Term Loan B, PIK, 4.00%, (LIBOR + 2.75%), 12/31/18 | | | United States | | | | 717,479 | | | | | | | | 706,717 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 12,699,110 | |
| | | | | | | | | | | | | | | | |
Diversified Financials 0.0%† | | | | | | | | | | | | | | | | |
Russell Investments US Institutional Holdco Inc., Term Loan B, 5.485%, (LIBOR + 4.25%), 6/01/23 | | | United States | | | | 321,304 | | | | | | | | 325,655 | |
| | | | | | | | | | | | | | | | |
Energy 0.2% | | | | | | | | | | | | | | | | |
Bowie Resource Holdings LLC, | | | | | | | | | | | | | | | | |
First Lien Initial Term Loan, 6.992%, (LIBOR + 5.75%), 8/14/20 | | | United States | | | | 2,835,196 | | | | | | | | 2,799,756 | |
Second Lien Initial Term Loan, 11.992%, (LIBOR + 10.75%), 2/16/21 | | | United States | | | | 592,358 | | | | | | | | 584,954 | |
Fieldwood Energy LLC, Loans, 4.208%, (LIBOR + 2.875%), 10/01/18 | | | United States | | | | 6,287,342 | | | | | | | | 6,043,707 | |
Foresight Energy LLC, Term Loans, 7.083%, (LIBOR + 5.75%), 3/28/22 | | | United States | | | | 1,649,507 | | | | | | | | 1,560,846 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 10,989,263 | |
| | | | | | | | | | | | | | | | |
Food & Staples Retailing 0.1% | | | | | | | | | | | | | | | | |
Aramark Corp., U.S. Term A Loan, 2.992%, (LIBOR + 1.75%), 3/28/22 | | | United States | | | | 3,063,600 | | | | | | | | 3,079,877 | |
Smart & Final Stores LLC, First Lien Term Loan, 4.833%, (LIBOR + 3.50%), 11/15/22 | | | United States | | | | 1,556,745 | | | | | | | | 1,510,692 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 4,590,569 | |
| | | | | | | | | | | | | | | | |
Food, Beverage & Tobacco 0.2% | | | | | | | | | | | | | | | | |
JBS USA LUX SA, New Initial Term Loans, 3.739%, (LIBOR + 2.50%), 10/30/22 | | | Brazil | | | | 7,174,815 | | | | | | | | 7,071,677 | |
| | | | | | | | | | | | | | | | |
Health Care Equipment & Services 0.1% | | | | | | | | | | | | | | | | |
U.S. Renal Care Inc., Initial Term Loan, 5.583%, (LIBOR + 4.25%), 12/31/22 | | | United States | | | | 2,754,734 | | | | | | | | 2,670,370 | |
| | | | | | | | | | | | | | | | |
Household & Personal Products 0.1% | | | | | | | | | | | | | | | | |
Spectrum Brands Inc., USD Term Loans, 3.242% - 3.312%, (LIBOR + 2.00%), 6/23/22 | | | United States | | | | 2,709,958 | | | | | | | | 2,731,469 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | |
franklintempleton.com | | Annual Report | | 95 |
FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin Total Return Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | | Country | | | Principal
Amount* | | | | | | Value | |
| i,j Senior Floating Rate Interests (continued) | | | | | | | | | | | | |
| | | Materials 0.1% | | | | | | | | | | | | |
| | Chemours Co., Tranche B-1 US Term Loans, 3.75%, (LIBOR + 2.50%), 5/12/22 | | | United States | | | | 3,102,255 | | | | | | | $ | 3,136,188 | |
| | Cyanco Intermediate Corp., Initial Term Loan, 5.742%, (LIBOR + 4.50%), 5/01/20 | | | United States | | | | 543,052 | | | | | | | | 548,822 | |
| | OCI Beaumont LLC, Term B-3 Loan, 8.064%, (LIBOR + 6.75%), 8/20/19 | | | United States | | | | 1,024,983 | | | | | | | | 1,040,785 | |
| | Oxbow Carbon LLC, | | | | | | | | | | | | | | | | |
| | Tranche A-1 Term Loan, 4.242%, (LIBOR + 3.00%), 10/21/19 | | | United States | | | | 676,364 | | | | | | | | 676,786 | |
| | Tranche B Term Loan, 4.742%, (LIBOR + 3.50%), 1/19/20 | | | United States | | | | 948,692 | | | | | | | | 961,737 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 6,364,318 | |
| | | | | | | | | | | | | | | | | | |
| | | Media 0.1% | | | | | | | | | | | | |
| | Altice US Finance I Corp., March 2017 Refinancing Term Loan Commitments, 3.492%, (LIBOR + 2.25%), 7/28/25 | | | United States | | | | 234,323 | | | | | | | | 234,506 | |
| | AMC Entertainment Holdings Inc., | | | | | | | | | | | | | | | | |
| | 2016 Incremental Term Loans, 3.489%, (LIBOR + 2.25%), 12/15/23 | | | United States | | | | 90,848 | | | | | | | | 90,743 | |
k Initial Term Loans, 3.489%, (LIBOR + 2.25%), 12/15/22 | | | United States | | | | 1,550,657 | | | | | | | | 1,553,703 | |
| | CSC Holdings LLC (Cablevision), March 2017 Incremental Term Loans, 3.489%, (LIBOR + 2.25%), 7/17/25 | | | United States | | | | 1,093,820 | | | | | | | | 1,092,445 | |
| | Lions Gate Entertainment Corp., Term A Loan, 3.242%, (LIBOR + 2.00%), 12/08/21 | | | United States | | | | 3,403,125 | | | | | | | | 3,412,698 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 6,384,095 | |
| | | | | | | | | | | | | | | | | | |
| | | Pharmaceuticals, Biotechnology & Life Sciences 0.2% | | | | | | | | | | | | |
| | Endo Luxembourg Finance Co. I S.A.R.L. and Endo LLC, Initial Term Loans, 5.50%, (LIBOR + 4.25%), 4/29/24 | | | United States | | | | 3,031,358 | | | | | | | | 3,074,555 | |
| | Grifols Worldwide Operations USA Inc., Tranche B Term Loan, 3.452%, (LIBOR + 2.25%), 1/31/25 | | | United States | | | | 2,434,608 | | | | | | | | 2,445,950 | |
| | INC Research Holdings Inc., Initial Term B Loans, 3.492%, (LIBOR + 2.25%), 8/01/24 | | | United States | | | | 1,003,582 | | | | | | | | 1,009,959 | |
| | Quintiles IMS Inc., Term B-2 Dollar Loans, 3.321%, (LIBOR + 2.00%), 1/01/25 | | | United States | | | | 1,028,957 | | | | | | | | 1,036,461 | |
| | RPI Finance Trust, Term A-3 Loan, 3.083%, (LIBOR + 1.75%), 10/14/21 | | | United States | | | | 342,025 | | | | | | | | 342,667 | |
| | Valeant Pharmaceuticals International Inc., Series F Tranche B Term Loan, 5.99%, (LIBOR + 4.75%), 4/01/22 | | | United States | | | | 1,070,703 | | | | | | | | 1,092,652 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 9,002,244 | |
| | | | | | | | | | | | | | | | | | |
| | | Retailing 0.3% | | | | | | | | | | | | |
| | Ascena Retail Group Inc., Tranche B Term Loan, 5.75%, (LIBOR + 4.50%), 8/21/22 | | | United States | | | | 3,261,233 | | | | | | | | 2,844,408 | |
| | Dollar Tree Inc., Term A-1 Loans, 2.75%, (LIBOR + 1.50%), 7/06/20 . | | | United States | | | | 435,342 | | | | | | | | 434,384 | |
k Jo-Ann Stores Inc., Initial Loans, 6.551%, (LIBOR + 5.00%), 10/21/23 | | | United States | | | | 1,096,305 | | | | | | | | 1,050,398 | |
k PetSmart Inc., Tranche B-2 Loans, 4.24%, (LIBOR + 3.00%), 3/11/22 | | | United States | | | | 8,003,155 | | | | | | | | 6,896,470 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 11,225,660 | |
| | | | | | | | | | | | | | | | | | |
| | | Semiconductors & Semiconductor Equipment 0.0%† | | | | | | | | | | | | |
| | MKS Instruments Inc., Tranche B-3 Term Loans, 3.492%, (LIBOR + 2.25%), 4/29/23 | | | United States | | | | 131,838 | | | | | | | | 133,136 | |
| | ON Semiconductor Corp., 2017 Replacement Term Loans, 3.492%, (LIBOR + 2.25%), 3/31/23 | | | United States | | | | 1,761,328 | | | | | | | | 1,771,144 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 1,904,280 | |
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | |
96 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin Total Return Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | | | | | Value | |
| i,j Senior Floating Rate Interests (continued) | | | | | | | | | | | | |
Software & Services 0.0%† | | | | | | | | | | | | | | | | |
Global Payments Inc., Term A-2 Loan, 2.952%, (LIBOR + 1.75%), 5/02/22 | | | United States | | | | 735,969 | | | | | | | $ | 736,429 | |
Rackspace Hosting Inc., 2017 Refinancing Term B Loans, 4.311%,
(LIBOR + 3.00%), 11/03/23 | | | United States | | | | 455,384 | | | | | | | | 455,344 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 1,191,773 | |
| | | | | | | | | | | | | | | | |
Technology Hardware & Equipment 0.0%† | | | | | | | | | | | | | | | | |
Commscope Inc., Tranche 5 Term Loans, 3.242% - 3.38%, (LIBOR + 2.00%), 12/29/22 | | | United States | | | | 349,051 | | | | | | | | 352,096 | |
Western Digital Corp., US Term B-2 Loan, 3.99%, (LIBOR + 2.75%), 4/29/23 | | | United States | | | | 575,257 | | | | | | | | 579,392 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 931,488 | |
| | | | | | | | | | | | | | | | |
Telecommunication Services 0.0%† | | | | | | | | | | | | | | | | |
Consolidated Communications Inc., Initial Term Loan, 4.25%,
(LIBOR + 3.00%), 10/05/23 | | | United States | | | | 227,278 | | | | | | | | 224,011 | |
Global Tel*Link Corp., Term Loan, 5.333%, (LIBOR + 4.00%), 5/23/20 | | | United States | | | | 263,180 | | | | | | | | 266,429 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 490,440 | |
| | | | | | | | | | | | | | | | |
Transportation 0.3% | | | | | | | | | | | | | | | | |
Air Canada, Term Loan, 3.568%, (LIBOR + 2.25%), 10/06/23 | | | Canada | | | | 55,056 | | | | | | | | 55,457 | |
The Hertz Corp., Tranche B-1 Term Loan, 4.00%, (LIBOR + 2.75%), 6/30/23 | | | United States | | | | 3,969,849 | | | | | | | | 3,963,958 | |
Navios Maritime Midstream Partners LP, Term Loan, 5.83%,
(LIBOR + 4.50%), 6/18/20 | | | Marshall Islands | | | | 1,701,027 | | | | | | | | 1,696,775 | |
Navios Maritime Partners LP, Initial Term Loan, 6.32%,
(LIBOR + 5.00%), 9/14/20 | | | Greece | | | | 2,925,001 | | | | | | | | 2,921,953 | |
United Airlines Inc., Class B Term Loans, 3.63%, (LIBOR + 2.25%), 4/01/24 | | | United States | | | | 395,909 | | | | | | | | 398,235 | |
XPO Logistics Inc., Loans, 3.599%, (LIBOR + 2.25%), 11/01/21 | | | United States | | | | 2,375,250 | | | | | | | | 2,391,587 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 11,427,965 | |
| | | | | | | | | | | | | | | | |
Utilities 0.4% | | | | | | | | | | | | | | | | |
Calpine Construction Finance Co. LP, Term B-1 Loan, 3.50%,
(LIBOR + 2.25%), 5/03/20 | | | United States | | | | 7,670,734 | | | | | | | | 7,695,902 | |
EFS Cogen Holdings I LLC (Linden), Term B Advance, 4.84%,
(LIBOR + 3.50%), 6/28/23 | | | United States | | | | 5,071,083 | | | | | | | | 5,115,455 | |
Lightstone Holdco LLC, | | | | | | | | | | | | | | | | |
Initial Term B Loan, 5.742%, (LIBOR + 4.50%), 1/30/24 | | | United States | | | | 5,987,026 | | | | | | | | 6,023,044 | |
Initial Term C Loan, 5.742%, (LIBOR + 4.50%), 1/30/24 | | | United States | | | | 373,053 | | | | | | | | 375,297 | |
NRG Energy Inc., Term Loans, 3.583%, (LIBOR + 2.25%), 6/30/23 | | | United States | | | | 1,036,875 | | | | | | | | 1,040,118 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 20,249,816 | |
| | | | | | | | | | | | | | | | |
Total Senior Floating Rate Interests
(Cost $119,216,553) | | | | | | | | | | | | | | | 118,188,471 | |
| | | | | | | | | | | | | | | | |
Foreign Government and Agency Securities 2.0% | | | | | | | | | | | | | | | | |
The Export-Import Bank of Korea, senior note, 2.25%, 1/21/20 | | | South Korea | | | | 18,800,000 | | | | | | | | 18,714,084 | |
e Government of Lithuania, 144A, 7.375%, 2/11/20 | | | Lithuania | | | | 4,670,000 | | | | | | | | 5,226,104 | |
Government of Mexico, | | | | | | | | | | | | | | | | |
7.75%, 12/14/17 | | | Mexico | | | | 2,600,000 | m MXN | | | | | | | 13,572,948 | |
M, 4.75%, 6/14/18 | | | Mexico | | | | 2,940,000 | m MXN | | | | | | | 15,122,202 | |
senior note, 8.50%, 12/13/18 | | | Mexico | | | | 2,000,000 | m MXN | | | | | | | 10,583,209 | |
| | | | |
| | | |
franklintempleton.com | | Annual Report | | 97 |
FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin Total Return Fund (continued)
| | | | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | | | | Value | |
Foreign Government and Agency Securities (continued) | | | | | | | | | | | | | | |
e Government of Serbia, senior note, 144A, 4.875%, 2/25/20 | | | Serbia | | | | 6,000,000 | | | | | $ | 6,260,880 | |
e Government of Ukraine, | | | | | | | | | | | | | | |
144A, 7.75%, 9/01/20 | | | Ukraine | | | | 292,000 | | | | | | 311,527 | |
144A, 7.75%, 9/01/21 | | | Ukraine | | | | 229,000 | | | | | | 244,881 | |
144A, 7.75%, 9/01/22 | | | Ukraine | | | | 229,000 | | | | | | 245,333 | |
144A, 7.75%, 9/01/23 | | | Ukraine | | | | 229,000 | | | | | | 243,610 | |
144A, 7.75%, 9/01/24 | | | Ukraine | | | | 229,000 | | | | | | 240,534 | |
144A, 7.75%, 9/01/25 | | | Ukraine | | | | 229,000 | | | | | | 238,211 | |
144A, 7.75%, 9/01/26 | | | Ukraine | | | | 229,000 | | | | | | 236,586 | |
144A, 7.75%, 9/01/27 | | | Ukraine | | | | 229,000 | | | | | | 236,379 | |
a,n 144A, VRI, GDP Linked Security, 5/31/40 | | | Ukraine | | | | 474,000 | | | | | | 272,266 | |
e Government of Vietnam, 144A, 6.75%, 1/29/20 | | | Vietnam | | | | 5,120,000 | | | | | | 5,591,603 | |
o Nota Do Tesouro Nacional, Index Linked, 6.00%, 8/15/18 | | | Brazil | | | | 13,695 | p | | BRL | | | 12,967,014 | |
e Peru Enhanced Pass-Through Finance Ltd., senior secured bond, A-1, 144A, zero cpn., 5/31/18 | | | Peru | | | | 145,239 | | | | | | 143,337 | |
| | | | | | | | | | | | | | |
Total Foreign Government and Agency Securities
(Cost $100,636,024) | | | | | | | | | | | | | 90,450,708 | |
| | | | | | | | | | | | | | |
U.S. Government and Agency Securities 13.3% | | | | | | | | | | | | | | |
U.S. Treasury Bond, | | | | | | | | | | | | | | |
6.25%, 8/15/23 | | | United States | | | | 41,000,000 | | | | | | 50,286,660 | |
2.875%, 5/15/43 | | | United States | | | | 27,000,000 | | | | | | 27,133,418 | |
2.875%, 8/15/45 | | | United States | | | | 5,000,000 | | | | | | 5,004,297 | |
2.50%, 2/15/46 | | | United States | | | | 50,000,000 | | | | | | 46,330,078 | |
2.50%, 5/15/46 | | | United States | | | | 60,000,000 | | | | | | 55,537,526 | |
2.25%, 8/15/46 | | | United States | | | | 57,500,000 | | | | | | 50,377,662 | |
q Index Linked, 0.625%, 1/15/24 | | | United States | | | | 21,042,707 | | | | | | 21,442,874 | |
q Index Linked, 2.375%, 1/15/25 | | | United States | | | | 21,489,359 | | | | | | 24,497,417 | |
U.S. Treasury Note, | | | | | | | | | | | | | | |
3.125%, 5/15/21 | | | United States | | | | 90,000,000 | | | | | | 94,002,539 | |
2.125%, 6/30/21 | | | United States | | | | 50,000,000 | | | | | | 50,476,563 | |
2.00%, 8/31/21 | | | United States | | | | 30,000,000 | | | | | | 30,134,180 | |
2.00%, 11/30/22 | | | United States | | | | 36,900,000 | | | | | | 36,842,344 | |
2.125%, 12/31/22 | | | United States | | | | 37,000,000 | | | | | | 37,139,473 | |
q Index Linked, 0.125%, 7/15/24 | | | United States | | | | 77,025,549 | | | | | | 76,130,677 | |
| | | | | | | | | | | | | | |
Total U.S. Government and Agency Securities
(Cost $611,462,282) | | | | | | | | | | | | | 605,335,708 | |
| | | | | | | | | | | | | | |
Asset-Backed Securities and Commercial Mortgage-Backed Securities 17.5% | | | | | | | | | | | | | | |
Banks 0.7% | | | | | | | | | | | | | | |
Banc of America Commercial Mortgage Trust, 2006-4, AJ, 5.695%, 7/10/46 | | | United States | | | | 1,191,677 | | | | | | 1,199,272 | |
Citigroup Commercial Mortgage Trust, 2006-C5, AJ, 5.482%, 10/15/49 | | | United States | | | | 6,656,780 | | | | | | 6,261,369 | |
r Commercial Mortgage Trust, 2006-GG7, AJ, FRN, 5.766%, 7/10/38 | | | United States | | | | 8,491,000 | | | | | | 7,958,954 | |
Credit Suisse First Boston Mortgage Securities Corp., 2004-6, 3A1,
5.00%, 9/25/19 | | | United States | | | | 350,438 | | | | | | 360,860 | |
e,r CSMC, 2009-15R, 3A1, 144A, FRN, 3.21%, 3/26/36 | | | United States | | | | 2,601,907 | | | | | | 2,608,751 | |
s CWABS Inc. Asset-Backed Certificates, 2004-1, M1, FRN, 1.988%, (1-month USD LIBOR + 0.75%), 3/25/34 | | | United States | | | | 1,362,021 | | | | | | 1,372,411 | |
s FNMA, 2005-122, FN, FRN, 1.588%, (1-month USD LIBOR + 0.35%), 1/25/36 | | | United States | | | | 424,675 | | | | | | 426,416 | |
r GE Capital Commercial Mortgage Corp. Trust, 2007-C1, AM, FRN, 5.606%, 12/10/49 | | | United States | | | | 4,325,000 | | | | | | 4,387,943 | |
| | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin Total Return Fund (continued)
| | | | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | | | | Value | |
Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) | | | | | | | | | | | | | | |
Banks (continued) | | | | | | | | | | | | | | |
r Greenwich Capital Commercial Funding Corp., 2006-GG7, AM, FRN, 5.766%, 7/10/38 | | | United States | | | | 1,942,724 | | | | | $ | 1,958,363 | |
s Merrill Lynch Mortgage Investors Trust, 2003-A, 1A, FRN, 1.978%, (1-month USD LIBOR + 0.74%), 3/25/28 | | | United States | | | | 1,295,164 | | | | | | 1,248,266 | |
s Morgan Stanley ABS Capital I Inc. Trust, 2005-WMC, M2, FRN, 1.973%, (1-month USD LIBOR + 0.735%), 1/25/35 | | | United States | | | | 1,137,538 | | | | | | 1,140,189 | |
r Morgan Stanley Capital I Trust, 2007-IQ16, AM, FRN, 6.111%, 12/12/49 | | | United States | | | | 3,375,097 | | | | | | 3,381,419 | |
ab Weyerhaeuser Mortgage Co., 1984-A, 7.43%, 1/01/24 | | | United States | | | | 13,999 | | | | | | 13,999 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | 32,318,212 | |
| | | | | | | | | | | | | | |
Diversified Financials 16.7% | | | | | | | | | | | | | | |
s American Home Mortgage Investment Trust, 2004-3, 4A, FRN, 2.953%, (6-month USD LIBOR + 1.50%), 10/25/34 | | | United States | | | | 1,476,962 | | | | | | 1,464,893 | |
s Ameriquest Mortgage Securities Inc. Asset-Backed Pass-Through Certificates, 2004-R4, M1, FRN, 2.063%, (1-month USD LIBOR + 0.825%), 6/25/34 | | | United States | | | | 4,288,121 | | | | | | 4,322,735 | |
e,s AMMC CLO 21 Ltd., 2017-21A, C, 144A, FRN, 3.487%, (3-month USD LIBOR + 2.10%), 11/02/30 | | | United States | | | | 1,000,000 | | | | | | 1,003,230 | |
e ARCap REIT Inc., 2004-RR3, A2, 144A, 4.76%, 9/21/45 | | | United States | | | | 2,200,716 | | | | | | 2,219,356 | |
s Argent Securities Inc. Asset-Backed Pass-Through Certificates, 2005-W2, A2C, FRN, 1.598%, (1-month USD LIBOR + 0.36%), 10/25/35 | | | United States | | | | 3,195,319 | | | | | | 3,210,453 | |
e,s Atrium IX, 9A, AR, 144A, FRN, 2.557%, (3-month USD LIBOR + 1.24%), 5/28/30 | | | United States | | | | 4,500,000 | | | | | | 4,536,585 | |
e,s Atrium X, 10A, CR, 144A, FRN, 3.309%, (3-month USD LIBOR + 1.95%), 7/16/25 | | | United States | | | | 13,680,000 | | | | | | 13,743,612 | |
e,g,s Atrium XIII, | | | | | | | | | | | | | | |
2013A, C, 144A, FRN, 3.171%, (3-month USD LIBOR + 1.80%), 11/21/30 | | | United States | | | | 3,753,500 | | | | | | 3,753,500 | |
2013A, D, 144A, FRN, 4.071%, (3-month USD LIBOR + 2.70%), 11/21/30 | | | United States | | | | 5,500,000 | | | | | | 5,500,000 | |
2013-A, B, 144A, FRN, 2.871%, (3-month USD LIBOR + 1.50%), 11/21/30 | | | United States | | | | 2,700,000 | | | | | | 2,700,000 | |
e,s Ballyrock CLO LLC, 2014-1A, BR, 144A, FRN, 3.463%, (3-month USD LIBOR + 2.10%), 10/20/26 | | | United States | | | | 10,000,000 | | | | | | 10,045,600 | |
s Bear Stearns ALT-A Trust, 2004-13, A2, FRN, 2.118%, (1-month USD LIBOR + 0.88%), 11/25/34 | | | United States | | | | 588,273 | | | | | | 584,146 | |
e,s BlueMountain CLO Ltd., 2014, CL 3A, 144A, FRN, 2.499%, (3-month USD LIBOR + 1.14%), 10/15/26 | | | United States | | | | 8,100,000 | | | | | | 8,156,133 | |
e,s BlueMountain Fuji U.S. CLO II Ltd., 2017-2A, B, 144A, FRN, 3.481%, (3-month USD LIBOR + 2.15%), 10/20/30 | | | United States | | | | 4,010,000 | | | | | | 4,019,905 | |
e,s Carlyle Global Market Strategies CLO Ltd.,
2012-4A, AR, 144A, FRN, 2.813%, (3-month USD LIBOR + 1.45%), 1/20/29 | | | United States | | | | 6,280,000 | | | | | | 6,392,600 | |
2014-3A, A1AR, 144A, FRN, 2.524%, (3-month USD LIBOR + 1.15%), 7/27/26 | | | United States | | | | 1,250,000 | | | | | | 1,256,850 | |
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FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin Total Return Fund (continued)
| | | | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | | | | Value | |
Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) | | | | | | | | | | | | | | |
Diversified Financials (continued) | | | | | | | | | | | | | | |
e,s Carlyle U.S. CLO Ltd., | | | | | | | | | | | | | | |
2017-1A, A1A, 144A, FRN, 2.663%, (3-month USD LIBOR + 1.30%), 4/20/31 | | | United States | | | | 18,800,000 | | | | | $ | 18,929,156 | |
2017-2A, A1B, 144A, FRN, 2.551%, (3-month USD LIBOR + 1.22%), 7/20/31 | | | United States | | | | 10,650,000 | | | | | | 10,661,076 | |
2017-2A, B, 144A, FRN, 3.731%, (3-month USD LIBOR + 2.40%), 7/20/31 | | | United States | | | | 8,829,000 | | | | | | 8,903,164 | |
2017-3A, B, 144A, FRN, 3.638%, (3-month USD LIBOR + 2.35%), 7/20/29 | | | United States | | | | 1,000,000 | | | | | | 1,009,310 | |
g 2017-4A, C, 144A, FRN, 4.171%, (3-month USD LIBOR + 2.80%), 1/15/30 | | | United States | | | | 545,000 | | | | | | 545,000 | |
e,s Catamaran CLO Ltd., | | | | | | | | | | | | | | |
2013-1A, A, 144A, FRN, 2.524%, (3-month USD LIBOR + 1.15%), 1/27/25 | | | United States | | | | 8,188,997 | | | | | | 8,223,636 | |
2014-2A, BR, 144A, FRN, 4.304%, (3-month USD LIBOR + 2.95%), 10/18/26 | | | United States | | | | 6,401,000 | | | | | | 6,456,049 | |
e,s Cent CLO, 2013-17A, A1, 144A, FRN, 2.678%, (3-month USD LIBOR + 1.30%), 1/30/25 | | | United States | | | | 9,557,543 | | | | | | 9,569,681 | |
e,s Cent CLO 20 Ltd., | | | | | | | | | | | | | | |
13-20A, AR, 144A, FRN, 2.467%, (3-month USD LIBOR + 1.10%), 1/25/26 | | | United States | | | | 8,000,000 | | | | | | 8,015,920 | |
13-20A, CR, 144A, FRN, 3.717%, (3-month USD LIBOR + 2.35%), 1/25/26 | | | United States | | | | 3,500,000 | | | | | | 3,510,745 | |
e,s Cent CLO LP, | | | | | | | | | | | | | | |
2013-17A, B, 144A, FRN, 4.378%, (3-month USD LIBOR + 3.00%), 1/30/25 | | | United States | | | | 3,500,000 | | | | | | 3,509,905 | |
2014-22A, A1R, 144A, FRN, 2.722%, (3-month USD LIBOR + 1.41%), 11/07/26 | | | United States | | | | 6,280,000 | | | | | | 6,333,882 | |
s Chase Funding Trust, 2004-2, 2A2, FRN, 1.738%, (1-month USD LIBOR + 0.50%), 2/26/35 | | | United States | | | | 625,033 | | | | | | 608,320 | |
e,r Citigroup Mortgage Loan Trust, 2013-A, A, 144A, FRN, 3.00%, 5/25/42 | | | United States | | | | 1,863,441 | | | | | | 1,874,007 | |
e,s Colony American Homes, | | | | | | | | | | | | | | |
2014-1A, A, 144A, FRN, 2.387%, (1-month USD LIBOR + 1.15%), 5/17/31 | | | United States | | | | 8,972,461 | | | | | | 9,010,513 | |
2014-2A, C, 144A, FRN, 3.136%, (1-month USD LIBOR + 1.90%), 7/17/31 | | | United States | | | | 8,235,969 | | | | | | 8,287,632 | |
Conseco Financial Corp., 1996-9, M1, 7.63%, 8/15/27 | | | United States | | | | 2,342,591 | | | | | | 2,530,971 | |
e,s Dryden 31 Senior Loan Fund, 2014-31A, AR, 144A, FRN, 2.434%, (3-month USD LIBOR + 1.08%), 4/18/26 | | | United States | | | | 1,200,000 | | | | | | 1,203,420 | |
e,s Dryden 33 Senior Loan Fund, 2014-33A, AR, 144A, FRN, 2.789%, (3-month USD LIBOR + 1.43%), 10/15/28 | | | United States | | | | 12,185,000 | | | | | | 12,369,725 | |
e,s Dryden 34 Senior Loan Fund, 14-34A, AR, 144A, FRN, 2.519%, (3-month USD LIBOR + 1.16%), 10/15/26 | | | United States | | | | 19,310,000 | | | | | | 19,396,895 | |
e,s Dryden 38 Senior Loan Fund, 2015-38A, A, 144A, FRN, 2.789%, (3-month USD LIBOR + 1.43%), 7/15/27 | | | United States | | | | 21,757,143 | | | | | | 21,949,911 | |
e,s Dryden 49 Senior Loan Fund, | | | | | | | | | | | | | | |
2017-49A, A, 144A, FRN, 2.564%, (3-month USD LIBOR + 1.21%), 7/18/30 | | | United States | | | | 7,030,000 | | | | | | 7,062,479 | |
2017-49A, C, 144A, FRN, 3.704%, (3-month USD LIBOR + 2.35%), 7/18/30 | | | United States | | | | 5,320,000 | | | | | | 5,359,315 | |
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FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin Total Return Fund (continued)
| | | | | | | | | | | | | | | | |
| | | | | Country | | | Principal
Amount* | | | | | Value | |
| | Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) | | | | | | | | | | | | | | |
| | Diversified Financials (continued) | | | | | | | | | | | | | | |
| e,s | | Dryden 50 Senior Loan Fund, | | | | | | | | | | | | | | |
| | 2017-50A, A1, 144A, FRN, 2.477%, (3-month USD LIBOR + 1.22%), 7/15/30 | | | United States | | | | 5,660,000 | | | | | $ | 5,658,585 | |
| | 2017-50A, C, 144A, FRN, 3.507%, (3-month USD LIBOR + 2.25%), 7/15/30 | | | United States | | | | 2,600,000 | | | | | | 2,619,058 | |
| e,s | | Eaton Vance CDO Ltd., 2014-1A, AR, 144A, FRN, 2.559%, (3-month USD LIBOR + 1.20%), 7/15/26 | | | United States | | | | 10,096,000 | | | | | | 10,141,432 | |
| e,r | | Eleven Madison Trust Mortgage Trust, 2015-11MD, A, 144A, FRN, 3.673%, 9/10/35 | | | United States | | | | 3,255,000 | | | | | | 3,387,781 | |
| s | | FHLMC Structured Agency Credit Risk Debt Notes, | | | | | | | | | | | | | | |
| | 2014-DN1, M2, FRN, 3.438%, (1-month USD LIBOR + 2.20%), 2/25/24 | | | United States | | | | 3,042,575 | | | | | | 3,136,160 | |
| | 2014-DN3, M3, FRN, 5.238%, (1-month USD LIBOR + 4.00%), 8/25/24 | | | United States | | | | 17,312,192 | | | | | | 18,721,276 | |
| | 2014-DN4, M3, FRN, 5.788%, (1-month USD LIBOR + 4.55%), 10/25/24 | | | United States | | | | 8,730,888 | | | | | | 9,514,423 | |
| | 2015-DN1, M3, FRN, 5.388%, (1-month USD LIBOR + 4.15%), 1/25/25 | | | United States | | | | 14,860,000 | | | | | | 16,029,978 | |
| | 2015-DNA2, M3, FRN, 5.138%, (1-month USD LIBOR + 3.90%), 12/25/27 | | | United States | | | | 21,828,000 | | | | | | 23,979,276 | |
| | 2015-DNA3, M2, FRN, 4.088%, (1-month USD LIBOR + 2.85%), 4/25/28 | | | United States | | | | 21,026,506 | | | | | | 21,792,826 | |
| | 2015-HQ1, M3, FRN, 5.038%, (1-month USD LIBOR + 3.80%), 3/25/25 | | | United States | | | | 23,111,666 | | | | | | 25,093,491 | |
| | 2015-HQA1, M2, FRN, 3.888%, (1-month USD LIBOR + 2.65%), 3/25/28 | | | United States | | | | 22,822,653 | | | | | | 23,345,206 | |
| | 2015-HQA2, M2, FRN, 4.038%, (1-month USD LIBOR + 2.80%), 5/25/28 | | | United States | | | | 2,971,006 | | | | | | 3,070,943 | |
| | 2016-DNA1, M2, FRN, 4.138%, (1-month USD LIBOR + 2.90%), 7/25/28 | | | United States | | | | 6,800,000 | | | | | | 7,015,232 | |
| | 2016-DNA2, M2, FRN, 3.438%, (1-month USD LIBOR + 2.20%), 10/25/28 | | | United States | | | | 35,270,000 | | | | | | 35,818,226 | |
| | 2016-HQA1, M2, FRN, 3.988%, (1-month USD LIBOR + 2.75%), 9/25/28 | | | United States | | | | 13,900,000 | | | | | | 14,335,026 | |
| | 2016-HQA2, M2, FRN, 3.488%, (1-month USD LIBOR + 2.25%), 11/25/28 | | | United States | | | | 22,018,000 | | | | | | 22,654,875 | |
| | 2016-HQA3, M2, FRN, 2.588%, (1-month USD LIBOR + 1.35%), 3/25/29 | | | United States | | | | 2,250,000 | | | | | | 2,277,800 | |
| e,s | | Flagship CLO VIII Ltd., | | | | | | | | | | | | | | |
| | 2014-8A, AR, 144A, FRN, 2.609%, (3-month USD LIBOR + 1.25%), 1/16/26 | | | United States | | | | 5,900,000 | | | | | | 5,926,019 | |
| | 2014-8A, D, 144A, FRN, 5.059%, (3-month USD LIBOR + 3.70%), 1/16/26 | | | United States | | | | 3,900,000 | | | | | | 3,918,525 | |
| s | | FNMA Connecticut Avenue Securities, | | | | | | | | | | | | | | |
| | 2014-C02, 2M2, FRN, 3.838%, (1-month USD LIBOR + 2.60%), 5/25/24 | | | United States | | | | 3,830,000 | | | | | | 3,987,873 | |
| | 2014-C03, 1M2, FRN, 4.238%, (1-month USD LIBOR + 3.00%), 7/25/24 | | | United States | | | | 13,960,000 | | | | | | 14,758,587 | |
| | 2014-C04, 1M1, FRN, 6.138%, (1-month USD LIBOR + 4.90%), 11/25/24 | | | United States | | | | 6,656,419 | | | | | | 7,564,432 | |
| | 2014-C04, 2M2, FRN, 6.238%, (1-month USD LIBOR + 5.00%), 11/25/24 | | | United States | | | | 3,696,024 | | | | | | 4,152,654 | |
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FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin Total Return Fund (continued)
| | | | | | | | | | | | | | | | |
| | | | | Country | | | Principal
Amount* | | | | | Value | |
| | Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) | | | | | | | | | | | | | | |
| | | Diversified Financials (continued) | | | | | | | | | | | |
| s | | FNMA Connecticut Avenue Securities, (continued) | | | | | | | | | | | | | | |
| | 2015-C01, 1M2, FRN, 5.538%, (1-month USD LIBOR + 4.30%), 2/25/25 | | | United States | | | | 4,375,663 | | | | | $ | 4,708,940 | |
| | 2015-C01, 2M2, FRN, 5.788%, (1-month USD LIBOR + 4.55%), 2/25/25 | | | United States | | | | 18,579,028 | | | | | | 19,858,551 | |
| | 2015-C02, 1M2, FRN, 5.238%, (1-month USD LIBOR + 4.00%), 5/25/25 | | | United States | | | | 8,258,252 | | | | | | 8,856,456 | |
| | 2015-C02, 2M2, FRN, 5.238%, (1-month USD LIBOR + 4.00%), 5/25/25 | | | United States | | | | 4,162,244 | | | | | | 4,410,039 | |
| | 2015-C03, 1M2, FRN, 6.238%, (1-month USD LIBOR + 5.00%), 7/25/25 | | | United States | | | | 8,914,906 | | | | | | 9,859,479 | |
| | 2015-C03, 2M2, FRN, 6.238%, (1-month USD LIBOR + 5.00%), 7/25/25 | | | United States | | | | 5,163,447 | | | | | | 5,649,087 | |
| | 2017-C01, 1B1, FRN, 6.988%, (1-month USD LIBOR + 5.75%), 7/25/29 | | | United States | | | | 5,375,000 | | | | | | 6,078,985 | |
| e | | G-Force LLC, 2005-RRA, C, 144A, 5.20%, 8/22/36 | | | United States | | | | 7,857,432 | | | | | | 7,762,290 | |
| e,s | | Gilbert Park CLO Ltd., | | | | | | | | | | | | | | |
| | 2017-1A, B, 144A, FRN, 2.965%, (3-month USD LIBOR + 1.60%), 10/15/30 | | | United States | | | | 1,000,000 | | | | | | 1,002,490 | |
| | 2017-1A, D, 144A, FRN, 4.315%, (3-month USD LIBOR + 2.95%), 10/15/30 | | | United States | | | | 2,600,000 | | | | | | 2,594,150 | |
| t | | GMAC Commercial Mortgage Securities Inc. Trust, 2005-C1, B, 4.936%, 5/10/43 | | | United States | | | | 3,828,253 | | | | | | 195,797 | |
| s | | GSAA Home Equity Trust, 2005-5, M3, FRN, 2.183%, (1-month USD LIBOR + 0.945%), 2/25/35 | | | United States | | | | 2,725,610 | | | | | | 2,709,781 | |
| s | | Home Equity Mortgage Trust, 2004-4, M3, FRN, 2.213%, (1-month USD LIBOR + 0.975%), 12/25/34 | | | United States | | | | 2,151,238 | | | | | | 2,148,017 | |
| e,s | | Invitation Homes Trust, | | | | | | | | | | | | | | |
| | 2014-SFR3, C, 144A, FRN, 3.737%, (1-month USD LIBOR + 2.50%), 12/17/31 | | | United States | | | | 245,367 | | | | | | 246,755 | |
| | 2015-SFR1, B, 144A, FRN, 3.087%, (1-month USD LIBOR + 1.85%), 3/17/32 | | | United States | | | | 7,400,000 | | | | | | 7,422,930 | |
| | 2015-SFR2, C, 144A, FRN, 3.237%, (1-month USD LIBOR + 2.00%), 6/17/32 | | | United States | | | | 2,340,000 | | | | | | 2,350,372 | |
| | 2015-SFR3, C, 144A, FRN, 3.237%, (1-month USD LIBOR + 2.00%), 8/17/32 | | | United States | | | | 10,402,000 | | | | | | 10,450,080 | |
| e,s | | Katonah Ltd., 2007-IA, A2L, 144A, FRN, 2.863%, (3-month USD LIBOR + 1.50%), 4/23/22 | | | United States | | | | 2,745,938 | | | | | | 2,756,345 | |
| e,s | | LCM XXIII Ltd., 23A, A2, 144A, FRN, 3.213%, (3-month USD LIBOR + 1.85%), 10/20/29 | | | United States | | | | 2,000,000 | | | | | | 2,023,940 | |
| e,s | | LCM XXV Ltd., 25A, C2, 144A, FRN, 3.00%, (3-month USD LIBOR + 2.30%), 7/20/30 | | | United States | | | | 443,666 | | | | | | 445,059 | |
| e,s | | Madison Park Funding XXIII Ltd., | | | | | | | | | | | | | | |
| | 2017-23A, B, 144A, FRN, 3.009%, (3-month USD LIBOR + 1.70%), 7/27/30 | | | United States | | | | 3,840,000 | | | | | | 3,880,819 | |
| | 2017-23A, C, 144A, FRN, 3.659%, (3-month USD LIBOR + 2.35%), 7/27/30 | | | United States | | | | 1,000,000 | | | | | | 1,004,876 | |
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FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin Total Return Fund (continued)
| | | | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | | | | Value | |
Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) | | | | | | | | | | | | | | |
Diversified Financials (continued) | | | | | | | | | | | | | | |
e,s Magnetite XVIII Ltd., 2016-18A, B, 144A, FRN, 3.065%, (3-month USD LIBOR + 1.75%), 11/15/28 | | | United States | | | | 6,000,000 | | | | | $ | 6,045,480 | |
r Merrill Lynch Mortgage Investors Trust, 2004-A1, M1, FRN, 3.385%, 2/25/34 | | | United States | | | | 1,407,791 | | | | | | 1,191,418 | |
e,g,s Neuberger Berman CLO Ltd., 2017-26A, B, 144A, FRN, 2.871%, (3-month USD LIBOR + 1.50%), 10/18/30 | | | United States | | | | 5,772,370 | | | | | | 5,772,370 | |
e,s NZCG Funding Ltd., 2015-2A, A1, 144A, FRN, 2.924%, (3-month USD LIBOR + 1.55%), 4/01/27 | | | United States | | | | 18,215,625 | | | | | | 18,372,279 | |
e,s Octagon Investment Partners 31 LLC, 2017-1A, C, 144A, FRN, 3.763%, (3-month USD LIBOR + 2.40%), 7/20/30 | | | United States | | | | 1,707,068 | | | | | | 1,716,969 | |
e,g,s Octagon Investment Partners 33 Ltd., | | | | | | | | | | | | | | |
2017-1A, A2, 144A, FRN, 2.871%, (3-month USD LIBOR + 1.50%), 1/20/31 | | | United States | | | | 400,000 | | | | | | 400,000 | |
2017-1A, C, 144A, FRN, 4.121%, (3-month USD LIBOR + 2.75%), 1/20/31 | | | United States | | | | 2,800,000 | | | | | | 2,800,000 | |
e,s Octagon Investment Partners XX Ltd., 2014-1A, AR, 144A, FRN, 2.439%, (3-month USD LIBOR + 1.13%), 8/12/26 | | | United States | | | | 4,000,000 | | | | | | 4,021,480 | |
e,s Octagon Investment Partners XXIII Ltd., | | | | | | | | | | | | | | |
2015-1A, A1, 144A, FRN, 2.779%, (3-month USD LIBOR + 1.42%), 7/15/27 | | | United States | | | | 7,581,042 | | | | | | 7,628,120 | |
2015-1A, A2, 144A, FRN, 2.779%, (3-month USD LIBOR + 1.42%), 7/15/27 | | | United States | | | | 7,197,192 | | | | | | 7,240,087 | |
e,s TCI-Cent CLO Income Note Issuer Ltd., 2017-1A, B, 144A, FRN, 3.717%, (3-month USD LIBOR + 2.35%), 7/25/30 | | | United States | | | | 3,069,687 | | | | | | 3,092,556 | |
e,g TCI-Flatiron CLO Ltd.,
| | | | | | | | | | | | | | |
s 2017-1A, B, 144A, FRN, 2.931%, (3-month USD LIBOR + 1.56%), 11/17/30 | | | United States | | | | 3,500,000 | | | | | | 3,500,000 | |
u 2017-1A, C, 144A, FRN, 11/17/30 | | | United States | | | | 2,800,000 | | | | | | 2,800,000 | |
u 2017-1A, D, 144A, FRN, 11/17/30 | | | United States | | | | 11,800,000 | | | | | | 11,800,000 | |
e,r Towd Point Mortgage Trust, | | | | | | | | | | | | | | |
2017-1, A2, 144A, FRN, 3.50%, 10/25/56 | | | United States | | | | 8,862,000 | | | | | | 9,135,449 | |
2017-2, A1, 144A, FRN, 2.75%, 4/25/57 | | | United States | | | | 6,072,475 | | | | | | 6,110,628 | |
e,s Voya CLO Ltd., | | | | | | | | | | | | | | |
2015-1A, A1, 144A, FRN, 2.834%, (3-month USD LIBOR + 1.48%), 4/18/27 | | | United States | | | | 7,745,000 | | | | | | 7,760,490 | |
2015-2A, A, 144A, FRN, 2.763%, (3-month USD LIBOR + 1.40%), 7/23/27 | | | United States | | | | 4,840,000 | | | | | | 4,880,414 | |
2017-3A, B, 144A, FRN, 3.668%, (3-month USD LIBOR + 2.35%), 7/20/30 | | | United States | | | | 3,091,704 | | | | | | 3,111,275 | |
Wells Fargo Mortgage Backed Securities Trust, | | | | | | | | | | | | | | |
r 2004-W, A9, FRN, 3.616%, 11/25/34 | | | United States | | | | 1,158,645 | | | | | | 1,186,747 | |
t 2007-3, 3A1, 5.50%, 4/25/22 | | | United States | | | | 155,487 | | | | | | 158,993 | |
e,s West CLO Ltd., | | | | | | | | | | | | | | |
2014-1A, A2R, 144A, FRN, 2.704%, (3-month USD LIBOR + 1.35%), 7/18/26 | | | United States | | | | 2,860,000 | | | | | | 2,878,075 | |
2014-1A, BR, 144A, FRN, 3.204%, (3-month USD LIBOR + 1.85%), 7/18/26 | | | United States | | | | 5,060,000 | | | | | | 5,097,748 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | 760,245,810 | |
| | | | | | | | | | | | | | |
Real Estate 0.1% | | | | | | | | | | | | | | |
e Colony MFM Trust, 2014-1, A, 144A, 2.543%, 4/20/50 | | | United States | | | | 2,537,280 | | | | | | 2,526,032 | |
| | | | | | | | | | | | | | |
Total Asset-Backed Securities and Commercial Mortgage-Backed Securities (Cost $787,620,847) | | | | | | | | | | | | | 795,090,054 | |
| | | | | | | | | | | | | | |
| | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin Total Return Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | | | | | Value | |
Mortgage-Backed Securities 24.7% | | | | | | | | | | | | | | | | |
v Federal Home Loan Mortgage Corp. (FHLMC) Adjustable Rate 0.1% | | | | | | | | | | | | | | | | |
FHLMC, 1.957%, (11th District COF +/- MBS Margin), 11/01/27 | | | United States | | | | 1,542,166 | | | | | | | $ | 1,555,974 | |
| | | | | | | | | | | | | | | | |
Federal Home Loan Mortgage Corp. (FHLMC) Fixed Rate 10.9% | | | | | | | | | | | | | | | | |
FHLMC 30 Year, 6.00%, 6/01/37 | | | United States | | | | 43,225 | | | | | | | | 48,919 | |
FHLMC 30 Year, 6.50%, 8/01/25 - 11/01/31 | | | United States | | | | 89,851 | | | | | | | | 99,718 | |
FHLMC 30 Year, 7.00%, 7/01/31 | | | United States | | | | 6,392 | | | | | | | | 6,699 | |
FHLMC 30 Year, 8.00%, 2/01/30 | | | United States | | | | 24,672 | | | | | | | | 28,868 | |
FHLMC 30 Year, 8.50%, 10/01/24 | | | United States | | | | 4,769 | | | | | | | | 5,289 | |
FHLMC Gold 15 Year, 5.00%, 9/01/18 | | | United States | | | | 7,559 | | | | | | | | 7,701 | |
FHLMC Gold 15 Year, 5.50%, 11/01/22 | | | United States | | | | 111,761 | | | | | | | | 115,836 | |
FHLMC Gold 15 Year, 6.00%, 10/01/21 - 9/01/22 | | | United States | | | | 330,471 | | | | | | | | 346,313 | |
FHLMC Gold 30 Year, 3.00%, 9/01/46 | | | United States | | | | 106,467,692 | | | | | | | | 106,744,202 | |
w FHLMC Gold 30 Year, 3.00%, 11/01/47 | | | United States | | | | 15,000,000 | | | | | | | | 15,011,565 | |
FHLMC Gold 30 Year, 3.50%, 6/01/47 | | | United States | | | | 96,062,098 | | | | | | | | 98,834,889 | |
w FHLMC Gold 30 Year, 3.50%, 11/01/47 | | | United States | | | | 30,300,000 | | | | | | | | 31,146,271 | |
FHLMC Gold 30 Year, 4.00%, 8/01/47 | | | United States | | | | 212,059,007 | | | | | | | | 222,679,774 | |
FHLMC Gold 30 Year, 4.50%, 3/01/39 | | | United States | | | | 2,135,325 | | | | | | | | 2,287,014 | |
FHLMC Gold 30 Year, 5.00%, 8/01/33 - 2/01/39 | | | United States | | | | 12,376,387 | | | | | | | | 13,508,045 | |
FHLMC Gold 30 Year, 5.50%, 1/01/35 - 12/01/37 | | | United States | | | | 967,539 | | | | | | | | 1,071,992 | |
FHLMC Gold 30 Year, 6.00%, 5/01/33 - 4/01/38 | | | United States | | | | 1,352,892 | | | | | | | | 1,526,215 | |
FHLMC Gold 30 Year, 6.50%, 4/01/28 - 3/01/39 | | | United States | | | | 999,988 | | | | | | | | 1,118,338 | |
FHLMC Gold 30 Year, 7.00%, 1/01/28 - 7/01/32 | | | United States | | | | 76,442 | | | | | | | | 85,837 | |
FHLMC Gold 30 Year, 7.50%, 3/01/32 | | | United States | | | | 18,313 | | | | | | | | 21,357 | |
FHLMC Gold 30 Year, 8.50%, 8/01/30 | | | United States | | | | 2,488 | | | | | | | | 2,781 | |
FHLMC Gold 30 Year, 9.00%, 1/01/22 | | | United States | | | | 644 | | | | | | | | 649 | |
FHLMC Gold 30 Year, 10.00%, 10/01/30 | | | United States | | | | 7,494 | | | | | | | | 7,524 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 494,705,796 | |
| | | | | | | | | | | | | | | | |
v Federal National Mortgage Association (FNMA) Adjustable Rate 0.1% | | | | | | | | | | | | | | | | |
FNMA, 2.837%, (6-month USD LIBOR +/- MBS Margin), 10/01/32 | | | United States | | | | 180,371 | | | | | | | | 183,607 | |
FNMA, 2.969% - 3.35%, (12-month USD LIBOR +/- MBS Margin), 2/01/34 - 3/01/37 | | | United States | | | | 1,208,744 | | | | | | | | 1,261,015 | |
FNMA, 2.80% - 3.667%, (US 1 Year CMT T-Note +/- MBS Margin), 5/01/25 - 10/01/36 | | | United States | | | | 355,398 | | | | | | | | 375,167 | |
FNMA, 3.668%, (US 3 Year CMT T-Note +/- MBS Margin), 12/01/24 . | | | United States | | | | 11,329 | | | | | | | | 11,627 | |
FNMA, 1.957% - 4.107%, (11th District COF +/- MBS Margin), 12/01/27 - 9/01/34 | | | United States | | | | 3,461,531 | | | | | | | | 3,591,040 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 5,422,456 | |
| | | | | | | | | | | | | | | | |
Federal National Mortgage Association (FNMA) Fixed Rate 9.7% | | | | | | | | | | | | | | | | |
w FNMA 15 Year, 3.00%, 11/01/32 | | | United States | | | | 110,900,000 | | | | | | | | 113,610,775 | |
FNMA 15 Year, 4.50%, 3/01/19 - 6/01/19 | | | United States | | | | 34,100 | | | | | | | | 34,693 | |
FNMA 15 Year, 5.00%, 6/01/18 - 7/01/18 | | | United States | | | | 9,198 | | | | | | | | 9,351 | |
FNMA 15 Year, 5.50%, 1/01/18 - 12/01/23 | | | United States | | | | 123,604 | | | | | | | | 129,588 | |
FNMA 15 Year, 6.00%, 9/01/22 | | | United States | | | | 57,098 | | | | | | | | 58,853 | |
FNMA 30 Year, 3.00%, 8/01/46 | | | United States | | | | 105,331,176 | | | | | | | | 105,470,886 | |
w FNMA 30 Year, 3.00%, 11/01/47 | | | United States | | | | 15,000,000 | | | | | | | | 15,007,617 | |
FNMA 30 Year, 3.50%, 5/01/47 | | | United States | | | | 129,238,529 | | | | | | | | 132,953,215 | |
w FNMA 30 Year, 4.00%, 11/01/47 | | | United States | | | | 50,000,000 | | | | | | | | 52,468,751 | |
FNMA 30 Year, 5.00%, 6/01/36 - 5/01/39 | | | United States | | | | 1,989,684 | | | | | | | | 2,165,144 | |
FNMA 30 Year, 5.50%, 6/01/33 - 8/01/37 | | | United States | | | | 6,847,944 | | | | | | | | 7,643,796 | |
FNMA 30 Year, 6.00%, 9/01/32 - 9/01/38 | | | United States | | | | 8,980,418 | | | | | | | | 10,181,595 | |
FNMA 30 Year, 6.50%, 8/01/28 - 5/01/37 | | | United States | | | | 230,976 | | | | | | | | 257,327 | |
FNMA 30 Year, 7.00%, 11/01/25 | | | United States | | | | 3,591 | | | | | | | | 3,622 | |
FNMA 30 Year, 7.50%, 1/01/30 | | | United States | | | | 13,603 | | | | | | | | 15,990 | |
FNMA 30 Year, 8.50%, 4/01/30 - 5/01/32 | | | United States | | | | 77,581 | | | | | | | | 93,874 | |
| | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin Total Return Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal
Amount* | | | | | | Value | |
Mortgage-Backed Securities (continued) | | | | | | | | | | | | | | | | |
Federal National Mortgage Association (FNMA) Fixed Rate (continued) | | | | | | | | | | | | | | | | |
FNMA 30 Year, 9.00%, 11/01/26 - 5/01/27 | | | United States | | | | 74,722 | | | | | | | $ | 77,326 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 440,182,403 | |
| | | | | | | | | | | | | | | | |
v Government National Mortgage Association (GNMA) Adjustable Rate 0.0%† | | | | | | | | | | | | | | | | |
GNMA, 2.25% - 2.375%, (US 1 Year CMT T-Note +/- MBS Margin), 1/20/23 - 10/20/26 | | | United States | | | | 41,335 | | | | | | | | 42,674 | |
| | | | | | | | | | | | | | | | |
Government National Mortgage Association (GNMA) Fixed Rate 3.9% | | | | | | | | | | | | | | | | |
GNMA I SF 30 Year, 6.00%, 1/15/39 | | | United States | | | | 210,842 | | | | | | | | 237,296 | |
GNMA I SF 30 Year, 6.50%, 10/15/31 - 7/15/38 | | | United States | | | | 33,376 | | | | | | | | 36,972 | |
GNMA I SF 30 Year, 7.00%, 10/15/27 - 6/15/31 | | | United States | | | | 35,265 | | | | | | | | 40,360 | |
GNMA I SF 30 Year, 7.50%, 1/15/22 - 5/15/26 | | | United States | | | | 67,057 | | | | | | | | 68,762 | |
GNMA I SF 30 Year, 9.00%, 9/15/25 - 1/15/31 | | | United States | | | | 1,537 | | | | | | | | 1,584 | |
GNMA II SF 30 Year, 3.00%, 7/20/47 | | | United States | | | | 73,800,754 | | | | | | | | 74,750,805 | |
GNMA II SF 30 Year, 3.50%, 9/20/47 | | | United States | | | | 82,350,968 | | | | | | | | 85,531,873 | |
w GNMA II SF 30 Year, 3.50%, 11/01/47 | | | United States | | | | 16,000,000 | | | | | | | | 16,596,876 | |
GNMA II SF 30 Year, 6.00%, 5/20/31 | | | United States | | | | 4,711 | | | | | | | | 5,344 | |
GNMA II SF 30 Year, 6.50%, 3/20/28 - 7/20/38 | | | United States | | | | 453,267 | | | | | | | | 526,021 | |
GNMA II SF 30 Year, 7.50%, 8/20/30 - 1/20/33 | | | United States | | | | 51,203 | | | | | | | | 58,432 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 177,854,325 | |
| | | | | | | | | | | | | | | | |
Total Mortgage-Backed Securities
(Cost $1,125,212,096) | | | | | | | | | | | | | | | 1,119,763,628 | |
| | | | | | | | | | | | | | | | |
Municipal Bonds 1.6% | | | | | | | | | | | | | | | | |
California State GO, Various Purpose, 6.00%, 11/01/39 | | | United States | | | | 2,385,000 | | | | | | | | 2,614,246 | |
Chicago Transit Authority Sales and Transfer Tax Receipts Revenue, Pension Funding, Series A, 6.899%, 12/01/40 | | | United States | | | | 800,000 | | | | | | | | 1,064,648 | |
Connecticut State GO, Series B, 5.00%, 4/15/18 | | | United States | | | | 650,000 | | | | | | | | 661,297 | |
Industry Public Facilities Authority Tax Allocation Revenue, Transportation District, Industrial Redevelopment Project No. 2, Refunding, Series B, AGMC Insured, 4.294%, 1/01/23 | | | United States | | | | 10,000,000 | | | | | | | | 10,225,200 | |
Minnesota State GO, Various Purpose, Refunding, Series F, 4.00%, 10/01/24 | | | United States | | | | 5,760,000 | | | | | | | | 6,491,924 | |
New Jersey EDA Revenue, School Facilities Construction, Refunding, Series NN, 5.00%, 3/01/30 | | | United States | | | | 3,300,000 | | | | | | | | 3,555,288 | |
Port Authority of New York and New Jersey Revenue,
| | | | | | | | | | | | | | | | |
Consolidated, One Hundred Ninety-First Series, 4.823%, 6/01/45 | | | United States | | | | 4,570,000 | | | | | | | | 5,001,225 | |
Consolidated, Refunding, One Hundred Ninety-Second Series, 4.81%, 10/15/65 | | | United States | | | | 15,000,000 | | | | | | | | 17,772,750 | |
Providence St. Joseph Health Obligated Group, 2.746%, 10/01/26 | | | United States | | | | 8,875,000 | | | | | | | | 8,502,021 | |
x Puerto Rico Electric Power Authority Power Revenue, Series A, 6.75%, 7/01/36 | | | United States | | | | 12,000,000 | | | | | | | | 4,155,000 | |
University of California Revenue, Limited Project, Refunding, Series J, 4.131%, 5/15/45 | | | United States | | | | 10,750,000 | | | | | | | | 11,149,470 | |
| | | | | | | | | | | | | | | | |
Total Municipal Bonds (Cost $74,118,095) | | | | | | | | | | | | | | | 71,193,069 | |
| | | | | | | | | | | | | | | | |
| | | | |
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franklintempleton.com | | Annual Report | | 105 |
FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin Total Return Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | | Country | | | Shares | | | | | | Value | |
| | | Escrows and Litigation Trusts 0.0% | | | | | | | | | | | | |
| a,ab | | Motors Liquidation Co., Escrow Account, cvt. pfd., C | | | United States | | | | 43,500 | | | | | | | $ | — | |
| a,ab | | NewPage Corp., Litigation Trust | | | United States | | | | 2,500,000 | | | | | | | | — | |
| | | | | | | | | | | | | | | | | | |
| | Total Escrows and Litigation Trusts (Cost $2,307) | | | | | | | | | | | | | | | — | |
| | | | | | | | | | | | | | | | | | |
| | Total Investments before Short Term Investments (Cost $4,622,949,557) | | | | | | | | | | | | | | | 4,642,000,174 | |
| | | | | | | | | | | | | | | | | | |
| | | Short Term Investments (Cost $122,271,638) 2.7% | | | | | | | | | | | | |
| | | Money Market Funds 2.7% | | | | | | | | | | | | |
| ad,y | | Institutional Fiduciary Trust Money Market Portfolio, 0.69% | | | United States | | | | 122,271,638 | | | | | | | | 122,271,638 | |
| | | | | | | | | | | | | | | | | | |
| | Total Investments (Cost $4,745,221,195) 105.0% | | | | | | | | | | | | | | | 4,764,271,812 | |
| | TBA Sale Commitments (1.1)% | | | | | | | | | | | | | | | (48,954,711 | ) |
| | Other Assets, less Liabilities (3.9)% | | | | | | | | | | | | | | | (176,990,161 | ) |
| | | | | | | | | | | | | | | | | | |
| | Net Assets 100.0% | | | | | | | | | | | | | | $ | 4,538,326,940 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | Principal
Amount* | | | | | | | |
| | TBA Sale Commitments (Proceeds $48,570,691) | | | | | | | | | | | | | | | | |
| | Federal National Mortgage Association (FNMA) Fixed Rate (1.1)% | | | | | | | | | | | | | | | | |
| z | | FNMA 30 Year, 3.50%, 11/01/47 | | | United States | | | | 47,630,000 | | | | | | | $ | (48,954,711 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin Total Return Fund (continued)
†Rounds to less than 0.1% of net assets.
*The principal amount is stated in U.S. dollars unless otherwise indicated.
aNon-income producing.
aaThe security is owned by FT Holdings Corporation I, a wholly-owned subsidiary of the Fund. See Note 1(g).
abFair valued using significant unobservable inputs. See Note 12 regarding fair value measurements.
acSee Note 8 regarding restricted securities.
adSee Note 3(f) regarding investments in affiliated management investment companies.
bVariable rate security. The rate shown represents the yield at period end.
cSecurity was purchased pursuant to Regulation S under the Securities Act of 1933, which exempts from registration securities offered and sold outside of the United States. Such a security cannot be sold in the United States without either an effective registration statement filed pursuant to the Securities Act of 1933, or pursuant to an exemption from registration. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At October 31, 2017, the aggregate value of these securities was $35,736,416, representing 0.8% of net assets.
dPerpetual security with no stated maturity date.
eSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in a public offering registered under the Securities Act of 1933. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At October 31, 2017, the aggregate value of these securities was $887,679,569, representing 19.6% of net assets.
fSee Note 1(f) regarding loan participation notes.
gA portion or all of the security purchased on a when-issued basis. See Note 1(c).
hIncome may be received in additional securities and/or cash.
iThe coupon rate shown represents the rate at period end.
jSee Note 1(i) regarding senior floating rate interests.
kA portion or all of the security purchased on a delayed delivery basis. See Note 1(c).
lA portion or all of the security represents an unsettled loan commitment. The coupon rate is to-be determined (TBD) at the time of settlement and will be based upon a reference index/floor plus a spread.
mPrincipal amount is stated in 100 Mexican Peso Units.
nThe principal represents the notional amount. See Note 1(d) regarding value recovery instruments.
oRedemption price at maturity is adjusted for inflation. See Note 1(k).
pPrincipal amount is stated in 1,000 Brazilian Real Units.
qPrincipal amount of security is adjusted for inflation. See Note 1(k).
rAdjustable rate security with an interest rate that is not based on a published reference index and spread. The rate is based on the structure of the agreement and current market conditions. The coupon rate shown represents the rate at period end.
sThe coupon rate shown represents the rate inclusive of any caps or floors, if applicable, in effect at period end.
tThe bond pays interest and/or principal based upon the issuer’s ability to pay, which may be less than the stated interest rate or principal paydown.
uThe coupon rate will be determined at time of issue.
vAdjustable Rate Mortgage-Backed Security (ARM); the rate shown is the effective rate at period end. ARM rates are not based on a published reference rate and spread, but instead pass-through weighted average interest income inclusive of any caps or floors, if applicable, from the underlying mortgage loans in which the majority of mortgages pay interest based on the index shown at their designated reset dates plus a spread, less the applicable servicing and guaranty fee (MBS margin).
wSecurity purchased on a to-be-announced (TBA) basis. See Note 1(c).
xSee Note 7 regarding defaulted securities.
yThe rate shown is the annualized seven-day yield at period end.
zSecurity sold on a TBA basis resulting in a short position. As such, the Fund is not subject to fees and expenses associated with short sale transactions.
| | | | |
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franklintempleton.com | | Annual Report | | 107 |
FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin Total Return Fund (continued)
At October 31, 2017, the Fund had the following futures contracts outstanding. See Note 1(d).
Futures Contracts
| | | | | | | | | | | | | | | | | | | | |
| Description | | Type | | | Number of
Contracts | | | Notional
Amount* | | | Expiration
Date | | | Value/
Unrealized
Appreciation
(Depreciation) | |
Interest Rate Contracts | | | | | | | | | | | | | | | | | | | | |
Australian 10 Yr. Bond | | | Long | | | | 650 | | | | $ 64,122,427 | | | | 12/15/17 | | | | $ 23,940 | |
Canadian 10 Yr. Bond | | | Long | | | | 207 | | | | 22,060,417 | | | | 12/18/17 | | | | (87,194 | ) |
U.S. Treasury 2 Yr. Note | | | Long | | | | 78 | | | | 16,798,031 | | | | 12/29/17 | | | | (65,411 | ) |
U.S. Treasury 5 Yr. Note | | | Long | | | | 2,348 | | | | 275,156,250 | | | | 12/29/17 | | | | (2,516,386 | ) |
U.S. Treasury 10 Yr. Note | | | Long | | | | 70 | | | | 8,745,625 | | | | 12/19/17 | | | | (144,561 | ) |
U.S. Treasury 30 Yr. Bond | | | Long | | | | 1,200 | | | | 182,962,500 | | | | 12/19/17 | | | | (3,242,747 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total Futures Contracts | | | | | | | | | | | | | | | | | | | $(6,032,359 | ) |
| | | | | | | | | | | | | | | | | | | | |
*As of period end.
At October 31, 2017, the Fund had the following forward exchange contracts outstanding. See Note 1(d).
Forward Exchange Contracts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Currency | | Counterpartya | | | Type | | | Quantity | | | Contract
Amount | | | Settlement
Date | | | Unrealized
Appreciation | | | Unrealized
Depreciation | |
OTC Forward Exchange Contracts | | | | | | | | | | | | | | | | | | | | | |
Indian Rupee | | | JPHQ | | | | Buy | | | | 720,000,000 | | | $ | 10,771,993 | | | | 4/12/18 | | | $ | 158,103 | | | $ | — | |
Indonesian Rupiah | | | JPHQ | | | | Buy | | | | 90,600,000,000 | | | | 6,569,978 | | | | 4/12/18 | | | | — | | | | (17,449 | ) |
Mexican Peso | | | JPHQ | | | | Buy | | | | 221,000,000 | | | | 11,590,099 | | | | 4/12/18 | | | | — | | | | (376,041 | ) |
Australian Dollar | | | DBAB | | | | Sell | | | | 13,639,527 | | | | 10,687,661 | | | | 4/19/18 | | | | 258,182 | | | | — | |
Australian Dollar | | | JPHQ | | | | Sell | | | | 36,198,000 | | | | 28,368,011 | | | | 4/19/18 | | | | 689,172 | | | | — | |
British Pound | | | DBAB | | | | Sell | | | | 15,900,000 | | | | 21,038,244 | | | | 4/19/18 | | | | — | | | | (198,402 | ) |
Canadian Dollar | | | JPHQ | | | | Sell | | | | 51,550,000 | | | | 41,072,555 | | | | 4/19/18 | | | | 1,031,447 | | | | — | |
Euro | | | DBAB | | | | Buy | | | | 9,700,000 | | | | 11,455,700 | | | | 4/19/18 | | | | — | | | | (37,663 | ) |
Euro | | | DBAB | | | | Sell | | | | 69,462,349 | | | | 82,444,167 | | | | 4/19/18 | | | | 678,839 | | | | — | |
Euro | | | JPHQ | | | | Sell | | | | 6,009,461 | | | | 7,133,410 | | | | 4/19/18 | | | | 59,570 | | | | — | |
Indian Rupee | | | DBAB | | | | Buy | | | | 631,935,000 | | | | 9,571,872 | | | | 4/19/18 | | | | 14,036 | | | | — | |
Indian Rupee | | | JPHQ | | | | Buy | | | | 260,000,000 | | | | 3,939,991 | | | | 4/19/18 | | | | 3,984 | | | | — | |
Indonesian Rupiah | | | DBAB | | | | Buy | | | | 139,844,100,000 | | | | 10,181,587 | | | | 4/19/18 | | | | — | | | | (76,352 | ) |
Japanese Yen | | | DBAB | | | | Sell | | | | 1,515,000,000 | | | | 13,665,885 | | | | 4/19/18 | | | | 215,381 | | | | — | |
Japanese Yen | | | JPHQ | | | | Buy | | | | 1,870,000,000 | | | | 16,603,036 | | | | 4/19/18 | | | | — | | | | (765 | ) |
Japanese Yen | | | JPHQ | | | | Sell | | | | 5,492,000,000 | | | | 49,573,882 | | | | 4/19/18 | | | | 814,698 | | | | — | |
Mexican Peso | | | JPHQ | | | | Buy | | | | 153,000,000 | | | | 7,782,260 | | | | 4/19/18 | | | | — | | | | (27,130 | ) |
Philippine Peso | | | JPHQ | | | | Buy | | | | 177,480,000 | | | | 3,409,143 | | | | 4/19/18 | | | | — | | | | (29,859 | ) |
Singapore Dollar | | | JPHQ | | | | Sell | | | | 13,800,000 | | | | 10,232,531 | | | | 4/19/18 | | | | 85,395 | | | | — | |
South Korean Won | | | JPHQ | | | | Sell | | | | 11,300,000,000 | | | | 10,023,951 | | | | 4/19/18 | | | | — | | | | (93,630 | ) |
Japanese Yen | | | JPHQ | | | | Sell | | | | 1,400,000,000 | | | | 12,917,274 | | | | 1/23/19 | | | | 261,831 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Total Forward Exchange Contracts | | | | | | | | | | | | | | | | | | | $ | 4,270,638 | | | $ | (857,291 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net unrealized appreciation (depreciation) | | | | | | | | | | | | | | | $ | 3,413,347 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
aMay be comprised of multi.ple contracts with the same counterparty, currency and settlement date.
| | | | |
| | | |
108 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin Total Return Fund (continued)
At October 31, 2017, the Fund had the following credit default swap contracts outstanding. See Note 1(d).
Credit Default Swap Contracts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Periodic
Payment Rate
Received
(Paid) | | | Payment
Frequency | | | Counter-
party | | | Maturity
Date | | | Notional
Amounta | | | Value | | | Unamortized
Upfront
Payments
(Receipts) | | | Unrealized
Appreciation
(Depreciation) | | | Ratingb | |
Centrally Cleared Swap Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contracts to Buy Protectionc | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Single Name | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Olin Corp | | | (1.00)% | | | | Quarterly | | | | | | | | 12/20/21 | | | | 3,800,000 | | | $ | (51,392) | | | $ | 82,980 | | | $ | (134,372) | | | | | |
Traded Index | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX.NA.HY.29 | | | (5.00)% | | | | Quarterly | | | | | | | | 12/20/22 | | | | 28,500,000 | | | | (2,550,994) | | | | (2,070,863) | | | | (480,131) | | | | | |
ITRX.EUR.28 | | | (1.00)% | | | | Quarterly | | | | | | | | 12/20/22 | | |
| 125,300,000
EUR |
| | | (3,887,053) | | | | (3,291,810) | | | | (595,243) | | | | | |
Contracts to Sell Protectionc,d | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Traded Index | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX.NA.IG.24 | | | 1.00% | | | | Quarterly | | | | | | | | 6/20/25 | | | | 25,000,000 | | | | 158,640 | | | | (44,725) | | | | 203,365 | | | | Investment | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Grade | |
CDX.NA.IG.29 | | | 1.00% | | | | Quarterly | | | | | | | | 12/20/22 | | | | 139,300,000 | | | | 3,362,432 | | | | 2,855,258 | | | | 507,174 | | |
| Investment
Grade |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | $ | (2,968,367) | | | $ | (2,469,160) | | | $ | (499,207) | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Centrally Cleared Swap Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
OTC Swap Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contracts to Buy Protectionc | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Single Name | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The AES Corp | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 6/20/21 | | | | 14,100,000 | | | $ | (2,092,281) | | | $ | (1,140,872) | | | $ | (951,409) | | | | | |
The AES Corp | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 6/20/22 | | | | 13,275,000 | | | | (2,154,169) | | | | (1,664,315) | | | | (489,854) | | | | | |
Ally
Financial Inc. | | | (5.00)% | | | | Quarterly | | | | CITI | | | | 12/20/22 | | | | 5,200,000 | | | | (1,022,370) | | | | (974,982) | | | | (47,388) | | | | | |
Ally
Financial Inc. | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 12/20/22 | | | | 8,800,000 | | | | (1,730,165) | | | | (1,661,496) | | | | (68,669) | | | | | |
Avon
Products Inc. | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 3/20/20 | | | | 16,500,000 | | | | (8,798) | | | | 1,330,499 | | | | (1,339,297) | | | | | |
Best Buy Co.
Inc | | | (5.00)% | | | | Quarterly | | | | BZWS | | | | 6/20/22 | | | | 3,800,000 | | | | (682,030) | | | | (604,078) | | | | (77,952) | | | | | |
Best Buy Co.
Inc | | | (5.00)% | | | | Quarterly | | | | CITI | | | | 6/20/22 | | | | 9,900,000 | | | | (1,776,869) | | | | (1,520,751) | | | | (256,118) | | | | | |
Best Buy Co.
Inc | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 6/20/22 | | | | 4,600,000 | | | | (825,616) | | | | (754,567) | | | | (71,049) | | | | | |
Bombardier Inc | | | (5.00)% | | | | Quarterly | | | | BZWS | | | | 6/20/22 | | | | 13,500,000 | | | | (1,009,498) | | | | (991,902) | | | | (17,596) | | | | | |
CSC
Holdings LLC | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 9/20/18 | | | | 3,000,000 | | | | (145,407) | | | | (54,809) | | | | (90,598) | | | | | |
CSC
Holdings LLC | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 3/20/19 | | | | 9,000,000 | | | | (637,990) | | | | (164,913) | | | | (473,077) | | | | | |
The Gap Inc | | | (1.00)% | | | | Quarterly | | | | CITI | | | | 6/20/22 | | | | 8,225,000 | | | | 148,350 | | | | 487,157 | | | | (338,807) | | | | | |
Kohl’s Corp | | | (1.00)% | | | | Quarterly | | | | BZWS | | | | 6/20/22 | | | | 8,700,000 | | | | 297,041 | | | | 476,829 | | | | (179,788) | | | | | |
L Brands Inc | | | (1.00)% | | | | Quarterly | | | | CITI | | | | 6/20/22 | | | | 8,225,000 | | | | 301,855 | | | | 517,653 | | | | (215,798) | | | | | |
Macy’s Retail
Holdings Inc. | | | (1.00)% | | | | Quarterly | | | | BZWS | | | | 6/20/22 | | | | 7,775,000 | | | | 577,745 | | | | 542,146 | | | | 35,599 | | | | | |
Nabors
Industries Inc | | | (1.00)% | | | | Quarterly | | | | JPHQ | | | | 6/20/20 | | | | 11,350,000 | | | | 206,322 | | | | 279,523 | | | | (73,201) | | | | | |
Olin Corp | | | (1.00)% | | | | Quarterly | | | | FBCO | | | | 6/20/21 | | | | 5,000,000 | | | | (82,934) | | | | 285,656 | | | | (368,590) | | | | | |
Olin Corp | | | (1.00)% | | | | Quarterly | | | | GSCO | | | | 6/20/21 | | | | 5,000,000 | | | | (82,935) | | | | 282,977 | | | | (365,912) | | | | | |
PHH Corp | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 9/20/19 | | | | 5,400,000 | | | | (507,516) | | | | 17,696 | | | | (525,212) | | | | | |
Sanmina Corp | | | (5.00)% | | | | Quarterly | | | | BZWS | | | | 6/20/19 | | | | 3,600,000 | | | | (305,825) | | | | (262,199) | | | | (43,626) | | | | | |
| | | | |
| | | |
franklintempleton.com | | Annual Report | | 109 |
FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin Total Return Fund (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Credit Default Swap Contracts (continued) | | | | | | | | | | | | | |
| | | | | | | | | |
| Description | | Periodic
Payment Rate
Received
(Paid) | | | Payment
Frequency | | | Counter-
party | | | Maturity
Date | | | Notional
Amounta | | | Value | | | Unamortized
Upfront
Payments
(Receipts) | | | Unrealized
Appreciation
(Depreciation) | | | Ratingb | |
OTC Swap Contracts (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contracts to Buy Protectionc (continued) | | | | | | | | | | | | | | | | | | | | | | | | | |
Single Name (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sanmina Corp. | | | (5.00 | )% | | | Quarterly | | | | GSCO | | | | 6/20/19 | | | | 7,500,000 | | | $ | (637,135 | ) | | $ | (539,445 | ) | | $ | (97,690 | ) | | | | |
Springleaf
Finance Corp. | | | (5.00 | )% | | | Quarterly | | | | GSCO | | | | 6/20/20 | | | | 700,000 | | | | (73,595 | ) | | | (22,282 | ) | | | (51,313 | ) | | | | |
Target Corp. | | | (1.00 | )% | | | Quarterly | | | | CITI | | | | 6/20/22 | | | | 18,300,000 | | | | (479,109 | ) | | | (278,257 | ) | | | (200,852 | ) | | | | |
Tenet
Healthcare
Corp. | | | (5.00 | )% | | | Quarterly | | | | BZWS | | | | 3/20/19 | | | | 2,325,000 | | | | (123,135 | ) | | | (77,886 | ) | | | (45,249 | ) | | | | |
Tenet
Healthcare
Corp. | | | (5.00 | )% | | | Quarterly | | | | GSCO | | | | 3/20/19 | | | | 7,335,000 | | | | (388,472 | ) | | | (208,835 | ) | | | (179,637 | ) | | | | |
Contracts to Sell Protectionc,d | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Single Name | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Capital One
Financial Corp. | | | 1.00 | % | | | Quarterly | | | | JPHQ | | | | 12/20/22 | | | | 5,200,000 | | | | 82,349 | | | | 92,684 | | | | (10,335 | ) | | | BBB | |
Goldman Sachs
Group Inc. | | | 1.00 | % | | | Quarterly | | | | BZWS | | | | 12/20/22 | | | | 7,850,000 | | | | 159,770 | | | | 152,677 | | | | 7,093 | | | | BBB+ | |
Goldman Sachs
Group Inc. | | | 1.00 | % | | | Quarterly | | | | JPHQ | | | | 12/20/22 | | | | 6,150,000 | | | | 125,170 | | | | 117,968 | | | | 7,202 | | | | BBB+ | |
Government of
Brazil | | | 1.00 | % | | | Quarterly | | | | FBCO | | | | 12/20/22 | | | | 23,300,000 | | | | (745,353 | ) | | | (1,146,730 | ) | | | 401,377 | | | | BB | |
Government of
Mexico | | | 1.00 | % | | | Quarterly | | | | CITI | | | | 6/20/20 | | | | 8,400,000 | | | | 102,901 | | | | (52,999 | ) | | | 155,900 | | | | BBB+ | |
Morgan Stanley | | | 1.00 | % | | | Quarterly | | | | BZWS | | | | 12/20/22 | | | | 8,800,000 | | | | 182,785 | | | | 191,273 | | | | (8,488 | ) | | | BBB+ | |
Nabors
Industries Inc | | | 1.00 | % | | | Quarterly | | | | JPHQ | | | | 6/20/22 | | | | 11,350,000 | | | | (1,261,148 | ) | | | (1,390,005 | ) | | | 128,857 | | | | BB | |
Prudential
Financial Inc. | | | 1.00 | % | | | Quarterly | | | | BOFA | | | | 12/20/21 | | | | 8,800,000 | | | | 227,311 | | | | (107,693 | ) | | | 335,004 | | | | A | |
Simon Property
Group LP | | | 1.00 | % | | | Quarterly | | | | CITI | | | | 6/20/22 | | | | 13,800,000 | | | | 238,626 | | | | 35,703 | | | | 202,923 | | | | A | |
Simon Property
Group LP | | | 1.00 | % | | | Quarterly | | | | JPHQ | | | | 6/20/22 | | | | 20,950,000 | | | | 362,263 | | | | 191,582 | | | | 170,681 | | | | A | |
Traded Index | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
eCitibank | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Bespoke Hong | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Kong Index, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mezzanine | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tranche 3-5% | | | 1.00 | % | | | Quarterly | | | | CITI | | | | 12/20/18 | | | | 13,100,000 | | | | 12,970 | | | | (318,797 | ) | | | 331,767 | | | | Non- | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Investment | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Grade | |
eCitibank | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Bespoke Index, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mezzanine | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tranche 5-8% | | | 0.50 | % | | | Quarterly | | | | CITI | | | | 6/20/18 | | | | 20,600,000 | | | | (67,323 | ) | | | - | | | | (67,323 | ) | | | Non- | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Investment | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Grade | |
| | | | |
| | | |
110 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin Total Return Fund (continued)
Credit Default Swap Contracts (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Periodic
Payment Rate
Received
(Paid) | | | Payment
Frequency | | | Counter-
party | | | Maturity
Date | | | Notional
Amounta | | | Value | | | Unamortized
Upfront
Payments
(Receipts) | | | Unrealized
Appreciation
(Depreciation) | | | Ratingb | |
OTC Swap Contracts (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contracts to Sell Protectionc,d (continued) | | | | | | | | | | | | | | | | | | | | | | | | | |
Traded Index (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
eCitibank | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Bespoke | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Lisbon Index, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity Tranche | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
0-3% | | | 0.00 | % | | | Quarterly | | | | CITI | | | | 6/20/19 | | | | 3,600,000 | | | $ | (425,402 | ) | | $ | (696,619 | ) | | $ | 271,217 | | | | Non- | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Investment | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Grade | |
eCitibank | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Bespoke | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Verona Index, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity Tranche | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
0-3% | | | 0.00 | % | | | Quarterly | | | | CITI | | | | 12/20/19 | | | | 7,500,000 | | | | (1,375,321 | ) | | | (1,610,394 | ) | | | 235,073 | | | | Non- | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Investment | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Grade | |
eCitibank | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Bespoke | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Verona Index, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mezzanine | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tranche | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
7-15% | | | 0.40 | % | | | Quarterly | | | | CITI | | | | 12/20/19 | | | | 21,000,000 | | | | 19,074 | | | | - | | | | 19,074 | | | | Non- | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Investment | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Grade | |
MCDX.NA.29 | | | 1.00% | | | | Quarterly | | | | CITI | | | | 12/20/22 | | | | 2,325,000 | | | | 59,591 | | | | 58,185 | | | | 1,406 | | |
| Investment
Grade |
|
| | | | | |
Total OTC Swap Contracts. | | | | | | | $ | (15,536,273 | ) | | $ | (11,184,618 | ) | | $ | (4,351,655 | ) | | | | |
| | | | | |
Total Credit Default Swap Contracts | | | | | | | $ | (18,504,640 | ) | | $ | (13,653,778 | ) | | $ | (4,850,862 | ) | | | | |
aIn U.S. dollars unless otherwise indicated. For contracts to sell protection, the notional amount is equal to the maximum potential amount of the future payments and no recourse provisions have been entered into in association with the contracts.
bBased on Standard and Poor’s (S&P) Rating for single name swaps and internal ratings for index swaps. Internal ratings based on mapping into equivalent ratings from external vendors.
cPerformance triggers for settlement of contract include default, bankruptcy or restructuring for single name swaps,and failure to pay or bankruptcy of the underlying securities for traded index swaps.
dThe fund enters contracts to sell protection to create a long credit position.
eRepresents a custom index comprised of a basket of underlying issuers.
| | | | |
| | | |
franklintempleton.com | | Annual Report | | 111 |
FRANKLIN INVESTORS SECURITIES TRUST
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin Total Return Fund (continued)
At October 31, 2017, the Fund had the following cross-currency swap contracts outstanding. See Note 1(d).
Cross-Currency Swap Contracts
| | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Payment
Frequency | | | Counter-
party | | | Maturity
Date | | | Notional
Amount | | | | | | Value/
Unrealized
Appreciation (Depreciation) | |
OTC Swap Contracts | | | | | | | | | | | | | | | | | | | | | | | | |
Receive Fixed 3.045% | | | Semi-Annual | | | | | | | | | | | | 11,760,000 | | | | USD | | | | | |
Pay Fixed 1.125% | | | Annual | | | | CITI | | | | 12/15/21 | | | | 10,500,000 | | | | EUR | | | | $(736,756 | ) |
Receive Floating 3-month USD LIBOR + 1.44% | | | Quarterly | | | | | | | | | | | | 1,428,000 | | | | USD | | | | | |
Pay Fixed 1.50% | | | Annual | | | | HSBK | | | | 11/26/25 | | | | 1,200,000 | | | | EUR | | | | 33,711 | |
Receive Floating 3-month USD LIBOR + 1.395% | | | Quarterly | | | | | | | | | | | | 10,277,000 | | | | USD | | | | | |
Pay Fixed 1.50% | | | Annual | | | | HSBK | | | | 11/26/25 | | | | 8,600,000 | | | | EUR | | | | 255,662 | |
Receive Floating 3-month USD LIBOR + 1.415% | | | Quarterly | | | | | | | | | | | | 12,209,400 | | | | USD | | | | | |
Pay Fixed 1.50% | | | Annual | | | | HSBK | | | | 11/26/25 | | | | 10,200,000 | | | | EUR | | | | 325,687 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Total Cross Currency Swap Contracts | | | | | | | | | | | | | | | | | | | | | | | $(121,696 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
At October 31, 2017, the Fund had the following inflation index swap contracts outstanding. See Note 1(d).
Inflation Index Swap Contracts
| | | | | | | | | | | | | | | | | | | | |
| Description | | Payment Frequency | | | Counterparty | | | Maturity
Date | | | Notional
Amount | | | Value/
Unrealized
Appreciaton
(Depreciation) | |
Centrally Cleared Swap Contracts | | | | | | | | | | | | | | | | | | | | |
Receive variable change in USA-CPI-U | | | At maturity | | | | | | | | | | | | | | | | | |
Pay Fixed 1.96% | | | At maturity | | | | | | | | 8/31/24 | | | $ | 24,600,000 | | | | $ 213,462 | |
| | | | | |
OTC Swap Contracts | | | | | | | | | | | | | | | | | | | | |
Receive variable change in USA-CPI-U | | | At maturity | | | | | | | | | | | | | | | | | |
Pay Fixed 1.782% | | | At maturity | | | | JPHQ | | | | 5/27/24 | | | | 95,700,000 | | | �� | 2,490,669 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total Inflation Index Swap Contracts | | | | | | | | | | | | | | | | | | | $2,704,131 | |
| | | | | | | | | | | | | | | | | | | | |
At October 31, 2017, the Fund had the following total return swap contracts outstanding. See Note 1(d).
Total Return Swap Contracts
| | | | | | | | | | | | | | | | |
| Underlying Instruments | | Financing Rate | | Payment
Frequency | | Counterparty | | Maturity
Date | | | Notional
Value | | | Value/ Unrealized Appreciation (Depreciation) |
OTC Swap Contracts | | | | | | | | | | | | | | | | |
Longa | | | | | | | | | | | | | | | | |
Bloomberg Barclays US Aggregate Bond Index | | 1-month USD LIBOR + 0.22% | | Monthly | | BZWS | | | 9/28/18 | | | $ | 100,000,000 | | | $(32,938) |
iBoxx USD Liquid High Yield Index | | 3-month USD LIBOR | | Quarterly | | CITI | | | 3/20/18 | | | | 14,250,000 | | | 368,941 |
iBoxx USD Liquid High Yield Index | | 3-month USD LIBOR | | Quarterly | | CITI | | | 6/20/18 | | | | 82,250,000 | | | 1,948,679 |
iBoxx USD Liquid High Yield Index | | 3-month USD LIBOR | | Quarterly | | CITI | | | 9/20/18 | | | | 25,000,000 | | | 130,162 |
| | | | | | | | | | | | | | | | |
Total Total Return Swap Contracts | | | | | | | | | | | | | | | | $2,414,844 |
| | | | | | | | | | | | | | | | |
aThe Fund receives the total return on the underlying instrument and pays a variable financing rate.
See Note 10 regarding other derivative information.
See Abbreviations on page 146.
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112 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
Financial Statements
Statements of Assets and Liabilities
October 31, 2017
| | | | | | | | | | | | | | | | |
| | | Franklin
Adjustable
U.S. Government
Securities Fund | | | Franklin
Floating Rate
Daily Access
Fund | | | Franklin
Low Duration
Total Return
Fund | | | Franklin
Total Return
Funda | |
Assets: | | | | | | | | | | | | | | | | |
Investments in securities: | | | | | | | | | | | | | | | | |
Cost - Unaffiliated issuers | | | $949,218,442 | | | $ | 3,280,627,196 | | | $ | 2,587,836,315 | | | $ | 4,485,325,598 | |
Cost - Controlled affiliates (Note 3f) | | | — | | | | — | | | | — | | | | 109,635,000 | |
Cost - Non-controlled affiliates (Note 3f) | | | 33,319,558 | | | | 481,374,303 | | | | 121,254,187 | | | | 150,260,597 | |
Value - Unaffiliated issuers | | | $950,626,517 | | | $ | 3,245,863,950 | | | $ | 2,586,299,115 | | | $ | 4,502,936,811 | |
Value - Controlled affiliates (Note 3f) | | | — | | | | — | | | | — | | | | 110,115,459 | |
Value - Non-controlled affiliates (Note 3f) | | | 33,319,558 | | | | 480,774,777 | | | | 122,997,986 | | | | 151,219,542 | |
Cash | | | — | | | | 22,436,074 | | | | 359,696 | | | | 2,856,524 | |
Restricted cash for OTC derivative contracts (Note 1e) | | | — | | | | — | | | | 60,000 | | | | 221,000 | |
Foreign currency, at value (cost $—, $—, $651,586 and $11,853,068, respectively) | | | — | | | | — | | | | 651,897 | | | | 11,851,877 | |
Receivables: | | | | | | | | | | | | | | | | |
Investment securities sold | | | 5,366,256 | | | | 11,827,199 | | | | 53,831,732 | | | | 93,882,732 | |
Capital shares sold | | | 831,274 | | | | 5,555,215 | | | | 147,805,621 | | | | 7,685,414 | |
Dividends and interest | | | 3,026,976 | | | | 11,991,119 | | | | 12,207,971 | | | | 27,719,093 | |
Variation margin on futures contracts | | | — | | | | — | | | | — | | | | 264,280 | |
Initial margin on futures contracts | | | — | | | | — | | | | 937,863 | | | | 6,438,521 | |
Variation margin on centrally cleared swap contracts | | | — | | | | — | | | | 8,125 | | | | — | |
Initial margin on centrally cleared swap contracts | | | — | | | | 1,179,727 | | | | 5,045,126 | | | | 3,997,961 | |
Collateral due from brokers on: | | | | | | | | | | | | | | | | |
OTC derivative contracts | | | — | | | | — | | | | 6,100,000 | | | | 10,360,000 | |
TBA transactions | | | — | | | | — | | | | — | | | | 340,000 | |
OTC swap contracts (upfront payments $—, $—, $2,586,467 and $6,548,120) | | | — | | | | — | | | | 1,822,356 | | | | 5,060,208 | |
Unrealized appreciation on OTC forward exchange contracts | | | — | | | | — | | | | 1,021,447 | | | | 4,270,638 | |
Unrealized appreciation on OTC swap contracts | | | — | | | | — | | | | 1,167,577 | | | | 7,856,684 | |
Unrealized appreciation on unfunded loan commitments (Note 9) | | | — | | | | 1,108,479 | | | | 60,470 | | | | 136,199 | |
Other assets | | | 363 | | | | 1,025 | | | | 727 | | | | 1,355 | |
Total assets | | | 993,170,944 | | | | 3,780,737,565 | | | | 2,940,377,709 | | | | 4,947,214,298 | |
Liabilities: | | | | | | | | | | | | | | | | |
Payables: | | | | | | | | | | | | | | | | |
Investment securities purchased | | | — | | | | 45,604,538 | | | | 106,008,456 | | | | 322,756,647 | |
Capital shares redeemed | | | 2,489,984 | | | | 12,325,076 | | | | 61,202,723 | | | | 8,449,651 | |
Management fees | | | 416,261 | | | | 1,453,864 | | | | 817,327 | | | | 1,755,266 | |
Distribution fees | | | 222,189 | | | | 596,953 | | | | 402,293 | | | | 883,681 | |
Transfer agent fees | | | 393,029 | | | | 864,840 | | | | 211,019 | | | | 670,370 | |
Distributions to shareholders | | | 103,654 | | | | 3,378,287 | | | | 166,412 | | | | 52,655 | |
Variation margin on futures contracts | | | — | | | | — | | | | 163,430 | | | | — | |
Variation margin on centrally cleared swap contracts | | | — | | | | 48,792 | | | | — | | | | 11,801 | |
Collateral due to brokers on: | | | | | | | | | | | | | | | | |
OTC derivative contracts | | | — | | | | — | | | | 60,000 | | | | 221,000 | |
OTC swap contracts (upfront receipts $—, $—, $7,556,485 and $19,360,012) | | | — | | | | — | | | | 6,113,061 | | | | 16,244,826 | |
TBA sale commitments, at value (proceeds $—, $—, $46,006,418 and $48,570,691) | | | — | | | | — | | | | 46,220,729 | | | | 48,954,711 | |
| | | | | | |
| | | |
| franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | | 113 | |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS
Statements of Assets and Liabilities (continued)
October 31, 2017
| | | | | | | | | | | | | | | | |
| | | Franklin
Adjustable
U.S. Government
Securities Fund | | | Franklin
Floating Rate
Daily Access
Fund | | | Franklin
Low Duration
Total Return
Fund | | | Franklin
Total Return
Funda | |
Unrealized depreciation on OTC forward exchange contracts | | $ | — | | | $ | — | | | $ | 282,829 | | | $ | 857,291 | |
Unrealized depreciation on OTC swap contracts | | | — | | | | — | | | | 3,410,829 | | | | 7,424,522 | |
Accrued expenses and other liabilities | | | 86,543 | | | | 544,886 | | | | 201,977 | | | | 604,937 | |
Total liabilities | | | 3,711,660 | | | | 64,817,236 | | | | 225,261,085 | | | | 408,887,358 | |
Net assets, at value | | $ | 989,459,284 | | | $ | 3,715,920,329 | | | $ | 2,715,116,624 | | | $ | 4,538,326,940 | |
Net assets consist of: | | | | | | | | | | | | | | | | |
Paid-in capital | | $ | 1,156,773,598 | | | $ | 3,913,891,482 | | | $ | 2,799,547,119 | | | $ | 4,621,829,482 | |
Undistributed net investment income | | | 67,121 | | | | 2,598,773 | | | | — | | | | — | |
Distributions in excess of net investment income | | | — | | | | — | | | | (3,889,428 | ) | | | (5,810,566 | ) |
Net unrealized appreciation (depreciation) | | | 1,408,075 | | | | (35,719,037 | ) | | | (3,141,509 | ) | | | 15,222,856 | |
Accumulated net realized gain (loss) | | | (168,789,510 | ) | | | (164,850,889 | ) | | | (77,399,558 | ) | | | (92,914,832 | ) |
Net assets, at value | | $ | 989,459,284 | | | $ | 3,715,920,329 | | | $ | 2,715,116,624 | | | $ | 4,538,326,940 | |
| Class A: | | | | | | | | | | | | | | | | |
Net assets, at value | | $ | 492,319,385 | | | $ | 1,362,220,258 | | | $ | 1,519,902,120 | | | $ | 3,153,750,504 | |
Shares outstanding | | | 59,738,963 | | | | 154,208,240 | | | | 154,474,841 | | | | 320,622,445 | |
Net asset value per shareb | | | $8.24 | | | | $8.83 | | | | $9.84 | | | | $9.84 | |
Maximum offering price per share (net asset value per share ÷ 97.75%, 97.75%, 97.75% and 95.75%, respectively) | | | $8.43 | | | | $9.03 | | | | $10.07 | | | | $10.28 | |
| Class A1: | | | | | | | | | | | | | | | | |
Net assets, at value | | $ | 121,012,118 | | | | | | | | | | | | | |
Shares outstanding | | | 14,688,683 | | | | | | | | | | | | | |
Net asset value per shareb | | $ | 8.24 | | | | | | | | | | | | | |
Maximum offering price per share (net asset value per share ÷ 97.75%) | | $ | 8.43 | | | | | | | | | | | | | |
| Class C: | | | | | | | | | | | | | | | | |
Net assets, at value | | $ | 189,633,669 | | | $ | 550,796,574 | | | $ | 174,754,399 | | | $ | 354,268,587 | |
Shares outstanding | | | 23,025,841 | | | | 62,345,165 | | | | 17,833,375 | | | | 36,259,151 | |
Net asset value and maximum offering price per shareb | | | $8.24 | | | | $8.83 | | | | $9.80 | | | | $9.77 | |
| Class R: | | | | | | | | | | | | | | | | |
Net assets, at value | | | | | | | | | | | | | | $ | 36,337,347 | |
Shares outstanding | | | | | | | | | | | | | | | 3,708,229 | |
Net asset value and maximum offering price per share | | | | | | | | | | | | | | $ | 9.80 | |
| Class R6: | | | | | | | | | | | | | | | | |
Net assets, at value | | $ | 2,195,597 | | | $ | 130,179,621 | | | $ | 591,622,077 | | | $ | 398,731,654 | |
Shares outstanding | | | 266,137 | | | | 14,732,454 | | | | 59,762,393 | | | | 40,283,782 | |
Net asset value and maximum offering price per share | | | $8.25 | | | | $8.84 | | | | $9.90 | | | | $9.90 | |
| Advisor Class: | | | | | | | | | | | | | | | | |
Net assets, at value | | $ | 184,298,515 | | | $ | 1,672,723,876 | | | $ | 428,838,028 | | | $ | 595,238,848 | |
| | | | |
Shares outstanding | | | 22,341,165 | | | | 189,268,381 | | | | 43,362,918 | | | | 60,180,599 | |
| | | | |
Net asset value and maximum offering price per share | | | $8.25 | | | | $8.84 | | | | $9.89 | | | | $9.89 | |
aConsolidated financial statement. See Note 1(g).
bRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.
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| 114 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS
Statements of Operations
for the year ended October 31, 2017
| | | | | | | | | | | | | | | | |
| | | Franklin
Adjustable
U.S. Government
Securities Fund | | | Franklin
Floating Rate
Daily Access
Fund | | | Franklin
Low Duration
Total Return
Fund | | | Franklin Total Return Funda | |
Investment income: | | | | | | | | | | | | | | | | |
Dividends: | | | | | | | | | | | | | | | | |
Unaffiliated issuers | | $ | — | | | $ | 351,134 | | | $ | 259,099 | | | $ | 1,120,157 | |
Controlled affiliates (Note 3f) | | | — | | | | — | | | | — | | | | 1,672,448 | |
Non-controlled affiliates (Note 3f) | | | 86,363 | | | | 3,342,301 | | | | 3,719,567 | | | | 2,453,702 | |
Interest: | | | | | | | | | | | | | | | | |
Unaffiliated issuers: | | | | | | | | | | | | | | | | |
Paydown gain (loss) | | | (15,230,102 | ) | | | — | | | | (3,110,113 | ) | | | (2,380,235 | ) |
Paid in cash | | | 32,214,330 | | | | 153,304,426 | | | | 64,171,974 | | | | 156,971,686 | |
Total investment income | | | 17,070,591 | | | | 156,997,861 | | | | 65,040,527 | | | | 159,837,758 | |
Expenses: | | | | | | | | | | | | | | | | |
Management fees (Note 3a) | | | 5,782,952 | | | | 18,274,606 | | | | 12,777,407 | | | | 21,776,706 | |
Distribution fees: (Note 3c) | | | | | | | | | | | | | | | | |
Class A | | | 1,452,569 | | | | 3,551,989 | | | | 3,646,992 | | | | 8,134,775 | |
Class A1 | | | 130,901 | | | | — | | | | — | | | | — | |
Class C | | | 1,467,689 | | | | 3,763,160 | | | | 1,271,063 | | | | 2,553,377 | |
Class R | | | — | | | | — | | | | — | | | | 239,281 | |
Transfer agent fees: (Note 3e) | | | | | | | | | | | | | | | | |
Class A | | | 853,540 | | | | 1,403,960 | | | | 2,594,902 | | | | 5,208,381 | |
Class A1 | | | 203,566 | | | | — | | | | — | | | | — | |
Class C | | | 331,702 | | | | 572,038 | | | | 349,266 | | | | 628,694 | |
Class R | | | — | | | | — | | | | — | | | | 76,746 | |
Class R6 | | | 744 | | | | 793 | | | | 1,251 | | | | 2,360 | |
Advisor Class | | | 303,798 | | | | 1,573,877 | | | | 626,861 | | | | 1,347,501 | |
Custodian fees (Note 4) | | | 10,197 | | | | 27,833 | | | | 61,452 | | | | 127,376 | |
Reports to shareholders | | | 120,211 | | | | 201,984 | | | | 242,423 | | | | 629,925 | |
Registration and filing fees | | | 114,228 | | | | 190,405 | | | | 165,566 | | | | 191,272 | |
Professional fees | | | 57,594 | | | | 384,489 | | | | 109,513 | | | | 165,335 | |
Trustees’ fees and expenses | | | 12,315 | | | | 32,675 | | | | 27,095 | | | | 46,153 | |
Other | | | 221,342 | | | | 87,917 | | | | 191,836 | | | | 338,913 | |
Total expenses | | | 11,063,348 | | | | 30,065,726 | | | | 22,065,627 | | | | 41,466,795 | |
Expense reductions (Note 4) | | | (229 | ) | | | (20,490 | ) | | | (25,375 | ) | | | (56,360 | ) |
Expenses waived/paid by affiliates (Note 3f and 3g) | | | (78,650 | ) | | | (1,848,587 | ) | | | (3,894,992 | ) | | | (1,603,052 | ) |
Net expenses | | | 10,984,469 | | | | 28,196,649 | | | | 18,145,260 | | | | 39,807,383 | |
Net investment income | | | 6,086,122 | | | | 128,801,212 | | | | 46,895,267 | | | | 120,030,375 | |
Realized and unrealized gains (losses): | | | | | | | | | | | | | | | | |
Net realized gain (loss) from: | | | | | | | | | | | | | | | | |
Investments: | | | | | | | | | | | | | | | | |
Unaffiliated issuers | | | 96,773 | | | | (27,682,662 | ) | | | (6,158,182 | ) | | | (36,912,304 | ) |
Controlled affiliates (Note 3f) | | | — | | | | — | | | | — | | | | (1,078,172 | ) |
Foreign currency transactions | | | — | | | | 2,688 | | | | 940,395 | | | | 550,387 | |
Forward exchange contracts | | | — | | | | — | | | | 3,116,993 | | | | 13,947,031 | |
Futures contracts | | | — | | | | — | | | | 2,820,388 | | | | (13,973,734 | ) |
TBA sale commitments | | | — | | | | — | | | | (21,644 | ) | | | 1,637,734 | |
Swap contracts | | | — | | | | (305,578 | ) | | | (1,854,924 | ) | | | (12,429,197 | ) |
Net realized gain (loss) | | | 96,773 | | | | (27,985,552 | ) | | | (1,156,974 | ) | | | (48,258,255 | ) |
| | | | | | |
| | | |
| franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | | 115 | |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS
Statements of Operations (continued)
for the year ended October 31, 2017
| | | | | | | | | | | | | | | | |
| | | Franklin
Adjustable
U.S. Government
Securities Fund | | | Franklin
Floating Rate
Daily Access
Fund | | | Franklin
Low Duration
Total Return
Fund | | | Franklin
Total Return
Funda | |
Net change in unrealized appreciation (depreciation) on: | | | | | | | | | | | | | | | | |
Investments: | | | | | | | | | | | | | | | | |
Unaffiliated issuers | | | $(7,106,295 | ) | | $ | 22,331,776 | | | $ | (3,267,873 | ) | | $ | (14,192,726 | ) |
Controlled affiliates (Note 3f) | | | — | | | | — | | | | — | | | | 487,459 | |
Non-controlled affiliates (Note 3f) | | | — | | | | (599,526 | ) | | | (516,623 | ) | | | (423,507 | ) |
Translation of other assets and liabilities denominated in foreign currencies | | | — | | | | — | | | | (12,284 | ) | | | (17,652 | ) |
Forward exchange contracts | | | — | | | | — | | | | (820,066 | ) | | | (3,901,913 | ) |
Futures contracts | | | — | | | | — | | | | (2,316,849 | ) | | | (2,174,906 | ) |
TBA sale commitments | | | — | | | | — | | | | (214,311 | ) | | | (384,020 | ) |
Swap contracts | | | — | | | | (1,179,020 | ) | | | 1,012,936 | | | | 10,377,106 | |
Net change in unrealized appreciation (depreciation) | | | (7,106,295 | ) | | | 20,553,230 | | | | (6,135,070 | ) | | | (10,230,159 | ) |
Net realized and unrealized gain (loss) | | | (7,009,522 | ) | | | (7,432,322 | ) | | | (7,292,044 | ) | | | (58,488,414 | ) |
Net increase (decrease) in net assets resulting from operations | | | $(923,400 | ) | | $ | 121,368,890 | | | $ | 39,603,223 | | | $ | 61,541,961 | |
aConsolidated financial statement. See Note 1(g).
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| 116 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS
Statements of Changes in Net Assets
| | | | | | | | | | | | | | | | |
| | | Franklin Adjustable U.S.
Government Securities Fund | | | Franklin Floating Rate Daily Access Fund | |
| | | Year Ended October 31, | | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Increase (decrease) in net assets: | | | | | | | | | | | | | | | | |
Operations: | | | | | | | | | | | | | | | | |
Net investment income | | $ | 6,086,122 | | | $ | 6,177,925 | | | $ | 128,801,212 | | | $ | 142,862,698 | |
Net realized gain (loss) | | | 96,773 | | | | 617,606 | | | | (27,985,552 | ) | | | (60,596,568 | ) |
Net change in unrealized appreciation (depreciation) | | | (7,106,295 | ) | | | (11,522,082 | ) | | | 20,553,230 | | | | 119,213,445 | |
Net increase (decrease) in net assets resulting from operations | | | (923,400 | ) | | | (4,726,551 | ) | | | 121,368,890 | | | | 201,479,575 | |
Distributions to shareholders from: | | | | | | | | | | | | | | | | |
Net investment income: | | | | | | | | | | | | | | | | |
Class A | | | (10,816,412 | ) | | | (10,995,661 | ) | | | (49,009,035 | ) | | | (64,460,934 | ) |
Class A1 | | | (2,796,558 | ) | | | (2,862,431 | ) | | | — | | | | — | |
Class C | | | (3,300,858 | ) | | | (3,137,657 | ) | | | (17,722,222 | ) | | | (23,786,613 | ) |
Class R6 | | | (52,994 | ) | | | (41,661 | ) | | | (2,953,451 | ) | | | (285,466 | ) |
Advisor Class | | | (4,370,331 | ) | | | (4,223,137 | ) | | | (58,557,532 | ) | | | (54,321,011 | ) |
Total distributions to shareholders | | | (21,337,153 | ) | | | (21,260,547 | ) | | | (128,242,240 | ) | | | (142,854,024 | ) |
Capital share transactions: (Note 2) | | | | | | | | | | | | | | | | |
Class A | | | (164,170,469 | ) | | | (167,984,621 | ) | | | 3,631,210 | | | | (222,175,112 | ) |
Class A1 | | | (36,788,901 | ) | | | (35,100,623 | ) | | | — | | | | — | |
Class C | | | (72,203,722 | ) | | | (64,817,272 | ) | | | (257,800 | ) | | | (87,707,899 | ) |
Class R6 | | | (132,241 | ) | | | 236,438 | | | | 118,459,347 | | | | 11,857,272 | |
Advisor Class | | | (39,282,849 | ) | | | (76,748,790 | ) | | | 568,347,099 | | | | (314,178,543 | ) |
Total capital share transactions | | | (312,578,182 | ) | | | (344,414,868 | ) | | | 690,179,856 | | | | (612,204,282 | ) |
Net increase (decrease) in net assets | | | (334,838,735 | ) | | | (370,401,966 | ) | | | 683,306,506 | | | | (553,578,731 | ) |
Net assets: | | | | | | | | | | | | | | | | |
Beginning of year | | | 1,324,298,019 | | | | 1,694,699,985 | | | | 3,032,613,823 | | | | 3,586,192,554 | |
End of year | | $ | 989,459,284 | | | $ | 1,324,298,019 | | | $ | 3,715,920,329 | | | $ | 3,032,613,823 | |
Undistributed net investment income included in net assets: | | | | | | | | | | | | | | | | |
End of year | | $ | 67,121 | | | $ | 36,132 | | | $ | 2,598,773 | | | $ | 2,223,849 | |
| | | | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS
Statements of Changes in Net Assets (continued)
| | | | | | | | | | | | | | | | |
| | | Franklin Low Duration
Total Return Fund | | | Franklin Total
Return Funda | |
| | | Year Ended October 31, | | | Year Ended October 31, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Increase (decrease) in net assets: | | | | | | | | | | | | | | | | |
Operations: | | | | | | | | | | | | | | | | |
Net investment income | | $ | 46,895,267 | | | $ | 41,317,809 | | | $ | 120,030,375 | | | $ | 110,841,380 | |
Net realized gain (loss) | | | (1,156,974 | ) | | | (21,952,845 | ) | | | (48,258,255 | ) | | | (59,263,353 | ) |
Net change in unrealized appreciation (depreciation) | | | (6,135,070 | ) | | | 29,381,816 | | | | (10,230,159 | ) | | | 114,335,062 | |
| | | | |
Net increase (decrease) in net assets resulting from operations | | | 39,603,223 | | | | 48,746,780 | | | | 61,541,961 | | | | 165,913,089 | |
| | | | |
Distributions to shareholders from: | | | | | | | | | | | | | | | | |
Net investment income: | | | | | | | | | | | | | | | | |
Class A | | | (29,407,853 | ) | | | (33,131,709 | ) | | | (79,166,327 | ) | | | (101,527,245 | ) |
Class C | | | (3,436,954 | ) | | | (4,013,836 | ) | | | (8,606,867 | ) | | | (11,788,656 | ) |
Class R | | | — | | | | — | | | | (1,159,298 | ) | | | (1,861,369 | ) |
Class R6 | | | (12,604,268 | ) | | | (12,099,518 | ) | | | (2,523,966 | ) | | | (2,201,117 | ) |
Advisor Class | | | (7,048,480 | ) | | | (3,563,139 | ) | | | (20,532,154 | ) | | | (15,522,886 | ) |
| | | | |
Total distributions to shareholders | | | (52,497,555 | ) | | | (52,808,202 | ) | | | (111,988,612 | ) | | | (132,901,273 | ) |
| | | | |
Capital share transactions: (Note 2) | | | | | | | | | | | | | | | | |
Class A | | | 3,455,292 | | | | (127,311,300 | ) | | | (430,205,619 | ) | | | 66,617,965 | |
Class C | | | (42,037,863 | ) | | | 7,361,242 | | | | (89,548,811 | ) | | | 2,877,723 | |
Class R | | | — | | | | — | | | | (21,629,393 | ) | | | (12,019,056 | ) |
Class R6 | | | 40,905,255 | | | | 43,783,151 | | | | 304,494,859 | | | | 24,451,715 | |
Advisor Class | | | 205,066,211 | | | | 74,356,194 | | | | (139,300,499 | ) | | | 212,187,480 | |
| | | | |
Total capital share transactions | | | 207,388,895 | | | | (1,810,713 | ) | | | (376,189,463 | ) | | | 294,115,827 | |
| | | | |
Net increase (decrease) in net assets | | | 194,494,563 | | | | (5,872,135 | ) | | | (426,636,114 | ) | | | 327,127,643 | |
Net assets: | | | | | | | | | | | | | | | | |
Beginning of year | | | 2,520,622,061 | | | | 2,526,494,196 | | | | 4,964,963,054 | | | | 4,637,835,411 | |
| | | | |
End of year | | $ | 2,715,116,624 | | | $ | 2,520,622,061 | | | $ | 4,538,326,940 | | | $ | 4,964,963,054 | |
| | | | |
Undistributed net investment income included in net assets: | | | | | | | | | | | | | | | | |
End of year | | $ | — | | | $ | 1,657,052 | | | $ | — | | | $ | 3,637,002 | |
| | | | |
Distributions in excess of net investment income included in net assets: | | | | | | | | | | | | | | | | |
End of year | | $ | (3,889,428 | ) | | $ | — | | | $ | (5,810,566 | ) | | $ | — | |
| | | | |
aConsolidated financial statement. See Note 1(g).
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FRANKLIN INVESTORS SECURITIES TRUST
Notes to Financial Statements
1. Organization and Significant Accounting Policies
Franklin Investors Securities Trust (Trust) is registered under the Investment Company Act of 1940 (1940 Act) as an open-end management investment company, consisting of eight separate funds, four of which are included in this report (Funds) and applies the specialized accounting and reporting guidance in U.S. Generally Accepted Accounting Principles (U.S. GAAP). The classes of shares offered within each of the Funds are indicated below. Each class of shares may differ by its initial sales load, contingent deferred sales charges, voting rights on matters affecting a single class, its exchange privilege and fees due to differing arrangements for distribution and transfer agent fees.
|
| Class A, Class A1, Class C, Class R6 & Advisor Class |
Franklin Adjustable U.S. Government Securities Fund |
|
| Class A, Class C, Class R6 & Advisor Class |
Franklin Floating Rate Daily Access Fund |
Franklin Low Duration Total Return Fund |
|
| Class A, Class C, Class R, Class R6 & Advisor Class |
Franklin Total Return Fund |
The following summarizes the Funds’ significant accounting policies.
a. Financial Instrument Valuation
The Funds’ investments in financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The Funds calculate the net asset value (NAV) per share as of 4 p.m. Eastern time each day the New York Stock Exchange (NYSE) is open for trading. Under compliance policies and procedures approved by the Trust’s Board of Trustees (the Board), the Funds’ administrator has responsibility for oversight of valuation, including leading the cross-functional Valuation Committee (VC). The VC provides administration and oversight of the Funds’ valuation policies and procedures, which are approved annually by the Board. Among other things, these procedures allow the Funds to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.
Equity securities, exchange traded funds, and derivative financial instruments listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Foreign equity securities are valued as of the close of trading on the foreign stock exchange on which the security is primarily traded, or as of 4 p.m. Eastern time. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at 4 p.m. Eastern time on the day that the value of the security is determined. Over-the-counter (OTC) securities are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities.
Debt securities generally trade in the OTC market rather than on a securities exchange. The Funds’ pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, credit spreads, estimated default rates, anticipated market interest rate volatility, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Securities denominated in a foreign currency are converted into their U.S. dollar equivalent at the foreign exchange rate in effect at 4 p.m. Eastern time on the date that the values of the foreign debt securities are determined.
Investments in open-end mutual funds are valued at the closing NAV.
Certain derivative financial instruments are centrally cleared or traded in the OTC market. The Funds’ pricing services use various techniques including industry standard option pricing models and proprietary discounted cash flow models to determine the fair value of those instruments. The Funds’ net benefit or obligation under the derivative contract, as measured by the fair value of the contract, is included in net assets.
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NOTES TO FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies (continued)
a. Financial Instrument Valuation (continued)
The Funds have procedures to determine the fair value of financial instruments for which market prices are not reliable or readily available. Under these procedures, the VC convenes on a regular basis to review such financial instruments and considers a number of factors, including significant unobservable valuation inputs, when arriving at fair value. The VC primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The VC employs various methods for calibrating these valuation approaches including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.
Trading in securities on foreign securities stock exchanges and OTC markets may be completed before 4 p.m. Eastern time. In addition, trading in certain foreign markets may not take place on every Funds’ business day. Occasionally, events occur between the time at which trading in a foreign security is completed and 4 p.m. Eastern time that might call into question the reliability of the value of a portfolio security held by the Fund. As a result, differences may arise between the value of the Funds’ portfolio securities as determined at the foreign market close and the latest indications of value at 4 p.m. Eastern time. In order to minimize the potential for these differences, the VC monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depositary Receipts, futures contracts and exchange traded funds). These price movements are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred that may call into question the reliability of the values of the foreign securities
held by the Funds. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services.
When the last day of the reporting period is a non-business day, certain foreign markets may be open on those days that the Funds’ NAV is not calculated, which could result in differences between the value of the Funds’ portfolio securities on the last business day and the last calendar day of the reporting period. Any significant security valuation changes due to an open foreign market are adjusted and reflected by the Funds for financial reporting purposes.
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. The Funds may enter into foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Board.
The Funds do not separately report the effect of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and unrealized gain or loss from investments in the Statements of Operations.
Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period.
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NOTES TO FINANCIAL STATEMENTS
c. Securities Purchased on a When-Issued, Delayed Delivery and TBA Basis
Certain or all Funds purchase securities on a when-issued or delayed delivery and to-be-announced (TBA) basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Funds will generally purchase these securities with the intention of holding the securities, they may sell the securities before the settlement date. Sufficient assets have been segregated for these securities and collateral has been pledged and/or received for open TBA trades.
d. Derivative Financial Instruments
Certain or all Funds invested in derivative financial instruments in order to manage risk or gain exposure to various other investments or markets. Derivatives are financial contracts based on an underlying or notional amount, require no initial investment or an initial net investment that is smaller than would normally be required to have a similar response to changes in market factors, and require or permit net settlement. Derivatives contain various risks including the potential inability of the counterparty to fulfill their obligations under the terms of the contract, the potential for an illiquid secondary market, and/or the potential for market movements which expose the Fund to gains or losses in excess of the amounts shown in the Statements of Assets and Liabilities. Realized gain and loss and unrealized appreciation and depreciation on these contracts for the period are included in the Statements of Operations.
Derivative counterparty credit risk is managed through a formal evaluation of the creditworthiness of all potential counter-parties. Certain or all Funds attempt to reduce their exposure to counterparty credit risk on OTC derivatives, whenever possible, by entering into International Swaps and Derivatives Association (ISDA) master agreements with certain counterparties. These agreements contain various provisions, including but not limited to collateral requirements, events of default, or early termination. Termination events applicable to the counterparty include certain deteriorations in the credit quality of the counterparty. Termination events applicable to the Funds include failure of the Funds to maintain certain net asset levels and/or limit the decline in net assets over various periods of time. In the event of default or early termination, the ISDA master agreement gives the non-defaulting party the right to net
and close-out all transactions traded, whether or not arising under the ISDA agreement, to one net amount payable by one counterparty to the other. However, absent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Statements of Assets and Liabilities. Early termination by the counterparty may result in an immediate payment by the Funds of any net liability owed to that counterparty under the ISDA agreement.
Collateral requirements differ by type of derivative. Collateral or initial margin requirements are set by the broker or exchange clearing house for exchange traded and centrally cleared derivatives. Initial margin deposited is held at the exchange and can be in the form of cash and/or securities. For OTC derivatives traded under an ISDA master agreement, posting of collateral is required by either the Fund or the applicable counterparty if the total net exposure of all OTC derivatives with the applicable counterparty exceeds the minimum transfer amount, which typically ranges from $100,000 to $250,000, and can vary depending on the counterparty and the type of the agreement. Generally, collateral is determined at the close of Fund business each day and any additional collateral required due to changes in derivative values may be delivered by the Fund or the counterparty the next business day, or within a few business days. Collateral pledged and/or received by the Fund for OTC derivatives, if any, is held in segregated accounts with the Fund’s custodian/counterparty broker and can be in the form of cash and/or securities. Unrestricted cash may be invested according to the Funds’ investment objectives. To the extent that the amounts due to the Fund from its counterparties are not subject to collateralization or are not fully collateralized, the Fund bears the risk of loss from counterparty non-performance.
Certain or all Funds entered into exchange traded futures contracts primarily to manage and/or gain exposure to interest rate risk. A futures contract is an agreement between the Fund and a counterparty to buy or sell an asset at a specified price on a future date. Required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Statements of Assets and Liabilities.
Certain or all Funds entered into OTC forward exchange contracts primarily to manage and/or gain exposure to certain foreign currencies. A forward exchange contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency at a specific exchange rate on a future date.
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FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies (continued)
d. Derivative Financial Instruments (continued)
Certain or all Funds entered into credit default swap contracts primarily to manage and/or gain exposure to credit risk. A credit default swap is an agreement between the Fund and a counterparty whereby the buyer of the contract receives credit protection and the seller of the contract guarantees the credit worthiness of a referenced debt obligation. These agreements may be privately negotiated in the over-the-counter market (OTC credit default swaps) or may be executed in a multilateral trade facility platform, such as a registered exchange (centrally cleared credit default swaps). The underlying referenced debt obligation may be a single issuer of corporate or sovereign debt, a credit index, a basket of issuers or indices, or a tranche of a credit index or basket of issuers or indices. In the event of a default of the underlying referenced debt obligation, the buyer is entitled to receive the notional amount of the credit default swap contract from the seller in exchange for the referenced debt obligation, a net settlement amount equal to the notional amount of the credit default swap less the recovery value of the referenced debt obligation, or other agreed upon amount. For centrally cleared credit default swaps, required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Statements of Assets and Liabilities. Over the term of the contract, the buyer pays the seller a periodic stream of payments, provided that no event of default has occurred. Such periodic payments are accrued daily as an unrealized appreciation or depreciation until the payments are made, at which time they are realized. Upfront payments and receipts are reflected in the Statements of Assets and Liabilities and represent compensating factors between stated terms of the credit default swap agreement and prevailing market conditions (credit spreads and other relevant factors). These upfront payments and receipts are amortized over the term of the contract as a realized gain or loss in the Statements of Operations.
Certain or all Funds entered into OTC cross currency swap contracts primarily to manage and/or gain exposure to interest rate risk and certain foreign currencies. A cross currency swap is an agreement between the Fund and a counterparty to exchange cash flows (determined using either a fixed or floating rate) based on the notional amounts of two different currencies. The notional amounts are typically determined based on the
spot exchange rates at the opening of the contract. Cross currency swaps may require the exchange of notional amounts at the opening and/or closing of the contract. Over the term of the contract, contractually required payments to be paid and to be received are accrued daily and recorded as unrealized depreciation and appreciation until the payments are made, at which time they are realized. Upfront payments and receipts are reflected in the Statements of Assets and Liabilities and represent compensating factors between stated terms of the cross currency swap contract and prevailing market conditions (interest rate spreads and other relevant factors). These upfront payments and receipts are amortized over the term of the contract as a realized gain or loss in the Statements of Operations.
Certain or all Funds entered into inflation index swap contracts primarily to manage exposure to inflation risk. An inflation index swap is an agreement between the Fund and a counterparty to exchange cash flows whereby one party makes payments based on the percentage change in an index that serves as a measure of inflation and the other party makes a regular payment based on a compounded fixed rate, applied to a notional amount. These agreements may be privately negotiated in the over-the-counter market (OTC inflation index swap) or may be executed on a registered exchange (centrally cleared inflation index swap). For centrally cleared inflation index swaps, required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable. Over the term of the contract, contractually required payments to be paid and to be received are accrued daily and recorded as unrealized depreciation and appreciation until the payments are made, at which time they are realized. Typically, an inflation index swap has payment obligations netted and exchanged upon maturity.
Certain or all Funds entered into interest rate swap contracts primarily to manage interest rate risk. An interest rate swap is an agreement between the Fund and a counterparty to exchange cash flows based on the difference between two interest rates, applied to a notional amount. These agreements may be privately negotiated in the over-the-counter market (OTC interest rate swaps) or may be executed on a registered exchange (centrally cleared interest rate swaps). For centrally cleared interest rate swaps, required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Statements of Assets and Liabilities. Over the term of the contract,
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FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
contractually required payments to be paid and to be received are accrued daily and recorded as unrealized depreciation and appreciation until the payments are made, at which time they are realized.
Certain or all Funds entered into OTC total return swap contracts primarily to manage and/or gain exposure to interest rate risk of an underlying instrument such as a stock, bond, index or basket of securities or indices. A total return swap is an agreement between the Fund and a counterparty to exchange a return linked to an underlying instrument for a floating or fixed rate payment, both based upon a notional amount. Over the term of the contract, contractually required payments to be paid or received are accrued daily and recorded as unrealized appreciation or depreciation until the payments are made, at which time they are recognized as realized gain or loss.
Certain or all Funds purchased or wrote OTC option contracts primarily to manage and/or gain exposure to credit risk. An option is a contract entitling the holder to purchase or sell a specific amount of shares or units of an asset or notional amount of a swap (swaption), at a specified price. When an option is purchased or written, an amount equal to the premium paid or received is recorded as an asset or liability, respectively. Upon exercise of an option, the acquisition cost or sales proceeds of the underlying investment is adjusted by any premium received or paid. Upon expiration of an option, any premium received or paid is recorded as a realized gain or loss. Upon closing an option other than through expiration or exercise, the difference between the premium received or paid and the cost to close the position is recorded as a realized gain or loss.
Certain or all Funds invest in value recovery instruments (VRI) primarily to gain exposure to growth risk. Periodic payments from VRI are dependent on established benchmarks for underlying variables. VRI has a notional amount, which is used to calculate amounts of payments to holders. Payments are recorded upon receipt as realized gains in the Statements of Operations. The risks of investing in VRI include growth risk, liquidity, and the potential loss of investment.
See Note 10 regarding other derivative information.
e. Restricted Cash
At October 31, 2017, certain or all Funds held restricted cash in connection with investments in certain derivative securities. Restricted cash is held in a segregated account with the Fund’s custodian and is reflected in the Statements of Assets and Liabilities.
f. Loan Participation Notes
Certain or all Funds invest in loan participation notes (Participations). Participations are loans originally issued to a borrower by one or more financial institutions (the Lender) and subsequently sold to other investors, such as the Funds. Participations typically result in the Fund having a contractual relationship only with the Lender and not with the borrower. The Funds have the right to receive from the Lender any payments of principal, interest and fees which the Lender received from the borrower. The Funds generally have no rights to either enforce compliance by the borrower with the terms of the loan agreement or to any collateral relating to the original loan. As a result, the Funds assume the credit risk of both the borrower and the Lender that is selling the Participation. The Participations may also involve interest rate risk and liquidity risk, including the potential default or insolvency of the borrower and/or the Lender.
g. Investments in FT Holdings Corporation I (FT Subsidiary)
Franklin Total Return Fund invests in certain financial instruments through its investment in the FT Subsidiary. The FT Subsidiary is a Delaware Corporation, is a wholly-owned Subsidiary of the Fund, and is able to invest in certain financial instruments consistent with the investment objective of the Fund. At October 31, 2017, the FT Subsidiary’s investment, Turtle Bay Resort, as well as any other assets and liabilities of the FT Subsidiary are reflected in the Fund’s Consolidated Statement of Investments and Consolidated Statement of Assets and Liabilities. The financial statements have been consolidated and include the accounts of the Fund and the FT Subsidiary. All intercompany transactions and balances have been eliminated. At October 31, 2017, the net assets of the FT Subsidiary were $7,266,721, representing 0.2% of the Fund’s consolidated net assets. The Fund’s investment in the FT Subsidiary is limited to 25% of consolidated assets.
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FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies (continued)
h. Mortgage Dollar Rolls
Certain or all Funds enter into mortgage dollar rolls, typically on a TBA basis. Mortgage dollar rolls are agreements between the Fund and a financial institution where the Fund sells (or buys) mortgage-backed securities for delivery on a specified date and simultaneously contracts to repurchase (or sell) substantially similar (same type, coupon, and maturity) securities at a future date and at a predetermined price. Gains or losses are realized on the initial sale, and the difference between the repurchase price and the sale price is recorded as an unrealized gain or loss to the Fund upon entering into the mortgage dollar roll. In addition, the Fund may invest the cash proceeds that are received from the initial sale. During the period between the sale and repurchase, the Fund is not entitled to principal and interest paid on the mortgage backed securities. Transactions in mortgage dollar rolls are accounted for as purchases and sales and may result in an increase to the Fund’s portfolio turnover rate. The risks of mortgage dollar roll transactions include the potential inability of the counterparty to fulfill its obligations.
i. Senior Floating Rate Interests
Certain or all Funds invest in senior secured corporate loans that pay interest at rates which are periodically reset by reference to a base lending rate plus a spread. These base lending rates are generally the prime rate offered by a designated U.S. bank or the London InterBank Offered Rate (LIBOR). Senior secured corporate loans often require prepayment of principal from excess cash flows or at the discretion of the borrower. As a result, actual maturity may be substantially less than the stated maturity. Senior secured corporate loans in which the Funds invest are generally readily marketable, but may be subject to certain restrictions on resale.
j. Income and Deferred Taxes
It is each Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. Each Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.
The Funds may be subject to foreign taxation related to income received, capital gains on the sale of securities and certain foreign currency transactions in the foreign jurisdictions in which the Funds invest. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Funds invest. When a capital gain tax is determined to apply, certain or all Funds record an estimated deferred tax liability in an amount that would be payable if the securities were disposed of on the valuation date.
Each Fund may recognize an income tax liability related to its uncertain tax positions under U.S. GAAP when the uncertain tax position has a less than 50% probability that it will be sustained upon examination by the tax authorities based on its technical merits. As of October 31, 2017, each Fund has determined that no tax liability is required in its financial statements related to uncertain tax positions for any open tax years (or expected to be taken in future tax years). Open tax years are those that remain subject to examination and are based on the statute of limitations in each jurisdiction in which the Fund invests.
k. 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. Amortization of premium and accretion of discount on debt securities are included in interest income. Paydown gains and losses are recorded separately on the Statements of Operations. Facility fees are recognized as income over the expected term of the loan. Dividend income is recorded on the ex-dividend date except for certain dividends from securities where the dividend rate is not available. In such cases, the dividend is recorded as soon as the information is received by the Funds. Dividends from net investment income are normally declared daily; these dividends may be reinvested or paid monthly to shareholders. Distributions to shareholders are recorded on the ex-dividend date. Distributable earnings are determined according to income tax regulations (tax basis) and may differ from earnings recorded in accordance with U.S. GAAP. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.
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124 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
Common expenses incurred by the Trust are allocated among the Funds based on the ratio of net assets of each Fund to the combined net assets of the Trust. Fund specific expenses are charged directly to the Fund that incurred the expense.
Net investment income, excluding class specific expenses, is allocated daily to each class of shares based upon the relative value of the settled shares of each class. Realized and unrealized gains and losses are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions by class are generally due to differences in class specific expenses.
Inflation-indexed bonds are adjusted for inflation through periodic increases or decreases in the security’s interest accruals, face amount, or principal redemption value, by amounts corresponding to the rate of inflation as measured by an index. Any increase or decrease in the face amount or principal redemption value will be included as interest income in the Statements of Operations.
l. Accounting Estimates
The preparation of financial statements in accordance with U.S. GAAP 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.
m. Guarantees and Indemnifications
Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Funds, enter into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.
2. Shares of Beneficial Interest
At October 31, 2017, there were an unlimited number of shares authorized (without par value). Transactions in the Funds’ shares were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | Franklin Adjustable U.S. Government Securities Fund | | | | | | Franklin Floating Rate Daily Access Fund | |
| | | Shares | | | Amount | | | | | | Shares | | | Amount | |
| | | | | |
| Class A Shares: | | | | | | | | | | | | | | | | | | | | |
| Year ended October 31, 2017 | | | | | | | | | | | | | | | | | | | | |
| Shares sold | | | 15,064,447 | | | $ | 125,693,039 | | | | | | | | 44,354,738 | | | $ | 393,140,477 | |
| Shares issued in reinvestment of distributions | | | 1,228,691 | | | | 10,224,922 | | | | | | | | 5,153,232 | | | | 45,658,928 | |
| Shares redeemed | | | (36,005,848 | ) | | | (300,088,430 | ) | | | | | | | (49,104,181 | ) | | | (435,168,195 | ) |
| | | | |
| Net increase (decrease) | | | (19,712,710 | ) | | $ | (164,170,469 | ) | | | | | | | 403,789 | | | $ | 3,631,210 | |
| | | | |
| Year ended October 31, 2016 | | | | | | | | | | | | | | | | | | | | |
| Shares sold | | | 21,965,175 | | | $ | 185,996,265 | | | | | | | | 24,811,623 | | | $ | 212,007,459 | |
| Shares issued in reinvestment of distributions | | | 1,239,949 | | | | 10,469,739 | | | | | | | | 7,064,574 | | | | 59,950,762 | |
| Shares redeemed | | | (43,095,113 | ) | | | (364,450,625 | ) | | | | | | | (58,463,296 | ) | | | (494,133,333 | ) |
| | | | |
| Net increase (decrease) | | | (19,889,989 | ) | | $ | (167,984,621 | ) | | | | | | | (26,587,099 | ) | | $ | (222,175,112 | ) |
| | | | |
| | | | |
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franklintempleton.com | | Annual Report | | 125 |
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
2. Shares of Beneficial Interest (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Franklin Adjustable U.S. Government Securities Fund | | | | | | Franklin Floating Rate Daily Access Fund | |
| | | Shares | | | Amount | | | | | | Shares | | | Amount | |
| | | | | |
| Class A1 Shares: | | | | | | | | | | | | | | | | | | | | |
| Year ended October 31, 2017 | | | | | | | | | | | | | | | | | | | | |
| Shares sold | | | 460,357 | | | $ | 3,832,460 | | | | | | | | | | | | | |
| Shares issued in reinvestment of distributions | | | 318,104 | | | | 2,645,959 | | | | | | | | | | | | | |
| Shares redeemed | | | (5,191,278 | ) | | | (43,267,320 | ) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Net increase (decrease) | | | (4,412,817 | ) | | $ | (36,788,901 | ) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Year ended October 31, 2016 | | | | | | | | | | | | | | | | | | | | |
| Shares sold | | | 782,382 | | | $ | 6,611,320 | | | | | | | | | | | | | |
| Shares issued in reinvestment of distributions | | | 321,531 | | | | 2,714,543 | | | | | | | | | | | | | |
| Shares redeemed | | | (5,258,218 | ) | | | (44,426,486 | ) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Net increase (decrease) | | | (4,154,305 | ) | | $ | (35,100,623 | ) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | |
| Class C Shares: | | | | | | | | | | | | | | | | | | | | |
| Year ended October 31, 2017 | | | | | | | | | | | | | | | | | | | | |
| Shares sold | | | 1,689,775 | | | $ | 14,082,487 | | | | | | | | 15,908,252 | | | $ | 141,059,930 | |
| Shares issued in reinvestment of distributions | | | 368,575 | | | | 3,064,421 | | | | | | | | 1,836,285 | | | | 16,269,098 | |
| Shares redeemed | | | (10,729,636 | ) | | | (89,350,630 | ) | | | | | | | (17,787,164 | ) | | | (157,586,828 | ) |
| | | | |
| Net increase (decrease) | | | (8,671,286 | ) | | $ | (72,203,722 | ) | | | | | | | (42,627 | ) | | $ | (257,800 | ) |
| | | | |
| Year ended October 31, 2016 | | | | | | | | | | | | | | | | | | | | |
| Shares sold | | | 4,522,226 | | | $ | 38,281,353 | | | | | | | | 9,537,412 | | | $ | 81,449,034 | |
| Shares issued in reinvestment of distributions | | | 342,782 | | | | 2,892,128 | | | | | | | | 2,536,642 | | | | 21,527,906 | |
| Shares redeemed | | | (12,545,368 | ) | | | (105,990,753 | ) | | | | | | | (22,589,768 | ) | | | (190,684,839 | ) |
| | | | |
| Net increase (decrease) | | | (7,680,360 | ) | | $ | (64,817,272 | ) | | | | | | | (10,515,714 | ) | | $ | (87,707,899 | ) |
| | | | |
| | | | | |
| Class R6 Shares: | | | | | | | | | | | | | | | | | | | | |
| Year ended October 31, 2017 | | | | | | | | | | | | | | | | | | | | |
| Shares sold | | | 51,545 | | | $ | 430,037 | | | | | | | | 15,034,860 | | | $ | 133,480,154 | |
| Shares issued in reinvestment of distributions | | | 6,366 | | | | 52,994 | | | | | | | | 326,520 | | | | 2,890,725 | |
| Shares redeemed | | | (73,967 | ) | | | (615,272 | ) | | | | | | | (2,023,706 | ) | | | (17,911,532 | ) |
| | | | |
| Net increase (decrease) | | | (16,056 | ) | | $ | (132,241 | ) | | | | | | | 13,337,674 | | | $ | 118,459,347 | |
| | | | |
| Year ended October 31, 2016 | | | | | | | | | | | | | | | | | | | | |
| Shares sold | | | 59,418 | | | $ | 503,303 | | | | | | | | 1,447,506 | | | $ | 12,322,386 | |
| Shares issued in reinvestment of distributions | | | 4,930 | | | | 41,660 | | | | | | | | 32,856 | | | | 285,282 | |
| Shares redeemed | | | (36,505 | ) | | | (308,525 | ) | | | | | | | (86,396 | ) | | | (750,396 | ) |
| | | | |
| Net increase (decrease) | | | 27,843 | | | $ | 236,438 | | | | | | | | 1,393,966 | | | $ | 11,857,272 | |
| | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | | | | |
| | | Franklin Adjustable U.S.
Government Securities Fund | | | | | | Franklin Floating Rate Daily Access Fund | |
| | | Shares | | | Amount | | | | | | Shares | | | Amount | |
| | | | | |
| Advisor Class Shares: | | | | | | | | | | | | | | | | | | | | |
| Year ended October 31, 2017 | | | | | | | | | | | | | | | | | | | | |
| Shares sold | | | 11,485,012 | | | $ | 95,774,135 | | | | | | | | 125,873,007 | | | $ | 1,117,140,394 | |
| Shares issued in reinvestment of distributions | | | 473,291 | | | | 3,940,955 | | | | | | | | 3,348,529 | | | | 29,668,881 | |
| Shares redeemed | | | (16,675,962 | ) | | | (138,997,939 | ) | | | | | | | (65,298,771 | ) | | | (578,462,176 | ) |
| | | | |
| Net increase (decrease) | | | (4,717,659 | ) | | $ | (39,282,849 | ) | | | | | | | 63,922,765 | | | $ | 568,347,099 | |
| | | | |
| Year ended October 31, 2016 | | | | | | | | | | | | | | | | | | | | |
| Shares sold | | | 13,280,439 | | | $ | 112,298,847 | | | | | | | | 43,401,930 | | | $ | 369,260,775 | |
| Shares issued in reinvestment of distributions | | | 441,098 | | | | 3,728,635 | | | | | | | | 2,892,071 | | | | 24,565,655 | |
| Shares redeemed | | | (22,751,797 | ) | | | (192,776,272 | ) | | | | | | | (84,100,921 | ) | | | (708,004,973 | ) |
| | | | |
| Net increase (decrease) | | | (9,030,260 | ) | | $ | (76,748,790 | ) | | | | | | | (37,806,920 | ) | | $ | (314,178,543 | ) |
| | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | Franklin Low Duration Total Return Fund | | | | | | Franklin Total Return Fund | |
| | | Shares | | | Amount | | | | | | Shares | | | Amount | |
| | | | | |
| Class A Shares: | | | | | | | | | | | | | | | | | | | | |
| Year ended October 31, 2017 | | | | | | | | | | | | | | | | | | | | |
| Shares sold | | | 67,556,193 | | | $ | 665,223,690 | | | | | | | | 60,861,062 | | | $ | 593,317,133 | |
| Shares issued in reinvestment of distributions | | | 2,577,144 | | | | 25,374,436 | | | | | | | | 7,998,920 | | | | 77,657,172 | |
| Shares redeemed | | | (69,776,656 | ) | | | (687,142,834 | ) | | | | | | | (113,164,691 | ) | | | (1,101,179,924 | ) |
| | | | |
| Net increase (decrease) | | | 356,681 | | | $ | 3,455,292 | | | | | | | | (44,304,709 | ) | | $ | (430,205,619 | ) |
| | | | |
| Year ended October 31, 2016 | | | | | | | | | | | | | | | | | | | | |
| Shares sold | | | 47,047,322 | | | $ | 461,234,268 | | | | | | | | 93,822,994 | | | $ | 916,738,346 | |
| Shares issued in reinvestment of distributions | | | 2,977,746 | | | | 29,135,231 | | | | | | | | 10,292,781 | | | | 99,324,788 | |
| Shares redeemed | | | (62,936,182 | ) | | | (617,680,799 | ) | | | | | | | (96,558,711 | ) | | | (949,445,169 | ) |
| | | | |
| Net increase (decrease) | | | (12,911,114 | ) | | $ | (127,311,300 | ) | | | | | | | 7,557,064 | | | $ | 66,617,965 | |
| | | | |
| | | | | |
| Class C Shares: | | | | | | | | | | | | | | | | | | | | |
| Year ended October 31, 2017 | | | | | | | | | | | | | | | | | | | | |
| Shares sold | | | 4,898,935 | | | $ | 48,093,413 | | | | | | | | 5,424,433 | | | $ | 52,538,301 | |
| Shares issued in reinvestment of distributions | | | 284,264 | | | | 2,789,104 | | | | | | | | 820,431 | | | | 7,915,305 | |
| Shares redeemed | | | (9,466,240 | ) | | | (92,920,380 | ) | | | | | | | (15,488,386 | ) | | | (150,002,417 | ) |
| | | | |
| Net increase (decrease) | | | (4,283,041 | ) | | $ | (42,037,863 | ) | | | | | | | (9,243,522 | ) | | $ | (89,548,811 | ) |
| | | | |
| Year ended October 31, 2016 | | | | | | | | | | | | | | | | | | | | |
| Shares sold | | | 10,992,306 | | | $ | 107,389,119 | | | | | | | | 11,518,037 | | | $ | 111,836,091 | |
| Shares issued in reinvestment of distributions | | | 344,793 | | | | 3,366,635 | | | | | | | | 1,118,125 | | | | 10,736,413 | |
| Shares redeemed | | | (10,576,146 | ) | | | (103,394,512 | ) | | | | | | | (12,292,706 | ) | | | (119,694,781 | ) |
| | | | |
| Net increase (decrease) | | | 760,953 | | | $ | 7,361,242 | | | | | | | | 343,456 | | | $ | 2,877,723 | |
| | | | |
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franklintempleton.com | | Annual Report | | 127 |
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
2. Shares of Beneficial Interest (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Franklin Low Duration Total Return Fund | | | | | | Franklin Total Return Fund | |
| | | Shares | | | Amount | | | | | | Shares | | | Amount | |
| | | | | |
| Class R Shares: | | | | | | | | | | | | | | | | | | | | |
| Year ended October 31, 2017 | | | | | | | | | | | | | | | | | | | | |
| Shares sold | | | | | | | | | | | | | | | 902,022 | | | $ | 8,746,669 | |
| Shares issued in reinvestment of distributions | | | | | | | | | | | | | | | 114,619 | | | | 1,108,621 | |
| Shares redeemed | | | | | | | | | | | | | | | (3,240,307 | ) | | | (31,484,683 | ) |
| | | | | | | | | | | | | | | | |
| Net increase (decrease) | | | | | | | | | | | | | | | (2,223,666 | ) | | $ | (21,629,393 | ) |
| | | | | | | | | | | | | | | | |
| Year ended October 31, 2016 | | | | | | | | | | | | | | | | | | | | |
| Shares sold | | | | | | | | | | | | | | | 1,331,922 | | | $ | 12,937,501 | |
| Shares issued in reinvestment of distributions | | | | | | | | | | | | | | | 186,048 | | | | 1,789,731 | |
| Shares redeemed | | | | | | | | | | | | | | | (2,741,401 | ) | | | (26,746,288 | ) |
| | | | | | | | | | | | | | | | |
| Net increase (decrease) | | | | | | | | | | | | | | | (1,223,431 | ) | | $ | (12,019,056 | ) |
| | | | | | | | | | | | | | | | |
| | | | | |
| Class R6 Shares: | | | | | | | | | | | | | | | | | | | | |
| Year ended October 31, 2017 | | | | | | | | | | | | | | | | | | | | |
| Shares sold | | | 14,784,998 | | | $ | 146,559,335 | | | | | | | | 38,903,238 | | | $ | 383,335,522 | |
| Shares issued in reinvestment of distributions | | | 1,264,112 | | | | 12,513,346 | | | | | | | | 18,879 | | | | 184,469 | |
| Shares redeemed | | | (11,934,303 | ) | | | (118,167,426 | ) | | | | | | | (8,043,063 | ) | | | (79,025,132 | ) |
| | | | |
| Net increase (decrease) | | | 4,114,807 | | | $ | 40,905,255 | | | | | | | | 30,879,054 | | | $ | 304,494,859 | |
| | | | |
| Year ended October 31, 2016 | | | | | | | | | | | | | | | | | | | | |
| Shares sold | | | 13,012,102 | | | $ | 127,680,026 | | | | | | | | 5,007,346 | | | $ | 49,666,379 | |
| Shares issued in reinvestment of distributions | | | 1,225,030 | | | | 12,041,881 | | | | | | | | 8,309 | | | | 80,954 | |
| Shares redeemed | | | (9,709,503 | ) | | | (95,938,756 | ) | | | | | | | (2,560,569 | ) | | | (25,295,618 | ) |
| | | | |
| Net increase (decrease) | | | 4,527,629 | | | $ | 43,783,151 | | | | | | | | 2,455,086 | | | $ | 24,451,715 | |
| | | | |
| | | | | |
| Advisor Class Shares: | | | | | | | | | | | | | | | | | | | | |
| Year ended October 31, 2017 | | | | | | | | | | | | | | | | | | | | |
| Shares sold | | | 37,677,301 | | | $ | 372,780,265 | | | | | | | | 48,423,990 | | | $ | 474,423,563 | |
| Shares issued in reinvestment of distributions | | | 639,191 | | | | 6,323,130 | | | | | | | | 1,856,741 | | | | 18,132,064 | |
| Shares redeemed | | | (17,587,989 | ) | | | (174,037,184 | ) | | | | | | | (64,272,380 | ) | | | (631,856,126 | ) |
| | | | |
| Net increase (decrease) | | | 20,728,503 | | | $ | 205,066,211 | | | | | | | | (13,991,649 | ) | | $ | (139,300,499 | ) |
| | | | |
| Year ended October 31, 2016 | | | | | | | | | | | | | | | | | | | | |
| Shares sold | | | 18,882,422 | | | $ | 186,687,617 | | | | | | | | 48,174,526 | | | $ | 480,064,749 | |
| Shares issued in reinvestment of distributions | | | 280,629 | | | | 2,760,337 | | | | | | | | 1,297,441 | | | | 12,575,671 | |
| Shares redeemed | | | (11,651,331 | ) | | | (115,091,760 | ) | | | | | | | (28,473,005 | ) | | | (280,452,940 | ) |
| | | | |
| Net increase (decrease) | | | 7,511,720 | | | $ | 74,356,194 | | | | | | | | 20,998,962 | | | $ | 212,187,480 | |
| | | | |
| | | | |
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128 | | Annual Report | | franklintempleton.com |
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
3. Transactions with Affiliates
Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Trust are also officers and/or directors of the following subsidiaries:
| | |
| Subsidiary | | Affiliation |
Franklin Advisers, Inc. (Advisers) | | Investment manager |
Franklin Templeton Institutional, LLC (FT Institutional) | | Investment manager |
Franklin Templeton Services, LLC (FT Services) | | Administrative manager |
Franklin Templeton Distributors, Inc. (Distributors) | | Principal underwriter |
Franklin Templeton Investor Services, LLC (Investor Services) | | Transfer agent |
a. Management Fees
Franklin Adjustable U.S. Government Securities Fund pays an investment management fee to Advisers based on the average daily net assets of the Fund as follows:
| | |
| Annualized Fee Rate | | Net Assets |
0.500% | | Up to and including $5 billion |
0.440% | | Over $5 billion, up to and including $10 billion |
0.410% | | Over $10 billion, up to and including $15 billion |
0.380% | | In excess of $15 billion |
Franklin Floating Rate Daily Access Fund pays an investment management fee to Advisers based on the average daily net assets of the Fund as follows:
| | |
| Annualized Fee Rate | | Net Assets |
0.650% | | Up to and including $500 million |
0.550% | | Over $500 million, up to and including $1 billion |
0.500% | | Over $1 billion, up to and including $1.5 billion |
0.450% | | Over $1.5 billion, up to and including $6.5 billion |
0.425% | | Over $6.5 billion, up to and including $11.5 billion |
0.400% | | Over $11.5 billion, up to and including $16.5 billion |
0.390% | | Over $16.5 billion, up to and including $19 billion |
0.380% | | Over $19 billion, up to and including $21.5 billion |
0.370% | | In excess of $21.5 billion |
| | | | |
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franklintempleton.com | | Annual Report | | 129 |
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
3. Transactions with Affiliates (continued)
a. Management Fees (continued)
Franklin Low Duration Total Return Fund and Franklin Total Return Fund pay an investment management fee to Advisers based on the average daily net assets of each of the Funds as follows:
| | |
| Annualized Fee Rate | | Net Assets |
0.625% | | Up to and including $500 million |
0.525% | | Over $500 million, up to and including $1 billion |
0.480% | | Over $1 billion, up to and including $1.5 billion |
0.435% | | Over $1.5 billion, up to and including $6.5 billion |
0.415% | | Over $6.5 billion, up to and including $11.5 billion |
0.400% | | Over $11.5 billion, up to and including $16.5 billion |
0.390% | | Over $16.5 billion, up to and including $19 billion |
0.380% | | Over $19 billion, up to and including $21.5 billion |
0.370% | | In excess of $21.5 billion |
Under a subadvisory agreement, FT Institutional, an affiliate of Advisers, provides subadvisory services to Franklin Total Return Fund. The subadvisory fee is paid by Advisers based on the Fund’s average daily net assets, and is not an additional expense of the Fund.
For the year ended October 31, 2017, each Fund’s effective investment management fee rate based on average daily net assets was as follows:
| | | | | | | | | | | | | | |
Franklin Adjustable U.S. Government Securities Fund | | | Franklin Floating Rate Daily Access Fund | | | Franklin Low Duration Total Return Fund | | | Franklin Total Return Fund | |
| | 0.500% | | | | 0.497 | % | | | 0.498 | % | | | 0.470 | % |
b. Administrative Fees
Under an agreement with Advisers, FT Services provides administrative services to the Funds. The fee is paid by Advisers based on each of the Funds’ average daily net assets, and is not an additional expense of the Funds.
c. Distribution Fees
The Board has adopted distribution plans for each share class, with the exception of Class R6 and Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Under the Funds’ Class A and A1 reimbursement distribution plans, the Funds reimburse Distributors for costs incurred in connection with the servicing, sale and distribution of each Fund’s shares up to the maximum annual plan rate for each class. Under the Class A and A1 reimbursement distribution plans, costs exceeding the maximum for the current plan year cannot be reimbursed in subsequent periods. In addition, under the Funds’ Class C and R compensation distribution plans, the Funds pay Distributors for costs incurred in connection with the servicing, sale and distribution of each Fund’s shares up to the maximum annual plan rate for each class. The plan year, for purposes of monitoring compliance with the maximum annual plan rates, is February 1 through January 31 for each Fund.
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The maximum annual plan rates, based on the average daily net assets, for each class, are as follows:
| | | | | | | | | | | | | | | | |
| | | Franklin Adjustable U.S. Government Securities Fund | | | Franklin Floating Rate Daily Access Fund | | | Franklin Low Duration Total Return Fund | | | Franklin Total Return Fund | |
| Reimbursement Plans: | | | | | | | | | | | | | | | | |
Class A | | | 0.25% | | | | 0.25% | | | | 0.25% | | | | 0.25% | |
Class A1 | | | 0.10% | | | | —% | | | | —% | | | | —% | |
| Compensation Plans: | | | | | | | | | | | | | | | | |
Class C | | | 0.65% | | | | 0.65% | | | | 0.65% | | | | 0.65% | |
Class R | | | —% | | | | —% | | | | —% | | | | 0.50% | |
d. Sales Charges/Underwriting Agreements
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Funds. These charges are deducted from the proceeds of sales of fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. Distributors has advised the Funds of the following commission transactions related to the sales and redemptions of the Funds’ shares for the year:
| | | | | | | | | | | | | | | | |
| | | Franklin Adjustable U.S. Government
Securities Fund | | | Franklin Floating Rate Daily Access Fund | | | Franklin Low Duration Total Return Fund | | | Franklin
Total Return
Fund | |
Sales charges retained net of commissions paid to unaffiliated brokers/dealers | | | $73,613 | | | | $175,624 | | | | $267,395 | | | | $933,458 | |
CDSC retained | | | $12,715 | | | | $ 58,258 | | | | $ 76,458 | | | | $ 90,074 | |
e. Transfer Agent Fees
Each class of shares, except for Class R6, pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations and reimburses Investor Services for out of pocket expenses incurred, including shareholder servicing fees paid to third parties. These fees are allocated daily based upon their relative proportion of such classes’ aggregate net assets. Class R6 pays Investor Services transfer agent fees specific to that class.
For the year ended October 31, 2017, the Funds paid transfer agent fees as noted in the Statements of Operations of which the following amounts were retained by Investor Services:
| | | | | | | | | | | | | | | | |
| | | Franklin Adjustable U.S. Government
Securities Fund | | | Franklin Floating Rate Daily Access Fund | | | Franklin Low Duration Total Return Fund | | | Franklin
Total Return
Fund | |
Transfer agent fees | | | $613,378 | | | | $1,092,108 | | | | $1,287,130 | | | | $2,496,686 | |
| | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
3. Transactions with Affiliates (continued)
f. Investments in Affiliated Management Investment Companies
Certain or all Funds invest in one or more affiliated management investment companies for purposes other than exercising a controlling influence over the management or policies. Management fees paid by the Funds are waived on assets invested in the affiliated management investment companies, as noted in the Statements of Operations, in an amount not to exceed the management and administrative fees paid directly or indirectly by each affiliate. Prior to November 1, 2013, the waiver was accounted for as a reduction to management fees. During the year ended October 31, 2017, investments in affiliated management investment companies were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Number of
Shares Held
at Beginning
of Year | | | Gross
Additions | | | Gross
Reductions | | | Number of
Shares
Held at End
of Year | | | Value
at End
of Year | | | Dividend
Income | | | Realized
Gain (Loss) | | | Net Change in
Unrealized
Appreciation
(Depreciation) | |
Franklin Adjustable U.S. Government Securities Fund | | | | | | | | | | | | | | | | | | | | | |
Non-Controlled Affiliates | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Institutional Fiduciary Trust Money Market Portfolio, 0.69% | | | 26,812,763 | | | | 360,862,349 | | | | (354,355,554 | ) | | | 33,319,558 | | | $ | 33,319,558 | | | $ | 86,363 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Franklin Floating Rate Daily Access Fund | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-Controlled Affiliates | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Franklin Lower Tier Floating Rate Fund | | | — | | | | 5,419,982 | | | | — | | | | 5,419,982 | | | $ | 56,476,213 | | | $ | 917,902 | �� | | $ | — | | | $ | (145,396 | ) |
Franklin Middle Tier Floating Rate Fund | | | — | | | | 5,706,221 | | | | — | | | | 5,706,221 | | | | 56,035,088 | | | | 713,356 | | | | — | | | | (454,130 | ) |
Institutional Fiduciary Trust Money Market Portfolio, 0.69% | | | 301,294,963 | | | | 1,936,512,006 | | | | (1,869,543,493 | ) | | | 368,263,476 | | | | 368,263,476 | | | | 1,711,043 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total Affiliated Securities | | | $ | 480,774,777 | | | $ | 3,342,301 | | | $ | — | | | $ | (599,526 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| Franklin Low Duration Total Return Fund | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-Controlled Affiliates | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Franklin Lower Tier Floating Rate Fund | | | 1,893,663 | | | | — | | | | — | | | | 1,893,663 | | | $ | 19,731,971 | | | $ | 1,754,574 | | | $ | — | | | $ | 56,810 | |
Franklin Middle Tier Floating Rate Fund | | | 2,389,308 | | | | — | | | | — | | | | 2,389,308 | | | | 23,463,000 | | | | 1,642,534 | | | | — | | | | (573,433 | ) |
Institutional Fiduciary Trust Money Market Portfolio, 0.69% | | | 89,753,463 | | | | 875,564,936 | | | | (885,515,384 | ) | | | 79,803,015 | | | | 79,803,015 | | | | 322,459 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total Affiliated Securities | | | $ | 122,997,986 | | | $ | 3,719,567 | | | $ | — | | | $ | (516,623 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Franklin Total Return Fund | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Controlled Affiliates | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Franklin Flexible Alpha Bond Fund, Class R6 | | | — | | | | 10,172,940 | | | | — | | | | 10,172,940 | | | $ | 100,203,459 | | | $ | 136,389 | | | $ | — | | | $ | 203,459 | |
Franklin Liberty Investment Grade Corporate ETF | | | 400,000 | | | | 800,000 | | | | (800,000 | ) | | | 400,000 | | | | 9,912,000 | | | | 750,224 | | | | 139,542 | | | | 284,000 | |
Franklin Liberty Short Duration U.S. Government ETF | | | 500,000 | | | | — | | | | (500,000 | ) | | | — | | | | —a | | | | 785,835 | | | | (1,217,714 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total Controlled Affiliates | | | $ | 110,115,459 | | | $ | 1,672,448 | | | $ | (1,078,172 | ) | | $ | 487,459 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Non-Controlled Affiliates | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Franklin Lower Tier Floating Rate Fund | | | 997,589 | | | | — | | | | — | | | | 997,589 | | | $ | 10,394,878 | | | $ | 924,316 | | | $ | — | | | $ | 29,927 | |
Franklin Middle Tier Floating Rate Fund | | | 1,889,310 | | | | — | | | | — | | | | 1,889,310 | | | | 18,553,026 | | | | 1,298,810 | | | | — | | | | (453,434 | ) |
Institutional Fiduciary Trust Money Market Portfolio, 0.69% | | | 104,199,665 | | | | 1,482,345,969 | | | | (1,464,273,996 | ) | | | 122,271,638 | | | | 122,271,638 | | | | 230,576 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total Non-Controlled Affiliates | | | $ | 151,219,542 | | | $ | 2,453,702 | | | $ | — | | | $ | (423,507 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total Affiliated Securities | | | $ | 261,335,001 | | | $ | 4,126,150 | | | $ | (1,078,172 | ) | | $ | 63,952 | |
| | | | | | | | | | | | | | | | | | | | |
a As of October 31, 2017, no longer held by the fund.
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NOTES TO FINANCIAL STATEMENTS
g. Waiver and Expense Reimbursements
Advisers and Investor Services have contractually agreed in advance to waive or limit their respective fees and to assume as their own expense certain expenses otherwise payable by Franklin Low Duration Total Return Fund and Franklin Total Return Fund so that the expenses (excluding distribution fees and acquired fund fees and expenses) for Class A, Class C, Class R and Advisor Class of the Funds do not exceed 0.55% and 0.63%, respectively, and Class R6 does not exceed 0.38% and 0.49%, respectively, based on the average net assets of each class (other than certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations, and liquidations) until February 28, 2018. Total expenses waived or paid are not subject to recapture subsequent to the Funds’ fiscal year end.
Additionally, Investor Services has voluntarily agreed in advance to waive or limit its fees so that the Class R6 transfer agent fees do not exceed 0.01% for Franklin Adjustable U.S. Government Securities Fund and Franklin Floating Rate Daily Access Fund. Investor Services may discontinue this waiver in the future.
h. Other Affiliated Transactions
At October 31, 2017, one or more of the funds in Franklin Fund Allocator Series owned a percentage of the following Funds’ outstanding shares:
| | | | | | |
Franklin
Floating Rate
Daily Access
Fund | | | | Franklin
Low Duration
Total Return
Fund | |
3.0% | | | | | 20.5% | |
i. Interfund Transactions
Certain or all Funds engaged in purchases and sales of investments with funds or other accounts that have common investment managers (or affiliated investment managers), directors, trustees or officers. These purchases and sales for the year ended October 31, 2017, were as follows:
| | | | | | | | |
| | | Franklin
Floating Rate
Daily Access
Fund | | | Franklin
Low Duration
Total Return
Fund | |
Purchases | | $ | 20,186,742 | | | $ | — | |
Sales | | $ | — | | | $ | 1,067,625 | |
4. Expense Offset Arrangement
The Funds have entered into an arrangement with their custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Funds’ custodian expenses. During the year ended October 31, 2017, the custodian fees were reduced as noted in the Statements of Operations.
5. Income Taxes
For tax purposes, capital losses may be carried over to offset future capital gains. Capital loss carryforwards with no expiration, if any, must be fully utilized before those losses with expiration dates.
| | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
5. Income Taxes (continued)
At October 31, 2017, the capital loss carryforwards were as follows:
| | | | | | | | | | | | | | | | |
| | | Franklin
Adjustable
U.S. Government
Securities Fund | | | Franklin
Floating
Rate Daily
Access Fund | | | Franklin
Low Duration
Total Return
Fund | | | Franklin
Total Return
Fund | |
| Capital loss carryforwards subject to expiration: | | | | | | | | | | | | | | | | |
2018 | | | $ 39,689,305 | | | | $ — | | | | $ — | | | | $ — | |
2019 | | | 21,934,756 | | | | 10,282,409 | | | | 5,327,487 | | | | — | |
| | | | |
| Capital loss carryforwards not subject to expiration: | | | | | | | | | | | | | | | | |
Short term | | | 21,349,453 | | | | 19,104,268 | | | | 23,578,932 | | | | 42,643,785 | |
Long term | | | 85,815,996 | | | | 135,097,489 | | | | 48,789,244 | | | | 52,328,720 | |
| | | | |
Total capital loss carryforwards | | | $168,789,510 | | | | $164,484,166 | | | | $77,695,663 | | | | $94,972,505 | |
| | | | |
On October 31, 2017, Franklin Adjustable U.S. Government Securities Fund and Franklin Floating Rate Daily Access Fund had expired capital loss carryforwards of $4,398,245 and $113,325,538, respectively, which were reclassified to paid-in capital.
The tax character of distributions paid during the years ended October 31, 2017 and 2016, was as follows:
| | | | | | | | | | | | | | | | |
| | | Franklin Adjustable U.S.
Government Securities Fund | | | Franklin Floating Rate
Daily Access Fund | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Distributions paid from ordinary income | | | $21,337,153 | | | | $21,260,547 | | | | $128,242,240 | | | | $142,854,024 | |
| | | | |
| | |
| | | Franklin Low Duration
Total Return Fund | | | Franklin Total Return Fund | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Distributions paid from ordinary income | | | $52,497,555 | | | | $52,808,202 | | | | $111,988,612 | | | | $132,901,273 | |
| | | | |
At October 31, 2017, the cost of investments, net unrealized appreciation (depreciation) and undistributed ordinary income for income tax purposes were as follows:
| | | | | | | | | | | | | | | | |
| | | Franklin
Adjustable
U.S. Government
Securities Fund | | | Franklin
Floating Rate
Daily Access
Fund | | | Franklin
Low Duration
Total Return
Fund | | | Franklin
Total Return
Fund | |
Cost of investments | | | $982,538,000 | | | $ | 3,758,297,351 | | | $ | 2,667,320,679 | | | $ | 4,695,535,285 | |
| | | | |
Unrealized appreciation | | | $ 6,486,613 | | | $ | 28,749,415 | | | $ | 24,344,232 | | | $ | 115,511,113 | |
Unrealized depreciation | | | (5,078,538 | ) | | | (64,736,405 | ) | | | (35,199,955 | ) | | | (110,807,393 | ) |
| | | | |
Net unrealized appreciation (depreciation) | | | $ 1,408,075 | | | $ | (35,986,990 | ) | | $ | (10,855,723 | ) | | $ | 4,703,720 | |
| | | | |
Distributable earnings - undistributed ordinary income | | | $ 170,775 | | | $ | 5,341,271 | | | $ | 4,999,205 | | | $ | 8,000,877 | |
| | | | |
Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of defaulted securities, foreign currency transactions, paydown losses, bond discounts and premiums, swaps and financial futures transactions.
| | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
6. Investment Transactions
Purchases and sales of investments (excluding short term securities) for the year ended October 31, 2017, were as follows:
| | | | | | | | | | | | | | | | |
| | | Franklin
Adjustable
U.S. Government
Securities Fund | | | Franklin
Floating Rate
Daily Access
Fund | | | Franklin
Low Duration
Total Return
Fund | | | Franklin
Total Return
Fund | |
Purchases | | | $ 31,470,436 | | | $ | 2,722,179,721 | | | $ | 1,470,641,584 | | | $ | 4,708,100,091 | |
Sales | | | $350,001,599 | | | $ | 2,120,341,833 | | | $ | 1,250,183,457 | | | $ | 4,924,752,287 | |
7. Credit Risk and Defaulted Securities
At October 31, 2017, Franklin Floating Rate Daily Access Fund, Franklin Low Duration Total Return Fund and Franklin Total Return Fund had 71.6%, 20.8% and 18.1% respectively, of their portfolio invested in high yield securities, senior secured floating rate notes, or other securities rated below investment grade and unrated securities, if any. These securities may be more sensitive to economic conditions causing greater price volatility and are potentially subject to a greater risk of loss due to default than higher rated securities.
Franklin Total Return Fund held a defaulted security and/or other securities for which the income has been deemed uncollectible. At October 31, 2017, the value of this security was $4,155,000, representing 0.1%, of Fund’s net assets. The Fund discontinues accruing income on securities for which income has been deemed uncollectible and provides an estimate for losses on interest receivable. The security has been identified in the accompanying Consolidated Statement of Investments.
8. Restricted Securities
Certain or all Funds invest in securities that are restricted under the Securities Act of 1933 (1933 Act). Restricted securities are often purchased in private placement transactions, and cannot be sold without prior registration unless the sale is pursuant to an exemption under the 1933 Act. Disposal of these securities may require greater effort and expense, and prompt sale at an acceptable price may be difficult. The Funds may have registration rights for restricted securities. The issuer generally incurs all registration costs.
At October 31, 2017, investments in restricted securities, excluding securities exempt from registration under the 1933 Act deemed to be liquid, were as follows:
| | | | | | | | | | | | | | | | |
Principal Amount/ Shares | | | Issuer | | Acquisition Date | | | Cost | | | Value | |
| | |
| | Franklin Low Duration Total Return Fund | | | | | | | | | |
| | 12,326,925 | | | Holdco 2, A | | | 4/15/13 - 2/01/17 | | | $ | 92,078 | | | $ | 8,726 | |
| | 1,226,701 | | | Holdco 2, B | | | 2/01/17 | | | | 911 | | | | 869 | |
| | 920,500 | | | K2016470219 South Africa Ltd., senior secured note, 144A, PIK, 3.00%, 12/31/22 | | | 4/15/13 - 6/30/17 | | | | 1,659,290 | | | | 27,342 | |
| | 144,913 | | | K2016740260 South Africa Ltd., senior secured note, 144A, PIK, 25.00%, 12/31/22 | | | 2/01/17 - 6/30/17 | | | | 144,230 | | | | 123,733 | |
| | | | | | | | | | | | |
| | | | Total Restricted Securities (Value is 0.0%† of Net Assets) | | | | | | $ | 1,896,509 | | | $ | 160,670 | |
| | | | | | | | | | | | |
| | |
| | Franklin Total Return Fund | | | | | | | | | |
| | 28,762,824 | | | Holdco 2, A | | | 4/15/13 - 2/01/17 | | | $ | 221,469 | | | $ | 20,361 | |
| | 2,862,311 | | | Holdco 2, B | | | 2/01/17 | | | | 2,125 | | | | 2,026 | |
| | 2,147,835 | | | K2016470219 South Africa Ltd., senior secured note, 144A, PIK, 3.00%, 12/31/22 | | | 4/15/13 - 6/30/17 | | | | 3,975,981 | | | | 63,797 | |
| | 338,133 | | | K2016740260 South Africa Ltd., senior secured note, 144A, PIK, 25.00%, 12/31/22 | | | 2/01/17 - 6/30/17 | | | | 336,537 | | | | 288,713 | |
| | | | | | | | | | | | |
| | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
8. Restricted Securities (continued)
| | | | | | | | | | | | | | |
Principal Amount/ Shares | | Issuer | | Acquisition
Date | | | Cost | | | Value | |
| | |
| Franklin Total Return Fund (continued) | | | | | | | | | |
| | Total Restricted Securities (Value is 0.0%† of Net Assets) | | | | | | $ | 4,536,112 | | | $ | 374,897 | |
| | | | | | | | | | |
†Rounds to less than 0.1% of net assets.
9. Unfunded Loan Commitments
Certain or all Funds enter into certain credit agreements, all or a portion of which may be unfunded. The Funds are obligated to fund these loan commitments at the borrowers’ discretion. Unfunded loan commitments and funded portions of credit agreements are marked to market daily and any unrealized appreciation or depreciation is included in the Statements of Assets and Liabilities and the Statements of Operations. Funded portions of credit agreements are presented in the Statements of Investments.
At October 31, 2017, unfunded commitments were as follows:
| | | | |
| Borrower | | Unfunded
Commitment | |
| |
| Franklin Floating Rate Daily Access Fund | | | | |
BMC Software Finance, Inc., Non-Extended U.S. Revolving Commitment | | | $20,723,252 | |
Appvion, Inc., NM Term Loans | | | 17,470,588 | |
| | | | |
| | | $38,193,840 | |
| | | | |
| Franklin Low Duration Total Return Fund | | | | |
BMC Software Finance, Inc., Non-Extended U.S. Revolving Commitment | | | $ 3,492,917 | |
| | | | |
| |
| Franklin Total Return Fund | | | | |
BMC Software Finance, Inc., Non-Extended U.S. Revolving Commitment | | | $ 7,629,911 | |
Global Tel*Link Corp, Revolving Commitment | | | 211,174 | |
| | | | |
| | | $ 7,841,085 | |
| | | | |
10. Other Derivative Information
At October 31, 2017, the Funds’ investments in derivative contracts are reflected in the Statements of Assets and Liabilities as follows:
| | | | | | | | | | | | |
| | | Asset Derivatives | | | Liability Derivatives | |
Derivative Contracts Not Accounted for as Hedging Instruments | | Statements of Assets and Liabilities Location | | Fair Value | | | Statements of Assets and Liabilities Location | | Fair Value | |
Franklin Floating Rate Daily Access Fund | | | | | | | | | | | | |
Credit contracts | | Variation margin on centrally cleared swap contracts | | $ | — | | | Variation margin on centrally cleared swap contracts | | $ | 1,179,020a | |
| | | | | | | | | | | | |
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NOTES TO FINANCIAL STATEMENTS
| | | | | | | | | | | | |
| | | Asset Derivatives | | | | | Liability Derivatives | |
Derivative Contracts Not Accounted for as Hedging Instruments | | Statements of
Assets and Liabilities
Location | | Fair Value | | | Statements of
Assets and Liabilities
Location | | Fair Value | |
Franklin Low Duration Total
Return Fund | | | | | | | | | | | | |
Interest rate contracts | | Variation margin on futures contracts | | $ | 554,406 | a | | Variation margin on futures contracts | | $ | 1,904,164 | a |
| | Variation margin on centrally cleared swap contracts | | | — | | | Variation margin on centrally cleared swap contracts | | | 249,033 | a |
| | Unrealized appreciation on OTC swap contracts | | | 333,022 | | | Unrealized depreciation on OTC swap contracts | | | 484,260 | |
Foreign exchange contracts | | Unrealized appreciation on OTC forward exchange contracts | | | 1,021,447 | | | Unrealized depreciation on OTC forward exchange contracts | | | 282,829 | |
Credit contracts | | Variation margin on centrally cleared swap contracts | | | 316,210 | a | | Variation margin on centrally cleared swap contracts | | | 513,496 | a |
| | OTC swap contracts (Upfront payments) | | | 1,822,356 | | | OTC swap contracts (Upfront receipts) | | | 6,113,061 | |
| | Unrealized appreciation on OTC swap contracts | | | 834,555 | | | Unrealized depreciation on OTC swap contracts | | | 2,926,569 | |
Inflation contracts | | Variation margin on centrally cleared swap contracts | | | 457,294 | a | | Variation margin on centrally cleared swap contracts | | | — | |
| | | | | | | | | | | | |
Totals | | | | $ | 5,339,290 | | | | | $ | 12,473,412 | |
| | | | | | | | | | | | |
| | | | |
| Franklin Total Return Fund | | | | | | | | | | | | |
Interest rate contracts | | Variation margin on futures contracts | | $ | 23,940 | a | | Variation margin on futures contracts | | $ | 6,056,299 | a |
| | Unrealized appreciation on OTC swap contracts | | | 3,062,842 | | | Unrealized depreciation on OTC swap contracts | | | 769,694 | |
Foreign exchange contracts | | Unrealized appreciation on OTC forward exchange contracts | | | 4,270,638 | | | Unrealized depreciation on OTC forward exchange contracts | | | 857,291 | |
Credit contracts | | Variation margin on centrally cleared swap contracts | | | 710,539 | a | | Variation margin on centrally cleared swap contracts | | | 1,209,746 | a |
| | OTC swap contracts (Upfront payments) | | | 5,060,208 | | | OTC swap contracts (Upfront receipts) | | | 16,244,826 | |
| | Unrealized appreciation on OTC swap contracts | | | 2,303,173 | | | Unrealized depreciation on OTC swap contracts | | | 6,654,828 | |
Inflation contracts | | Variation margin on centrally cleared swap contracts | | | 213,462 | a | | Variation margin on centrally cleared swap contracts | | | — | |
| | Unrealized appreciation on OTC swap contracts | | | 2,490,669 | | | Unrealized depreciation on OTC swap contracts | | | — | |
Value recovery instruments | | Investments in securities, at value | | | 272,266 | | | | | | | |
| | | | | | | | | | | | |
Totals | | | | $ | 18,407,737 | | | | | $ | 31,792,684 | |
| | | | | | | | | | | | |
aThis amount reflects the cumulative appreciation (depreciation) of futures contracts and centrally cleared swap contracts as reported in the Statement of Investments. Only the variation margin receivable/payable at year end is separately reported within the Statements of Assets and Liabilities. Prior variation margin movements were recorded to cash upon receipt or payment.
| | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
��
10. Other Derivative Information (continued)
For the year ended October 31, 2017, the effect of derivative contracts in the Funds’ Statements of Operations was as follows:
| | | | | | | | | | | | |
Derivative Contracts Not Accounted for as Hedging Instruments | | Statements of Operations Location | | Net Realized
Gain (Loss) for
the Year | | | Statements of Operations Location | | Net Change
in Unrealized
Appreciation
(Depreciation)
for the Year | |
| | Net realized gain (loss) from: | | | | | | Net change in unrealized appreciation (depreciation) on: | | | | |
Franklin Floating Rate Daily | | | | | | | | | | | | |
Access Fund | | | | | | | | | | | | |
Credit contracts | | Swap contracts | | | $ (305,578) | | | Swap contracts | | | $(1,179,020) | |
| | | | | | | | | | | | |
| | | | |
Franklin Low Duration Total | | | | | | | | | | | | |
Return Fund | | | | | | | | | | | | |
Interest rate contracts | | Futures contracts | | | $ 2,820,388 | | | Futures contracts | | | $(2,316,849) | |
| | Swap contracts | | | 2,438,954 | | | Swap contracts | | | (1,276,697) | |
Foreign exchange contracts | | Forward exchange contracts | | | 3,116,993 | | | Forward exchange contracts | | | (820,066) | |
Credit contracts | | Investments | | | (294,814) | a | | Investments | | | 148,822a | |
| | Swap contracts | | | (4,293,878) | | | Swap contracts | | | 1,832,339 | |
Inflation contracts | | Swap contracts | | | — | | | Swap contracts | | | 457,294 | |
| | | | | | | | | | | | |
Totals | | | | | $ 3,787,643 | | | | | | $(1,975,157) | |
| | | | | | | | | | | | |
| | | | |
Franklin Total Return Fund | | | | | | | | | | | | |
Interest rate contracts | | Futures contracts | | | $(13,973,734) | | | Futures contracts | | | $(2,174,906) | |
| | Swap contracts | | | (112,297) | | | Swap contracts | | | 1,563,537 | |
Foreign exchange contracts | | Forward exchange contracts | | | 13,947,031 | | | Forward exchange contracts | | | (3,901,913) | |
Credit contracts | | Investments | | | (859,360) | a | | Investments | | | 427,650a | |
| | Swap contracts | | | (12,316,900) | | | Swap contracts | | | 7,724,343 | |
Inflation contracts | | Swap contracts | | | — | | | Swap contracts | | | 1,089,226 | |
Value recovery instruments | | Investments | | | — | | | Investments | | | 119,975 | |
| | | | | | | | | | | | |
Totals | | | | | $(13,315,260) | | | | | | $ 4,847,912 | |
| | | | | | | | | | | | |
aPurchased option contracts are included in net realized gain (loss) from investments and net change in unrealized appreciation (depreciation) on investments in the Statements of Operations.
For the year ended October 31, 2017, the average month end notional amount of futures contracts, options and swap contracts and the average month end contract value for forward exchange contracts, and average month end fair value of VRI were as follows:
| | | | | | | | | | | | |
| | | Franklin Floating Rate
Daily Access Fund | | | Franklin
Low Duration
Total Return Fund | | | Franklin Total
Return Fund | |
Futures contracts | | $ | — | | | $ | 604,551,288 | | | $ | 559,900,732 | |
Options | | | — | | | | 6,269,231 | | | | 18,338,462 | |
Swap contracts | | | 33,180,793 | | | | 288,629,248 | | | | 682,014,854 | |
Forward exchange contracts | | | — | | | | 157,881,191 | | | | 559,465,310 | |
VRI | | | — | | | | — | | | | 188,238 | |
See Note 1 (d) regarding derivative financial instruments.
| | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
At October 31, 2017, the Funds’ OTC derivative assets and liabilities are as follows:
| | | | | | | | | | |
| | | | | Gross Amounts of
Assets and Liabilities Presented
in the Statements of Assets and Liabilities | |
| | | | | Assetsa | | | Liabilitiesa | |
Derivatives | | | | | | | | | | |
Franklin Low Duration | | | | | | | | | | |
Total Return Fund | | | | | | | | | | |
Forward exchange contracts | | | | | $ 1,021,447 | | | | $ 282,829 | |
Swap contracts | | | | | 2,989,933 | | | | 9,523,890 | |
| | | | | | |
Total | | | | | $ 4,011,380 | | | | $ 9,806,719 | |
| | | | | | |
Franklin Total | | | | | | | | | | |
Return Fund | | | | | | | | | | |
Forward exchange contracts | | | | | $ 4,270,638 | | | | $ 857,291 | |
Swap contracts | | | | | 12,916,892 | | | | 23,669,348 | |
| | | | | | |
Total | | | | | $17,187,530 | | | | $24,526,639 | |
| | | | | | |
aAbsent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Statements of Assets and Liabilities.
At October 31, 2017, the Funds’ OTC derivative assets, which may be offset against the Funds’ OTC derivative liabilities and collateral received from the counterparty, are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Amounts Not Offset in the Statements of Assets and Liabilities | | | | |
| | | Gross
Amounts of
Assets Presented in
the Statements of
Assets and Liabilities | | | Financial
Instruments
Available for
Offset | | | Financial
Instruments
Collateral
Receiveda,b | | | Cash
Collateral
Receivedb | | | Net Amount
(Not less
than zero) | |
Franklin Low Duration Total Return | | | | | | | | | | | | | | | | | | | | |
Fund | | | | | | | | | | | | | | | | | | | | |
Counterparty | | | | | | | | | | | | | | | | | | | | |
BZWS | | | $ 306,087 | | | | $ (222,171) | | | | $ — | | | | $ — | | | | $83,916 | |
CITI | | | 1,177,545 | | | | (1,177,545) | | | | — | | | | — | | | | — | |
DBAB | | | 272,827 | | | | (142,825) | | | | (130,002) | | | | — | | | | — | |
FBCO | | | 149,870 | | | | (149,870) | | | | — | | | | — | | | | — | |
GSCO | | | 967,435 | | | | (967,435) | | | | — | | | | — | | | | — | |
HSBK | | | 59 | | | | — | | | | — | | | | — | | | | 59 | |
JPHQ | | | 1,070,968 | | | | (1,070,968) | | | | — | | | | — | | | | — | |
MSCO | | | 66,589 | | | | (10,818) | | | | — | | | | (55,771) | | | | — | |
| | | | |
Total | | | $4,011,380 | | | | $(3,741,632) | | | | $(130,002) | | | | $(55,771) | | | | $83,975 | |
| | | | |
| | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
10. Other Derivative Information (continued)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Amounts Not Offset in the Statements of Assets and Liabilities | | | | |
| | | Gross Amounts of
Assets Presented in
the Statements of
Assets and Liabilities | | | | | | Financial
Instruments
Available for
Offset | | | Financial
Instruments
Collateral
Receiveda,b | | | Cash
Collateral
Received | | | Net Amount
(Not less
than zero) | |
Franklin Total Return Fund | | | | | | | | | | | | | | | | | | | | | | | | |
Counterparty | | | | | | | | | | | | | | | | | | | | | | | | |
BOFA | | | $ 335,004 | | | | | | | | $ (107,693) | | | | $ — | | | | $(221,000) | | | | $ 6,311 | |
BZWS | | | 1,405,617 | | | | | | | | (1,405,617) | | | | — | | | | — | | | | — | |
CITI | | | 4,763,840 | | | | | | | | (4,763,840) | | | | — | | | | — | | | | — | |
DBAB | | | 1,166,438 | | | | | | | | (312,417) | | | | (854,021) | | | | — | | | | — | |
FBCO | | | 687,033 | | | | | | | | (687,033) | | | | — | | | | — | | | | — | |
GSCO | | | 1,631,172 | | | | | | | | (1,631,172) | | | | — | | | | — | | | | — | |
HSBK | | | 615,060 | | | | | | | | — | | | | (511,311) | | | | — | | | | 103,749 | |
JPHQ | | | 6,583,366 | | | | | | | | (6,583,366) | | | | — | | | | — | | | | — | |
| | | | |
Total | | | $17,187,530 | | | | | | | | $(15,491,138) | | | | $(1,365,332) | | | | $(221,000) | | | | $110,060 | |
| | | | |
At October 31, 2017, the Funds’ OTC derivative liabilities, which may be offset against the Funds’ OTC derivative assets and collateral pledged to the counterparty, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Amounts Not Offset in the Statements of Assets and Liabilities | | | | |
| | | Gross Amounts of
Liabilities Presented in
the Statements of
Assets and Liabilities | | | | | | Financial
Instruments
Available for
Offset | | | Financial
Instruments
Collateral
Pledged | | | Cash
Collateral
Pledgedb | | | Net Amount
(Not less
than zero) | |
Franklin Low Duration Total Return | | | | | | | | | | | | | | | | | | | | | | | | |
Fund | | | | | | | | | | | | | | | | | | | | | | | | |
Counterparty | | | | | | | | | | | | | | | | | | | | | | | | |
BZWS | | | $ 222,171 | | | | | | | | $ (222,171) | | | | $ — | | | | $ — | | | | $ — | |
CITI | | | 2,113,093 | | | | | | | | (1,177,545) | | | | — | | | | (935,548) | | | | — | |
DBAB | | | 142,825 | | | | | | | | (142,825) | | | | — | | | | — | | | | — | |
FBCO | | | 428,178 | | | | | | | | (149,870) | | | | — | | | | (278,308) | | | | — | |
GSCO | | | 2,186,442 | | | | | | | | (967,435) | | | | — | | | | (1,130,000) | | | | 89,007 | |
HSBK | | | — | | | | | | | | — | | | | — | | | | — | | | | — | |
JPHQ | | | 4,703,192 | | | | | | | | (1,070,968) | | | | — | | | | (3,632,224) | | | | — | |
MSCO | | | 10,818 | | | | | | | | (10,818) | | | | — | | | | — | | | | — | |
| | | | |
Total | | | $9,806,719 | | | | | | | | $(3,741,632) | | | | $ — | | | | $(5,976,080) | | | | $89,007 | |
| | | | |
| | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Amounts Not Offset in the Statements of Assets and Liabilities | | | | |
| | | Gross Amounts of
Liabilities Presented in
the Statements of
Assets and Liabilities | | | | | | Financial
Instruments
Available for
Offset | | | Financial
Instruments
Collateral
Pledged | | | Cash
Collateral
Pledgedb | | | Net Amount
(Not less
than zero) | |
Franklin Total Return Fund | | | | | | | | | | | | | | | | | | | | | | | | |
Counterparty | | | | | | | | | | | | | | | | | | | | | | | | |
BOFA | | | $ 107,693 | | | | | | | | $ (107,693) | | | | $ — | | | | $ — | | | | $ — | |
BZWS | | | 2,341,702 | | | | | | | | (1,405,617) | | | | — | | | | (936,085) | | | | — | |
CITI | | | 7,315,841 | | | | | | | | (4,763,840) | | | | — | | | | (2,552,001) | | | | — | |
DBAB | | | 312,417 | | | | | | | | (312,417) | | | | — | | | | — | | | | — | |
FBCO | | | 1,515,320 | | | | | | | | (687,033) | | | | — | | | | (828,287) | | | | — | |
GSCO | | | 4,113,020 | | | | | | | | (1,631,172) | | | | — | | | | (2,450,000) | | | | 31,848 | |
HSBK | | | — | | | | | | | | — | | | | — | | | | — | | | | — | |
JPHQ | | | 8,820,646 | | | | | | | | (6,583,366) | | | | — | | | | (2,237,280) | | | | — | |
| | | | |
Total | | | $24,526,639 | | | | | | | | $(15,491,138) | | | | $ — | | | | $(9,003,653) | | | | $31,848 | |
| | | | |
aAt October 31, 2017, the Fund received United Kingdom Treasury Bonds and U.S. Treasury Bonds and Bills as collateral for derivatives.
bIn some instances, the collateral amounts disclosed in the table above were adjusted due to the requirement to limit collateral amounts to avoid the effect of overcollateralization. Actual collateral received and/or pledged may be more than the amounts disclosed herein.
See Abbreviations on page 146.
11. Credit Facility
The Funds, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matures on February 9, 2018. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests.
Under the terms of the Global Credit Facility, the Funds shall, in addition to interest charged on any borrowings made by the Funds and other costs incurred by the Funds, pay their share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon their relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.15% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses in the Statements of Operations. During the year ended October 31, 2017, the Funds did not use the Global Credit Facility.
12. Fair Value Measurements
The Funds follow a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Funds’ own market assumptions (unobservable inputs). These inputs are used in determining the value of the Funds’ financial instruments and are summarized in the following fair value hierarchy:
| | • | | Level 1 – quoted prices in active markets for identical financial instruments |
| | • | | Level 2 – other significant observable inputs (including quoted prices for similar financial instruments, interest rates, prepayment speed, credit risk, etc.) |
| | • | | Level 3 – significant unobservable inputs (including the Funds’ own assumptions in determining the fair value of financial instruments) |
| | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
12. Fair Value Measurements (continued)
The input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level.
For movements between the levels within the fair value hierarchy, the Funds have adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.
A summary of inputs used as of October 31, 2017, in valuing the Funds’ assets and liabilities carried at fair value, is as follows:
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Franklin Adjustable U.S. Government Securities Fund | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Investments in Securities: | | | | | | | | | | | | | | | | |
Mortgage-Backed Securities | | $ | — | | | $ | 950,626,517 | | | $ | — | | | $ | 950,626,517 | |
Short Term Investments | | | 33,319,558 | | | | — | | | | — | | | | 33,319,558 | |
| | | | |
Total Investments in Securities | | $ | 33,319,558 | | | $ | 950,626,517 | | | $ | — | | | $ | 983,946,075 | |
| | | | |
Franklin Floating Rate Daily Access Fund | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Investments in Securities: | | | | | | | | | | | | | | | | |
Equity Investments:a | | | | | | | | | | | | | | | | |
Oil & Gas Exploration & Production | | $ | — | | | $ | 6,708,059 | | | $ | — | | | $ | 6,708,059 | |
All Other Equity Investments | | | 113,430,562 | | | | — | | | | — | | | | 113,430,562 | |
Corporate Bonds | | | — | | | | 15,193,727 | | | | — | | | | 15,193,727 | |
Senior Floating Rate Interests | | | — | | | | 2,808,530,663 | | | | 30,211,103 | | | | 2,838,741,766 | |
Asset-Backed Securities | | | — | | | | 356,125,752 | | | | — | | | | 356,125,752 | |
Short Term Investments | | | 368,263,476 | | | | 233,032 | | | | 27,942,353 | | | | 396,438,861 | |
| | | | |
Total Investments in Securities | | $ | 481,694,038 | | | $ | 3,186,791,233 | | | $ | 58,153,456 | | | $ | 3,726,638,727 | |
| | | | |
Other Financial Instruments: | | | | | | | | | | | | | | | | |
Unfunded Loan Commitments | | $ | — | | | $ | 532,004 | | | $ | 576,475 | | | $ | 1,108,479 | |
| | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Other Financial Instruments: | | | | | | | | | | | | | | | | |
Swap Contracts. | | $ | — | | | $ | 1,179,020 | | | $ | — | | | $ | 1,179,020 | |
| | | | |
| | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Franklin Low Duration Total Return Fund | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Investments in Securities: | | | | | | | | | | | | | | | | |
Equity Investments:a | | | | | | | | | | | | | | | | |
Materials | | $ | 9,723 | | | $ | 1 | | | $ | — | | | $ | 9,724 | |
Retailing | | | — | | | | — | | | | 9,595 | | | | 9,595 | |
All Other Equity Investmentsb | | | 93,201,234 | | | | — | | | | — | | | | 93,201,234 | |
Corporate Bonds | | | — | | | | 936,162,572 | | | | — | | | | 936,162,572 | |
Senior Floating Rate Interests | | | — | | | | 102,270,562 | | | | — | | | | 102,270,562 | |
Foreign Government and Agency Securities | | | — | | | | 41,706,033 | | | | — | | | | 41,706,033 | |
U.S. Government and Agency Securities | | | — | | | | 674,931,511 | | | | — | | | | 674,931,511 | |
Asset-Backed Securities and Commercial Mortgage-Backed Securities | | | — | | | | 667,128,410 | | | | — | | | | 667,128,410 | |
Mortgage-Backed Securities | | | — | | | | 98,034,402 | | | | — | | | | 98,034,402 | |
Municipal Bonds | | | — | | | | 16,040,043 | | | | — | | | | 16,040,043 | |
Escrows and Litigation Trusts | | | — | | | | — | | | | — | c | | | — | |
Short Term Investments | | | 79,803,015 | | | | — | | | | — | | | | 79,803,015 | |
| | | | |
Total Investments in Securities | | $ | 173,013,972 | | | $ | 2,536,273,534 | | | $ | 9,595 | | | $ | 2,709,297,101 | |
| | | | |
Other Financial Instruments: | | | | | | | | | | | | | | | | |
Futures Contracts | | $ | 554,406 | | | $ | — | | | $ | — | | | $ | 554,406 | |
Forward Exchange Contracts | | | — | | | | 1,021,447 | | | | — | | | | 1,021,447 | |
Swap Contracts. | | | — | | | | 1,941,081 | | | | — | | | | 1,941,081 | |
Unfunded Loan Commitments | | | — | | | | 60,470 | | | | — | | | | 60,470 | |
| | | | |
Total Other Financial Instruments | | $ | 554,406 | | | $ | 3,022,998 | | | $ | — | | | $ | 3,577,404 | |
| | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Other Financial Instruments: | | | | | | | | | | | | | | | | |
TBA Sales Commitments | | $ | — | | | $ | 46,220,729 | | | $ | — | | | $ | 46,220,729 | |
Futures Contracts | | | 1,904,164 | | | | — | | | | — | | | | 1,904,164 | |
Forward Exchange Contracts | | | — | | | | 282,829 | | | | — | | | | 282,829 | |
Swap Contracts. | | | — | | | | 4,173,358 | | | | — | | | | 4,173,358 | |
| | | | |
Total Other Financial Instruments | | $ | 1,904,164 | | | $ | 50,676,916 | | | $ | — | | | $ | 52,581,080 | |
| | | | |
| | | | |
| | | |
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FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
12. Fair Value Measurements (continued)
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | | | |
| Franklin Total Return Fund | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Investments in Securities: | | | | | | | | | | | | | | | | |
Equity Investments:a | | | | | | | | | | | | | | | | |
Consumer Services | | $ | — | | | $ | — | | | $ | 7,210,139 | | | $ | 7,210,139 | |
Materials | | | 48,748 | | | | 7 | | | | — | | | | 48,755 | |
Retailing | | | — | | | | — | | | | 22,387 | | | | 22,387 | |
All Other Equity Investmentsb | | | 168,599,059 | | | | — | | | | — | | | | 168,599,059 | |
Corporate Bonds | | | — | | | | 1,666,098,196 | | | | — | | | | 1,666,098,196 | |
Senior Floating Rate Interests | | | — | | | | 118,188,471 | | | | — | | | | 118,188,471 | |
Foreign Government and Agency Securities | | | — | | | | 90,450,708 | | | | — | | | | 90,450,708 | |
U.S. Government and Agency Securities | | | — | | | | 605,335,708 | | | | — | | | | 605,335,708 | |
Asset-Backed Securities and Commercial | | | | | | | | | | | | | | | | |
Mortgage-Backed Securities | | | — | | | | 795,076,055 | | | | 13,999 | | | | 795,090,054 | |
Mortgage-Backed Securities | | | — | | | | 1,119,763,628 | | | | — | | | | 1,119,763,628 | |
Municipal Bonds | | | — | | | | 71,193,069 | | | | — | | | | 71,193,069 | |
Escrows and Litigation Trusts | | | — | | | | — | | | | — | c | | | — | |
Short Term Investments | | | 122,271,638 | | | | — | | | | — | | | | 122,271,638 | |
| | | | |
Total Investments in Securities | | $ | 290,919,445 | | | $ | 4,466,105,842 | | | $ | 7,246,525 | | | $ | 4,764,271,812 | |
| | | | |
Other Financial Instruments: | | | | | | | | | | | | | | | | |
Futures Contracts | | $ | 23,940 | | | $ | — | | | $ | — | | | $ | 23,940 | |
Forward Exchange Contracts | | | — | | | | 4,270,638 | | | | — | | | | 4,270,638 | |
Swap Contracts. | | | — | | | | 8,780,685 | | | | — | | | | 8,780,685 | |
Unfunded Loan Commitments | | | — | | | | 136,199 | | | | — | | | | 136,199 | |
| | | | |
Total Other Financial Instruments | | $ | 23,940 | | | $ | 13,187,522 | | | $ | — | | | $ | 13,211,462 | |
| | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Other Financial Instruments: | | | | | | | | | | | | | | | | |
TBA Sales Commitments | | $ | — | | | $ | 48,954,711 | | | $ | — | | | $ | 48,954,711 | |
Futures Contracts | | | 6,056,299 | | | | — | | | | — | | | | 6,056,299 | |
Forward Exchange Contracts | | | — | | | | 857,291 | | | | — | | | | 857,291 | |
Swap Contracts. | | | — | | | | 8,634,268 | | | | — | | | | 8,634,268 | |
| | | | |
Total Other Financial Instruments | | $ | 6,056,299 | | | $ | 58,446,270 | | | $ | — | | | $ | 64,502,569 | |
| | | | |
aIncludes common and preferred stocks, and management investment companies as well as other equity investments.
bFor detailed categories, see the accompanying Statement of Investments.
cIncludes securities determined to have no value at October 31, 2017.
| | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
A reconciliation of assets in which Level 3 inputs are used in determining fair value is presented when there are significant Level 3 financial instruments at the beginning and/or end of the year.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Balance at
Beginning of
Year | | | Purchases | | | Sales | | | Transfer
Into Level 3a | | | Transfer
Out of Level 3b | | | Cost Basis
Adjustments | | | Net
Realized
Gain
(Loss) | | | Net
Unrealized
Appreciation
(Depreciation) | | | Balance at End of Year | | | Net change in
Unrealized
Appreciation
(Depreciation)
on Assets
Held at
Year End | |
| | | | | | | | | | |
| Franklin Floating Rate Daily Access Fund | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investments in Securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Coal & Consumable Fuels | | $ | 1,550,925 | | | $ | — | | | $ | — | | | $ | — | | | $ | (2,248,457 | ) | | $ | — | | | $ | — | | | $ | 697,532 | | | $ | — | | | $ | — | |
Corporate Bonds | | | 55,695 | | | | — | | | | (233 | ) | | | — | | | | — | | | | — | | | | (532,199 | ) | | | 476,737 | | | | — | | | | — | |
Senior Floating Rate Interests | | | — | | | | — | | | | — | | | | 30,211,103 | | | | — | | | | — | | | | — | | | | — | | | | 30,211,103 | | | | — | |
Short Term Investments | | | — | | | | 27,033,969 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 908,384 | | | | 27,942,353 | | | | 908,384 | |
| | | | |
Total Investments in Securities | | $ | 1,606,620 | | | $ | 27,033,969 | | | $ | (233 | ) | | $ | 30,211,103 | | | $ | (2,248,457 | ) | | $ | — | | | $ | (532,199 | ) | | $ | 2,082,653 | | | $ | 58,153,456 | | | $ | 908,384 | |
| | | | |
Other Financial Instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Unfunded Loan Commitments | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 576,475 | | | $ | 576,475 | | | $ | 576,475 | |
| | | | |
Total Other Financial Instruments | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 576,475 | | | $ | 576,475 | | | $ | 576,475 | |
| | | | |
aThe investments were transferred into Level 3 as a result of their value being determined using a significant unobservable valuation input. May include amounts related to a corporate action.
bThe investments were transferred out of Level 3 as a result of the removal of a significant unobservable valuation input.
Level 3 investments include financial instruments with values derived using prior transaction prices or third party pricing information without adjustment for which such inputs are unobservable. They may also include fair value of immaterial financial instruments and/or other assets developed using various valuation techniques and unobservable inputs.
13. New Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in the ASU shorten the amortization period for certain callable debt securities acquired at a premium, to be amortized to the earliest call date. The ASU does not require an accounting change for securities acquired at a discount, which continues to be amortized to maturity. The ASU is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. Management is currently evaluating the impact, if any, of applying this provision.
14. Subsequent Events
The Funds have evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure.
| | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
Abbreviations
| | | | | | | | | | |
| Counterparty/Exchange | | Currency | | Selected Portfolio |
| BOFA | | Bank of America Corp. | | BRL | | Brazilian Real | | AGMC | | Assured Guaranty Municipal Corp. |
| BZWS | | Barclays Bank PLC | | EUR | | Euro | | ARM | | Adjustable Rate Mortgage |
| CITI | | Citigroup, Inc. | | JPY | | Japanese Yen | | CDO | | Collateralized Debt Obligation |
| CME | | Chicago Mercantile Exchange | | MXN | | Mexican Peso | | CLO | | Collateralized Loan Obligation |
| DBAB | | Deutsche Bank AG | | USD | | United States Dollar | | CMT | | Constant Maturity Treasury Index |
| FBCO | | Credit Suisse Group AG | | | | | | COF | | Cost of Funds |
| GSCO | | The Goldman Sachs Group, Inc. | | | | | | EDA | | Economic Development Authority |
| HSBK | | HSBC Bank PLC | | | | | | ETF | | Exchange Traded Fund |
| JPHQ | | JP Morgan Chase & Co. | | | | | | FRN | | Floating Rate Note |
| MSCO | | Morgan Stanley | | | | | | GDP | | Gross Domestic Product |
| | | | | | | | GO | | General Obligation |
| | | | | | | | IO | | Interest Only |
| | | | | | | | LIBOR | | London InterBank Offered Rate |
| | | | | | | | MBS | | Mortgage-Backed Security |
| | | | | | | | MFM | | Multi-Family Mortgage |
| | | | | | | | PIK | | Payment-In-Kind |
| | | | | | | | TBD | | To be determined |
| | | | | | | | T-Bill | | Treasury Bill |
| | | | | | | | T-Note | | Treasury Note |
| | | | | | | | REIT | | Real Estate Investment Trust |
| | | | | | | | SF | | Single Family |
| | | | | | | | VRI | | Value Recovery Instruments |
| | | | |
| Index | | | | |
| CDX.NA.HY.Series number | | CDX North America High Yield Index | | |
| CDX.NA.IG.Series number | | CDX North America Investment Grade Index | | |
| ITRX.EUR.Series number | | iTraxx Europe Index | | |
| MCDX.NA.Series number | | MCDX North America Index | | |
| | | | |
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees of Franklin Investors Securities Trust and Shareholders of the Franklin Adjustable U.S. Government Securities Fund, Franklin Floating Rate Daily Access Fund, Franklin Low Duration Total Return Fund, and Franklin Total Return Fund:
In our opinion, the accompanying statements of assets and liabilities, including the statements of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Franklin Adjustable U.S. Government Securities Fund, Franklin Floating Rate Daily Access Fund, Franklin Low Duration Total Return Fund, and Franklin Total Return Fund (the “Funds”) as of October 31, 2017, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities as of October 31, 2017 by correspondence with the custodian, transfer agent and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
December 18, 2017
| | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
Tax Information (unaudited)
Under Section 871(k)(1)(C) of the Internal Revenue Code (Code), the Funds hereby report the maximum amount allowable but no less than the following amounts as interest related dividends for purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the fiscal year ended October 31, 2017:
| | | | | | | | | | | | | | | | |
| | | Franklin
Adjustable
U.S. Government
Securities Fund | | Franklin
Floating Rate
Daily Access Fund | | | Franklin
Low Duration
Total Return Fund | | | Franklin Total
Return Fund | | | |
| | | | | |
| | $21,310,845 | | | $110,732,828 | | | | $48,311,414 | | | | $100,987,089 | | | |
| | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
Board Members and Officers
The name, year of birth and address of the officers and board members, as well as their affiliations, positions held with the Fund, principal occupations during at least the past five years and number of US registered portfolios overseen in the Franklin Templeton Investments fund complex are shown below. Generally, each board member serves a three-year term that continues until that person’s successor is elected and qualified.
Independent Board Members
| | | | | | | | |
Name, Year of Birth and Address | | Position | | Length of
Time Served | | Number of Portfolios in
Fund Complex Overseen
by Board Member* | | Other Directorships Held
During at Least the Past 5 Years |
|
Harris J. Ashton (1932) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 1986 | | 139 | | Bar-S Foods (meat packing company) (1981-2010). |
|
Principal Occupation During at Least the Past 5 Years: |
| Director of various companies; and formerly, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998). |
|
| | | | |
Mary C. Choksi (1950) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2014 | | 133 | | Avis Budget Group Inc. (car rental) (2007-present), Omnicom Group Inc. (advertising and marketing communications services) (2011-present) and White Mountains Insurance Group, Ltd. (holding company) (August 2017- present). |
Principal Occupation During at Least the Past 5 Years: |
| Director of various companies; and formerly, Founder and Senior Advisor, Strategic Investment Group (investment management group) (2015- 2017); Founding Partner and Senior Managing Director, Strategic Investment Group (1987–2015); Founding Partner and Managing Director, Emerging Markets Management LLC (investment management firm) (1987-2011); and Loan Officer/Senior Loan Officer/Senior Pension Investment Officer, World Bank Group (international financial institution) (1977-1987). |
|
| | | | |
Edith E. Holiday (1952) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 1998 | | 139 | | Hess Corporation (exploration of oil and gas) (1993-present), Canadian National Railway (railroad) (2001-present), White Mountains Insurance Group, Ltd. (holding company) (2004-present), Santander Consumer USA Holdings, Inc. (consumer finance) (2016-present), RTI International Metals, Inc. (manufacture and distribution of titanium) (1999-2015) and H.J. Heinz Company (processed foods and allied products) (1994-2013). |
|
Principal Occupation During at Least the Past 5 Years: |
| Director or Trustee of various companies and trusts; and formerly, Assistant to the President of the United States and Secretary of the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989). |
|
| | | | |
J. Michael Luttig (1954) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2009 | | 139 | | Boeing Capital Corporation (aircraft financing) (2006-2013). |
|
Principal Occupation During at Least the Past 5 Years: |
| Executive Vice President, General Counsel and member of the Executive Council, The Boeing Company (aerospace company) (2006-present); and formerly, Federal Appeals Court Judge, U.S. Court of Appeals for the Fourth Circuit (1991-2006). |
|
| | | | |
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FRANKLIN INVESTORS SECURITIES TRUST
Independent Board Members (continued)
| | | | | | | | |
Name, Year of Birth and Address | | Position | | Length of
Time Served | | Number of Portfolios in
Fund Complex Overseen
by Board Member* | | Other Directorships Held
During at Least the Past 5 Years |
| | | | |
Larry D. Thompson (1945) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2007 | | 139 | | The Southern Company (energy company) (2014-present; previously 2010-2012), Graham Holdings Company (education and media organization) (2011-present) and Cbeyond, Inc. (business communications provider) (2010-2012). |
|
| Principal Occupation During at Least the Past 5 Years: |
| Director of various companies; Counsel, Finch McCranie, LLP (law firm) (2015-present); Independent Compliance Monitor and Auditor, Volkswagen AG (manufacturer of automobiles and commercial vehicles) (April 2017 – present); John A. Sibley Professor of Corporate and Business Law, University of Georgia School of Law (2015-present; previously 2011-2012); and formerly, Executive Vice President - Government Affairs, General Counsel and Corporate Secretary, PepsiCo, Inc. (consumer products) (2012-2014); Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (2004-2011); Senior Fellow of The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General, U.S. Department of Justice (2001-2003). |
| | | | |
John B. Wilson (1959) One Franklin Parkway San Mateo, CA 94403-1906 | | Lead Independent Trustee | | Trustee
since 2007
and Lead Independent
Trustee
since 2008 | | 113 | | None |
|
| Principal Occupation During at Least the Past 5 Years: |
| President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing) (2002-present); serves on private and non-profit boards; and formerly, President, Staples International and Head of Global Transformation (office supplies) (2012-2016); Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000); Chief Financial Officer and Executive Vice President – Finance and Strategy, Staples, Inc. (1992-1996); Senior Vice President – Corporate Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice President and Partner, Bain & Company (consulting firm) (1986-1990). |
Interested Board Members and Officers
| | | | | | | | |
Name, Year of Birth
and Address | | Position | | Length of
Time Served | | Number of Portfolios in
Fund Complex Overseen
by Board Member* | | Other Directorships Held
During at Least the Past 5 Years |
| | | | |
**Gregory E. Johnson (1961) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2013 | | 155 | | None |
|
| Principal Occupation During at Least the Past 5 Years: |
| Chairman of the Board, Member - Office of the Chairman, Director and Chief Executive Officer, Franklin Resources, Inc.; officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 43 of the investment companies in Franklin Templeton Investments; Vice Chairman, Investment Company Institute; and formerly, President, Franklin Resources, Inc. (1994-2015). |
| | | | |
**Rupert H. Johnson, Jr. (1940) One Franklin Parkway San Mateo, CA 94403-1906 | | Chairman of the Board, Trustee and Vice President | | Chairman of the Board since 2013, Trustee since 1987 and Vice President since 1986 | | 139 | | None |
|
| Principal Occupation During at Least the Past 5 Years: |
| Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 41 of the investment companies in Franklin Templeton Investments. |
| | | | |
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Interested Board Members and Officers (continued)
| | | | | | | | |
Name, Year of Birth
and Address | | Position | | Length of
Time Served | | Number of Portfolios in
Fund Complex Overseen
by Board Member* | | Other Directorships Held
During at Least the Past 5 Years |
| | | | |
Alison E. Baur (1964) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2012 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Deputy General Counsel, Franklin Templeton Investments; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
Mark Boyadjian (1964) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2003 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Senior Vice President, Franklin Advisers, Inc.; and officer of two of the investment companies in Franklin Templeton Investments. |
| | | | |
Gaston Gardey (1967) One Franklin Parkway San Mateo, CA 94403-1906 | | Chief
Financial Officer, Chief Accounting Officer and Treasurer | | Since 2009 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Treasurer, U.S. Fund Administration & Reporting, Franklin Templeton Investments; and officer of 27 of the investment companies in Franklin Templeton Investments. |
| | | | |
Aliya S. Gordon (1973) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2009 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
Steven J. Gray (1955) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2009 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc. and FT AlphaParity, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
Matthew T. Hinkle (1971) One Franklin Parkway San Mateo, CA 94403-1906 | | Chief Executive Officer – Finance and Administration | | Since June
2017 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Senior Vice President, Franklin Templeton Services, LLC; officer of 45 of the investment companies in Franklin Templeton Investments; and formerly, Vice President, Global Tax (2012-April 2017) and Treasurer/Assistant Treasurer, Franklin Templeton Investments (2009-2017). |
| | | | |
Edward B. Jamieson (1948) One Franklin Parkway San Mateo, CA 94403-1906 | | President and Chief Executive Officer – Investment Management | | President since 1993 and Chief Executive Officer – Investment Management since 2002 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| President and Director, Franklin Advisers, Inc.; Executive Vice President, Franklin Templeton Institutional, LLC; and officer and/or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 10 of the investment companies in Franklin Templeton Investments. |
| | | | |
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Interested Board Members and Officers (continued)
| | | | | | | | |
Name, Year of Birth
and Address | | Position | | Length of
Time Served | | Number of Portfolios in
Fund Complex Overseen
by Board Member* | | Other Directorships Held
During at Least the Past 5 Years |
| | | | |
Madeline Lam (1969) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2010 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Vice President, Franklin Advisers, Inc.; and officer of two of the investment companies in Franklin Templeton Investments. |
| | | | |
Robert Lim (1948) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice
President – AML Compliance | | Since 2016 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Vice President, Franklin Templeton Companies, LLC; Chief Compliance Officer, Franklin Templeton Distributors, Inc. and Franklin Templeton Investor Services, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
Kimberly H. Novotny (1972) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923 | | Vice President | | Since 2013 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Associate General Counsel, Franklin Templeton Investments; Vice President and Corporate Secretary, Fiduciary Trust International of the South; Vice President, Templeton Investment Counsel, LLC; Assistant Secretary, Franklin Resources, Inc.; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
Robert C. Rosselot (1960) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923 | | Chief Compliance Officer | | Since 2013 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Director, Global Compliance, Franklin Templeton Investments; Vice President, Franklin Templeton Companies, LLC; officer of 45 of the investment companies in Franklin Templeton Investments; and formerly, Senior Associate General Counsel, Franklin Templeton Investments (2007-2013); and Secretary and Vice President, Templeton Group of Funds (2004-2013). |
| | | | |
Karen L. Skidmore (1952) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President and Secretary | | Since 2006 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
Navid J. Tofigh (1972) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923 | | Vice President | | Since 2015 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
Craig S. Tyle (1960) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2005 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| General Counsel and Executive Vice President, Franklin Resources, Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
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Interested Board Members and Officers (continued)
| | | | | | | | |
Name, Year of Birth
and Address | | Position | | Length of
Time Served | | Number of Portfolios in
Fund Complex Overseen
by Board Member* | | Other Directorships Held
During at Least the Past 5 Years |
| | | | |
Lori A. Weber (1964) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923 | | Vice President | | Since 2011 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President and Secretary, Templeton Investment Counsel, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments. |
*We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These portfolios have a common investment manager or affiliated investment managers.
**Gregory E. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as an officer and director of Franklin Resources, Inc. (Resources), which is the parent company of the Fund’s investment manager and distributor. Rupert H. Johnson, Jr. is considered to be an interested person of the Fund under the federal securities laws due to his position as officer and director and major shareholder of Resources.
Note 1: Rupert H. Johnson, Jr. is the uncle of Gregory E. Johnson.
Note 2: Officer information is current as of the date of this report. It is possible that after this date, information about officers may change.
The Sarbanes-Oxley Act of 2002 and Rules adopted by the Securities and Exchange Commission require the Fund to disclose whether the Fund’s Audit Committee includes at least one member who is an audit committee financial expert within the meaning of such Act and Rules. The Fund’s Board has determined that there is at least one such financial expert on the Audit Committee and has designated John B. Wilson as its audit committee financial expert. The Board believes that Mr. Wilson qualifies as such an expert in view of his extensive business background and experience, including service as chief financial officer of Staples, Inc. from 1992 to 1996. Mr. Wilson has been a Member and Chairman of the Fund’s Audit Committee since 2006. As a result of such background and experience, the Board believes that Mr. Wilson has acquired an understanding of generally accepted accounting principles and financial statements, the general application of such principles in connection with the accounting estimates, accruals and reserves, and analyzing and evaluating financial statements that present a breadth and level of complexity of accounting issues generally comparable to those of the Fund, as well as an understanding of internal controls and procedures for financial reporting and an understanding of audit committee functions. Mr. Wilson is an independent Board member as that term is defined under the relevant Securities and Exchange Commission Rules and Releases.
The Statement of Additional Information (SAI) includes additional information about the board members and is available, without charge, upon request. Shareholders may call (800) DIAL BEN/342-5236 to request the SAI.
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franklintempleton.com | | Annual Report | | 153 |
FRANKLIN INVESTORS SECURITIES TRUST
Shareholder Information
Proxy Voting Policies and Procedures
The Trust’s investment manager has established Proxy Voting Policies and Procedures (Policies) that the Trust uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Trust’s complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678 or by sending a written request to: Franklin Templeton Companies, LLC, 300 S.E. 2nd Street, Fort Lauderdale, FL 33301, Attention: Proxy Group. Copies of the Trust’s proxy voting records are also made available online at franklintempleton.com and posted on the US Securities and Exchange Commission’s website at sec.gov and reflect the most recent 12-month period ended June 30.
Quarterly Statement of Investments
The Trust files a complete statement of investments with the US Securities and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission’s website at sec.gov. The filed form may also be viewed and copied at the Commission’s Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330.
Householding of Reports and Prospectuses
You will receive each Fund’s financial reports every six months as well as an annual updated summary prospectus (prospectus available upon request). To reduce Fund expenses, we try to identify related shareholders in a household and send only one copy of the financial reports and summary prospectus. This process, called “householding,” will continue indefinitely unless you instruct us otherwise. If you prefer not to have these documents householded, please call us at (800) 632-2301. At any time you may view current prospectuses/summary prospectuses and financial reports on our website. If you choose, you may receive these documents through electronic delivery.
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| | Annual Report and Shareholder Letter
Franklin Investors Securities Trust |
| | Investment Manager Franklin Advisers, Inc. |
| | Subadvisor |
| | Franklin Templeton Institutional, LLC |
| | Distributor |
| | Franklin Templeton Distributors, Inc. (800) DIAL BEN® / 342-5236 franklintempleton.com |
| |
| | Shareholder Services |
| | (800) 632-2301 |
Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.
To help ensure we provide you with quality service, all calls to and from our service areas are monitored and/or recorded.
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© 2017 Franklin Templeton Investments. All rights reserved. | | | FIST2 A2017 12/17 | |
(a) The Registrant has adopted a code of ethics that applies to its principal executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a copy of its code of ethics that applies to its principal executive officers and principal financial and accounting officer.
| Item 3. | Audit Committee Financial Expert. |
(a) (1) The Registrant has an audit committee financial expert serving on its audit committee.
(2) The audit committee financial expert is John B. Wilson and he is “independent” as defined under the relevant Securities and Exchange Commission Rules and Releases.
| Item 4. | Principal Accountant Fees and Services. |
(a) Audit Fees
The aggregate fees paid to the principal accountant for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or for services that are normally provided by the principal accountant in connection with statutory and regulatory filings or engagements were $445,952 for the fiscal year ended October 31, 2017 and $470,543 for the fiscal year ended October 31, 2016.
(b) Audit-Related Fees
The aggregate fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of Item 4 were $0 for the fiscal year ended October 31, 2017 and $4,682 for the fiscal year ended October 31, 2016. The services for which these fees were paid included attestation services.
There were no fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant that are reasonably related to the performance of the audit of their financial statements.
(c) Tax Fees
There were no fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant for tax compliance, tax advice and tax planning.
There were no fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant’s
investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant for tax compliance, tax advice and tax planning.
(d) All Other Fees
There were no fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant not reported in paragraphs (a)-(c) of Item.
The aggregate fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant not reported in paragraphs (a)-(c) of Item 4 were $14,000 for the fiscal year ended October 31, 2017 and $439,897 for the fiscal year ended October 31, 2016. The services for which these fees were paid included review of materials provided to the fund Board in connection with the investment management contract renewal process and derivatives assessments, review of system processes related to fixed income securities, compliance examination for Investment Advisor Act rule 204-2 and 206-4(2), and benchmarking services in connection with the 2015 ICI TA Survey.
(e) (1) The registrant’s audit committee is directly responsible for approving the services to be provided by the auditors, including:
(i) pre-approval of all audit and audit related services;
(ii) pre-approval of all non-audit related services to be provided to the Fund by the auditors;
(iii) pre-approval of all non-audit related services to be provided to the registrant by the auditors to the registrant’s investment adviser or to any entity that controls, is controlled by or is under common control with the registrant’s investment adviser and that provides ongoing services to the registrant where the non-audit services relate directly to the operations or financial reporting of the registrant; and
(iv) establishment by the audit committee, if deemed necessary or appropriate, as an alternative to committee pre-approval of services to be provided by the auditors, as required by paragraphs (ii) and (iii) above, of policies and procedures to permit such services to be pre-approved by other means, such as through establishment of guidelines or by action of a designated member or members of the committee; provided the policies and procedures are detailed as to the particular service and the committee is informed of each service and such policies and procedures do not include delegation of audit committee responsibilities, as contemplated under the Securities Exchange Act of 1934, to management; subject, in the case of (ii) through (iv), to any waivers, exceptions or exemptions that may be available under applicable law or rules.
(e) (2) None of the services provided to the registrant described in paragraphs (b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal accountant for services rendered by the principal accountant to the registrant and the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant were $14,000 for the fiscal year ended October 31, 2017 and $444,579 for the fiscal year ended October 31, 2016.
(h) The registrant’s audit committee of the board has considered whether the provision of non-audit services that were rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.
| Item 5. | Audit Committee of Listed Registrants. N/A |
| Item 6. | Schedule of Investments. N/A |
| Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. N/A |
| Item 8. | Portfolio Managers of Closed-End Management Investment Companies. N/A |
| Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. N/A |
| Item 10. | Submission of Matters to a Vote of Security Holders. |
There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Trustees that would require disclosure herein.
| Item 11. | Controls and Procedures. |
(a) Evaluation of Disclosure Controls and Procedures. The Registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Registrant’s filings under the Securities Exchange Act of 1934 and the Investment Company Act of 1940 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Registrant’s management, including its principal executive officer and principal financial officer, as appropriate, to
allow timely decisions regarding required disclosure. The Registrant’s management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form N-CSR, the Registrant had carried out an evaluation, under the supervision and with the participation of the Registrant’s management, including the Registrant’s principal executive officer and the Registrant’s principal financial officer, of the effectiveness of the design and operation of the Registrant’s disclosure controls and procedures. Based on such evaluation, the Registrant’s principal executive officer and principal financial officer concluded that the Registrant’s disclosure controls and procedures are effective.
(b) Changes in Internal Controls. There have been no changes in the Registrant’s internal controls or in other factors that could materially affect the internal controls over financial reporting subsequent to the date of their evaluation in connection with the preparation of this Shareholder Report on Form N-CSR.
(a) (1) Code of Ethics
(a) (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Matthew T. Hinkle, Chief Executive Officer – Finance and Administration, and Gaston Gardey, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Matthew T. Hinkle, Chief Executive Officer – Finance and Administration, and Gaston Gardey, Chief Financial Officer and Chief Accounting Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| FRANKLIN INVESTORS SECURITIES TRUST |
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| By | | /s/ Matthew T. Hinkle |
| | Matthew T. Hinkle Chief Executive Officer – Finance and Administration |
| Date December 27, 2017 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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| By | | /s/ Matthew T. Hinkle |
| | Matthew T. Hinkle Chief Executive Officer – Finance and Administration |
| Date December 27, 2017 |
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| By | | /s/ Gaston Gardey |
| | Gaston Gardey Chief Financial Officer and Chief Accounting Officer |
| Date December 27, 2017 |
